<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
REGISTRATION NO. 333-32369
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEENAH FOUNDRY COMPANY
HARTLEY CONTROLS CORPORATION
NEENAH TRANSPORT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
WISCONSIN 3321 39-1580331
WISCONSIN 3321 39-0842568
WISCONSIN 3321 39-1378433
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
2121 BROOKS AVENUE, BOX 729,
NEENAH, WISCONSIN 54927
(414) 725-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
C/O GARY W. LACHEY
VICE PRESIDENT -- FINANCE, TREASURER AND SECRETARY
NEENAH FOUNDRY COMPANY
2121 BROOKS AVENUE, BOX 729,
NEENAH, WISCONSIN 54927
(414) 725-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this
Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neenah Foundry Company's 11 1/8% Senior Subordinated
Notes due 2007, Series D............................ $45,000,000 $1,057.50 $47,587,500 $14,420.45
Hartley Controls Corporation's Guarantee of 11 1/8%
Senior Subordinated Notes due 2007, Series D........ * * * None
Neenah Transport, Inc.'s Guarantee of 11 1/8% Senior
Subordinated Notes due 2007, Series D............... * * * None
==========================================================================================================================
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* Not applicable
(1) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF PART I OF FORM S-4
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<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
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<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front Cover Page; Outside Back Cover
Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Prospectus Summary; The Company; Risk
Factors; Unaudited Pro Forma Consolidated
Financial Information; Selected
Consolidated Financial and Other Data
4. Terms of the Transaction................... Outside Front Cover Page; Prospectus
Summary; The Exchange Offer; Description of
Exchange Notes; Certain Federal Income Tax
Consequences
5. Pro Forma Financial Information............ Unaudited Pro Forma Consolidated Financial
Information
6. Material Contracts with the Company Being
Acquired................................... Inapplicable
7. Additional Information Required............ Inapplicable
8. Interests of Named Experts and Counsel..... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Inapplicable
10. Information with Respect to S-3
Registrants................................ Inapplicable
11. Incorporation of Certain Information by
Reference.................................. Inapplicable
12. Information with Respect to S-3 or S-2
Registrants................................ Inapplicable
13. Incorporation of Certain Information by
Reference.................................. Inapplicable
14. Information with Respect to Registrants
other than S-3 or S-2 Registrants.......... Outside Front Cover Page; Prospectus
Summary; Risk Factors; Use of Proceeds; The
Transactions; Capitalization; Unaudited Pro
Forma Consolidated Financial Information;
Selected Consolidated Financial and Other
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Industry; Business; Management;
Security Ownership; Certain Relationships
and Related Transactions; Description of
Credit Agreement
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<C> <S> <C>
15. Information with Respect to S-3 Companies.. Inapplicable
16. Information with Respect to S-3 or S-2
Companies.................................. Inapplicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies.................. Inapplicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited......... Inapplicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer....................... Management; Security Ownership; Certain
Relationships and Related Transactions
</TABLE>
<PAGE> 4
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell nor the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under securities laws of any such State.
SUBJECT TO COMPLETION, DATED AUGUST , 1997
PRELIMINARY PROSPECTUS
OFFER FOR ALL OUTSTANDING 11 1/8% SERIES C SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR 11 1/8% SERIES D SENIOR SUBORDINATED NOTES DUE 2007 OF
NEENAH FOUNDRY COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 1997 UNLESS EXTENDED
NEENAH FOUNDRY COMPANY, a Wisconsin corporation (the "Company"), hereby offers
to exchange an aggregate principal amount of up to $45,000,000 of its 11 1/8%
Series D Senior Subordinated Notes due 2007 (the "New Notes") for a like
principal amount of its 11 1/8% Series C Senior Subordinated Notes due 2007 (the
"Old Notes", and together with the "New Notes", the "Notes") outstanding on the
date hereof upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"). The New Notes and the Old Notes are
collectively hereafter referred to as the "Notes." The terms of the New Notes
are identical in all material respects to those of the Old Notes, except for
certain transfer restrictions and registration rights relating to the Old Notes.
The New Notes will be issued pursuant to, and entitled to the benefits of, the
Indenture (as defined) governing the Old Notes. The New Notes will be unsecured
and will be subordinated to all existing and future Senior Indebtedness (as
defined) of the Company. The New Notes will rank pari passu with any future
Senior Subordinated Indebtedness (as defined) of the Company and will rank
senior to all subordinated indebtedness of the Company. The New Notes will be
fully and unconditionally guaranteed on a joint and several basis (the
"Subsidiary Guaranties") by each of the Company's principal operating
subsidiaries, Hartley Controls Corporation ("Hartley Controls") and Neenah
Transport, Inc. ("Neenah Transport") (collectively, the "Guarantor
Subsidiaries"). The Company will derive some of its operating income and cash
flow from its subsidiaries. The Guarantor Subsidiaries guarantee the Senior Bank
Facilities (as defined) and are jointly and severally liable on a senior basis
with the Company for all obligations thereunder. Such obligations are secured by
pledges of all the capital stock of the Guarantor Subsidiaries and security
interests in, or liens on, substantially all other tangible and intangible
assets located in the United States of the Guarantor Subsidiaries. See
"Description of Senior Bank Facilities" and "Description of Notes." As of July
1, 1997, on a pro forma basis, after giving effect to the Transactions (as
defined), the Refinancing (as defined) and the application of proceeds
therefrom, the Company and the Guarantor Subsidiaries would have had outstanding
$0.1 million (excluding $0.6 million of outstanding letters of credit) aggregate
amount of Senior Indebtedness (all of which is Secured Indebtedness (as
defined)), $197.6 million aggregate principal amount of Senior Subordinated
Indebtedness including the indebtedness represented by the Notes and no
indebtedness that is subordinate or junior in right of payment to the Senior
Subordinated Indebtedness.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Guarantor Subsidiaries contained in the
Exchange and Registration Rights Agreement dated July 1, 1997 (the "Registration
Rights Agreement"), among the Company, the Guarantor Subsidiaries and Chase
Securities Inc. (the "Initial Purchaser"), with respect to the initial sale of
the Old Notes.
The Company will not receive any proceeds from the Exchange Offer. The Company
will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined) for the Exchange Offer. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Old Notes
with respect to the Exchange Offer, the Company will promptly return such Old
Notes to the holders thereof. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and Exchange
Commission (the "Commission") to third parties, the Company believes the New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and such holder has no arrangement
or understanding with any person to participate in the distribution of such
Exchange Notes. See "The Exchange Offer -- Certain Conditions to the Exchange
Offer." Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivery of a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time may be used by a broker-
dealer in connection with resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. Each of the Company and
the Guarantor Subsidiaries has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
- --------------------------------------------------------------------------------
Prior to the Exchange Offer, there has been no public market for the Old Notes.
If a market for the New Notes should develop, such New Notes could trade at a
discount from their principal amount. The Company currently does not intend to
list the New Notes on any securities exchange or to seek approval for quotation
through any automated quotation system and no active public market for the New
Notes is currently anticipated. There can be no assurance that any public market
for the New Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of Old
Notes being tendered for exchange pursuant to the Exchange Offer.
SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 5
AVAILABLE INFORMATION
The Company and the Guarantor Subsidiaries have filed with the Commission a
Registration Statement on Form S-4 (the "Exchange Offer Registration Statement",
which term shall encompass all amendments, exhibits, annexes and schedules
thereto) pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the New Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to the Company, the
Guarantor Subsidiaries and the Exchange Offer, reference is made to the Exchange
Offer Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Exchange Offer Registration Statement, including
the exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven
World Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such Web site is: http://www.sec.gov.
As a result of the Exchange Offer, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. The obligation of
the Company to file periodic reports and other information with the Commission
will be suspended if the New Notes are held of record by fewer than 300 holders
as of the beginning of any fiscal year of the Company other than the fiscal year
in which the Exchange Offer Registration Statement is declared effective. The
Company will nevertheless be required to continue to file reports with the
Commission if the New Notes are listed on a national securities exchange. In the
event the Company ceases to be subject to the informational requirements of the
Exchange Act, the Company will be required under the Indenture to continue to
file with the Commission the annual and quarterly reports, information,
documents or other reports, including, without limitation, reports on Forms
10-K, 10-Q and 8-K, which would be required pursuant to the informational
requirements of the Exchange Act. Under the Indenture, the Company shall file
with the Trustee annual, quarterly and other reports after it files such reports
with the Commission. Annual reports delivered to the Trustee and the holders of
New Notes will contain financial information that has been examined and reported
upon, with an opinion expressed by an independent public accountant. The Company
will also furnish such other reports as may be required by law.
Information contained in this Prospectus contains "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," or "anticipates" or the
negative thereof or other similar terminology, or by discussions of strategy.
The Company's actual results could differ materially from those anticipated by
any such forward-looking statements as a result of certain factors, including
those set forth under the "Risk Factors" beginning on page 15 and elsewhere in
this Prospectus.
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2
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
related notes thereto included elsewhere in this Prospectus. Prospective
investors are urged to read this Prospectus in its entirety. Unless otherwise
indicated in this Prospectus, all market share percentages are based on industry
information compiled by Georgetown Economic Services, an independent market
research firm that compiles information on behalf of the foundry industry.
Unless otherwise stated in this Prospectus or unless the context otherwise
requires, references herein to the "Company" are (i) to Neenah Corporation and
its subsidiaries, Neenah Foundry Company, Hartley Controls Corporation and
Neenah Transport, Inc., for periods prior to the Merger (ii) to Neenah
Corporation, as the surviving entity in the Merger, and its subsidiaries, for
the period from the Merger to July 1, 1997 and (iii) to Neenah Foundry Company
and its subsidiaries for periods thereafter. Neenah Corporation was a Wisconsin
corporation organized in 1987 as a holding company for its operating
subsidiaries. The Company's fiscal year ends on March 31, and unless otherwise
indicated all annual references herein refer to such fiscal year.
THE COMPANY
OVERVIEW
The Company, founded in 1872, is one of the largest manufacturers of a wide
range of high quality ductile and gray iron castings for the heavy municipal
market and selected segments of the industrial market. The Company believes it
is the largest manufacturer of heavy municipal iron castings in the United
States with approximately a 19% market share in calendar year 1996. The
Company's broad range of heavy municipal iron castings includes manhole covers
and frames, storm sewer frames and grates, heavy duty airport castings,
specialized trench drain castings, specialty flood control castings and
ornamental tree grates. These municipal castings are sold throughout the United
States to state and local government entities, utility companies, precast
concrete manhole structure producers and contractors for both new construction
and infrastructure replacement. The municipal market generated approximately 43%
of the Company's 1997 net sales. The Company believes it is also a leading
manufacturer of a wide range of complex industrial castings, including castings
for medium- and heavy-duty truck drive line components, a broad range of
castings for the farm equipment industry and specific components for compressors
used in heating, ventilation and air conditioning systems ("HVAC"). The
industrial market generated approximately 53% of the Company's 1997 net sales.
In addition, the Company engineers, manufactures and sells customized sand
control systems and related products, which are an essential part of the casting
process, to other iron foundries. Sales of these sand control systems and
related products represented approximately 4% of the Company's 1997 net sales.
The Company currently operates two modern foundries with an annual
aggregate rated capacity of approximately 187,000 tons at a single site in
Neenah, Wisconsin. Since 1985, the Company has invested approximately $100
million in its production facilities, with approximately $73 million invested in
a major plant modernization program from 1985 to 1990. This plant modernization
program was a critical part of a long-term strategy to produce higher volume,
value-added castings for its existing industrial customers and to penetrate
other selected segments of the industrial market, while preserving its position
as the leader in the heavy municipal market. This modernization program entailed
the closing of the Company's oldest foundry, Plant 1, and the updating of the
Company's other two foundries, Plants 2 and 3, which enabled the Company both to
produce higher volume, complex castings for selected industrial segments and to
improve the Company's cost position in the heavy municipal market. Following the
completion of the modernization program, the Company has steadily decreased its
production of lower margin products such as axle covers and brake drums and
increased the production of higher margin, more complex parts such as
transmission and axle housings. As a result of this strategy, the Company's
ongoing improvements in its manufacturing process and increased demand for
medium- and heavy-duty truck components,
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net sales and EBITDA (as defined) have increased substantially. From 1992 to
1997, net sales have grown from $116.5 million to $165.4 million, representing a
compound annual growth rate of 7.3%, and EBITDA has grown from $13.4 million to
$38.0 million during the same period, representing a compound annual growth rate
of 23.2%.
COMPETITIVE ADVANTAGES
The Company believes it benefits from the following competitive advantages,
which have enabled it to increase sales and operating profitability and to
maintain its position as one of the leaders in the iron casting industry.
Leading Market Position. The Company believes it is the largest
manufacturer of heavy municipal iron castings in the United States with
approximately a 19% market share in calendar year 1995. Furthermore, the
Company, which has produced municipal castings for over 70 years has, according
to its estimates, over a 50% market share in nine of the top ten states in which
the Company sells heavy municipal castings. Sales in those states represented
approximately 69% of the Company's municipal sales in 1997. The Company believes
it is also one of the largest manufacturers of iron castings for selected
segments of the industrial market, including the medium-and heavy-duty truck and
farm equipment segments. The Company is the sole sourced supplier for over 85%
of the industrial products it produces and has multi-year arrangements with
certain of its largest customers. The Company believes it can continue to
capitalize on its strong market position to generate additional revenues and
realize economies of scale, thereby increasing margins and earnings.
Low Cost Structure. As a result of its size, significant investment in
equipment and technology and focus on improving efficiency, the Company believes
it possesses a highly competitive cost structure. Since 1985, the Company has
invested approximately $100 million in its production facilities, with
approximately $73 million invested in plant modernization and new equipment from
1985 to 1990. These investments, combined with the Company's ongoing
improvements to its manufacturing process, have substantially increased
efficiency and manufacturing productivity. From 1992 to 1997, the Company
reduced its scrap rate from 3.5% to 2.0%, which the Company believes is one of
the lowest scrap rates in the industry. During the same period, the Company
reduced its employee hours per ton by approximately 40% from 14.8 to 9.0, while
improving product quality levels and producing higher margin, more complex
parts.
Broad Product Offering. The Company carries a broad range of products,
offering more than 4,400 patterns that can produce over 20,000 part combinations
for the heavy municipal market, and more than 350 patterns for the industrial
market. The Company believes its municipal catalog offers the largest castings
selection of any foundry serving the heavy municipal market. This extensive
product offering, which includes hundreds of one-of-a-kind specialty items,
enables the Company to compete throughout the United States and provide a
substantial number of the many types of municipal castings required for
individual projects. Heavy municipal castings are manufactured from
Company-owned patterns which have been appraised by independent appraisers to
have a value in excess of $22 million. Additionally, the Company's extensive and
growing offering of complex industrial castings enables it to more effectively
service its customers' increasing needs for highly engineered cast parts and
often positions the Company as the sole source of supply to original equipment
manufacturers ("OEMs") and their first tier suppliers. The Company's broad
industrial product offering and its recognized casting engineering expertise
have become increasingly important as large industrial customers seek to reduce
the number of suppliers with whom they conduct business.
Strong, Diverse Customer Relationships. The Company continually focuses on
establishing and maintaining strong relationships with its customers. In the
heavy municipal market, the Company currently sells to over 17,000 active
customers in all 50 states, with the majority of its sales concentrated in the
midwestern states. The Company believes it has the largest sales and marketing
4
<PAGE> 8
effort of any foundry serving the heavy municipal market, including 47 Company
employees and 26 commissioned representatives. The Company believes the size of
its marketing effort, the breadth of its product offering and the level of its
technical support provide it with a significant competitive advantage and will
allow it to further strengthen its leading position in the heavy municipal
market. With respect to the industrial market, the Company has established
strong relationships with leading manufacturers of medium- and heavy-duty truck
components, farm equipment and HVAC systems. The Company is the sole sourced
provider for over 85% of the products it currently supplies to its industrial
customer base and has multi-year arrangements with certain of its largest
customers. Furthermore, the average industrial casting typically takes between
12 and 18 months to go from the design phase to full production and has an
average life cycle of approximately 8 to 10 years. This lengthy development
process, in which the Company actively participates, provides the Company with
an inventory of products that cannot be quickly replicated by its competitors.
Historically, the foundry that has originally manufactured an industrial part
has continued to manufacture that part throughout its product life cycle. The
Company's participation in both the heavy municipal and industrial markets helps
to diversify the Company's business and to reduce the Company's reliance on
individual customers or end-use markets.
High Quality Products and Customer Service. The Company believes it enjoys
a reputation for providing a high level of customer service and is recognized
for its ability to consistently manufacture high-quality, complex products. The
Company believes its manufacturing capabilities and process controls allow it to
manufacture high quality castings which are dimensionally and metallurgically
consistent. In addition to providing high quality products, the Company
emphasizes customer service by providing tooling and engineering development
support to its customers, consistent on-time delivery utilizing its own fleet of
trucks for delivery of many of its municipal products and a small portion of the
Company's industrial products and follow-up through its sales and marketing
team. The Company believes its ability to provide such product quality and
responsive service has fostered customer loyalty and long-term relationships.
Experienced Management Team with Significant Equity Stake. The top seven
members of the Company's senior operating management have an average of
approximately 12 years with the Company and 23 years in the iron foundry
industry. Through an investment in ACP Products, L.L.C., certain members of the
Company's management (the "Management Investors") beneficially own, on a fully
diluted basis, approximately 10% of the common stock of the Company.
BUSINESS STRATEGY
The Company's strategy for achieving continued growth in sales and
profitability includes: (i) increasing the sale of higher margin products, (ii)
selectively entering new markets, (iii) improving operating performance and (iv)
making selective acquisitions.
Increasing the Sale of Higher Margin Products. The Company continually
strives to improve the margins on the parts it produces. In the heavy municipal
market, the Company has historically maintained strong margins by periodically
implementing price increases and introducing new, higher value-added products.
For example, the Company is currently leading the market in the sale of
lightweighted municipal castings, which are less costly to handle and require
less raw material to produce. The Company believes incremental margin
improvements will be realized from the Company's increased production of these
lightweighted products. In the industrial market, the Company increased its
focus on manufacturing complex, highly engineered castings in the early 1990s
following substantial capital investment in the late 1980s. Since 1991, the
Company has steadily increased the volume, array and complexity of the parts it
produces for its industrial customers. The Company intends to continue to pursue
opportunities to produce more complex, higher value-added castings, thereby
continuing to improve product margins.
Selectively Entering New Markets. The Company intends to selectively
expand its presence in both the heavy municipal and industrial markets. In the
heavy municipal market, the Company is
5
<PAGE> 9
considering expanding its product offering in high volume markets such as New
York and Nevada where the Company already has sales representatives in place and
for which the Company has already invested in certain of the toolings necessary
to meet potential product demand. In addition, the Company is exploring further
opportunities in New Jersey, New Hampshire and Massachusetts. The Company's
strategy in its chosen industrial segments is to continue to increase its
penetration of existing customers and to develop similar relationships with
other selected industrial companies which would value the Company's technical
ability and high level of product quality and customer service. The Company also
intends to explore opportunities in austempering (heat-treating ductile iron)
and machining and assembling sub-components for specific industrial customers.
Improving Operating Performance. The Company operates two modern
foundries, and believes it possesses a highly competitive cost structure. The
Company intends to continue to seek ways to capitalize on and extend its
technological expertise and operating efficiencies, thereby reducing its
operating costs. In contrast to the major investments made from 1985 to 1990,
which significantly improved both manufacturing capacity and efficiency, the
Company's near term capital expenditures will be focused primarily on
incrementally improving efficiency and reducing costs through projects such as:
(i) sand system optimization, (ii) material handling improvements and (iii)
energy utilization improvements.
Making Selective Acquisitions. The United States iron foundry industry is
highly fragmented despite significant consolidation over the past decade. In
1986, there were approximately 880 foundries engaged in the casting of iron,
with an aggregate capacity of approximately 15 million tons according to
Stratecasts, Inc., a foundry industry research and consulting organization. By
1996, the number of iron foundries decreased to approximately 730, with an
aggregate capacity of approximately 13 million tons. Management believes the
consolidation that has occurred will continue, particularly in the industrial
market, as technical, environmental and quality standards continue to increase.
The Company intends to pursue selective acquisition opportunities that
complement its existing product offering or enable the Company to expand its
presence in selected geographic areas of the heavy municipal market. The Company
believes such acquisitions will provide opportunities for incremental revenue
and cash flow by leveraging the Company's current expertise in manufacturing,
sales and marketing, and product and process engineering.
THE MERGER
NFC Castings, Inc. ("Holdings") and its wholly-owned subsidiary, NC Merger
Company ("NC Merger"), were organized by Citicorp Venture Capital, Ltd. ("CVC")
and its affiliate, ACP Holding Company, to effect the acquisition of Neenah
Corporation. On April 30, 1997, pursuant to an Agreement and Plan of
Reorganization, dated November 20, 1996, as amended (the "Merger Agreement"),
among Holdings, NC Merger and Neenah Corporation, NC Merger merged with and into
Neenah Corporation, with Neenah Corporation as the surviving corporation (the
"Merger"). As a result of the Merger, Neenah Corporation became a wholly owned
subsidiary of Holdings. On July 1, 1997 Neenah Foundry Company merged with and
into Neenah Corporation, with Neenah Corporation as the surviving entity.
Following the Internal Merger (as defined), Neenah Corporation changed its name
to Neenah Foundry Company. See "--Internal Merger." Holdings is a wholly-owned
subsidiary of ACP Holding Company ("ACP Holdings"). ACP Holdings is wholly-owned
by ACP Products, L.L.C., which in turn is owned in part by CVC and certain other
investors (collectively, the "Investor Group"). The Management Investors also
own an interest in ACP Products, L.L.C.
The consideration for the Merger was $236.9 million in cash (the "Merger
Consideration"), subject to a closing date net worth adjustment. In addition to
the Merger Consideration, and upon consummation of the Merger, the Company paid
approximately $11.3 million to certain former stockholders of the Company (the
"Former Stockholder Payment" and, together with the Merger Consideration, the
"Merger Price"). Pro forma for a March 31, 1997 closing, the closing date net
6
<PAGE> 10
worth adjustment would have been $9.1 million which would result in a total pro
forma Merger Price of $258.3 million (including fees and expenses attributable
to the Merger of $1.0 million). The Merger Price reflects the use of
approximately $25.3 million of cash on the Company's balance sheet pro forma for
a March 31, 1997 closing (resulting in a valuation of the Company's business and
other assets of approximately $233.0 million). In order to finance the Merger
Price, including the payment of related fees and expenses: (i) NC Merger
consummated the offering (the "Old Offering") of $150.0 Senior Subordinated
Notes due 2007 the "Series A Notes"); (ii) NC Merger entered into a credit
agreement providing for (a) a term loan (the "Tranche A Term Loan") in the
amount of $20.0 million and a second term loan (the "Tranche B Term Loan" and,
together with the Tranche A Term Loan, the "Term Loans") in the amount of $25.0
million, and (b) a revolving credit facility (the "Revolving Credit Facility"
and, together with the Term Loans, the "Senior Bank Facilities") in the amount
of $30.0 million, subject to a borrowing base formula; (iii) Holdings made an
equity contribution (the "Equity Contribution") of $45.0 million to NC Merger;
and (iv) $25.3 million of cash (pro forma for a March 31, 1997 closing) was
utilized. Concurrently with the consummation of the Old Offering, the Company,
as the surviving corporation in the Merger, assumed, pursuant to the Merger, the
obligations under the Notes and the Senior Bank Facilities. The Old Offering,
the establishment of the Senior Bank Facilities, the Equity Contribution and the
Merger are referred to collectively herein as the "Transactions."
INTERNAL MERGER
In order to realize certain state tax benefits, on July 1, 1997, Neenah
Corporation merged (the "Internal Merger") with its principal operating
subsidiary, Neenah Foundry Company, with Neenah Corporation as the surviving
entity. Following the Internal Merger, Neenah Corporation changed its name to
Neenah Foundry Company. The Company does not anticipate that the Internal Merger
will impact its business in any material respect other than the realization of
the tax benefits mentioned above.
THE REFINANCING
On July 1, 1997, the Company issued $45.0 million aggregate principal
amount of the Old Notes and used the proceeds of $47.6 million to pay the Term
Loans, the accrued interest thereon and related fees and expenses. The issuance
of the Old Notes and payment of the Term Loans and related fees and expenses are
referred to herein as the "Refinancing." The Refinancing Notes will rank pari
passu with the New Notes.
PROPOSED AMENDMENT TO SENIOR BANK FACILITIES
The Company is currently negotiating an amendment to the Revolving Credit
Facility which, if adopted, would (i) increase the borrowings available under
the Revolving Credit Facility to the Company from $30.0 million to $50.0 million
and (ii) eliminate all borrowing base limitations from the current Revolving
Credit Facility.
THE EXCHANGE OFFER
Securities Offered......... Up to $45,000,000 aggregate principal amount of
11 1/8% Series D Senior Subordinated Notes due 2007
(the "New Notes"). The terms of the New Notes and
Old Notes are identical in all material respects,
except for certain transfer restrictions and
registration rights relating to the Old Notes.
The Exchange Offer......... The New Notes are being offered in exchange for a
like principal amount of Old Notes. Old Notes may
be exchanged only in integral principal multiples
of $1,000. The issuance of the New Notes is
7
<PAGE> 11
intended to satisfy obligations of the Company and
the Guarantor Subsidiaries contained in the
Registration Rights Agreement.
Expiration Date; Withdrawal
of Tender................ The Exchange Offer will expire 5:00 p.m. New York
City time, on , 1997, or such later
date and time to which it is extended by the
Company. The tender of Old Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to the Expiration Date. Any Old Notes not accepted
for exchange for any reason will be returned
without expense to the tendering holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
Certain Conditions to the
Exchange Offer........... Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other
than any such holder which is an"affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes
are acquired in the ordinary course of such
holder's business and that such holder does not
intend to participate and has no arrangement or
understanding with any person to participate in the
distribution of such New Notes. The Company's
obligation to accept for exchange, or to issue New
Notes in exchange for, any Old Notes is subject to
certain customary conditions relating to compliance
with any applicable law, or any applicable
interpretation by any staff of the Commission, or
any order of any governmental agency or court of
law. The Company currently expects that each of the
conditions will be satisfied and that no waivers
will be necessary. See "The Exchange
Offer -- Certain Conditions to the Exchange Offer."
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Old Notes and any other required
documentation, to the Exchange Agent (as defined)
at the address set forth herein. See "The Exchange
Offer -- Procedures for Tendering Old Notes."
Use of Proceeds............ There will be no proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
Exchange Agent............. United States Trust Company of New York is serving
as the Exchange Agent in connection with the
Exchange Offer.
Federal Income Tax
Consequences............. The exchange of Notes pursuant to the Exchange
Offer should not be a taxable event for federal
income tax purposes. See "Certain Federal Income
Tax Considerations."
8
<PAGE> 12
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that
holders of Old Notes (other than any holder who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) who exchange their Old
Notes for New Notes pursuant to the Exchange Offer generally may offer such New
Notes for resale, resell such New Notes and otherwise transfer such New Notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided such New Notes are acquired in the ordinary course
of the holders' business and such holders have no intention, or any arrangement
with any person, to participate in a distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. See "Plan of Distribution." In addition, to comply
with the securities laws of certain jurisdictions, if applicable, the New Notes
may not be offered for sale unless they have been registered or qualified for
sale in such jurisdiction or an exemption from registration or qualification is
available and is complied with. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the New Notes for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the Notes
reasonably requests in writing. If a holder of Old Notes does not exchange such
Old Notes for New Notes pursuant to the Exchange Offer, such Old Notes will
continue to be subject to the restrictions on transfer contained in the legend
thereon. In general, the Old Notes may not be offered for sale, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. Holders of Old Notes do not have any appraisal or dissenters' rights under
Delaware General Corporation Law in connection with the Exchange Offer. To the
extent the Old Notes are exchanged for New Notes, the market for the Old Notes
may be adversely affected. See "The Exchange Offer -- Consequences of Failure to
Exchange; Resales of New Notes."
The Old Notes are, and following the Exchange Offer will continue to be,
eligible for trading in the Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") market. Following commencement of the Exchange
Offer but prior to its consummation, the Old Notes may continue to be traded in
the PORTAL market. Following consummation of the Exchange Offer, the New Notes
will not be eligible for PORTAL trading.
9
<PAGE> 13
THE OFFERING
The terms of the New Notes are identical in all material respects to the
Old Notes, except for certain transfer restrictions and registration rights
relating to the Old Notes.
Issuer..................... Neenah Foundry Company.
Securities Offered......... $45,000,000 aggregate principal amount of 11 1/8%
Senior Subordinated Notes due 2007.
Maturity................... May 1, 2007.
Interest Payment Dates..... May 1 and November 1 of each year, commencing
November 1, 1997.
Optional Redemption........ Except as described below, the Company may not
redeem the New Notes (or the Old Notes) prior to
May 1, 2002. On or after such date, the Company may
redeem the New Notes (and any outstanding Old
Notes), in whole or in part, at any time at the
redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time and from time
to time on or prior to May 1, 2000, the Company
may, subject to certain requirements, redeem up to
40% of the original aggregate principal amount of
the Notes with the net cash proceeds of one or more
Public Equity Offerings (as defined) by the
Company, Holdings, or ACP Holdings, for which there
is a Public Market (as defined), at a redemption
price equal to 111.125% of the principal amount of
the Notes to be redeemed, together with accrued and
unpaid interest, if any, to the date of redemption,
provided that at least 60% of the original
aggregate principal amount of the Notes remains
outstanding immediately after each such redemption.
See "Description of Notes -- Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control (as
defined), (i) the Company will have the option, at
any time prior to May 1, 2002, to redeem the New
Notes (and any outstanding Old Notes) at a
redemption price equal to 100% of the principal
amount thereof plus the Applicable Premium (as
defined), together with accrued and unpaid
interest, if any, to the date of redemption; and
(ii) if the Company does not redeem the New Notes
(or such Old Notes) pursuant to the preceding
clause (i) or if such Change of Control occurs
after May 1, 2002, each holder will have the right
to require the Company to make an offer to
repurchase the New Notes (and such Old Notes) at a
price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest,
if any, to the date of purchase. See "Description
of Notes -- Change of Control."
Subsidiary Guaranties...... The New Notes will be (as are the Old Notes) fully
and unconditionally guaranteed, jointly and
severally, on an unsecured, senior subordinated
basis by the Guarantor Subsidiaries. Neenah Foundry
Company derives some of its income from its
subsidiaries, Hartley Controls Corporation and
Neenah Transport, Inc. The Guarantor Subsidiaries
have guaranteed the Senior Bank Facilities (as
defined), and are jointly and severally liable on a
senior basis with the Company for the obligations
thereunder. Such
10
<PAGE> 14
obligations are secured by pledges of all the
capital stock of the Company and the Guarantor
Subsidiaries and security interests in, or liens
on, substantially all other tangible and intangible
assets of the Company and the Guarantor
Subsidiaries. See "Description of
Notes -- Subsidiary Guaranties" and "-- Certain
Covenants -- Future Note Guarantors."
Ranking.................... The New Notes will be (as are the Old Notes)
unsecured and will be subordinated to all existing
and future Senior Indebtedness (as defined) of the
Company. The New Notes will (as do the Old Notes)
rank pari passu with any future Senior Subordinated
Indebtedness of the Company and will rank senior to
all other subordinated indebtedness of the Company.
The New Notes will rank pari passu with the
Refinancing Notes. The Subsidiary Guaranties are
unsecured, senior subordinated obligations of the
Guarantor Subsidiaries, subordinated in right of
payment to existing and future Senior Indebtedness
of the Guarantor Subsidiaries. As of March 31,
1997, on a pro forma basis, after giving effect to
the Transactions and the Refinancing, and the
application of the net proceeds therefrom, the
Company and the Guarantor Subsidiaries would have
had outstanding $0.1 million (excluding $0.6
million of outstanding letters of credit) aggregate
principal amount of Senior Indebtedness (all of
which is Secured Indebtedness), $197.6 million
aggregate amount of Senior Subordinated
Indebtedness including the indebtedness represented
by the Notes and no indebtedness that is
subordinate or junior in right of payment to the
indebtedness represented by the Notes. As of July
1, 1997, after giving effect to the Transactions
and the Refinancing, and the application of the net
proceeds therefrom, the Company and the Guarantor
Subsidiaries would have had outstanding $0.1
million (excluding $0.6 million of outstanding
letters of credit) aggregate principal amount of
Senior Indebtedness (all of which is Secured
Indebtedness), $197.6 million aggregate amount of
Senior Subordinated Indebtedness including the
indebtedness represented by the Notes and no
indebtedness that is subordinate or junior in right
of payment to the indebtedness represented by the
Notes.
Restrictive Covenants...... The indenture (the "Indenture") governing the New
Notes, which is the Indenture governing the Old
Notes, limits (i) the incurrence of additional
Indebtedness by the Company and its Restricted
Subsidiaries (as defined); (ii) the payment of
dividends on, and redemption of, capital stock of
the Company and its Restricted Subsidiaries and the
redemption of certain Subordinated Obligations of
the Company and its Restricted Subsidiaries; (iii)
certain other restricted payments, including
without limitation, investments; (iv) sales of
assets and Restricted Subsidiary stock; (v) certain
transactions with affiliates; (vi) the sale or
issuance of capital stock of its Restricted
Subsidiaries; (vii) the creation of liens; (viii)
the lines of business in which the Company and its
Restricted Subsidiaries may operate; (ix)
consolidations, mergers and transfers of all or
substantially all of the Company's assets; and (x)
sale and leaseback transactions. The Indenture also
prohibits certain restrictions on distributions
from Restricted Subsidiaries. However, all of these
limitations and prohibitions are
11
<PAGE> 15
subject to a number of important qualifications and
exemptions. See "Description of Notes -- Certain
Covenants" and "-- Merger and Consolidation."
Transfer Restrictions;
Absence of a Public Market
for the Notes............ The New Notes are new securities and there is
currently no established market for the New Notes.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the New
Notes. The Initial Purchasers have advised the
Company that they currently intend to make a market
in the New Notes. However, they are not obligated
to do so, and any market making with respect to the
New Notes may be discontinued without notice. The
Company does not intend to apply for listing of the
New Notes on any national securities exchange or
for their quotation through the National
Association of Securities Dealers Automated
Quotation System.
The address for the Company and each of the Guarantor Subsidiaries is 2121
Brooks Avenue, Box 729, Neenah, Wisconsin 54927 and the telephone number is
(414) 725-7000.
RISK FACTORS
Holders of Old Notes should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" beginning on page
for risks in connection with the Exchange Offer.
12
<PAGE> 16
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth summary historical consolidated, financial
and other data of the Company for the five years ended March 31, 1997, and
certain financial and other data for the year ended March 31, 1997. The summary
historical consolidated financial and other data, (with the exception of tons
produced, employees, employee hours per ton and scrap rate) are derived from the
audited historical consolidated financial statements and the "Unaudited Pro
Forma Financial Information" of the Company, all of which are included elsewhere
in this Prospectus. The historical consolidated balance sheets for 1995, 1996
and 1997 and the historical consolidated statements of income for 1994, 1995,
1996 and 1997 were audited by Ernst & Young LLP, independent auditors. The
historical consolidated balance sheets for 1993 and 1994 and the historical
consolidated statement of income for 1993 were audited by other auditors. The
unaudited pro forma balance sheet data as of March 31, 1997 gives effect to the
Transactions and the Refinancing as if such transactions had occurred on March
31, 1997. The unaudited pro forma consolidated statement of income for the year
ended March 31, 1997 gives effect to the Transactions and the Refinancing as if
they were consummated on April 1, 1996. The unaudited pro forma financial and
other data do not purport to represent what the Company's financial position or
results of operations would actually have been had the Transactions and the
Refinancing in fact occurred on the assumed dates or to project the Company's
financial position or results of operations for any future date or future
period. The information contained in the following table should also be read in
conjunction with "Capitalization," "Selected Consolidated Financial and Other
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Unaudited Pro Forma Consolidated Financial Information," and
the Company's historical consolidated financial statements and related notes
included elsewhere in this Prospectus.
13
<PAGE> 17
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
FISCAL YEAR ENDED MARCH 31,
<TABLE>
<CAPTION>
PRO FORMA FOR
TRANSACTIONS
AND
REFINANCING
-------------
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales(1)...................... $133,422 $131,982 $160,621 $166,951 $165,426 $ 165,426
Gross profit...................... 25,143 25,451 39,640 45,320 48,690 48,747
Operating income.................. 6,106 11,837 22,967 28,337 31,143 29,718
Interest expense (income), net.... 2,118 1,043 397 (481) (1,162) 20,948
Net income........................ 5,080 6,581 13,704 17,142 19,838 4,190
BALANCE SHEET DATA
(AT END OF PERIOD):
Cash and cash equivalents......... $ 79 $ 118 $ 238 $ 10,126 $ 22,403 $ 202
Working capital(2)................ 13,425 14,596 15,174 18,094 21,438 30,101
Total assets...................... 87,388 74,327 73,813 82,957 93,869 307,984
Total debt........................ 21,409 13,325 887 241 134 197,722
Total stockholders' equity........ 36,862 37,929 43,198 54,790 68,857 43,396
OTHER DATA:
EBITDA(3)......................... $ 13,399 $ 18,577 $ 29,809 $ 35,113 $ 38,024 $ 41,539
Depreciation and amortization..... 7,293 6,740 6,842 6,776 6,881 12,979
Capital expenditures.............. 3,967 4,583 3,665 7,275 4,546 4,546
Net cash provided by (used in):
Operating activities............ 15,240 18,301 23,581 22,273 23,479 13,187
Investing activities............ (4,239) (4,949) (3,412) (7,299) (3,104) (3,104)
Financing activities............ (11,499) (13,313) (20,049) (5,086) (8,098) (4,896)
Cash interest expense(4).......... 2,128 1,049 624 84 39 21,733
Tons produced..................... 137,260 136,754 171,727 168,400 155,134 155,134
Employees......................... 1,169 931 952 922 910 910
Employee hours per ton(5)......... 13.3 10.7 8.7 8.6 9.0 9.0
Scrap rate(6)..................... 3.3% 2.9% 2.2% 2.0% 2.0% 2.0%
</TABLE>
- ---------------
(1) Net sales for the years ended March 31, 1993 and 1994 include sales of
products manufactured in Plant 1, which was closed in 1994 as part of the
Company's strategy to increase its focus on higher volume, complex parts for
its industrial customers. The majority of the parts produced in Plant 1 were
then discontinued. Plant 1 provided sales of $30.9 million and $4.4 million
for the fiscal years ended March 31, 1993 and 1994, respectively.
(2) Working capital represents total current assets (excluding cash and cash
equivalents) less total current liabilities (excluding the Revolving Credit
Facility and the current portion of long-term debt).
(3) EBITDA represents operating income plus depreciation and amortization. The
Company has included information concerning EBITDA because management
believes that EBITDA is generally accepted as providing useful information
regarding a company's ability to service and/or incur debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash flows
or other income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity. The Company understands that, while EBITDA is frequently used
by securities analysts in the evaluation of companies, EBITDA, as used
herein, is not necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the method of
calculation. EBITDA is not intended as an alternative to cash flow from
operating activities as a measure of liquidity, an alternative to net income
as an indicator of the Company's operating performance or an alternative to
any other measure of performance in conformity with generally accepted
accounting principles.
(4) Cash interest expense is defined as interest expense less amortization of
debt issuance cost.
(5) Employee hours per ton represents the number of hours worked by hourly
employees during this period (excluding supervisory employee hours) divided
by the number of tons produced.
(6) The scrap rate is the percentage of castings that are determined to be
unusable prior to delivery to customers.
14
<PAGE> 18
RISK FACTORS
Holders of Old Notes should carefully consider the following factors in
addition to the other information set forth in this Prospectus in connection
with the Exchange Offer. The risk factors set forth below are generally
applicable to the Old Notes as well as the New Notes.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE INDEBTEDNESS
The Company is highly leveraged. As of March 31, 1997, on a pro forma
basis, after giving effect to the Transactions, the Refinancing and the
application of the proceeds therefrom, the Company and the Guarantor
Subsidiaries would have had $0.1 million (excluding $0.6 million of outstanding
letters of credit) aggregate amount of Senior Indebtedness (all of which is
Secured Indebtedness), $197.6 million aggregate amount of Senior Subordinated
Indebtedness including the indebtedness represented by the Notes and no
indebtedness that is junior in right of payment to the indebtedness represented
by the Notes. As of July 1, 1997, after giving effect to the Transactions and
the Refinancing, and the application of the net proceeds therefrom, the Company
and the Guarantor Subsidiaries would have had outstanding $0.1 million
(excluding $0.6 million of outstanding letters of credit) aggregate principal
amount of Senior Indebtedness (all of which is Secured Indebtedness), $197.6
million aggregate amount of Senior Subordinated Indebtedness, including the
indebtedness represented by the Notes and no indebtedness that is subordinated
or junior in right of payment to the indebtedness represented by the Notes. As
of March 31, 1997, on a pro forma basis, after giving effect to the
Transactions, the Refinancing and the application of the proceeds therefrom, as
well as borrowing base limitations and $0.6 million of outstanding letters of
credit, the Company estimates that it would have had the ability to borrow
approximately $24.5 million under the Revolving Credit Facility. Subject to the
restrictions in the Senior Bank Facilities and the Indenture, the Company may
incur additional indebtedness from time to time, including additional Senior
Indebtedness. The degree to which the Company is leveraged could have important
consequences to holders of the New Notes (and to holders of Old Notes),
including the following: (i) the Company's ability to obtain additional
financing for working capital, capital expenditures, acquisitions or general
corporate purposes may be limited; (ii) a substantial portion of the Company's
cash flow from operations must be dedicated to the payment of interest on the
New Notes (and any outstanding Old Notes), and interest and principal on the
Senior Bank Facilities and the Company's other existing indebtedness, thereby
reducing the funds available to the Company for other purposes; (iii) all of the
indebtedness under the Senior Bank Facilities is and will be at variable rates
of interest, which causes the Company to be vulnerable to increases in interest
rates; (iv) all of the indebtedness outstanding under the Senior Bank Facilities
is secured by pledges of all the capital stock of the Company and the Guarantor
Subsidiaries and security interests in, or liens on, substantially all other
assets of the Company and the Guarantor Subsidiaries, and will become due prior
to the time the principal on the Notes will become due; (v) the Company may be
hindered in its ability to adjust rapidly to changing market conditions; and
(vi) the Company's substantial degree of leverage could make it more vulnerable
in the event of a downturn in general economic conditions or in its business.
The Company's ability to pay interest on the New Notes (and any outstanding
Old Notes) and to satisfy its other debt obligations will depend on its future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, certain of which are beyond the
Company's control. If the Company's cash flow from operations and capital
resources is insufficient to fund its debt service obligations, the Company may
be forced to reduce or delay capital expenditures, sell assets, obtain
additional equity capital or restructure its debt. There can be no assurance
that the Company's cash flow from operations and capital resources will be
sufficient for payment of its indebtedness in the future. In the absence of such
operating results and resources, the Company could face substantial liquidity
problems and might be required to dispose of material assets or operations to
meet its debt service and other obligations, and there can be no assurance as to
the timing of such sales or the proceeds that the Company could realize
therefrom. The financial covenants and other restrictions in the Senior Bank
Facilities and the
15
<PAGE> 19
Indenture will limit the Company's ability to borrow additional funds and
dispose of certain assets. See "Description of Senior Bank Facilities" and
"Description of Notes."
SUBORDINATION; ASSET ENCUMBRANCE
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the New Notes will be (as is the case with the Old
Notes) subordinated to the prior payment in full of all existing and future
Senior Indebtedness of the Company, including all amounts owing or guaranteed
under the Senior Bank Facilities. Consequently, in the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
the Company, assets of the Company will be available to pay obligations of the
New Notes (and any outstanding Old Notes) only after all Senior Indebtedness of
the Company has been paid in full, and there can be no assurance that there will
be sufficient assets to pay amounts due on all or any of the New Notes (and any
outstanding Old Notes).
Payments in respect of the respective Subsidiary Guaranties of the New
Notes will be (as is the case with the Old Notes) subordinated to the prior
payment in full of all existing and future Senior Indebtedness of the respective
Guarantor Subsidiaries, including all amounts guaranteed in respect of the
Senior Bank Facilities. As of March 31, 1997, on a pro forma basis after giving
effect to the Transactions, the Refinancing and the application of the proceeds
therefrom, (i) the aggregate principal amount of such Senior Indebtedness would
have been $0.1 million (excluding $0.6 million of outstanding letters of credit)
guaranteed under the Senior Bank Facilities and (ii) after giving effect to
borrowing base limitations and $0.6 million of outstanding letters of credit,
the Company estimates that it would have had the ability to borrow approximately
$24.5 million under the Revolving Credit Facility. The Company expects to
negotiate an amendment to the Revolving Credit Facility which will remove
borrowing base limitations and increase the borrowings available to the Company
under the Revolving Credit Facility from $30.0 million to $50.0 million. See
"Summary -- Amendments to the Senior Bank Facilities." Consequently, in the
event of a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding with respect to a Guarantor Subsidiary, its assets will be available
to pay obligations only after the Senior Indebtedness of such Guarantor
Subsidiary has been paid in full, and there can be no assurance that there will
be sufficient assets to pay amounts due in respect of such Guarantor
Subsidiary's guaranty of the New Notes (or any outstanding Old Notes).
The Indenture permits the Company and the Guarantor Subsidiaries to incur
certain Secured Indebtedness, including indebtedness under the Senior Bank
Facilities, which will be secured by pledges of all the capital stock of the
Company and the Guarantor Subsidiaries, and security interests in, or liens on,
substantially all other assets of the Company and the Guarantor Subsidiaries.
The New Notes (and the Old Notes) and the Subsidiary Guaranties are unsecured
and therefore do not have the benefit of such collateral. Accordingly, if an
event of default occurs under the Senior Bank Facilities, the lenders will have
a prior right to the assets of the Company and the Guarantor Subsidiaries, and
may foreclose upon such collateral to the exclusion of the holders of the New
Notes (and of any of the Old Notes), notwithstanding the existence of an event
of default with respect thereto. In such event, such assets would first be used
to repay in full amounts outstanding under the Senior Bank Facilities, resulting
in all or a portion of the Company's and the Guarantor Subsidiaries' assets
being unavailable to satisfy the claims of the holders of the New Notes (and of
any of the Old Notes) and other unsecured indebtedness.
RESTRICTIVE LOAN COVENANTS
The Senior Bank Facilities include certain covenants that, among other
things, restrict the ability of the Company and its subsidiaries to: (i) dispose
of assets; (ii) incur additional indebtedness; (iii) incur guarantee
obligations; (iv) prepay other indebtedness or amend other debt instruments; (v)
pay dividends; (vi) create liens on assets; (vii) enter into sale and leaseback
transactions; (viii) make investments, loans or advances; (ix) make
acquisitions; (x) engage in mergers or consolidations; (xi) change the business
conducted by the Company; (xii) make capital expendi-
16
<PAGE> 20
tures; or (xiii) engage in certain transactions with affiliates and otherwise
restrict certain corporate activities. In addition, under the Senior Bank
Facilities the Company is required to comply with a consolidated leverage ratio,
a consolidated net worth test and a consolidated interest coverage ratio. Under
the Senior Bank Facilities, the Company may not: (i) exceed a Consolidated
Leverage Ratio (as defined in the Senior Bank Facilities) of 6.00 to 1.00
through March 31, 1998, of 5.75 to 1.00 from April 1, 1998 through March 31,
1999, of 5.50 to 1.00 from April 1, 1999 through March 31, 2000, of 5.25 to 1.00
from April 1, 2000 through March 31, 2001 and of 5.00 to 1.00 thereafter; (ii)
permit Consolidated Net Worth (as defined in the Senior Bank Facilities) to be
less than $35,000,000 plus 50% of the cumulative amount of positive Consolidated
Net Income (as defined in the Senior Bank Facilities) for each fiscal year
ending after the Merger; and (iii) permit Consolidated Interest Coverage Ratio
(as defined in the Senior Bank Facilities) to be less than 1.55 to 1.00 through
March 31, 1998, 1.65 to 1.00 from April 1, 1998 through March 31, 1999, 1.75 to
1.00 from April 1, 1999 through March 31, 2000, 1.85 to 1.00 from April 1, 2000
through March 31, 2001, 1.95 to 1.00 from April 1, 2001 through March 31, 2002
and 2.00 to 1.00 thereafter. The Company is currently in compliance with such
ratios and test. However, there can be no assurance that these requirements will
be met in the future. If they are not, the holders of the indebtedness under the
Senior Bank Facilities would be entitled to declare such indebtedness
immediately due and payable. See "Description of Senior Bank Facilities."
HOLDING COMPANY STRUCTURE; POSSIBLE UNENFORCEABILITY OF THE SUBSIDIARY
GUARANTIES
The Company is a holding company which derives some of its operating income
from its subsidiaries. The holders of the New Notes (and of any of the Old
Notes) will have no direct claim against the Guarantor Subsidiaries other than
the claim created by the Subsidiary Guaranties, which may themselves be subject
to legal challenge in the event of the bankruptcy of a Guarantor Subsidiary. See
"-- Fraudulent Conveyance." If such a challenge were upheld, the Subsidiary
Guaranties would be unenforceable. To the extent that the Subsidiary Guaranties
are not enforceable, the rights of holders of the New Notes (and of any of the
Old Notes) to participate in any distribution of assets of any Guarantor
Subsidiary upon liquidation, bankruptcy, reorganization or otherwise may, as is
the case with other unsecured creditors of the Company, be subject to prior
claims of creditors of that Guarantor Subsidiary. The Company must rely upon
dividends and other payments from its subsidiaries to generate the funds
necessary to meet its obligations, including the payment of principal of and
interest on the New Notes (and any of the Old Notes). The Indenture contains
covenants that restrict the ability of the Company's Restricted Subsidiaries (as
defined) to enter into agreements limiting distributions and transfers,
including dividends. However, the ability of the Company's subsidiaries to pay
dividends and make other payments may be restricted by, among other things,
applicable state corporate laws and regulations or by terms of agreements to
which they may become party. See "Description of Notes."
DEPENDENCE ON KEY PERSONNEL
Three of the Company's senior executives, including the chief executive
officer, did not remain with the Company after the Closing. The Company retained
James K. Hildebrand to serve as Chairman and Chief Executive Officer following
the Merger, and the Company's current management assumed primary responsibility
for the other duties conducted by the departing senior executives. The ability
of the Company to maintain its competitive position will depend to a significant
degree upon its ability to continue to attract and retain highly qualified
managerial and manufacturing personnel. There can be no assurance that the
Company will be able to continue to recruit and retain such personnel. In
particular, the Company is dependent on certain key management personnel, and
there can be no assurance that the loss of key personnel would not have a
material adverse effect on the Company's results of operations. See
"Management."
CHANGE OF CONTROL
After May 1, 2002, upon the occurrence of a Change of Control, unless the
Company redeems the Notes, each holder of the New Notes (and of any outstanding
Old Notes) will have the right to
17
<PAGE> 21
require the Company to repurchase all or any portion of such holder's Notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase. The occurrence of a Change of Control
would constitute a default under the Senior Bank Facilities. In addition, the
Senior Bank Facilities will prohibit the purchase of the New Notes (and of any
outstanding Old Notes) by the Company in the event of a Change of Control,
unless and until such time as all indebtedness under the Senior Bank Facilities
is repaid in full. The Company's failure to purchase the New Notes (and any
outstanding Old Notes) would result in a default under the Indenture. The
inability to repay the indebtedness under the Senior Bank Facilities, if
accelerated, would also constitute an event of default under the Indenture. In
the event of a Change of Control, there can be no assurance that the Company
would have sufficient assets to satisfy all of its obligations under the Senior
Bank Facilities and the New Notes (and any outstanding Old Notes). The Company
could in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations or highly leveraged transactions, that
would not constitute a Change of Control under the Indenture, but that would
increase the amount of indebtedness outstanding at such time or otherwise affect
the Company's capital structure or credit ratings or otherwise adversely affect
holders of the Notes. See "Description of Senior Bank Facilities" and
"Description of Notes -- Change of Control."
CONCENTRATION OF CUSTOMERS
In 1997, sales to one of the Company's customers, Rockwell International,
accounted for 16.1% of the Company's total net sales, and the Company's top
three customers accounted for approximately 34.8% of the Company's net sales. A
significant reduction of purchases by one or more of the Company's key
industrial customers could have a material adverse effect on the Company's
business, financial condition or results of operations. See
"Business -- Products, Customers and Markets."
DEPENDENCE ON INDUSTRY/CYCLICALITY
The Company has historically experienced moderate cyclicality in the heavy
municipal market. Sales of municipal castings are influenced by, among other
things, public spending. The Company's industrial sales are largely dependent on
orders from OEMs of medium- and heavy-duty trucks and truck components and their
first-tier suppliers and orders for farm equipment. The truck market has
historically been subject to fluctuations due to general economic conditions
and, in particular, the industrial sector of the economy. From 1993 to 1995, the
truck market experienced significant growth, while in 1996 the medium- and
heavy-duty truck market declined substantially from 1995 levels. In 1997, the
medium- and heavy-duty truck market increased over 1996 levels but remained
below 1995 levels. There can be no assurance that the truck market will not
decline. The farm equipment market has also experienced cyclicality. A downturn
in these markets could reduce demand for, and prices of, the Company's products.
A significant downturn in either of these markets could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPETITION
The markets for the Company's products are highly competitive. Competition
is based not only on price, but also on quality of product, range of capability,
level of service and reliability of delivery. The Company competes with numerous
independent and captive domestic iron foundries, as well as with a number of
foreign iron foundries, including certain foundries located in India. The
Company also competes with several large domestic foundries and manufacturers
whose casting products are made with materials other than ductile and gray iron,
such as steel or aluminum. Industry consolidation over the past decade has
resulted in a significant reduction in the number of smaller foundries and a
rise in the share of production by larger foundries, some of which have
significantly greater financial resources than the Company. There can be no
assurance that the Company will be able to maintain or improve its competitive
position in the markets in which it competes. See "Business -- Competition."
18
<PAGE> 22
FLUCTUATIONS IN PRICE AND SUPPLY OF RAW MATERIALS
The Company is dependent upon outside suppliers for all of its raw material
needs and, therefore, is subject to price increases and delays in receiving
supplies of such materials. Changes in the supply of or demand for raw materials
could affect delivery times and prices. Although historically the Company has
been able to increase prices in response to increased raw material costs, no
assurance can be given that the Company will continue to have available
necessary raw materials at reasonable prices or that any increases in raw
material costs would not have a material adverse effect on the Company's
business, financial condition, or results of operations. See "Business -- Raw
Materials."
CONTROLLING SHAREHOLDERS
The Investor Group beneficially owns approximately 90% of the Common Stock
of the Company and, together with the Management Investors, collectively, has
the ability to elect the entire Board of Directors and generally to control the
affairs and policies of the Company. Circumstances may occur in which the
interests of the Investor Group and Management Investors, as shareholders of the
Company, could be in conflict with the interests of the holders of the New Notes
(and of any outstanding Old Notes). In addition, the Investor Group and
Management Investors may have an interest in pursuing acquisitions, divestitures
or other transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve disproportionate risks
to the holders of the New Notes (and of any outstanding Old Notes). See
"Ownership of Securities" and "Certain Relationships and Related Transactions"
and "Business -- Business Strategy."
ENVIRONMENTAL MATTERS
The Company's facilities are subject to numerous federal, state and local
laws and regulations relating to the protection of the environment and worker
health and safety, including those relating to discharges to air, water and
land, the handling and disposal of solid and hazardous waste and the cleanup of
properties affected by hazardous substances. The Company does not currently
anticipate any material adverse effect on its operations or financial condition
as a result of its efforts to comply with, or its liabilities under, such
requirements. Risk of environmental liability is inherent in the manufacturing
of casting products, however, and there can be no assurance that material
environmental costs will not arise in the future. In particular, the Company
might incur capital and other costs to comply with increasingly stringent air
emission control laws and enforcement policies. See "Business -- Environmental
Matters."
FRAUDULENT CONVEYANCE
The incurrence by the Company of indebtedness such as the Old Notes (and
the New Notes exchanged therefor) to finance the Transactions may be subject to
review under relevant state and federal fraudulent conveyance and similar laws
if a bankruptcy or reorganization case or a lawsuit is commenced by or on behalf
of creditors of the Company. Under these laws, if a court were to find that,
after giving effect to the sale of the Old Notes and the exchange of the New
Notes therefor and the application of the net proceeds therefrom, either (a) the
Company incurred such indebtedness with the intent of hindering, delaying or
defrauding then-existing or future creditors or (b) the Company received less
than a reasonably equivalent value or fair consideration for incurring such
indebtedness and at the time of the incurrence of such indebtedness the Company
(i) was insolvent or was rendered insolvent by reason of such transactions; (ii)
was engaged in a business or transaction for which the assets remaining with the
Company constituted unreasonably small capital; or (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay as they matured,
such court may subordinate such indebtedness to presently existing and future
indebtedness of the Company, avoid the issuance of such indebtedness and direct
the repayment of any amounts paid thereunder to the creditors of the Company or
take other action detrimental to the holders of such indebtedness.
19
<PAGE> 23
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, was greater than the value of all its assets at a fair valuation,
or if the present fair saleable value of the debtor's assets was less than the
amount required to repay its probable liabilities on its debts, including
contingent liabilities, as they become absolute and matured.
There can be no assurance as to what standard a court would apply in order
to determine solvency. To the extent that proceeds from the sale of the Old
Notes were used to finance the Transactions, a court may find that the Company
did not receive fair consideration or reasonably equivalent value for the
incurrence of the indebtedness represented thereby. In addition, if a court were
to find that any of the components of the Transactions constituted a fraudulent
transfer, to the extent that proceeds from the sale of the Old Notes were used
to finance such Transactions, a court may find that the Company did not receive
fair consideration or reasonably equivalent value for the incurrence of the
indebtedness represented by the Old Notes.
The Company believes that it received equivalent value at the time the
indebtedness under the Old Notes was incurred. In addition, the Company does
not, after giving effect to the consummation of the Transactions: (i) believe
that it was insolvent or rendered insolvent; (ii) believe that it was engaged in
a business or transaction for which its remaining assets constitute unreasonably
small capital; or (iii) intended to incur, or believe that it incurred, debts
beyond its ability to pay as they mature. These beliefs are based on the
Company's analysis of internal cash flow projections and estimated values of
assets and liabilities of the Company and the Guarantor Subsidiaries at the time
of the offering of the Old Notes. There can be no assurance, however, that a
court passing on the issues would make the same determination.
In addition, the Subsidiary Guaranties may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
any of the Guarantor Subsidiaries. In such a case, the analysis set forth above
would generally apply, except that the Subsidiary Guaranties could also be
subject to the claim that, since the Subsidiary Guaranties were incurred for the
benefit of the Company (and only indirectly for the benefit of the Guarantor
Subsidiaries), the obligations of the Guarantor Subsidiaries thereunder were
incurred for less than reasonably equivalent value or fair consideration. A
court could void a Guarantor Subsidiary's obligation under the Subsidiary
Guaranties, subordinate the Subsidiary Guaranties to other indebtedness of a
Guarantor Subsidiary or take other action detrimental to the holders of the Old
Notes (and the New Notes exchanged therefor).
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The New Notes are new securities for which there currently is no market.
Although the Initial Purchasers have informed the Company that they currently
intend to make a market in the New Notes, they are not obligated to do so and
any such market making may be discontinued at any time without notice in the
sole discretion of the Initial Purchasers. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
The Old Notes are eligible for trading by qualified buyers in the PORTAL market.
The Company does not intend to apply for listing of the Old Notes or, if issued,
the New Notes, on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation System.
The liquidity of, and trading market for, the New Notes also may be
adversely affected by general declines in the market for similar securities.
Such declines may adversely affect such liquidity and trading markets
independently of the financial performance of, and prospects for, the Company.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including,
in particular, the likelihood of the
20
<PAGE> 24
Company's success in developing and expanding its business. These statements are
based upon a number of assumptions and estimates which are inherently subject to
significant uncertainties and contingencies, many of which are beyond the
control of the Company, and reflect future business decisions which are subject
to change. The foregoing description of risk factors specifies the principal
contingencies and uncertainties to which the Company believes it is subject.
Some of these assumptions inevitably will not materialize, and unanticipated
events will occur which will affect the Company's results.
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes
pursuant to the Exchange Offer.
21
<PAGE> 25
CAPITALIZATION
The following table sets forth as of March 31, 1997 (i) the consolidated
historical capitalization of the Company, and (ii) the unaudited consolidated
pro forma capitalization of the Company after giving effect to the Transactions
and the Refinancing, assuming the Transactions and the Refinancing were
consummated on such date. This table should be read in conjunction with the
"Selected Consolidated Financial and Other Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma
Consolidated Financial Information" and the consolidated financial statements
and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------
PRO FORMA
FOR TRANSACTIONS
ACTUAL AND REFINANCING
------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................. $22,403 $ 202(1)(2)
======= ========
Debt:
Revolving Credit Facility(2)(3)......................... $ -- $ --
11 1/8% Series A Senior Subordinated Notes due 2007..... -- 150,000
Notes, including unamortized premium of $2,588.......... -- 47,588
Other................................................... 134 134
------- --------
Total debt...................................... 134 197,722
Stockholders' equity:
Common stock............................................ 444 100
Additional paid-in capital.............................. -- 44,900
Retained earnings (accumulated deficit)................. 71,335 (1,604)(4)
Notes receivable from owners to finance stock
purchase............................................. (2,922) --
------- --------
Total stockholders' equity...................... 68,857 43,396
------- --------
Total capitalization............................ $68,991 $241,118
======= ========
</TABLE>
- ---------------
(1) Pro Forma cash and cash equivalents include actual cash and cash equivalents
at March 31, 1997, plus $2.9 million in repayments of notes receivable from
certain stockholders of the Company prior to the Merger, less $25.3 million
to be paid as part of the Merger Price, plus $0.2 million of cash resulting
from the Refinancing.
(2) Based on the Company's results of operations since March 31, 1997, the
Company estimates the closing net worth adjustment will be approximately
$12.6 million resulting in a total Merger Price of approximately $261.8
million, cash on hand of approximately $11.5 million (after giving effect to
payments during April of 1997 of approximately $17.5 million, including the
Former Stockholder Payment, that are included in the Merger Price),
substantially all of which will be applied to fund the balance of Merger
Price, and approximately $1.0 million will be drawn under the Revolving
Credit Facility in order to provide the remainder of the necessary
financing.
(3) Total borrowings of up to $30.0 million under the Revolving Credit Facility
are available, subject to borrowing base limitations, for working capital
and general corporate purposes, including up to $15.0 million for letters of
credit. The Company expects that the Senior Bank Facilities will be amended
to provide total borrowing availability of up to $50.0 million under the
Revolving Credit Facility. See "Summary -- Proposed Amendment to Senior Bank
Facilities." At March 31, 1997, on a pro forma basis after giving effect to
the Offering, the other Transactions, and the application of the proceeds
therefrom, as well as borrowing base limitations and $0.6 million of
outstanding letters of credit, the Company estimates that it would have had
the ability to borrow approximately $24.5 million under the Revolving Credit
Facility. See "Description of Senior Bank Facilities."
(4) Represents a write-off of approximately $2.7 million of financing costs
related to the Term Loans, less a tax deduction of approximately $1.1
million.
22
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth the selected historical consolidated
financial and other data of the Company for the five years ended March 31, 1997
and certain pro forma consolidated financial and other data for the year ended
March 31, 1997. The selected historical consolidated financial and other data,
with the exception of tons produced, employees, employee hours per ton and scrap
rate, for the five years ended March 31, 1997 are derived from the audited
consolidated financial statements of the Company. The historical consolidated
financial statements of the Company as of March 31, 1995, 1996 and 1997 and for
each of the four years in the period ended March 31, 1997, have been audited by
Ernst & Young LLP, independent auditors. The historical consolidated financial
statements of the Company as of March 31, 1993 and 1994 and for the year ended
March 31, 1993 have been audited by other auditors. The pro forma consolidated
financial and other data, with the exception of tons produced, employees,
employee hours per ton and scrap rate, as of and for the year ended March 31,
1997, were derived from the "Unaudited Pro Forma Consolidated Financial
Information" included elsewhere herein. The pro forma financial data does not
purport to represent what the Company's financial position or results of
operations would actually have been had the Transactions and the Refinancing in
fact occurred on the assumed dates or to project the Company's financial
position or results of operations for any future date or period. The information
contained in the following table should also be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Consolidated Financial
Information," and the Company's historical consolidated financial statements and
related notes included elsewhere in this Prospectus.
23
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
FISCAL YEAR ENDED MARCH 31,
<TABLE>
<CAPTION>
PRO FORMA
FOR
TRANSACTIONS
AND
REFINANCING
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales(1)....................................... $133,422 $131,982 $160,621 $166,951 $165,426 $ 165,426
Cost of sales...................................... 108,279 106,531 120,981 121,631 116,736 116,679
-------- -------- -------- -------- -------- --------
Gross profit....................................... 25,143 25,451 39,640 45,320 48,690 48,747
Selling, general and administrative expenses....... 12,865 13,614 16,673 16,983 17,547 19,029
Restructuring charge............................... 6,172 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Operating income................................... 6,106 11,837 22,967 28,337 31,143 29,718
Interest expense (income), net..................... 2,118 1,043 397 (481) (1,162) 20,948
-------- -------- -------- -------- -------- --------
Income before income taxes and cumulative effect of
accounting changes............................... 3,988 10,794 22,570 28,818 32,305 8,770
Provision for income taxes......................... 1,544 4,213 8,866 11,676 12,467 4,580
-------- -------- -------- -------- -------- --------
Income before cumulative effect of accounting
changes.......................................... 2,444 6,581 13,704 17,142 19,838 4,190
Cumulative effect of accounting changes:
Income taxes..................................... 5,200 -- -- -- -- --
Postretirement benefits other than pensions...... (2,564) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income......................................... $ 5,080 $ 6,581 $ 13,704 $ 17,142 $ 19,838 $ 4,190
======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents.......................... $ 79 $ 118 $ 238 $ 10,126 $ 22,403 $ 202
Working capital(2)................................. 13,425 14,596 15,174 18,094 21,438 30,101
Total assets....................................... 87,388 74,327 73,813 82,957 93,869 307,984
Total debt......................................... 21,409 13,325 887 241 134 197,722
Total stockholders' equity......................... 36,862 37,929 43,198 54,790 68,857 43,396
OTHER DATA:
EBITDA(3).......................................... $ 13,399 $ 18,577 $ 29,809 $ 35,113 $ 38,024 $ 41,539
Depreciation and amortization...................... 7,293 6,740 6,842 6,776 6,881 12,979
Capital expenditures............................... 3,967 4,583 3,665 7,275 4,546 4,546
Net cash provided by (used in):
Operating activities............................. 15,240 18,301 23,581 22,273 23,479 13,187
Investing activities............................. (4,239) (4,949) (3,412) (7,299) (3,104) (3,104)
Financing activities............................. (11,499) (13,313) (20,049) (5,086) (8,098) (4,896)
Cash interest expense(4)........................... 2,128 1,049 624 84 39 21,733
Ratio of earnings to fixed charges(5).............. 2.7x 9.5x 25.9x 70.3x 81.4x 1.4x
Tons produced...................................... 137,260 136,754 171,727 168,400 155,134 155,134
Employees.......................................... 1,169 931 952 922 910 910
Employee hours per ton(6).......................... 13.3 10.7 8.7 8.6 9.0 9.0
Scrap rate(7)...................................... 3.3% 2.9% 2.2% 2.0% 2.0% 2.0%
</TABLE>
See accompanying Notes to Selected Consolidated Financial and Other Data.
24
<PAGE> 28
NOTES TO SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(1) Net sales for the years ended March 31, 1993 and 1994 include sales of
products manufactured in Plant 1, which was closed in 1994 as part of the
Company's strategy to increase its focus on higher volume, complex parts for
its industrial customers. The majority of the parts produced in Plant 1 were
then discontinued. Plant 1 provided sales of $30.9 million and $4.4 million
for the fiscal years ended March 31, 1993 and 1994, respectively.
(2) Working capital represents total current assets (excluding cash and cash
equivalents) less total current liabilities (excluding the Revolving Credit
Facility and the current portion of long-term debt).
(3) EBITDA represents operating income plus depreciation and amortization. The
Company has included information concerning EBITDA because management
believes that EBITDA is generally accepted as providing useful information
regarding a company's ability to service and/or incur debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash flows
or other income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity. The Company understands that, while EBITDA is frequently used
by securities analysts in the evaluation of companies, EBITDA, as used
herein, is not necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the method of
calculation. EBITDA is not intended as an alternative to cash flow from
operating activities as a measure of liquidity, an alternative to net income
as an indicator of the Company's operating performance or an alternative to
any other measure of performance in conformity with generally accepted
accounting principles.
(4) Cash interest expense is defined as interest expense less amortization of
debt issuance costs.
(5) For purposes of the computation, the ratio of earnings to fixed charges has
been calculated by dividing (i) income before income taxes and cumulative
effect of accounting changes plus fixed charges by (ii) fixed charges. Fixed
charges are equal to interest expense plus the portion of the rent expense
estimated to represent interest.
(6) Employee hours per ton represents the number of hours worked by hourly
employees during this period (excluding supervisory employee hours) divided
by the number of tons produced.
(7) The scrap rate is the percentage of castings that are determined to be
unusable prior to delivery to customers.
25
<PAGE> 29
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Unaudited Pro Forma Financial Information") has been derived by the application
of pro forma adjustments, which give effect to the Transactions and the
Refinancing, to the Company's historical consolidated financial statements
included elsewhere in this Prospectus. The unaudited pro forma consolidated
balance sheet gives effect to the Transactions and the Refinancing as if they
had occurred on March 31, 1997. The unaudited pro forma consolidated statement
of income for the year ended March 31, 1997 gives effect to the Transactions and
the Refinancing as if they were consummated on April 1, 1996.
The Unaudited Pro Forma Financial Information is for comparative purposes
only and does not purport to represent what the Company's financial position or
results of operations would actually have been had the Transactions and the
Refinancing in fact occurred on the assumed dates or to project the Company's
financial position or results of operations for any future date or future
period. The Unaudited Pro Forma Financial Information should be read in
conjunction with the Company's historical consolidated financial statements and
related notes included elsewhere in this Prospectus.
The pro forma adjustments, as described in the accompanying Notes to the
Unaudited Pro Forma Consolidated Balance Sheet and Statement of Income, are
based on available information and certain assumptions that management believes
are reasonable.
The acquisition of the Company is accounted for under the purchase method
of accounting. Assuming the Merger was consummated on March 31, 1997, the Merger
Price would have been $258.3 million, which would include (i) a net worth
adjustment of $9.1 million at the Closing based on a March 31, 1997 closing, and
(ii) an $11.3 million payment to certain former stockholders of the Company upon
consummation of the Merger. The Merger Price reflects the use of approximately
$25.3 million of cash on the Company's balance sheet and borrowings under the
Revolving Credit Facility of $0.9 million. In addition, there was a repayment of
$2.9 million in notes receivable from certain stockholders of the Company prior
to the Merger, which reduces the net effect on cash to $22.4 million. The Merger
Price has been allocated to the tangible and identifiable intangible assets and
to the liabilities based on preliminary estimates of their fair values. However,
the allocation of the Merger Price is subject to revision when additional
information concerning certain asset valuations is obtained. Management believes
that the final allocation of the Merger Price will not materially differ from
the preliminary estimated amounts. The Merger Price is subject to a closing date
net worth adjustment.
26
<PAGE> 30
NEENAH CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS PRO FORMA ADJUSTMENTS FOR
FOR FOR FOR TRANSACTIONS
HISTORICAL TRANSACTIONS TRANSACTIONS REFINANCING AND REFINANCING
---------- ------------- ------------- ----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash $ 2,922(a)
equivalents............. $ 22,403 (25,325)(b) $ -- $ 202(g) $ 202
Accounts receivable....... 21,423 21,423 21,423
Inventories............... 13,956 7,995(c) 21,951 21,951
Deferred income taxes and
other................... 2,726 (401)(c) 2,325 2,325
------- ------- ------- ------- -------
60,508 (14,809) 45,699 202 45,901
Property, plant and
equipment................. 31,379 69,821(c) 101,200 101,200
925(c) 1,500(g)
Other assets................ 1,982 7,925(d) 10,832 (2,673)(h) 9,659
Identifiable intangible
assets.................... -- 29,245(c) 29,245 29,245
Goodwill.................... -- 121,979(c) 121,979 121,979
------- ------- ------- ------- -------
Total assets....... $ 93,869 $ 215,086 $ 308,955 $ (971) $ 307,984
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit
facility................ $ -- $ 886(b) $ 886 $ (886)(g) $ --
Accounts payable.......... 8,497 8,497 8,497
Income taxes payable
(refundable)............ 573 573 (1,069)(h) (496)
Other current
liabilities............. 7,597 7,597 7,597
Current portion of long-
term debt............... 134 5,000(e) 5,134 (5,000)(g) 134
------- ------- ------- ------- -------
16,801 5,886 22,687 (6,955) 15,732
Long-term debt, including
unamortized premium of 47,588(g)
$2,588.................... -- 190,000(e) 190,000 (40,000)(g) 197,588
Post-retirement benefit
obligations............... 5,667 (243)(c) 5,424 5,424
Deferred income taxes....... 2,544 43,300(c) 45,844 45,844
------- ------- ------- ------- -------
Total
liabilities...... 25,012 238,943 263,955 633 264,588
2,922(a)
(71,779)(c)
Stockholders' equity........ 68,857 45,000(f) 45,000 (1,604)(h) 43,396
------- ------- ------- ------- -------
Total liabilities
and stockholders'
equity........... $ 93,869 $ 215,086 $ 308,955 $ (971) $ 307,984
======= ======= ======= ======= =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
27
<PAGE> 31
NEENAH CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Adjustment to reflect repayment of $2,922 notes receivable from owners
(reported as a reduction from stockholders' equity in the historical
balance sheet) prior to the closing of the Transactions.
(b) Adjustment to reflect the net effect of the Transactions (decrease in cash
and cash equivalents of $25,325 and increase in borrowings under the
Revolving Credit Facility of $886), as follows:
<TABLE>
<S> <C> <C>
Proceeds from Term Loans and Senior Subordinated Notes.............. $ 195,000
Proceeds from Equity Contribution................................... 45,000
Purchase price:
Merger Consideration................................ $(236,840)
Closing date net worth adjustment................... (9,103)
Former Stockholder Payment.......................... (11,336)
---------
(257,279)
Acquisition costs................................... (1,007)
Financing costs..................................................... (7,925)
---------
$ (26,211)
=========
</TABLE>
(c) Adjustment to reflect the push-down of the $258,286 Merger Price (which
includes the acquisition costs) to the assets and liabilities of the
Company, allocated as follows:
<TABLE>
<S> <C>
Book value of Company as of March 31, 1997
($68,857 + $2,922(1)).................................. $ 71,779
Fair value adjustments(2):
Write-up inventories(3)................................ 7,995
Eliminate other current assets repaid at closing....... (401)
Write-up property, plant and equipment(4).............. 69,821
Write-up net pension asset............................. 925
Record identifiable intangible assets(5)............... 29,245
Reduce post-retirement benefit obligations............. 243
Record deferred income taxes(6)........................ (43,300)
Residual -- goodwill(7)................................ 121,979
---------
$258,286
=========
</TABLE>
--------------------
(1) Add back notes receivable from owners (repaid prior to the Closing),
which is shown as a reduction from stockholders' equity in the
historical balance sheet.
(2) For all other recorded assets and liabilities of the Company, the
historical book values were estimated to approximate their fair values
at the balance sheet date.
(3) Net effect of changing inventory costing method from last in, first out
to fair value.
(4) The fair value of property, plant and equipment was based on outside
appraisals completed in connection with the Transactions. The write-up
has been allocated to the fixed asset categories as shown below. The
remaining economic useful lives used in depreciating the new basis of
the depreciable fixed assets are also indicated:
<TABLE>
<CAPTION>
REMAINING ECONOMIC
ALLOCATED EXCESS USEFUL LIFE
------------------ ---------------------
<S> <C> <C>
Land....................................... $ 53 N/A
Buildings and improvements................. 1,995 10 to 35 years
Machinery and equipment.................... 45,373 7 to 20 years
Municipal patterns......................... 22,400 15 years
--------
$ 69,821
===============
</TABLE>
28
<PAGE> 32
(5) The fair value of identifiable intangible assets was based on an
outside valuation. The identifiable intangible assets and the estimated
useful lives are as follows:
<TABLE>
<CAPTION>
FAIR ESTIMATED
VALUE USEFUL LIFE
------------ -------------
<S> <C> <C>
Customer lists.......................................... $ 14,200 10 years
Trade names............................................. 11,700 40 years
Assembled work force.................................... 2,050 15 years
Internally prepared materials........................... 1,025 10 years
Patents................................................. 270 15 years
-------
$ 29,245
=======
</TABLE>
(6) Deferred income taxes were calculated at 40% of all fair value
adjustments except for goodwill since there is no step-up in basis of
assets or liabilities for income tax purposes resulting from the
Transactions.
(7) An amortization period of 40 years will be used for goodwill because
the period expected to be benefited exceeds 40 years.
(d) Adjustment to record the estimated financing costs of $7,925. The amount is
being amortized using the interest method over the term of the related
debt.
(e) Adjustment to record the debt used to finance the acquisition of the
Company:
<TABLE>
<S> <C> <C>
Term Loans
Tranche A Term Loan........................... $20,000
Tranche B Term Loan........................... 25,000
------
$ 45,000
Senior Subordinated Notes due 2007....................... 150,000
--------
$195,000
========
</TABLE>
(f) Adjustment to record the $45,000 Equity Contribution to the Company by
Holdings.
(g) Adjustment to reflect the net effect of the Refinancing on cash and cash
equivalents and borrowings under the Revolving Credit Facility, as follows:
<TABLE>
<S> <C>
Proceeds from Notes $47,588
=======
Uses:
Repay Term Loans $45,000
Repay borrowings under Revolving Credit Facility 886
Financing costs 1,500
Cash for working capital 202
-------
$47,588
=======
</TABLE>
The premium of $2,588 resulting from the issuance of the Notes at 105.75%
will be amortized using the interest method over the term of the related
debt. The estimated financing costs of $1,500 will be amortized using the
interest method over the term of the related debt.
(h) Adjustment to write-off the financing costs of $2,673 related to the Term
Loans, net of taxes of $1,069.
29
<PAGE> 33
NEENAH CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS PRO FORMA ADJUSTMENTS FOR
FOR FOR FOR TRANSACTIONS
HISTORICAL TRANSACTIONS TRANSACTIONS REFINANCING AND REFINANCING
---------- ----------- ------------ ----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 165,426 $ 165,426 $ 165,426
Cost of sales........... (116,736) $ 57(a) (116,679) (116,679)
--------- -------- --------- ---------
Gross profit............ 48,690 57 48,747 48,747
Selling, general and 22(a)
administrative (5,019)(b)
expenses.............. (17,547) 3,515(c) (19,029) (19,029)
--------- -------- --------- ---------
Operating income........ 31,143 (1,425) 29,718 29,718
Interest income
(expense), net........ 1,162 (21,527)(d) (20,365) $(583)(f) (20,948)
--------- -------- --------- ----- ---------
Income before income
taxes and
extraordinary item.... 32,305 (22,952) 9,353 (583) 8,770
Provision for income
taxes................. (12,467) 7,663(e) (4,804) 224(g) (4,580)
--------- -------- --------- ----- ---------
Income before
extraordinary item.... $ 19,838 $ (15,289) $ 4,549 $(359) $ 4,190
========= ======== ========= ===== =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of Income.
30
<PAGE> 34
NEENAH CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(a) Adjustment to reflect depreciation expense based on the new basis and
remaining economic useful lives of the Company's property, plant and
equipment, as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1997
-----------------------
COST OF SALES SG&A
------------- -----
<S> <C> <C>
Historical depreciation (accelerated and straight line
methods).................................................. $(6,723) $(158)
New basis depreciation (straight line method)............... 6,666 136
------- -----
$ (57) $ (22)
======= =====
</TABLE>
(b) Adjustment to record in selling, general and administrative expenses, the
amortization of the identifiable intangible assets and residual goodwill,
calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1997
--------------
<S> <C>
Intangible assets................................................... $1,970
Goodwill............................................................ 3,049
------
$5,019
======
</TABLE>
(c) Adjustment to reduce selling, general and administrative expenses for the
compensation expense (salary, bonuses, and benefits) relating to the four
executives (Edmund W. Aylward, Jr., Andrew A. Aylward, Thomas R. Franklin,
and James P. Keating, Jr.) who did not continue with the Company after the
Transactions. Compensation expense relating to replacement executives,
including additional compensation to current employees who will assume new
responsibilities, is included based on planned employment arrangements.
Messrs. E.W. Aylward and A.A. Aylward resigned from their positions in
connection with the consummation of the Transactions. Mr. Franklin retired
on February 28, 1997. Mr. Keating's employment agreement terminated on June
30, 1997. James K. Hildebrand has been named chief executive officer of the
Company. The responsibilities of the other three executives not continuing
with the Company were assumed by current employees.
<TABLE>
<S> <C>
Compensation expense related to four executives not continuing with
the Company......................................................... $ (4,015)
Compensation expense related to replacement executive................. 120
Additional compensation expense for current employees who assumed
additional responsibilities......................................... 380
-------
$ (3,515)
=======
</TABLE>
(d) Adjustment to record interest expense and amortization of deferred
financing costs on the debt incurred to finance the Transactions,
calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1997
--------------
<S> <C>
Tranche A Term Loan ($20,000 @ 8.25%)............................. $ 1,526
Tranche B Term Loan ($25,000 @ 8.75%)............................. 2,155
Series A Senior Subordinated Notes due 2007 ($150,000 @
11.125%)........................................................ 16,688
-------
20,369
Amortization of deferred financing costs.......................... 1,158
-------
$ 21,527
=======
</TABLE>
31
<PAGE> 35
The interest expense amounts are based on quarterly principal payments of
$1,000 and $250 for the Tranche A and Tranche B Term Loans, respectively.
(e) Adjustment to record the tax effect on the above adjustments using the
marginal effective income tax rate of 38.5%. All adjustments were
tax-effected except for goodwill amortization.
(f) Adjustment to record interest expense and amortization of deferred
financing costs on the debt incurred to refinance the Term Loans,
calculated as follows:
<TABLE>
<S> <C>
Series C Senior Subordinated Notes due 2007 ($45,000 @ 11.125%)......... $ 5,006
Amortization of premium of $2,588 on Series C Senior Subordinated
Notes................................................................. (259)
Eliminate interest expense on Term Loans................................ (3,681)
------
1,066
Amortization of deferred financing costs on Series C Senior Subordinated
Notes due 2007........................................................ 150
Eliminate amortization of deferred financing costs on Term Loans........ (633)
------
$ 583
======
</TABLE>
(g) Adjustment to record the tax effect on the above adjustments using the
marginal effective income tax rate of 38.5%.
32
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations covers periods before consummation of the Transactions and the
Refinancing. The following information should be read in conjunction with
"Selected Consolidated Financial and Other Data," "Unaudited Pro Forma
Consolidated Financial Information," and the consolidated financial statements
and the notes thereto included elsewhere in this Prospectus.
GENERAL
Historically, the Company's net sales have been derived primarily from
sales of heavy municipal and industrial iron castings, which represented 43% and
53%, respectively, of the Company's net sales for the year ended March 31, 1997.
In addition, the Company sells sand control systems and other related products,
which represented 4% of net sales for the year ended March 31, 1997. Sales to
the heavy municipal market have produced, and continue to produce, significantly
higher gross profit margins than sales to the industrial market.
Since 1985, the Company has invested approximately $100 million in its
facilities, with approximately $73 million invested in a major plant
modernization program from 1985 to 1990. This plant modernization program was a
critical part of a long-term strategy to produce higher value-added castings for
its existing industrial customers and to penetrate other selected segments of
that market, while preserving its position as the leader in the heavy municipal
market. This modernization program entailed the closing of the Company's oldest
foundry, Plant 1, and the updating of the Company's other two foundries, Plants
2 and 3. Plant 1 was closed due to its age and the significant investment
required to keep it competitive with more modern mold technology. Plants 2 and 3
were updated with four new molding lines to enable the Company both to produce
higher volume, complex castings for selected industrial segments, and to improve
the Company's cost position in the heavy municipal market. Following the
completion of the modernization program, the Company has steadily decreased its
production of lower margin products such as axle covers and brake drums and
increased the production of more complex, higher value-added parts such as
transmission housings and axle housings. In 1996, the Company began to introduce
what it calls "lightweighted" castings to the municipal market. These
lightweighted castings have been reengineered in order to reduce both their
weight and the amount of raw materials necessary for their manufacture, while
maintaining the high quality performance characteristics of the heavier version
of the casting. This improvement in the design and manufacture of municipal
castings has resulted in lower material costs and improved margins for this
product line. The impact of lightweighted parts on operating results has
generally been lower tons produced, equal or higher unit volumes, higher prices
per ton, lower raw material costs and improved margins.
From 1992 to 1997, the Company's net sales increased from $116.5 million to
$165.4 million, representing a compound annual growth rate of 7.3%, and
operating income increased from $6.2 million to $31.1 million, representing a
compound annual growth rate of 38.1%. The Company's net sales during this period
have been driven primarily by the Company's increased market penetration in
selected products in the medium- and heavy-duty and farm equipment markets, by
increased market demand in the medium- and heavy-duty truck market and, to a
lesser extent, increased heavy municipal market sales. The Company's increase in
operating income during this period was largely the result of improvements in
industrial products and, to a lesser extent, municipal products. Operating
income attributable to industrial castings increased primarily due to higher
production volume, an improved product mix, improved pricing and increased
efficiency in operating its manufacturing equipment, while operating income
attributable to municipal castings increased primarily due to improved pricing
and the effects of the lightweighted casting program. In addition, the Company's
operating income increased due to increased operating leverage.
33
<PAGE> 37
RESULTS OF OPERATIONS
The following table sets forth for the periods shown certain statement of
income data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH
31,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales:
Municipal sales........................................ 43.9% 41.6% 43.1%
Industrial sales....................................... 53.2 55.2 53.4
Hartley Controls sales................................. 2.9 3.2 3.5
----- ----- -----
Total net sales.......................................... 100.0 100.0 100.0
Cost of sales............................................ 75.3 72.9 70.6
----- ----- -----
Gross profit............................................. 24.7 27.1 29.4
Selling, general and administrative...................... 10.4 10.1 10.6
----- ----- -----
Operating income......................................... 14.3% 17.0% 18.8%
===== ===== =====
</TABLE>
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1997 TO FISCAL YEAR ENDED MARCH 31,
1996
Net Sales. Net sales were $165.4 million for the year ended March 31,
1997, a decrease of $1.6 million, or 0.9%, from $167.0 million for the year
ended March 31, 1996. Net sales of industrial castings decreased $3.9 million,
or 4.2%, to $88.3 million. The decrease in industrial casting sales was
primarily the result of a decision by the Company to discontinue its production
of certain lower margin brake components, which resulted in a 9,600 ton decrease
in tons produced compared to the year earlier period, and, to a lesser extent,
reduced demand for casting products in the medium- and heavy-duty truck market.
Net sales of municipal castings increased $1.9 million, or 2.7%, to $71.3
million, primarily due to increased pricing. Hartley Controls net sales grew
$0.4 million, or 7.4%, to $5.8 million, principally due to increased volume of
equipment sales.
Gross Profit. Gross profit was $48.7 million for the year ended March 31,
1997, an increase of $3.4 million, or 7.5%, from $45.3 million for the year
ended March 31, 1996. Gross profit as a percentage of net sales increased to
29.4% for the year ended March 31, 1997, from 27.1% for the year ended March 31,
1996. The increase in gross profit as a percentage of net sales was due mainly
to improved product mix in the industrial product line and greater overall plant
efficiency. Gross profit percentage also improved due to the continued effect of
the lightweighted municipal casting program.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $17.5 million for the year ended March 31, 1997, an
increase of $0.5 million, or 2.9%, from $17.0 million for the year ended March
31, 1996. As a percentage of net sales, selling, general and administrative
expenses increased to 10.6% for the year ended March 31, 1997, from 10.1% for
the year ended March 31, 1996. Approximately $0.2 million of the increase in
selling, general and administrative expenses was due to a non-recurring
charitable contribution and approximately $0.9 million of the increase was due
to increased compensation and benefits to officers of the Company who resigned
at Closing. Excluding the effects of estimated nonrecurring officer compensation
and benefits and the charitable contribution, selling, general and
administrative expenses, as a percentage of net sales, decreased slightly to
8.3% for the year ended March 31, 1997, from 8.4% for the year ended March 31,
1996.
Operating Income. Operating income increased to $31.1 million for the year
ended March 31, 1997, an increase of $2.8 million or 9.9% from $28.3 million for
the year ended March 31, 1996. As a percentage of net sales, operating income
increased to 18.8% for the year ended March 31, 1997, from 17.0% for the year
ended March 31, 1996. The improvement in operating income was achieved primarily
for the reasons discussed above.
34
<PAGE> 38
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1996 TO FISCAL YEAR ENDED MARCH 31,
1995
Net sales. Net sales were $167.0 million for the year ended March 31,
1996, an increase of $6.4 million, or 4.0%, from $160.6 million for the year
ended March 31, 1995. Net sales of industrial castings grew $6.6 million, or
7.7%, to $92.2 million. The increase in industrial sales was primarily due to
improved pricing while sales volume remained stable. The improved pricing for
industrial castings was mainly the result of a better industrial product mix as
the Company increased its sales of more complex, value-added industrial
castings. Net sales of municipal castings decreased $1.0 million, or 1.4%, to
$69.4 million, due to a decrease in unit volume, which was partially offset by
improved pricing. The decrease in municipal castings volume was principally due
to artificially high sales in fiscal 1995 resulting from weather conditions.
Fiscal 1995 net sales were affected by poor winter weather in January to March
1994 which resulted in the postponement of certain sales from fiscal 1994 to
fiscal 1995, and mild weather from January to March 1995 which resulted in the
acceleration of sales from fiscal 1996 to fiscal 1995. Total production volume
in tons decreased more significantly than unit volume for municipal sales
because of the effect of the lightweighted casting program. See "-- General."
Hartley Controls net sales grew $0.8 million, or 17.4%, to $5.4 million,
principally due to increased volume of equipment sales.
Gross Profit. Gross profit was $45.3 million for the year ended March 31,
1996, an increase of $5.7 million, or 14.4%, from $39.6 million for the year
ended March 31, 1995. Gross profit as a percentage of net sales increased to
27.1% for the year ended March 31, 1996, from 24.7% for the year ended March 31,
1995. The continued improvement in gross profit, as a percentage of net sales,
was due to the combined effect of margin improvements in both the industrial and
municipal product lines. Industrial castings gross profit percentage improved
due to the shift to a more profitable product mix and improved efficiency in
plant operations. Municipal castings gross profit percentage improved largely
due to the effect of implementing the lightweighted casting program and an
increase in selling prices.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $17.0 million for the year ended March 31, 1996, an
increase of $0.3 million, or 1.8%, from $16.7 million for the year ended March
31, 1995. As a percentage of net sales, selling, general and administrative
expenses decreased slightly to 10.1% for the year ended March 31, 1996, from
10.4% for the year ended March 31, 1995. Approximately $0.1 million of the
increase in selling, general and administrative expense was due to increased
compensation and benefits to officers of the Company who resigned at Closing.
Excluding the effects of estimated nonrecurring executive compensation and
benefits, selling, general and administrative expenses, as a percentage of net
sales, decreased to 8.4% from 8.6% for the year ended March 31, 1995, primarily
due to the spreading of fixed expenses over a greater volume of sales.
Operating Income. Operating income increased to $28.3 million for the year
ended March 31, 1996, an increase of $5.3 million, or 23.0%, from $23.0 million
for the year ended March 31, 1995. As a percentage of net sales, operating
income increased to 17.0% for the year ended March 31, 1996, from 14.3% for the
year ended March 31, 1995. The improvement in operating income was achieved
primarily for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs will arise primarily from debt service on
indebtedness incurred in connection with the Transactions and the Refinancing,
working capital needs and the funding of capital expenditures. At March 31,
1997, on a pro forma basis after giving effect to the Transactions, the
Company's consolidated indebtedness would have been approximately $197.7 million
(excluding $0.6 million of outstanding letters of credit), consisting of $150.0
million of the Series A Notes, $47.6 million of the Notes (including unamortized
premium of $2.6 million) and $0.1 million of Senior Indebtedness (consisting of
capital lease obligations). As of July 1, 1997, after giving effect to the
Transactions and the Refinancing, and the application of the net proceeds
therefrom, the Company
35
<PAGE> 39
and the Guarantor Subsidiaries would have had outstanding $0.1 million
(excluding $0.6 million of outstanding letters of credit) aggregate principal
amount of Senior Indebtedness (all of which is Secured Indebtedness), $197.6
million aggregate amount of Senior Subordinated Indebtedness including the
indebtedness represented by the Notes and no indebtedness that is subordinate or
junior in right of payment to the indebtedness represented by the Notes. The
degree to which the Company is leveraged could have a significant effect on its
results of operations.
Principal and interest payments under the Revolving Credit Facility, the
Series A Notes and the Notes will represent significant liquidity requirements
for the Company. Borrowings under the Revolving Credit Facility bear interest at
variable interest rates and are subject to a borrowing base. The Credit
Agreement for the Senior Bank Facilities imposes restrictions on the Company's
ability to make capital expenditures and both the Credit Agreement and the
Indenture governing the Notes limit the Company's ability to incur additional
indebtedness. Such restrictions, together with the highly leveraged nature of
the Company, could limit the Company's ability to respond to market conditions,
to meet its capital spending program, to provide for unanticipated capital
investments or to take advantage of business opportunities. The covenants
contained in the Credit Agreement also, among other things, restrict the ability
of the Company and its subsidiaries to dispose of assets, incur guarantee
obligations, prepay the Notes or amend the Indenture, pay dividends, create
liens on assets, enter into sale and leaseback transactions, make investments,
loans or advances, make acquisitions, engage in mergers or consolidations,
change the business conducted by the Company, make capital expenditures or
engage in certain transactions with affiliates, and otherwise restrict corporate
activities. The covenants in the Indenture also impose restrictions on the
operations of the Company's businesses. See "Risk Factors -- Restrictive Loan
Covenants." "Description of Notes," and "Description of Senior Bank Facilities."
For the fiscal years ended March 31, 1995, 1996 and 1997, the Company's
capital expenditures were $3.7 million, $7.3 million and $4.5 million,
respectively. The $3.6 million increase in capital expenditures for the fiscal
year ended March 31, 1996 from the comparable period for 1995 was primarily the
result of the expansion of the cooling capabilities of two of the Company's
production lines. Of the $4.5 million of capital expenditures in 1997, an
estimated $4.0 million was attributable to maintenance of capital equipment. The
Company currently plans to make capital expenditures of approximately $6.0
million in the fiscal year ended March 31, 1998, exclusive of any acquisitions.
While a component of the Company's strategy is to make selective acquisitions in
the foundry industry, it currently has no agreements relating to any
acquisitions.
The Company's principal source of cash to fund its liquidity needs will be
net cash from operating activities and borrowings under the Revolving Credit
Facility. Net cash from operating activities for the year ended March 31, 1997
was $23.5 million, an increase of $1.2 million from $22.3 million for the year
ended March 31, 1996, primarily as a result of an increase in net income. Net
cash from operating activities for the year ended March 31, 1996 of $22.3
million represented a decrease of $1.3 million from $23.6 million in the
comparable period of 1995, primarily as a result of a net increase in working
capital (excluding cash and cash equivalents) during 1996 partially offset by
greater net income in 1996.
At March 31, 1997, on a pro forma basis after giving effect to the
Transactions, the Refinancing, and the application of the proceeds therefrom, as
well as borrowing base limitations and $0.6 million of outstanding letters of
credit, the Company estimates that it would have had the ability to borrow
approximately $24.5 million under the Revolving Credit Facility. Amounts under
the Revolving Credit Facility may be used for working capital and general
corporate and other purposes, subject to certain limitations under the Senior
Bank Facilities. The Company is currently negotiating an amendment to the Senior
Bank Facilities which, if adopted, would (i) increase the borrowings available
under the Revolving Credit Facility to the Company from $30.0 million to $50.0
million and (ii) eliminate all borrowing base limitations from the current
Revolving Credit Facility. See "Summary -- Amendment to Senior Bank Facilities."
The Company believes that cash generated from operations, together with the
amounts available under the Revolving Credit Facility, will be adequate
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<PAGE> 40
to meet its debt service requirements, anticipated capital expenditures and
working capital needs for the foreseeable future, although no assurance can be
given in this regard. The Company also believes that such resources, together
with the potential future use of debt or equity financing, will allow the
Company to pursue its strategic goal of making selective acquisitions. The
Company's future operating performance and ability to service or refinance the
Notes and to extend or refinance the Senior Bank Facilities will be subject to
future economic conditions and to financial, business and other factors, many of
which are beyond the Company's control.
RAW MATERIALS
Although the prices of all raw materials used by the Company vary, the
fluctuations in the price of steel scrap are the most significant to the
Company. The Company has arrangements with most of its industrial customers
which require the Company to adjust industrial casting prices to reflect scrap
price fluctuations. In periods of rapidly rising or falling scrap prices, these
adjustments will lag the current scrap price because they are generally based on
average market prices for prior periods, which periods vary by customer but are
generally no longer than six months. Castings are generally sold to the heavy
municipal market on a bid basis and, after a bid is won, the price for the
municipal casting subject to the bid generally cannot be adjusted for raw
material price increases. However, in most cases the Company has been successful
in obtaining higher municipal casting unit prices in subsequent bids to
compensate for rises in scrap prices in prior periods. Rapidly fluctuating scrap
prices may have a temporary adverse or positive effect on the Company's results
of operations.
INFLATION
The Company does not believe that inflation has had a material impact on
its financial position or results of operations during the three years ended
March 31, 1997.
CYCLICALITY AND SEASONALITY
The Company has historically experienced moderate cyclicality in the heavy
municipal market. Sales of municipal products are influenced by, among other
things, public spending. In the industrial market, the Company has experienced
cyclicality in sales resulting from fluctuations in the medium-and heavy-duty
truck market and the farm equipment market, which are subject to general
economic trends.
The Company experiences seasonality in its municipal business where sales
tend to be higher during the construction season, which occurs during the warmer
months, generally the first and second quarters of the Company's fiscal year.
Seasonal weather can also impact the Company's net sales from year to year, as
warmer weather conditions in the months of January through March of any given
year can allow shipments during that time which would normally occur in the
subsequent fiscal year. The Company maintains level production throughout the
year in anticipation of such seasonality and does not experience production
volume fluctuations as a result. The Company builds inventory in anticipation of
the construction season with such inventories reaching a peak near the end of
its fiscal year in March. The Company has not historically experienced
seasonality in industrial casting sales.
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EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on ; provided, however, that if the Company has
extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer is
extended.
As of the date of this Prospectus, $45.0 million aggregate principal amount
of the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , to all holders of Old
Notes known to the Company. The Company's obligation to accept Old Notes for
exchange pursuant to the Exchange Offer is subject to certain conditions as set
forth under "-- Certain Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for any exchange of any Old Notes, by giving notice of
such extension to the holders thereof. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "-- Certain Conditions to the Exchange Offer." The Company
will give notice of any extension, amendment, non-acceptance or termination to
the holders of the Old Notes as promptly as practicable, such notice in the case
of any extension to be issued no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to United States Trust Company of New
York (the "Exchange Agent") at one of the addresses set forth below under
"Exchange Agent" on or prior to the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE
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ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by registered holder of the Old Notes who has
not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm that is a member or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or the Stock Exchange Medallion
Program or by an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (collectively, "Eligible Institutions"). If Old
Notes are registered in the name of a person other than a signer of the Letter
of Transmittal, the Old Notes surrendered for exchange must be endorsed by or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by, the registered holder with the signature thereon guaranteed by an
Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date. The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Notes for exchange must be cured within such
reasonable period of time as the Company shall determine. Neither the Company,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Old
Notes for exchange, nor shall any of them incur any liability for failure to
give such notification. The Exchange Offer is subject to certain customary
conditions relating to compliance with any applicable law, or any applicable
interpretation by any staff of the Commission, or any order of any governmental
agency or court of law. See "--Certain Conditions of the Exchange Offer."
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
do so must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the holder and any beneficial holder, that
neither the holder nor any such beneficial holder has an arrangement or
understanding with any person to participate in the distribution of such New
Notes and that neither the holder nor any such other person is an "affiliate,"
as defined under Rule 405 of the Securities Act, of the Company. If the holder
is a broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer, it must acknowledge that it acquired the Old Notes for its own
account as the result of market-making activities or other trading activities,
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes.
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<PAGE> 43
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Old Notes for exchange when, as and if the
Company has given oral and written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's accountant the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, such non-exchanged Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration of the Exchange Offer.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile and transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old Notes,
in proper form for transfer or a confirmation of book-entry transfer of such Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a
"Book-Entry Confirmation"), as the case may be, and any other documents required
by the letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within five NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
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WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time on the business day prior to the Expiration Date. For a
withdrawal to be effective, a written notice of withdrawal must be received by
the Exchange Agent at one of the addresses set forth below under "Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn
(including the principal amount of such Old Notes), and (where certificates for
Old Notes have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing holder. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange Agent,
then, prior to the release of such certificates, the withdrawing holder must
also submit the serial number of the particular certificates to be withdrawn and
a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange which are not exchanged for any reason will be returned to
the holder thereof without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book entry transfer described
above, such Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility for the Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "-- Procedures for Tendering Old Notes" above at any time on or
prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer if at any time
before the Expiration Date, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
prior to the Expiration Date any stop order shall be threatened or in effect
with respect to the Registration Statement of which this Prospectus constitutes
a part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended (the "TIA"). In any such event, the Company is required to use
every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at the address set forth below. Questions and
requests for assistance, requests for additional copies of
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<PAGE> 45
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
United States Trust
Company of New York
114 West 47th Street
New York, NY 10036
Via Facsimile: (212) 852-1626
Confirm by Telephone: (212) 852-1614
For Information: (212) 858-2103
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or other
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the principal amount as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Exchange Offer will be
capitalized for accounting purposes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of, the Securities
Act and applicable state securities law. Old Notes not exchanged pursuant to the
Exchange Offer will continue to accrue interest at 11 1/8% per annum and will
otherwise remain outstanding in accordance with their terms. Holders of Old
Notes do not have any appraisal or dissenters' rights under the Delaware General
Corporation Law in connection with the Exchange Offer. In general, the Old Notes
may not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. To the extent that Old
Notes are exchanged for New Notes, the market for the Old Notes may be adversely
affected. The Company does not currently anticipate that it will register the
Old Notes under the Securities Act. However, (i) if the Initial Purchasers so
request with respect to Old Notes not eligible to be exchanged for New Notes in
the Exchange Offer and held by them following consummation of the Exchange Offer
or (ii) if any holder of Old Notes is not eligible to
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<PAGE> 46
participate in the Exchange Offer, or, in the case of any holder of Old Notes
that participates in the Exchange Offer, does not receive freely tradable New
Notes in exchange for Old Notes, the Company is obligated to file a Registration
Statement on the appropriate form under the Securities Act relating to the Old
Notes held by such persons.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, it is the Company's view that New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes form the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no intention, or any arrangement
or understanding with any person, to participate in the distribution of such New
Notes. If any holder has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. A broker-dealer who holds Old Notes that were acquired for
its own account as a result of market-making or other trading activities may be
deemed to be an "underwriter" within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of New Notes. Each such broker-dealer that
acquired New Notes as a result of market-making activities or other trading
activities, must acknowledge in the Letter of Transmittal that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably requests in writing.
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BUSINESS
OVERVIEW
The Company, founded in 1872, is one of the largest manufacturers of a wide
range of high quality ductile and gray iron castings for the heavy municipal
market and selected segments of the industrial market. The Company believes it
is the largest manufacturer of heavy municipal iron castings in the United
States with approximately a 19% market share in calendar year 1996. The
Company's broad range of heavy municipal iron castings includes manhole covers
and frames, storm sewer frames and grates, heavy duty airport castings,
specialized trench drain castings, specialty flood control castings and
ornamental tree grates. These municipal castings are sold throughout the United
States to state and local government entities, utility companies, precast
concrete manhole structure producers and contractors for both new construction
and infrastructure replacement. The municipal market generated approximately 43%
of the Company's 1997 net sales. The Company believes it is also a leading
manufacturer of a wide range of complex industrial castings, including castings
for medium- and heavy-duty truck drive line components, a broad range of
castings for the farm equipment industry and specific components for compressors
used in heating, ventilation and air conditioning systems ("HVAC"). The
industrial market generated approximately 53% of the Company's 1997 net sales.
In addition, the Company engineers, manufactures and sells customized sand
control systems and related products, which are an essential part of the casting
process, to other iron foundries. Sales of these sand control systems and
related products represented approximately 4% of the Company's 1997 net sales.
The Company currently operates two modern foundries with an annual
aggregate rated capacity of approximately 187,000 tons at a single site in
Neenah, Wisconsin. Since 1985, the Company has invested approximately $100
million in its production facilities, with approximately $73 million invested in
a major plant modernization program from 1985 to 1990. This plant modernization
program was a critical part of a long-term strategy to produce higher volume,
value-added castings for its existing industrial customers and to penetrate
other selected segments of the industrial market, while preserving its position
as the leader in the heavy municipal market. This modernization program entailed
the closing of the Company's oldest foundry, Plant 1, and the updating of the
Company's other two foundries, Plants 2 and 3, which enabled the Company both to
produce higher volume, complex castings for selected industrial segments and to
improve the Company's cost position in the heavy municipal market. Following the
completion of the modernization program, the Company has steadily decreased its
production of lower margin products such as axle covers and brake drums and
increased the production of higher margin, more complex parts such as
transmission and axle housings. As a result of this strategy, the Company's
ongoing improvements in its manufacturing process and increased demand for
medium- and heavy-duty truck components, net sales and EBITDA (as defined) have
increased substantially. From 1992 to 1997, net sales have grown from $116.5
million to $165.4 million, representing a compound annual growth rate of 7.3%,
and EBITDA has grown from $13.4 million to $38.0 million during the same period,
representing a compound annual growth rate of 23.2%.
INDUSTRY
The United States casting industry includes products made from gray,
malleable and ductile iron, aluminum, steel and various other metals, each with
different underlying structural and performance properties such as strength,
durability and weight. Gray iron, the oldest and most widely used cast iron, is
readily cast into intricate shapes that are easily machined and wear resistant.
Malleable iron, the least used form of iron, is stronger than gray iron and is
more costly than either gray or ductile iron. Ductile iron is also readily cast
into intricate shapes, and due to the addition of alloys during the casting
process, has greater strength and ductility than gray iron. As a result, ductile
iron is used as a higher-strength substitute for gray iron and a lower-cost
substitute
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for malleable iron and, in certain applications, steel. The Company manufactures
both gray and ductile iron which it sells into two broad end markets, the
municipal and industrial markets.
The municipal market consists of the heavy municipal market and the water
works market. The heavy municipal market is composed of "standard" castings
(consisting primarily of storm and sanitary sewer castings including manhole
covers and frames and storm sewer frames and grates), and "specialty" castings
(consisting primarily of heavy duty airport castings, trench drain castings,
flood control castings, special manhole and inlet castings and ornamental tree
grates). The water works market consists of certain pipe fittings, valves and
fire hydrants. The Company competes in the heavy municipal market and does not
participate in the water works market. The industrial market includes segments
such as car/light truck, medium- and heavy-duty truck, farm equipment and HVAC.
Of these, the Company primarily provides parts to the medium- and heavy-duty
truck, farm equipment and, to a lesser extent, HVAC segments. Since 1986, the
industrial market has steadily increased its demand for ductile iron due to its
superior performance properties such as strength, ductility and resistance to
stress and mechanical shock. The heavy municipal market utilizes gray iron for
the overwhelming majority of the parts it requires because gray iron continues
to be the most cost-effective material for most municipal applications.
The United States iron foundry industry is highly fragmented despite
significant consolidation over the past decade. In 1986, there were
approximately 880 foundries engaged in the casting of gray, ductile and
malleable irons, with an aggregate capacity of approximately 15 million tons
according to Stratecasts, Inc. a foundry industry research and consulting
organization. By 1996, the number of iron foundries had decreased to
approximately 730, with an aggregate capacity of approximately 13 million tons,
with further consolidation expected to take place. Many smaller foundries have
closed due to the increasing cost of complying with environmental and other
governmental regulations and their inability to satisfy the increasing demand
for higher quality, more complex castings. Due to capacity achieved through
consolidation and technological advancements, the output per remaining foundry
has risen.
In the heavy municipal market, a significant share of the market is served
by a few large foundries, including the Company. Foreign competition,
particularly from India, which had a strong presence in the heavy municipal
market in the past, has receded over the last 18 months as a result of both
antidumping and countervailing duty litigation and increasingly stringent
emission controls in such countries. Such foreign competition, which continues
to be a factor in the heavy municipal market, is primarily present in the
western and eastern coastal states due in part to the costs associated with
transportation. The industrial market has experienced substantial change over
the last 20 years due to two major initiatives by industrial original equipment
manufacturers and their first tier suppliers. The first, outsourcing, has meant
the closing of automotive and other captive foundries as OEMs and their first
tier suppliers focus on core businesses and take advantage of specialized skills
and lower manufacturing and labor costs of independent foundries. Second, OEMs
and their first tier suppliers are reducing the number of suppliers with whom
they work in an effort to eliminate duplicative overhead at multiple suppliers,
take advantage of economies of scale inherent in volume production and confine
suppliers to those with the resources necessary to satisfy stringent quality and
dependability criteria.
COMPETITIVE ADVANTAGES
The Company believes it benefits from the following competitive advantages,
which have enabled it to increase sales and operating profitability and to
maintain its position as one of the leaders in the iron casting industry.
Leading Market Position. The Company believes it is the largest
manufacturer of heavy municipal iron castings in the United States with
approximately a 19% market share in calendar year 1995. Furthermore, the
Company, which has produced municipal castings for over 70 years has, according
to its estimates, over a 50% market share in nine of the top ten states in which
the
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<PAGE> 49
Company sells heavy municipal castings. Sales in those states represented
approximately 69% of the Company's municipal sales in 1997. The Company believes
it is also one of the largest manufacturers of iron castings for selected
segments of the industrial market, including the medium-and heavy-duty truck and
farm equipment segments. The Company is the sole sourced supplier for over 85%
of the industrial products it produces and has multi-year arrangements with
certain of its largest customers. The Company believes it can continue to
capitalize on its strong market position to generate additional revenues and
realize economies of scale, thereby increasing margins and earnings.
Low Cost Structure. As a result of its size, significant investment in
equipment and technology and focus on improving efficiency, the Company believes
it possesses a highly competitive cost structure. Since 1985, the Company has
invested approximately $100 million in its production facilities, with
approximately $73 million invested in plant modernization and new equipment from
1985 to 1990. These investments, combined with the Company's ongoing
improvements to its manufacturing process, have substantially increased
efficiency and manufacturing productivity. From 1992 to 1997, the Company
reduced its scrap rate from 3.5% to 2.0%, which the Company believes is one of
the lowest scrap rates in the industry. During the same period, the Company
reduced its employee hours per ton by approximately 40% from 14.8 to 9.0, while
improving product quality levels and producing higher margin, more complex
parts.
Broad Product Offering. The Company carries a broad range of products,
offering more than 4,400 patterns that can produce over 20,000 part combinations
for the heavy municipal market, and more than 350 patterns for the industrial
market. The Company believes its municipal catalog offers the largest castings
selection of any foundry serving the heavy municipal market. This extensive
product offering, which includes hundreds of one-of-a-kind specialty items,
enables the Company to compete throughout the United States and provide a
substantial number of the many types of municipal castings required for
individual projects. Heavy municipal castings are manufactured from
Company-owned patterns which have been appraised by independent appraisers to
have a value in excess of $22 million. Additionally, the Company's extensive and
growing offering of complex industrial castings enables it to more effectively
service its customers' increasing needs for highly engineered cast parts and
often positions the Company as the sole source of supply to original equipment
manufacturers ("OEMs") and their first tier suppliers. The Company's broad
industrial product offering and its recognized casting engineering expertise
have become increasingly important as large industrial customers seek to reduce
the number of suppliers with whom they conduct business.
Strong, Diverse Customer Relationships. The Company continually focuses on
establishing and maintaining strong relationships with its customers. In the
heavy municipal market, the Company currently sells to over 17,000 active
customers in all 50 states, with the majority of its sales concentrated in the
midwestern states. The Company believes it has the largest sales and marketing
effort of any foundry serving the heavy municipal market, including 47 Company
employees and 26 commissioned representatives. The Company believes the size of
its marketing effort, the breadth of its product offering and the level of its
technical support provide it with a significant competitive advantage and will
allow it to further strengthen its leading position in the heavy municipal
market. With respect to the industrial market, the Company has established
strong relationships with leading manufacturers of medium- and heavy-duty truck
components, farm equipment and HVAC systems. The Company is the sole sourced
provider for over 85% of the products it currently supplies to its industrial
customer base and has multi-year arrangements with certain of its largest
customers. Furthermore, the average industrial casting typically takes between
12 and 18 months to go from the design phase to full production and has an
average life cycle of approximately 8 to 10 years. This lengthy development
process, in which the Company actively participates, provides the Company with
an inventory of products that cannot be quickly replicated by its competitors.
Historically, the foundry that has originally manufactured an industrial part
has continued to manufacture that part throughout its product life cycle. The
Company's participation in both the heavy municipal and
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<PAGE> 50
industrial markets helps to diversify the Company's business and to reduce the
Company's reliance on individual customers or end-use markets.
High Quality Products and Customer Service. The Company believes it enjoys
a reputation for providing a high level of customer service and is recognized
for its ability to consistently manufacture high-quality, complex products. The
Company believes its manufacturing capabilities and process controls allow it to
manufacture high quality castings which are dimensionally and metallurgically
consistent. In addition to providing high quality products, the Company
emphasizes customer service by providing tooling and engineering development
support to its customers, consistent on-time delivery utilizing its own fleet of
trucks for delivery of many of its municipal products and a small portion of the
Company's industrial products and follow-up through its sales and marketing
team. The Company believes its ability to provide such product quality and
responsive service has fostered customer loyalty and long-term relationships.
Experienced Management Team with Significant Equity Stake. The top seven
members of the Company's senior operating management have an average of
approximately 12 years with the Company and 23 years in the iron foundry
industry. Through an investment in ACP Products, L.L.C., certain members of the
Company's management (the "Management Investors") beneficially own, on a fully
diluted basis, approximately 10% of the common stock of the Company.
BUSINESS STRATEGY
The Company's strategy for achieving continued growth in sales and
profitability includes: (i) increasing the sale of higher margin products, (ii)
selectively entering new markets, (iii) improving operating performance and (iv)
making selective acquisitions.
Increasing the Sale of Higher Margin Products. The Company continually
strives to improve the margins on the parts it produces. In the heavy municipal
market, the Company has historically maintained strong margins by periodically
implementing price increases and introducing new, higher value-added products.
For example, the Company is currently leading the market in the sale of
lightweighted municipal castings, which are less costly to handle and require
less raw material to produce. The Company believes incremental margin
improvements will be realized from the Company's increased production of these
lightweighted products. In the industrial market, the Company increased its
focus on manufacturing complex, highly engineered castings in the early 1990s
following substantial capital investment in the late 1980s. Since 1991, the
Company has steadily increased the volume, array and complexity of the parts it
produces for its industrial customers. The Company intends to continue to pursue
opportunities to produce more complex, higher value-added castings, thereby
continuing to improve product margins.
Selectively Entering New Markets. The Company intends to selectively
expand its presence in both the heavy municipal and industrial markets. In the
heavy municipal market, the Company is considering expanding its product
offering in high volume markets such as New York and Nevada where the Company
already has sales representatives in place and for which the Company has already
invested in certain of the toolings necessary to meet potential product demand.
In addition, the Company is exploring further opportunities in New Jersey, New
Hampshire and Massachusetts. The Company's strategy in its chosen industrial
segments is to continue to increase its penetration of existing customers and to
develop similar relationships with other selected industrial companies which
would value the Company's technical ability and high level of product quality
and customer service. The Company also intends to explore opportunities in
austempering (heat-treating ductile iron) and machining and assembling
sub-components for specific industrial customers.
Improving Operating Performance. The Company operates two modern
foundries, and believes it possesses a highly competitive cost structure. The
Company intends to continue to seek ways to capitalize on and extend its
technological expertise and operating efficiencies, thereby reducing its
operating costs. In contrast to the major investments made from 1985 to 1990,
which significantly improved both manufacturing capacity and efficiency, the
Company's near term capital
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<PAGE> 51
expenditures will be focused primarily on incrementally improving efficiency and
reducing costs through projects such as: (i) sand system optimization, (ii)
material handling improvements and (iii) energy utilization improvements.
Making Selective Acquisitions. The United States iron foundry industry is
highly fragmented despite significant consolidation over the past decade. In
1986, there were approximately 880 foundries engaged in the casting of iron,
with an aggregate capacity of approximately 15 million tons according to
Stratecasts, Inc., a foundry industry research and consulting organization. By
1996, the number of iron foundries decreased to approximately 730, with an
aggregate capacity of approximately 13 million tons. Management believes the
consolidation that has occurred will continue, particularly in the industrial
market, as technical, environmental and quality standards continue to increase.
The Company intends to pursue selective acquisition opportunities that
complement its existing product offering or enable the Company to expand its
presence in selected geographic areas of the heavy municipal market. The Company
believes such acquisitions will provide opportunities for incremental revenue
and cash flow by leveraging the Company's current expertise in manufacturing,
sales and marketing, and product and process engineering.
PRODUCTS, CUSTOMERS AND MARKETS
The Company provides a variety of products to both the heavy municipal and
industrial markets. The following table sets forth certain information regarding
the end-user markets served by the Company, the products produced by the
Company, representative customers in each end-user market and the percentage of
net sales attributable to each of the Company's markets for the years ended
March 31, 1996 and 1997.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES(1)
-------------------------------
FISCAL YEAR FISCAL YEAR
REPRESENTATIVE ENDED ENDED
MARKET END PRODUCT CUSTOMERS MARCH 31, 1996 MARCH 31, 1997
- ------------------ ------------------------ ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Heavy Municipal Standard castings State and local 42.9% %44.6
including storm and government
sanitary sewer castings, entities,
including manhole covers utility
and frames, storm sewer companies,
frames and grates; precast concrete
Specialty castings structure
including heavy duty producers and
airport castings, contractors(2)
specialized trench drain
castings, specialty
flood control castings
and ornamental tree
grates
Industrial
Medium- and % %(3)
Heavy-Duty Differential carriers Rockwell 42.3 34.3
Truck and cases, brackets, International
cages, calipers, caps, Eaton Corp.
carriers, hubs, Dana Corp.
knuckles, transmission
housings, yokes
Farm Equipment Various gear housings, John Deere 10.7% %16.0
planet carriers, axle New Holland
housings, planting and
harvesting equipment
parts, counterweights
Other Industrial Compressor components, Aisin 4.1% % 5.1
various housing and gear The Trane
cases Company
</TABLE>
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- ---------------
(1) Net sales include sales of Neenah Foundry only.
(2) No municipal customer represented more than 1.2% of Neenah Foundry's net
sales for the fiscal years ended March 31, 1996 or 1997.
(3) Commencing in the second quarter of calendar 1996, the Company decided to
discontinue the production of certain lower margin brake components as part
of its strategy to increase its focus on higher volume, complex parts for
its industrial customers. These brake components accounted for 8.3% of
medium- and heavy-duty truck net sales in fiscal 1996 and 1.0% in fiscal
1997.
Heavy Municipal. Based on industry reported data, the Company believes it
is the largest manufacturer of heavy municipal iron castings in the United
States with an estimated 19% market share in calendar year 1996. The Company's
broad heavy municipal product line consists of two general categories of
castings, "standard" and "specialty" castings. Standard castings principally
consist of storm and sanitary sewer castings which are consistent with
pre-existing dimension and strength specifications established by local
authorities. Standard castings are generally high volume items that are
routinely used in new construction and infrastructure replacement. Specialty
castings are generally lower volume, higher margin products which include
heavy-duty airport castings, trench drain castings, flood control castings,
special manhole and inlet castings and ornamental tree grates. These specialty
items are frequently selected and/or specified from the Company's municipal
product catalog and its tree grate catalog, which together encompass over 4,400
standard and specialty patterns. For many of these specialty products, the
Company believes it is the only manufacturer with existing patterns to produce
such a particular casting, although a competing manufacturer could elect to make
the investment in patterns or equipment necessary to produce such a casting.
The Company's municipal castings are sold to state and local government
entities, utility companies, pre-cast concrete manhole structure producers and
contractors for both new construction and infrastructure replacement. The
Company's 17,000 active municipal customers generally make purchase decisions
based on a number of criteria including acceptability of the product per local
specification, quality, service, price and the customer's relationship with the
foundry. Relative to customers in the industrial market, municipal market
customers are less technically demanding and rely on published product
specifications to ensure product performance.
A key aspect of winning orders in the heavy municipal market is the
specification process in which a local authority or design engineer sets
specific criteria for the casting or castings to be used in a particular
project. Those criteria then become part of the formal plans and specifications
that will govern the acceptability of castings for a particular project. The
Company seeks to be an active participant in the specification process. Its
sales staff makes frequent calls on design engineers as part of a continuous
effort to stay abreast of current specifications and upcoming projects. In these
sales calls, the Company seeks to create opportunities for the selection of
specifications which utilize an existing Company pattern. Although in many cases
the design engineer who sets the specification does not make the purchase
decision, when the Company's specialty product is specified it becomes more
difficult for another manufacturer to provide an alternate part which is
considered acceptable. The Company's professional sales staff and product
engineering department are highly regarded by design engineers and are
frequently consulted during the specification drafting process. The Company
believes its reputation for its product engineering support, consistent quality
and reliable service have made the Company's municipal and tree grate catalogs
two of the most frequently used specification design tools in the municipal
casting industry.
Over the past two years, the Company has begun to introduce what it calls
"lightweighted" parts to the heavy municipal market. These lightweighted parts
have been reengineered in order to reduce both their weight and the amount of
raw materials necessary for their manufacture, while maintaining the high
quality performance characteristics of the heavier version of the casting. This
improvement in the design and manufacture of municipal castings has resulted in
lower material costs and improved margins for this product line. The Company is
able to manufacture lightweighted castings because its manufacturing processes
enable it to refine castings walls down to very narrow
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<PAGE> 53
tolerances, many of which are currently not achievable by the Company's
competitors. While only a portion of the municipal castings the Company sells
are candidates for lightweighting, the Company expects to continue to increase
the number of lightweighted castings which it offers for sale over the next
several years.
Industrial. The Company believes it is a leading manufacturer of a wide
range of complex industrial castings, including castings for medium- and
heavy-duty truck drive line components and farm equipment as well as castings
for specific components for compressors used in HVAC systems. The Company's
industrial castings have increased in complexity since the early 1990's and are
generally produced in higher volumes than municipal castings. Complexity in the
industrial market is determined by the intricacy of a casting's shape, the
thinness of its walls and the amount of processing by a customer required before
a part is suitable for use by it. OEMs and their first tier suppliers have been
demanding higher complexity parts principally to reduce labor costs in their own
production processes by using fewer parts to manufacture the same finished
product or assembly and by using parts which require less preparation before
entering the production process.
The Company's industrial castings are primarily sold to a limited number of
customers with whom the Company has established a close working relationship.
The Company has sold to certain industrial customers for over 20 years and
currently has multi-year arrangements with certain of those customers. These
multi-year arrangements, which accounted for approximately 40% of the Company's
industrial castings business, do not bind the customer to purchase any minimum
amount of the Company's product and are not terminable at will by the customer.
Customers make purchasing decisions based on, among other things, technical
ability, price, service, quality assurance systems, facility capabilities and
reputation. However, as in the municipal market, the Company's assistance in
product engineering plays an important role in winning the award of industrial
castings. The average industrial casting typically takes between 12 and 18
months to go from the design phase to full production and has an average product
life cycle of approximately 8 to 10 years. The patterns for industrial castings,
unlike the patterns for municipal castings, are owned by the Company's customers
rather than the Company, however, such industrial patterns are not readily
transferrable to other foundries without, in most cases, significant additional
investment. Although foundries, including the Company, do not design industrial
castings, a close working relationship between a foundry and the customer during
a product launch is critical to reduce potential production problems and
minimize the customer's risk of incurring lost sales or reputation damage due to
a delayed launch. Involvement by a foundry early in the design process generally
improves the likelihood that the customer will design a casting within the
manufacturing capabilities of such foundry and also improves the likelihood that
such foundry will be awarded the casting for full production.
The Company is the sole sourced supplier of over 85% of the industrial
castings it currently produces. Historically, the Company has retained
approximately 90% of the castings it has been awarded throughout the product
life cycle, which is typical for the industry. The Company believes industrial
customers will continue to seek out foundries with a strong reputation for
performance who are capable of providing a cost-effective combination of
manufacturing technology and quality. The Company's strategy is to further its
relationships with existing customers by participating in the design and
production of more complex industrial castings, while seeking out selected new
customers who would value the Company's performance reputation, technical
ability and high level of quality and service.
In addition to increasing its sales to existing customers and seeking out
new customers, the Company intends to explore opportunities in austempering and
machining and assembling sub-components for specific industrial customers.
Austempering is the process of heat treating a ductile iron casting to increase
its strength, thereby increasing the casting's ability to replace steel in
additional applications. Machining and sub-assembling are value-added processes
often performed by the OEM or third parties. Austempering, machining and
sub-assembly are both processes which generally provide higher margins and
increase a customer's reliance on the manufacturer.
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SALES AND MARKETING
Heavy Municipal. Over its 70 years of heavy municipal market
participation, the Company has emphasized sales and marketing and believes it
has built a strong reputation for customer service. The Company believes it is
one of the leaders in United States heavy municipal casting production and has
strong name recognition. The Company has the largest sales and marketing effort
of any foundry serving the heavy municipal market, including 47 Company
employees and 26 commissioned representatives. The dedicated sales force works
out of regional sales offices to market the Company's municipal castings to
contractors and state and local governmental entities throughout the United
States. The Company operates nine regional distribution and sales centers and
has two other sales offices in Oklahoma City, Oklahoma and Norwood,
Pennsylvania. The Company believes this regional approach enhances its knowledge
of local specifications and its position in the heavy municipal market.
Industrial. The Company employs a dedicated industrial casting sales force
of six people, five based in Neenah, Wisconsin and one based in Mansfield, Ohio.
These six people consist of three account coordinators, who support the ongoing
customer relationships and organize the scheduling and delivery of shipments,
and three major account managers who work with customers' engineers and
procurement representatives, Company engineers, manufacturing management and
quality assurance representatives throughout all stages of the production
process to ensure that the final product consistently meets or exceeds customer
specifications. This team approach between sales, manufacturing, marketing,
engineering and quality assurance is an integral part of the Company's marketing
strategy.
MANUFACTURING PROCESS
The Company operates two modern foundries with an annual rated capacity of
approximately 187,000 tons at a single location in Neenah, Wisconsin. The
Company's foundries manufacture gray and ductile iron and cast it into intricate
shapes according to customer metallurgical and dimensional specifications. Since
1985, the Company has invested approximately $100 million in its production
facilities, with approximately $73 million invested from 1985 to 1990 in plant
modernization and new equipment. The Company also continually invests in the
improvement of process controls and product performance and believes that these
investments and its significant experience in the industry have made it one of
the most efficient manufacturers of industrial and heavy municipal casting
products. During 1997, the Company had a combined scrap rate of 2.0%, which it
believes was one of the lowest in the industry.
The casting process involves using metal, wood or urethane patterns to make
an impression of a casting product in a mold made primarily of sand. Cores, also
made primarily of sand, are used to make the internal cavities and openings in a
casting product. Once the casting impression is made in the mold, the cores are
set into the mold and the mold is closed. Molten metal is then poured into the
mold, fills the mold cavity and takes on the shape of the desired casting
product. Once the iron has solidified and cooled, the mold is shaken from the
casting and the sand is recycled. The selection of the appropriate casting
method, pattern, core making equipment and sand and other raw materials depends
on the final product and its complexity, specifications, and function as well as
intended production volumes. Because the casting process involves many critical
variables, such as choice of raw materials, design and production of tooling,
iron chemistry and metallurgy, and core and molding sand properties, it is
important to monitor the process parameters closely to ensure dimensional
precision and metallurgical consistency. See "-- Quality Assurance."
The Company continually seeks to find ways to expand the capabilities of
existing technology to improve manufacturing processes. An example of this
expansion is the Company's integration of Disamatic molding machines into its
operations. Disamatic molding machines are considered to be among the most
efficient sand molding machines because of their ability to produce high quality
molds at high production rates. Disamatic molding machines are used by most of
the Company's
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<PAGE> 55
direct competitors. Although the Company was not the first foundry to acquire
Disamatic molding machines, it has significantly enhanced the equipment's range
of production by combining it with core-setting capabilities which exceed those
of most foundries. To further improve upon the productivity of the Disamatic
molding machines, the Company has recently increased the length of two of its
cooling lines, making each line among the longest lines in the world for
comparable Disamatic equipment. This extension allows the Company to run its
machines at higher production rates while providing sufficient inmold cooling
time prior to mold shakeout to facilitate the production of high quality
castings. As a result of these and other similar efforts, the Company has been
able to increase productivity as measured in the number of molds per hour.
Additionally, from 1992 to 1997, the Company reduced employee hours per ton from
14.8 to 9.0.
The Company also achieves productivity gains by improving upon the
individual steps of the casting process such as reducing the amount of time
required to make a pattern change to produce a different casting product. The
reduced time permits it to profitably produce castings in medium volume
quantities on high volume, cost-effective equipment such as the Disamatic
molding machines. Additionally, extensive effort in real time process controls
permits the Company to produce a consistent, dimensionally accurate casting
product which requires less time and effort in the final processing stages of
production. This accuracy contributes significantly to the Company's
manufacturing efficiency.
Due to the Company's efforts to improve manufacturing productivity, as well
as increased operating leverage, improved pricing and a shift to higher
value-added industrial products, from fiscal 1992 to 1997 the Company's
operating margins have increased from 5.4% to 18.8%. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
HARTLEY CONTROLS
Hartley Controls, a wholly owned subsidiary of the Company, engineers,
manufactures and sells customized sand control systems, which are an essential
part of the casting process, to other iron foundries. The sand molding media
used in all high production iron foundries is a critical element in determining
the mold quality. Exacting and consistent control of this sand with respect to
moisture and chemical additives is an essential element for process control, and
relates directly to casting quality, scrap rate and the ability to produce
complex molds for highly engineered castings. Hartley Controls is a major United
States supplier of sand control systems, with over 300 installations since 1986.
Hartley Controls has made investments in process technology and has several
patented technologies related to sand systems, including the "Automatic Moisture
Controllers," the "Even-Flo Bin," the "Automatic Compactibility Tester," the
"Automatic Bond Determinator," the "Green Sand Reconditioner" and the "Sandman."
Sales of these sand systems and other products represented approximately 4% of
the Company's net sales for 1997.
In addition, Hartley Controls has recently expanded overseas and after only
three years has become a significant supplier of sand control systems in the
United Kingdom. Hartley Controls is the only manufacturer to supply control
systems in the United Kingdom for all brands of foundry sand mixers. Hartley
Controls also currently exports sand control systems to India, with further
expansion planned through a joint venture scheduled for the second quarter of
calendar 1997. Hartley Controls provides the Company access to the newest
technology in sand control as it becomes available.
QUALITY ASSURANCE
Constant testing and monitoring of the manufacturing process is important
to maintain product quality. The Company has adopted sophisticated quality
assurance techniques and policies for its manufacturing operations. During and
after the casting process, the Company performs numerous tests, including
tensile, proof-load, radiography, ultrasonic, magnetic particle and chemical
analysis. The Company utilizes statistical process controls to measure and
control significant process variables and casting dimensions. The results of
this testing are documented in metallurgical
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certifications which are provided with each shipment to most industrial
customers. The Company strives to maintain systems that provide for continuous
improvement of operations and personnel, emphasize defect prevention and reduce
variation and waste in all areas.
MANUFACTURING FACILITIES, EQUIPMENT AND PROPERTIES
The Company's headquarters and two foundries are located in Neenah,
Wisconsin. The first manufacturing foundry, Plant 2, produces gray and ductile
iron castings and is equipped with one BMD air impulse molding line, two Hydro
slinger cope and drag molding units, and one 2070 Type B Disamatic molding
machine. The annual rated capacity for Plant 2 is 116,000 gst (good salable
tons). The second manufacturing foundry, Plant 3, produces ductile iron castings
and is equipped with one 2013 Mark IV Disamatic molding machine and one 2070
Type B Disamatic molding machine. In July, 1995, the Company completed a program
in Plant 3 to gain efficiencies in material handling, labor utilization and
molding line productivity. The annual rated capacity for Plant 3 is
approximately 71,000 gst. Industrial and municipal castings are produced in both
plants. Rated capacity is based on an assumed product mix and, due to the
Company's current industrial product mix, which includes numerous complex
castings, practical capacity is currently approximately 5% to 6% less than rated
capacity. The Company owns seven and leases six distribution and sales centers.
In early 1994, the Company closed Plant 1, its oldest and lowest capacity plant,
which was primarily producing large castings for HVAC Systems. The Company
closed Plant 1 because of its decision to discontinue the low volume, highly
complex castings produced by Plant 1 and the significant capital expenditures
that would have been necessary to modernize its equipment and facilities.
DISTRIBUTION
The Company sells a substantial amount of its municipal castings through
its network of two warehouses, nine distribution and sales centers and two other
sales offices. Industrial castings are shipped direct to customers from the
Company. For many municipal and a small portion of its industrial customers,
castings are delivered by Neenah Transport, Inc. ("Neenah Transport"), a wholly
owned subsidiary of the Company, which operates a fleet of 29 tractors and 101
trailers that deliver products throughout the Midwest. For sales outside of the
Midwest, increased transportation costs impact the ability of the Company to
compete on a cost basis. Neenah Transport also backhauls raw materials for use
by the Company on return trips. Neenah Transport is staffed with professional
drivers who are trained in service standards and product knowledge as
representatives of the Company. To the Company's knowledge, none of the
Company's major heavy municipal competitors have a captive transportation
subsidiary. The Company believes Neenah Transport's service and drivers provide
another differentiating factor in favor of the Company.
RAW MATERIALS
The primary raw materials used by the Company to manufacture iron castings
are steel scrap, pig iron, metallurgical coke and silica sand. While there are
multiple suppliers for each of these commodities, the Company has single source
arrangements with its suppliers of each of these major raw materials, with the
exception of pig iron. Due to long standing relationships with each of its
suppliers, the Company believes that it will continue to be able to secure raw
materials from its suppliers at competitive prices. The primary energy sources
for the Company's operations, electricity and natural gas, are purchased through
utilities.
Although the prices of all raw materials used by the Company vary, the
fluctuations in the price of steel scrap are the most significant to the
Company. The Company has arrangements with most of its industrial customers
which require the Company to adjust industrial casting prices to reflect scrap
price fluctuations. In periods of rapidly rising or falling scrap prices, these
adjustments will lag the current scrap price because they are generally based on
average market prices for prior periods, which periods vary by customer but are
generally no longer than six months. Castings are
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generally sold to the heavy municipal market on a bid basis and, after a bid is
won, the price for the municipal casting subject to the bid generally cannot be
adjusted for raw material price increases. However, in most cases the Company
has been successful in obtaining higher municipal casting unit prices in
subsequent bids to compensate for rises in scrap prices in prior periods.
Rapidly fluctuating scrap prices may have a temporary adverse or positive effect
on the Company's results of operations. See "Risk Factors -- Raw Materials."
COMPETITION
The markets for the Company's products are highly competitive. Competition
is based not only on price, but also on quality of product, range of capability,
level of service and reliability of delivery. The Company competes with numerous
independent and captive foundries, as well as with a number of foreign iron
foundries, including certain foundries located in India. The Company also
competes with several large domestic manufacturers whose products are made with
materials other than ductile and gray iron, such as steel or aluminum. The
industry consolidation that has occurred over the past 20 years has resulted in
a significant reduction in the number of smaller foundries and a rise in the
share of production by larger foundries, some of which have significantly
greater financial resources than the Company. Competition from India has had a
strong presence in the heavy municipal market and continues to be a factor,
primarily in the western and eastern coastal states, due in part to costs
associated with transportation. Such competition has receded over the past 18
months, primarily as a result of increased enforcement of emission controls. As
a result, Indian import volume has decreased and the price of Indian casting
products has risen. Additionally, foreign companies have been, and continue to
be, subject to antidumping and countervailing duty enforcement litigation which
the Company believes has had a negative effect on foreign companies' ability to
compete in the United States markets. There can be no assurance that these
factors will continue to mitigate the impact of foreign competition, or that the
Company will be able to maintain or improve its competitive position in the
markets in which it competes.
BACKLOG
The Company's industrial business generally involves supplying all or a
portion of a customer's annual requirements for a particular casting. Industrial
customers generally order castings on a monthly basis. Orders for the heavy
municipal market are generally received for specific casting products and cover
a much larger range of castings. The Company's backlog at any given time
consists only of firm industrial and municipal orders. The Company's backlog was
26,750 tons at March 31, 1997 as compared to 25,500 tons at March 31, 1996. The
increase in backlog of approximately 5% was primarily the result of
strengthening in the medium- and heavy-duty truck market. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
EMPLOYEES
As of March 31, 1997, the Company had 910 full time employees, of whom 710
were hourly employees and 200 were salaried employees. Of the 200 salaried
employees, 91 are in manufacturing and engineering, 61 are in sales and
marketing, 44 are in management and administration and four are in
transportation. The Local 121B of the Glass, Molders, Pottery, Plastics and
Allied Workers International Union AFL-CIO is the major bargaining agent for and
representative of 678 of the Company's hourly employees. The collective
bargaining agreement with Local 121B was reached on January 1, 1996 and expires
on December 31, 1998. The Independent Patternmakers Union of Neenah, Wisconsin
is the major bargaining agent for and representative of 32 of the Company's
hourly employees. The collective bargaining agreement with the Independent
Patternmakers Union was reached on January 1, 1995 and expires on December 31,
1997. The Company believes that it has a good relationship with its employees.
54
<PAGE> 58
LITIGATION
The Company is involved in routine litigation incidental to its business.
Such litigation is not, in the opinion of management, likely to have a material
adverse effect on the financial condition or results of operation of the
Company.
ENVIRONMENTAL MATTERS
The Company's facilities are subject to federal, state and local laws and
regulations relating to the protection of the environment and worker health and
safety, including those relating to discharges to air, water and land, the
handling and disposal of solid and hazardous waste and the cleanup of properties
affected by hazardous substances. Such laws include the Federal Clean Air Act,
the Clean Water Act, the Resource Conservation and Recovery Act and the
Occupational Health and Safety Act. The Company believes that its operations
have been and are currently in substantial compliance with applicable
environmental laws, and that it has no liabilities arising under such
environmental laws, except as would not be expected to have a material adverse
effect on the Company's operations, financial condition or competitive position.
However, some risk of environmental liability and other costs is inherent in the
nature of the iron foundry business. The Company might in the future incur
significant costs to meet current or more stringent compliance, cleanup or other
obligations pursuant to environmental requirements. Such costs may include
expenditures related to remediation of historical releases or clean-up of
structures prior to demolition.
Under the Federal Clean Air Act Amendments of 1990 ("CAA"), the
Environmental Protection Agency must establish maximum achievable control
technology ("MACT") standards for hazardous air pollutants emitted from iron
foundry operations by the year 2000. In addition, Wisconsin law imposes
requirements on emissions of air toxins from iron foundries and other
industries. Many of the regulations that will implement the CAA and Wisconsin
law have not yet been promulgated. Although it is not possible to estimate the
costs of complying with the regulations until they are issued, iron foundries,
including the Company, can be expected to incur significant costs over time to
comply with these federal and state regulations.
55
<PAGE> 59
MANAGEMENT
The following table identifies members of the Board of Directors, key
executive officers and certain other key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------------
<S> <C> <C>
James K. Hildebrand................ 60 Chairman of the Board and Chief Executive Officer
William M. Barrett................. 50 Vice President and General Manager
Gary W. LaChey..................... 51 Vice President -- Finance, Treasurer and
Secretary
Charles M. Kurtti.................. 60 Vice President -- Manufacturing and Engineering
John Z. Rader...................... 48 Vice President -- Human Resources
William J. Martin.................. 49 Vice President and General Manager -- Hartley
Controls Corporation
Timothy J. Koller.................. 47 General Sales Manager -- Municipal Castings
Frank C. Headington................ 47 Director -- Product Reliability
David F. Thomas.................... 47 Director
John D. Weber...................... 33 Director
Brenton F. Halsey.................. 69 Director
</TABLE>
Mr. Hildebrand is Chairman of the Board and Chief Executive Officer of the
Company. Mr. Hildebrand has been President and Chief Executive Officer of
Advanced Cast Products, Inc. since 1988, and will continue in that position for
the foreseeable future. Previously, he served as President of the Cast Products
Group of Amcast Industrial Corp. Mr. Hildebrand is also employed by ACP Holding
Company which, following the consummation of the Merger, became the beneficial
owner of all the common equity of both the Company and Advanced Cast Products,
Inc. See "Certain Relationships and Related Transactions." Mr. Hildebrand
devotes substantial time to, and be partially compensated by, Advanced Cast
Products, Inc.
Mr. Barrett is Vice President and General Manager of the Company. Mr.
Barrett joined the Company in 1992 serving as General Sales
Manager -- Industrial Castings. From 1985 to 1992, Mr. Barrett was the Vice
President -- Sales for Harvard Industries Cast Products Group.
Mr. LaChey is Vice President -- Finance, Treasurer and Secretary of the
Company. Mr. LaChey joined the Company in 1971, serving in a variety of
positions of increasing responsibility in the finance department.
Mr. Kurtti is Vice President -- Manufacturing and Engineering, of the
Company, a position he has held since 1991. Mr. Kurtti joined the Company in
1976 as a salesman. Mr. Kurtti has served as Director of Marketing, Director of
Purchasing -- Engineering and Director -- Manufacturing and Engineering.
Mr. Rader is Vice President -- Human Resources, a position he has held
since 1990. Mr. Rader joined the Company in 1987, serving as
Director -- Personnel until 1989 and as Director -- Human Resources until 1990.
Mr. Martin is Vice President and General Manager -- Hartley Controls
Corporation, a wholly owned subsidiary of the Company, a position he has held
since 1996. Previously, Mr. Martin was Territory Sales Manager at Disamatic,
Inc., a molding machine manufacturer, from 1986 to 1996.
Mr. Koller is General Sales Manager -- Municipal Castings for the Company.
Mr. Koller joined the Company in 1978, serving in a variety of positions of
increasing responsibility in the sales and marketing departments.
Mr. Headington is Director -- Product Reliability, a position he has held
since 1991. Mr. Headington joined the Company in 1989 as Manager -- Technical
Services, a position he held until 1991.
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<PAGE> 60
Mr. Thomas is a director of the Company. Mr. Thomas has been a Managing
Director of Citicorp Venture Capital, Ltd. for more than the past five years.
Mr. Thomas is a director of Lifestyles Furnishings International Ltd., Galey &
Lord, Inc., Anvil Knitwear, Inc. and a number of private companies.
Mr. Weber is a director of the Company. Since 1994, Mr. Weber has been a
Vice President at Citicorp Venture Capital, Ltd. Previously, Mr. Weber worked at
Putnam Investments from 1992 through 1994. Mr. Weber is a director of Anvil
Knitwear, Inc. and a number of private companies.
Mr. Halsey is a director of the Company. Mr. Halsey was the founding Chief
Executive Officer and Chairman of the James River Corporation from 1969 to 1990.
He continued as Chairman until 1992 when he became Chairman Emeritus.
Messrs. Hildebrand, Thomas, Weber and Halsey became directors of the
Company on April 30, 1997.
COMPENSATION OF DIRECTORS
Directors of the Company currently do not receive compensation for their
services as directors. Directors of the Company are entitled to reimbursement of
their reasonable out-of-pocket expenses in connection with their travel to and
attendance at meetings of the board of directors or committees thereof.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of the Company will be determined by
the Board of Directors of the Company. The Company's historical benefit or
compensation plans (a supplemental executive retirement plan and a deferred
compensation plan) are not described herein because each were terminated and are
expected to be replaced by a single compensation plan with respect to the named
officers in connection with the Merger (with the exception of a retirement plan
for Mr. Kurtti). The following table sets forth information concerning
compensation received by the five most highly compensated officers of the
Company for services rendered in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------------------------
-------------------- OTHER ANNUAL OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) SARS(#) PAYOUTS COMPENSATION
- ------------------------------ -------- ---------- --------------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Edmund W. Aylward, Jr.(2)..... $600,000 $1,157,793 $31,992 -- -- --
Chairman, President and
Chief Executive Officer
Andrew A. Aylward(2).......... 378,000 627,894 25,720 -- -- --
Vice President
Thomas R. Franklin(2)......... 209,750 164,840 49,424 -- -- --
Senior Vice President and
Chief Financial Officer
James P. Keating, Jr.(2)...... 204,000 99,096 32,780 -- -- --
Senior Vice President
Gary W. LaChey................ 138,000 40,000 26,122 -- -- --
Vice President
</TABLE>
57
<PAGE> 61
- ---------------
(1) The named officers have participated in the Company's profit sharing,
Company 401(k) contributions, and excess benefit programs. The aggregate
payments made by the Company pursuant to such programs are listed as Other
Annual Compensation.
(2) Messrs. E.W. Aylward and A.A. Aylward resigned from their current positions
in connection with the consummation of the Transactions. Mr. Keating's
employment listed above terminated on June 30, 1997, though he is available
to serve as a consultant to the Company. Mr. Franklin retired as an officer
of the Company on February 28, 1997.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with James P. Keating,
Jr. that terminated on June 30, 1997. The Company has also entered into a
consulting agreement with Mr. Keating that provides that Mr. Keating will be
available to serve as a consultant to the Company from July 1, 1997 to June 30,
1999. Mr. Keating is paid $16,500 per month under the consulting agreement.
MANAGEMENT INCENTIVE PLAN
The Company intends to provide performance-based compensation awards to
executive officers and key employees for achievement during each year as part of
a bonus plan. Such compensation awards may be a function of individual
performance and consolidated corporate results. The qualitative and quantitative
criteria will be determined from time to time by the Board of Directors of the
Company.
MANAGEMENT EQUITY PARTICIPATION
In connection with the Merger, (a) the Management Investors acquired units
representing membership interests in ACP Products, L.L.C., which represent, in
the aggregate, approximately a ten percent beneficial interest in the Company
(the "Purchased Interests") and (b) the Management Investors and certain other
employees of the Company are expected to be granted, over a five year period,
options (the "Options") to purchase additional Purchased Interests representing,
in the aggregate, approximately a two percent beneficial interest in the
Company. The Options are expected to be granted periodically and to vest and
become exercisable upon (i) certain threshold dates and/or (ii) the satisfaction
of certain financial performance tests.
Upon the termination of employment with the Company, an employee's
Purchased Interests will be subject to certain repurchase provisions exercisable
by ACP Products, L.L.C. or its designees. The Purchased Interests obtainable
upon exercise of the Options are expected to be subject to rights and
restrictions similar to those of the Purchased Interests purchased in connection
with the Closing. The exercise price of the Options will be established by ACP
Products, L.L.C. in consultation with the Board of Directors of the Company or a
compensation committee thereof.
58
<PAGE> 62
OWNERSHIP OF SECURITIES
The Company's authorized capital stock consists of 11,000 shares of common
stock, par value $100 per share (the "Common Stock"), 1,000 shares of which are
issued and outstanding and owned by Holdings and are pledged to the Lenders
under the Senior Bank Facilities. Holdings is a wholly-owned subsidiary of ACP
Holdings which in turn is wholly-owned by ACP Products, L.L.C.
The outstanding common units of ACP Products L.L.C. related to the Company
consist of 185,000 Class A-3 Common Units (the "Class A Common Units"), 815,000
Class B-3 Common Units (the "Class B Common Units", and together with the Class
A Common Units, the "Common Units"). Holders of Class A Common Units are
entitled to one vote per Class A Common Unit on all matters to be voted upon by
the holders of Class A Common Units. Holders of Class B Common Units have no
right to vote on any matters to be voted on by holders of Common Units. Holders
of Class B Common Units may elect at any time to convert any or all of such
Units into Class A Common Units, on a Common Unit-for-Common Unit basis.
Set forth below is certain information regarding the beneficial ownership
of Class A Common Units by each person who beneficially owns 5.0% or more of the
outstanding Class A Common Units, each director and named executive officer and
all directors and named executive officers as a group. Except as indicated
below, the address for each of the persons listed below is c/o Neenah Foundry
Company, 2121 Brooks Avenue, Box 729, Neenah, Wisconsin 54927.
<TABLE>
<CAPTION>
NUMBER OF
VOTING PERCENTAGE OF
CLASS A VOTING
COMMON CLASS A
NAME AND ADDRESS OF BENEFICIAL OWNER UNITS COMMON UNITS
----------------------------------------------------------- --------- -------------
<S> <C> <C>
Citicorp Venture Capital, Ltd.(1)(2)....................... 90,000 48.65%
399 Park Avenue
New York, New York
James K. Hildebrand(1)..................................... 20,000 10.81%
William M. Barrett(1)...................................... 13,000 7.03%
Gary W. LaChey(1).......................................... 13,000 7.03%
Charles W. Kurtti(1)....................................... 13,000 7.03%
John Z. Radar(1)........................................... 13,000 7.03%
David F. Thomas(3)......................................... 90,000 48.65%
John D. Weber(3)........................................... 90,000 48.65%
Brenton F. Halsey.......................................... 0 0.00%
Directors and named executive officers as a group.......... 162,000 87.57%
</TABLE>
- ---------------
(1) Such person disclaims beneficial ownership of the Company's Common Stock.
See "Management -- Management Equity Participation."
(2) Citicorp Venture Capital, Ltd. and its affiliates (collectively, "CVC") own
739,821.82 Class B Common Units representing 90.78% of the Class B Common
Units outstanding.
(3) Consists of the Class A Common Units held by CVC, which may be deemed to be
beneficially owned by Messrs. Thomas and Weber. Messrs. Thomas and Weber
disclaim beneficial ownership of shares held by CVC. Mr. Thomas is a
managing director of CVC. Mr. Weber is a vice president of CVC.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH ACP HOLDING COMPANY
ACP Products, L.L.C. holds all of the issued and outstanding shares of
capital stock of ACP Holding Company ("ACP Holdings"). ACP Holdings is the
parent company of Holdings, and thus indirectly owns 100% of the Common Stock of
the Company. James K. Hildebrand, who serves as the Chairman of the Board and
Chief Executive Officer of the Company, currently serves as President and Chief
Executive Officer of ACP Holdings and its principal operating subsidiary,
Advanced Cast Products, Inc. ("Advanced Cast"). Since the Closing, Mr.
Hildebrand has devoted substantial time to, and has been partially compensated
by, Advanced Cast, in addition to his role
59
<PAGE> 63
with the Company. Advanced Cast also produces iron castings for sale to the
industrial medium-and heavy-duty truck market, but it has not competed with the
Company in the past in any significant way and the Company does not anticipate
that it will so compete with Advanced Cast in the future.
SHAREHOLDER RELATIONSHIPS
In connection with the Merger, the Management Investors and certain
institutional investors, including Citicorp Venture Capital, Ltd., became
parties to the Third Amended and Restated Limited Liability Agreement of ACP
Products, L.L.C., as amended (the "L.L.C. Agreement"). The L.L.C. Agreement
contains certain provisions with respect to the beneficial equity interests and
corporate governance of the Company. The L.L.C. Agreement provides that the
Investor Group and the Management Investors, as the only members of ACP
Products, L.L.C. holding beneficial interests in the Company, have the right to
direct all actions taken in respect of Holdings and the Company, including,
without limitation, appointing members of the Board of Directors of the Company
and of Holdings.
REGISTRATION RIGHTS AGREEMENT
The Company entered into a registration rights agreement (the "Registration
Rights Agreement") with the Investor Group and the Management Investors.
Pursuant to the terms of the Registration Rights Agreement, certain holders of
the Company's Common Stock have the right to require the Company, at the
Company's sole cost and expense and subject to certain limitations, to register
under the Securities Act or list on any recognized stock exchange all or part of
the Common Stock beneficially owned by such holders (the "Registrable
Securities"). All such holders will be entitled to participate in all
registrations by the Company or other holders, subject to certain limitations.
In connection with all such registrations, the Company agreed to indemnify all
beneficial owners of Registrable Securities against certain liabilities,
including liabilities under the Securities Act and other applicable state or
foreign securities laws. Registrations pursuant to the Registration Rights
Agreement will be made, if applicable, on the appropriate registration form and
may be underwritten registrations.
DESCRIPTION OF SENIOR BANK FACILITIES
On April 30, 1997, the Company entered into a credit agreement (the "Credit
Agreement") with The Chase Manhattan Bank, as administrative agent and
collateral agent (the "Agent") and the lenders named therein (the "Lenders")
that provided term loans (the "Term Loans") of $45.0 million and a Revolving
Credit Facility of $30.0 million. Chase Securities Inc. acted as advisor and
arranger in connection with the Senior Bank Facilities (the "Arranger"). On July
1, 1997, the Company used the proceeds from the issuance of the Notes to pay the
Term Loans. The following is a summary description of the principal terms of the
Credit Agreement following payment of the Term Loans. The Credit Agreement is
available upon request from the Company.
Structure. Loans under the Credit Agreement consist of a revolving credit
facility (the "Revolving Credit Facility") in the amount of $30.0 million
subject to a borrowing base formula (of which $15.0 million will be available
for letters of credit). The Company is currently negotiating to amend the Credit
Agreement to (i) increase the borrowing availability under the Revolving Credit
Facility from $30.0 million to $50.0 million and (ii) eliminate all borrowing
base limitations. There can be no assurance, however, that such amendment will
be completed. See "Summary -- Proposed Amendments to Senior Bank Facilities."
The Revolving Credit Facility is being used for general corporate purposes in
the ordinary course of the Company's business and may be used for other
purposes, including the financing of acquisitions.
Security, Guaranty. The obligations of the Company under the Senior Bank
Facilities will be unconditionally and irrevocably guaranteed, jointly and
severally, by Holdings and by each existing and subsequently acquired or
organized subsidiary of the Company. In addition, the Senior Bank
60
<PAGE> 64
Facilities and the guarantees thereunder are secured by substantially all of the
assets of the Company and the guarantors (collectively, the "Collateral"),
including but not limited to (i) a first priority pledge of all the capital
stock of the Company and of each existing and subsequently acquired or organized
subsidiary of the Company and (ii) perfected first priority security interests
in, and mortgages on, substantially all tangible and intangible assets of the
Company and the guarantors (including but not limited to accounts receivable,
documents, inventory, equipment, intellectual property, general intangibles,
real property, cash and cash accounts and proceeds of the foregoing) in each
case subject to certain limited exceptions.
Availability. The availability of the Revolving Credit Facility is subject
to various conditions precedent typical of bank loans including, among other
things, the absence of any material adverse change on the part of the Company.
The full amount of the Term Loans was drawn in a single drawing at the Closing
of the Transactions and amounts repaid or prepaid under the Term Loans may not
be reborrowed. Amounts under the Revolving Credit Facility are available on a
revolving basis, subject to a borrowing base comprised of percentages of the
Company's eligible accounts receivable and eligible inventories. As of March 31,
1997, on a pro forma basis after giving effect to the Offering, the other
Transactions, the Refinancing and the application of the proceeds therefrom as
well as such borrowing base limitations and $0.6 million of outstanding letters
of credit, the Company estimates it would have had the ability to borrow
approximately $24.5 million under the Revolving Credit Facility.
Amortization, Interest. The Revolving Credit Facility is a five year
facility and bears interest at a rate per annum equal (at the Company's option)
to: (i) Adjusted LIBOR plus 2.5% or (ii) the Alternate Base Rate plus 1.5%, in
each case subject to certain reductions based on the Company's financial
performance. Amounts under the Revolving Credit Facility not paid when due bear
interest at a default rate equal to 2.0% above the otherwise applicable rate.
Prepayments. The Revolving Credit Facility permits the Company to
permanently reduce revolving credit commitments, in whole or in part, at any
time. Any prepayment of Adjusted LIBOR loans other than at the end of an
interest period will be subject to reimbursement of breakage costs.
Fees. The Company is required to pay the lenders, on a quarterly basis, a
commitment fee equal to 1/2 of 1% per annum on the undrawn portion of the
commitments, subject to reductions based upon the Company's financial
performance. The Company is also required to pay (i) a per annum letter of
credit fee equal to the applicable margin from time to time for Adjusted LIBOR
loans under the Revolving Credit Facility on the aggregate face amount of
outstanding letters of credit under the Revolving Credit Facility, (ii) a
fronting bank fee for the letter of credit issuing bank, (iii) annual
administration fees, and (iv) agent, arrangement and other similar fees.
Covenants. The Revolving Credit Facility contains a number of covenants
that, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, incur
guarantee obligations, prepay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
engage in mergers or consolidations, change the business conducted by the
Company or its subsidiaries, make capital expenditures, or engage in certain
transactions with affiliates and otherwise restrict certain corporate
activities. In addition, under the Revolving Credit Facility, the Company is
required to comply with a consolidated leverage ratio, a consolidated net worth
test and a consolidated interest coverage ratio. Under the Senior Bank
Facilities, the Company may not: (i) exceed a Consolidated Leverage Ratio (as
defined in the Senior Bank Facilities) of 6.00 to 1.00 through March 31, 1998,
of 5.75 to 1.00 from April 1, 1998 through March 31, 1999, of 5.50 to 1.00 from
April 1, 1999 through March 31, 2000, of 5.25 to 1.00 from April 1, 2000 through
March 31, 2001 and of 5.00 to 1.00 thereafter; (ii) permit Consolidated Net
Worth (as defined in the Senior Bank Facilities) to be less than $35,000,000
plus 50% of the cumulative amount of positive Consolidated Net Income (as
defined in the Senior Bank Facilities) for each fiscal year ending after the
Merger; and (iii) permit Consolidated Interest Coverage Ratio
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<PAGE> 65
(as defined in the Senior Bank Facilities) to be less than 1.55 to 1.00 through
March 31, 1998, 1.65 to 1.00 from April 1, 1998 through March 31, 1999, 1.75 to
1.00 from April 1, 1999 through March 31, 2000, 1.85 to 1.00 from April 1, 2000
through March 31, 2001, 1.95 to 1.00 from April 1, 2001 through March 31, 2002
and 2.00 to 1.00 thereafter.
The Revolving Credit Facility also contains provisions that prohibit any
modification of the Indenture in any manner adverse to the Lenders and that will
limit the Company's ability to refinance or otherwise prepay the Notes without
the consent of such Lenders.
Events of Default. The Revolving Credit Facility contains customary events
of default, including payment defaults, breach of representations and
warranties, covenant defaults, cross-defaults and cross-acceleration to certain
other indebtedness, certain events of bankruptcy and insolvency, ERISA events,
judgment defaults, actual or asserted invalidity of any security interest and
change of control.
DESCRIPTION OF NOTES
GENERAL
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes will have been registered under the
Securities Act and thus will not bear restrictive legends restricting their
transfer pursuant to the Securities Act and (ii) holders of New Notes will not
be entitled to rights of holders of the Old Notes under the Registration Rights
Agreement which terminate upon the consummation of the Exchange Offer. The Old
Notes have been, and the New Notes are to be, issued under an Indenture, dated
as of (the "Indenture"), among the Company, the Guarantor
Subsidiaries and United States Trust Company of New York, as Trustee (the
"Trustee").
The following summary of the material provisions of the Indenture and the
Notes does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended ("TIA"). Capitalized terms used herein
and not otherwise defined have the meanings set forth in the section "-- Certain
Definitions" below.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, the City of New York (which initially shall
be the corporate trust office of the Trustee at 114 West 47th Street, New York,
N.Y. 10036, Attn: Gerard Ganey), except that, at the option of the Company,
payment of interest may be made by check mailed to the registered holders of the
Notes at their registered addresses.
The Notes may be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes will be unsecured senior subordinated obligations of the Company,
limited to $45.0 million aggregate principal amount, and will mature on May 1,
2007. Each Note will bear interest at a rate per annum shown on the front cover
of this Offering Memorandum from the Issue Date or from the most recent date to
which interest has been paid or provided for, payable semiannually to Holders of
record at the close of business on the April 15 or October 15 immediately
preceding the interest payment date on May 1 and November 1 of each year,
commencing November 1, 1997.
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<PAGE> 66
OPTIONAL REDEMPTION
Except as set forth below, the Notes will not be redeemable at the option
of the Company prior to May 1, 2002. On and after such date, the Notes will be
redeemable, at the Company's option, in whole or in part, at any time upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
in percentages of principal amount), plus accrued and unpaid interest, if any,
to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date that is on or prior to the date of redemption), if redeemed during the
12-month period commencing on May 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
----------------------------------------------------------------- ----------
<S> <C>
2002............................................................. 105.5625%
2003............................................................. 103.7083%
2004............................................................. 101.8542%
2005 and thereafter.............................................. 100.0000%
</TABLE>
In addition, at any time and from time to time on or prior to May 1, 2000,
the Company may redeem in the aggregate up to 40% of the original aggregate
principal amount of the Notes with the cash proceeds to it of one or more Public
Equity Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount thereof) of 111.125% plus accrued
and unpaid interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date that is on or prior to the date of redemption);
provided, however, that at least 60% of the original aggregate principal amount
of the Notes must remain outstanding after each such redemption.
Notwithstanding the preceding two paragraphs, the Company will not be
permitted to redeem the Old Notes unless, substantially concurrently with such
redemption, the Company redeems an aggregate principal amount of Notes (rounded
to the nearest integral multiple of $1000) equal to the product of: (1) a
fraction, the numerator of which is the aggregate principal amount of Old Notes
to be so redeemed and the denominator of which is the aggregate principal amount
of Old Notes outstanding immediately prior to such proposed redemption and (2)
the aggregate principal amount of Notes outstanding immediately prior to such
proposed redemption. Similarly, the Company will not be permitted to redeem the
Notes unless, substantially concurrently with such redemption, the Company
redeems an aggregate principal amount of Old Notes (rounded to the nearest
integral multiple of $1,000) equal to the product of: (1) a fraction, the
numerator of which is the aggregate principal amount of Notes to be so redeemed
and the denominator of which is the aggregate principal amount of Notes
outstanding immediately prior to such proposed redemption and (2) the aggregate
principal amount of Old Notes outstanding immediately prior to such proposed
redemption.
The Notes will be subject to redemption at the option of the Company, prior
to May 1, 2002, at any time within 180 days after a Change of Control on not
less than 30 nor more than 60 days' prior notice to each Holder of Notes to be
redeemed, in amounts of $1,000 or an integral multiple thereof, at a redemption
price equal to the sum of (i) the principal amount thereof plus (ii) accrued and
unpaid interest, if any, to the redemption date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date that is on or prior to the date of redemption) plus (iii)
the Applicable Premium. Each Holder of Notes will also have certain rights to
require the Company to purchase such Notes upon the occurrence of a Change of
Control. See "-- Change of Control" below.
SELECTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall
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deem to be fair and appropriate, although no Note of $1,000 in original
principal amount or less will be redeemed in part. If any Note is to be redeemed
in part only, the notice of redemption relating to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note.
RANKING
The indebtedness evidenced by the Notes will be unsecured Senior
Subordinated Indebtedness of the Company. The payment of the principal of,
premium (if any) and interest on the Notes is subordinate in right of payment,
as set forth in the Indenture, to all existing and future Senior Indebtedness of
the Company, will rank pari passu in right of payment with all existing and
future Senior Subordinated Indebtedness of the Company (including the Old Notes)
and will be senior in right of payment to all existing and future Subordinated
Obligations of the Company. The Notes will also be effectively subordinated to
any Secured Indebtedness of the Company to the extent of the value of the assets
securing such indebtedness. However, payment from the money or the proceeds of
U.S. Government Obligations held in any defeasance trust described under
"Defeasance" below is not subordinated to any Senior Indebtedness or subject to
the restrictions described herein.
The indebtedness evidenced by a Subsidiary Guaranty will be unsecured
Senior Subordinated Indebtedness of the Guarantor Subsidiary issuing such
Subsidiary Guaranty. The payment of a Subsidiary Guaranty is subordinate in
right of payment, as set forth in the Indenture, to all existing and future
Senior indebtedness of such Guarantor Subsidiary, will rank pari passu in right
of payment with the existing and future Senior Subordinated Indebtedness of such
Guarantor Subsidiary and will be senior in right of payment to all existing and
future Subordinated Obligations of such Guarantor Subsidiary. Each Subsidiary
Guaranty will also be effectively subordinated to any Secured Indebtedness of
the Guarantor Subsidiary to the extent of the value of the assets securing such
indebtedness.
As of March 31, 1997, after giving pro forma effect to the Transactions,
the Refinancing and the application of the proceeds therefrom, the Company would
have had outstanding $0.1 million of Senior Indebtedness, excluding $0.6 million
of outstanding letters of credit, $150.0 million aggregate principal amount of
Senior Subordinated Indebtedness other than the Indebtedness represented by the
Notes, and no Indebtedness that is subordinate and junior in right of repayment
to the Indebtedness represented by the Notes. As of March 31, 1997, and after
giving effect to the Transactions, the Offering and the application of the
proceeds therefrom, as well as borrowing base limitations and $0.6 million of
outstanding letters of credit, the Company estimates it would have had the
ability to borrow approximately $24.5 million under the Revolving Credit
Facility. Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company and its Guarantor Subsidiaries may
incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness of
the Company or a Guarantor Subsidiary, as the case may be. See "Certain
Covenants -- Limitation on Indebtedness" below.
"Senior Indebtedness" of the Company means all principal of, premium (if
any), accrued interest (including interest accruing on or after the filing of
any petition in bankruptcy or for reorganization relating to the Company whether
or not a claim for post-filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and other amounts owing
with respect to all Indebtedness of the Company, and including all Bank
Indebtedness, whether outstanding on the Issue Date or thereafter incurred,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is expressly provided that such obligations are not
superior in right of payment to the Notes; provided, however, that Senior
Indebtedness shall not include (1) any obligation of the Company to any
Subsidiary, (2) any liability for federal, foreign, state, local or other taxes
owed or owing by the Company, (3) any accounts payable or other liability to
trade creditors arising in the ordinary course of business (including
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Guarantees thereof or instruments evidencing such liabilities), (4) any
Indebtedness or obligation of the Company which is subordinate or junior in any
respect (other than as a result of the Indebtedness being unsecured) to any
other Indebtedness or obligation of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations, (5) any obligations
with respect to any Capital Stock or (6) any Indebtedness Incurred in violation
of the Indenture. "Senior Indebtedness" of any Guarantor Subsidiary has a
correlative meaning.
Only Indebtedness of the Company or a Guarantor Subsidiary that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary Guaranty
in accordance with the provisions of the Indenture. The Notes and each
Subsidiary Guaranty will in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company and the relevant Guarantor Subsidiary,
respectively (including the Old Notes). The Company and each Guarantor
Subsidiary has agreed in the Indenture that it will not incur, directly or
indirectly, any Indebtedness which is subordinate or junior in ranking in any
respect to Senior Indebtedness unless such Indebtedness is Senior Subordinated
Indebtedness, or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness. Unsecured Indebtedness of the Company or a Guarantor
Subsidiary is not deemed to be subordinated or junior to Secured Indebtedness,
as the case may be, merely because it is unsecured.
The Company may not pay principal of, or premium (if any) or interest on,
the Notes or make any deposit pursuant to the provisions described under
"-- Defeasance" below, and may not otherwise purchase, redeem or otherwise
retire any Notes other than from funds held in a defeasance trust pursuant to
the provisions described under "-- Defeasance" below (collectively, "pay the
Notes"), if (i) any Senior Indebtedness of the Company is not paid when due or
(ii) any other default on Senior Indebtedness of the Company occurs and the
maturity of such Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Senior Indebtedness has been paid in
full. However, the Company may pay the Notes without regard to the foregoing if
the Company and the Trustee receive written notice approving such payment from
the Representative of the holders of the Senior Indebtedness with respect to
which either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of any
default (other than a default described in clause (i) or (ii) of the second
preceding sentence) with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, the Company may not pay the
Notes for a period (a "Payment Blockage Period") commencing upon the receipt by
the Trustee (with a copy to the Company) of written notice (a "Blockage Notice")
of such default from the Representative of the holders of the Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice, (ii) because the default giving rise
to such Blockage Notice is no longer continuing or (iii) because such Designated
Senior Indebtedness has been repaid in full). Notwithstanding the provisions
described in the immediately preceding sentence, unless the holders of such
Designated Senior Indebtedness have, or the Representative of such holders has,
accelerated the maturity of such Designated Senior Indebtedness, the Company may
resume payments on the Notes after the end of such Payment Blockage Period,
including any missed payments. Not more than one Blockage Notice may be given in
any consecutive 360-day period, irrespective of the number of defaults with
respect to Designated Senior Indebtedness during such period. However, if any
Blockage Notice within such 360-day period is given by or on behalf of any
holders of Designated Senior Indebtedness other than the Bank Indebtedness, the
Representative of the Bank Indebtedness may give another Blockage Notice within
such period. In no event, however, may the total number of days during which any
Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate
during any 360 consecutive day period.
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Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness of
the Company will be entitled to receive payment in full of the Senior
Indebtedness of the Company before the Noteholders are entitled to receive any
payment and until the Senior Indebtedness of the Company is paid in full, any
payment or distribution to which Noteholders would be entitled but for the
subordination provisions of the Indenture will be made to holders of the Senior
Indebtedness of the Company as their respective interests may appear. If a
payment or distribution is made to Noteholders that due to the subordination
provisions should not have been made to them, such Noteholders are required to
hold such payment or distribution in trust for the holders of Senior
Indebtedness and pay it over to them as their respective interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders or
the Representative of the holders of the Designated Senior Indebtedness receive
notice of such acceleration and, thereafter, may pay the Notes only if the
subordination provisions of the Indenture otherwise permit payment at that time.
The terms of the subordination provisions described above with respect to
the Company's obligations under the Notes apply equally to a Guarantor
Subsidiary and the obligations of such Guarantor Subsidiary under its Subsidiary
Guaranty.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company or a Guarantor Subsidiary who
are holders of Senior Indebtedness of the Company or a Guarantor Subsidiary, as
the case may be, may recover more, ratably, than the Noteholders, and creditors
of the Company who are not holders of Senior Indebtedness of the Company or of
Senior Subordinated Indebtedness (including the Notes) may recover less,
ratably, than holders of Senior Indebtedness of the Company.
SUBSIDIARY GUARANTIES
Each of the Company's principal operating subsidiaries (the "Initial
Guarantors," and together with all future issuers of Subsidiary Guaranties, the
"Guarantor Subsidiaries") will jointly and severally as primary obligors and not
merely as sureties, irrevocably Guarantee on an unsecured senior subordinated
basis the performance and punctual payment when due, whether at Stated Maturity,
by acceleration or otherwise, of all obligations of the Company under the
Indenture and the Notes, whether for payment of principal of or interest on the
Notes, expenses, indemnification or otherwise (all such obligations guaranteed
by the Guarantor Subsidiaries being herein called the "Guaranteed Obligations").
The Guarantor Subsidiaries will agree to pay, in addition to the amount stated
above, any and all expenses (including reasonable counsel fees and expenses)
incurred by the Trustee or the Holders in enforcing any rights under the
Subsidiary Guaranties. Each Subsidiary Guaranty will be limited in amount to an
amount not to exceed the maximum amount that can be Guaranteed by the applicable
Guarantor Subsidiary without rendering such Subsidiary Guaranty voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. On or after the Issue
Date, the Company will cause each Restricted Subsidiary which Incurs
Indebtedness to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee payment of the
Notes. See "Certain Covenants -- Future Guarantor Subsidiaries" below.
Each Subsidiary Guaranty is a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(b) be binding upon each Guarantor Subsidiary and (c) enure to the benefit of
and be enforceable by the Trustee, the Holders and their successors, transferees
and assigns.
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A Subsidiary Guaranty will be released upon the sale of the capital stock,
or all or substantially all of the assets, of the applicable Guarantor
Subsidiary if such sale is made in compliance with the Indenture.
Each of the Company's Guarantor Subsidiaries have also Guaranteed or will
also Guarantee Indebtedness of the Company Incurred under the terms of the
Senior Bank Facilities and the Old Notes. Because the operations of the Company
are conducted through its Subsidiaries, and the Guaranties issued by the
Guarantor Subsidiaries are or will be, as the case may be, secured by pledges of
substantially all the assets of the Guarantor Subsidiaries, the Notes will be
effectively subordinated to creditors of the Company under the Senior Bank
Facilities. See "Risk Factors -- Holding Company Structure."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of purchase (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date),
pursuant to the offer described below and the other procedures set forth in the
Indenture; provided, however, that notwithstanding the occurrence of a Change of
Control, the Company shall not be obligated to purchase the Notes pursuant to
this covenant in the event that it has exercised its rights to redeem all of the
Notes as described under "-- Optional Redemption":
(a) prior to the earlier to occur of the first public offering of
Voting Stock of ACP Holdings, Holdings or the Company, the Permitted
Holders cease to be entitled (by "beneficial ownership" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act) of Voting Stock, contract or
otherwise) to elect or cause the election of directors of the Company
having a majority of the total voting power of the Board of Directors of
the Company, whether as a result of issuance of securities of the Company,
any merger, consolidation, liquidation or dissolution of the Company, any
direct or indirect transfer of securities by any Permitted Holder or
otherwise (for purposes of this clause (a), the Permitted Holders shall be
deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as one or more of the Permitted Holders beneficially
own (as so defined), directly or indirectly, in the aggregate a majority of
the voting power of the Voting Stock of the parent corporation);
(b) after the first public offering of Voting Stock of ACP Holdings,
Holdings or the Company, any person or group (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more of
the Permitted Holders, is or becomes the beneficial owner (as defined in
clause (a) above), directly or indirectly, of Voting Stock that represents
more than 40% of the aggregate ordinary voting power of all classes of the
Voting Stock of ACP Holdings, Holdings or the Company voting together as a
single class, and either (x) the Permitted Holders beneficially own (as
defined in clause (a) above), directly or indirectly, in the aggregate
Voting Stock that represents a lesser percentage of the aggregate ordinary
voting power of all classes of the Voting Stock of ACP Holdings, Holdings,
or the Company as the case may be, voting together as a single class, than
such other person or group and are not entitled (by voting power, contract
or otherwise) to elect directors of ACP Holdings, Holdings or the Company
having a majority of the total voting power of the the board of directors
of ACP Holdings, Holdings or the Company, as the case may be, or (y) such
other person or group is entitled to elect directors of ACP Holdings,
Holdings or the Company having a majority of the total voting power of the
board of directors of ACP Holdings, Holdings or the Company;
(c) after the first public offering of Voting Stock of ACP Holdings,
Holdings or the Company, during any period of not greater than two
consecutive years beginning after the Issue
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Date, individuals who at the beginning of such period constituted the board
of directors of ACP Holdings, Holdings or the Company, as the case may be
(together with any new directors whose election by such board of directors,
or whose nomination for election by shareholders was approved by the
Permitted Holders or by such board of directors, in each case by a vote of
a majority of the directors of ACP Holdings, Holdings or the Company, as
the case may be, then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved), cease for any reason to have a majority of the
total voting power of the board of directors of ACP Holdings, Holdings or
the Company, as the case may be; or
(d) any sale, lease, or other transfer (in one transaction or in a
series of related transactions) is made by the Company or its Restricted
Subsidiaries of all or substantially all of the consolidated assets of the
Company and its Restricted Subsidiaries to any Person.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating, among other things:
(1) that a Change of Control has occurred and that such Holder has the right to
require the Company to purchase all or any portion of such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase (subject to the
right of Holders of record on a record date to receive interest on the relevant
interest payment date); (2) the circumstances and relevant facts and financial
information regarding such Change of Control; (3) the repurchase date (which
shall be no earlier than 30 days nor later than 60 days from the date such
notice is mailed); and (4) the instructions determined by the Company,
consistent with this covenant, that a Holder must follow in order to have its
Notes or any portion thereof purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations described above by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchaser. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company or Holdings would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions or other recapitalizations, that
would not constitute a Change of Control under the Indenture, but that could
increase the amount of indebtedness outstanding at such time or otherwise affect
the Company's capital structure or credit ratings.
The occurrence of a Change of Control would constitute a default under the
Senior Bank Facilities. Future Senior Indebtedness of the Company may contain
prohibitions of certain events which would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the Notes could cause a default under such Senior Indebtedness, even
if the Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
Holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any repurchases required in connection with a
Change of Control. The Company's failure to purchase the Notes in connection
with a Change of Control would result in a default under the Indenture.
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CERTAIN COVENANTS
The Indenture will contain covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur any Indebtedness (other than pursuant to the
following paragraph (b)) unless on the date of such Incurrence the Consolidated
Coverage Ratio exceeds 2.00 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness consisting of revolving credit, working capital or
letters of credit financing in an aggregate principal amount at any time
outstanding not in excess of the greater of $35.0 million and the Borrowing
Base in effect from time to time (in each case less the aggregate amount of
all repayments of principal actually made thereunder since the Original
Issue Date with Net Available Cash from Asset Dispositions pursuant to
clause (a)(iii)(A) of the covenant described under "-- Limitation on Sales
of Assets and Subsidiary Stock");
(ii) Indebtedness of the Company owing to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by
the Company or any Wholly Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Wholly Owned Subsidiary ceasing to be a Wholly
Owned Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or a Wholly Owned Subsidiary) will be deemed, in
each case, to constitute the Incurrence of such Indebtedness by the issuer
thereof;
(iii) Indebtedness of the Company represented by the Old Notes and the
Notes;
(iv) any Indebtedness of the Company and its Restricted Subsidiaries
(other than the Indebtedness described in clauses (i) or (ii) above)
outstanding on the Original Issue Date and Indebtedness Incurred under
Section 4.03(a) of the Original Indenture prior to the Issue Date;
(v) Indebtedness of the Company and its Restricted Subsidiaries (A) in
respect of judgment, appeal, surety, performance and other like bonds,
bankers' acceptances and letters of credit provided by the Company and its
Restricted Subsidiaries in the ordinary course of their business and which
do not secure other Indebtedness and (B) under Commodity Agreements,
Currency Agreements and Interest Rate Agreements that are designed to
protect the Company and its Restricted Subsidiaries against fluctuations in
commodity prices (for raw materials used by them), interest rates or
currency exchange rates and not for the purposes of speculation;
(vi) Indebtedness represented by Guarantees by the Company of
Indebtedness of a Restricted Subsidiary, or in respect of letters of credit
provided by the Company to support such Indebtedness, or Guarantees by a
Restricted Subsidiary of Indebtedness of the Company or a Restricted
Subsidiary, or in respect of letters of credit provided by a Restricted
Subsidiary to support such Indebtedness; provided, however, that only
Indebtedness that is Incurred in compliance with this covenant may be
guaranteed pursuant to this clause (vi);
(vii) Purchase Money Indebtedness, industrial revenue bonds or similar
Indebtedness and Capitalized Lease Obligations of the Company and its
Restricted Subsidiaries in an aggregate principal amount at any time
outstanding not in excess of 10% of Total Assets;
(viii) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of purchase
price adjustments, in connection with the acquisition or disposition of any
business, assets or Subsidiary of the Company permitted under the
Indenture;
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(ix) Indebtedness of the Company and its Restricted Subsidiaries, to
the extent the proceeds thereof are immediately used after the Incurrence
thereof to purchase Notes or Old Notes tendered in an offer to purchase
made as a result of a Change of Control;
(x) Indebtedness of the Company or a Restricted Subsidiary owed to
(including obligations in respect of letters of credit for the benefit of)
any Person in connection with liability insurance provided by such Person
to the Company or such Restricted Subsidiary, pursuant to reimbursement or
indemnification obligations to such Person, in each case Incurred in the
ordinary course of business;
(xi) Indebtedness of the Company consisting of guarantees of up to an
aggregate principal amount of $2.0 million of borrowings by Management
Investors in connection with purchases of Voting Stock of Holdings on or
after the Original Issue Date and in accordance with "-- Certain
Covenants -- Limitation on Restricted Payments;"
(xii) Indebtedness of the Company or any Restricted Subsidiary in an
aggregate principal amount at any time outstanding not in excess of $15.0
million which Indebtedness may be incurred pursuant to clause (i) above;
and
(xiii) any Refinancing Indebtedness incurred in respect of any
Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (i),
(ii), (iv), (vii), (ix) or (xiii) of this paragraph (b).
(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness if such Indebtedness is subordinate or junior in ranking in any
respect to any Senior Indebtedness of the Company unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness of the Company. In addition, the
Company may not Incur any Secured Indebtedness which is not Senior Indebtedness
of the Company unless contemporaneously therewith effective provision is made to
secure the Notes equally and ratably with (or on a senior basis to, in the case
of Indebtedness subordinated in right of payment to the Notes) such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien. A
Guarantor Subsidiary may not Incur any Indebtedness if such Indebtedness is
subordinate or junior in ranking in any respect to any Senior Indebtedness of
the Guarantor Subsidiary unless such Indebtedness is Senior Subordinated
Indebtedness of such Guarantor Subsidiary or is expressly subordinated in right
of payment to Senior Subordinated Indebtedness of such Guarantor Subsidiary. In
addition, a Guarantor Subsidiary may not incur any Secured Indebtedness which is
not Senior Indebtedness of such Guarantor Subsidiary unless contemporaneously
therewith effective provision is made to secure the Subsidiary Guaranty equally
and ratably with (or on a senior basis to, in the case of Indebtedness
subordinated in right of payment to such Subsidiary Guaranty) such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Company) except dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock) and except dividends or distributions payable to the Company or
another Restricted Subsidiary (and, if such Restricted Subsidiary has
shareholders other than the Company or other Restricted Subsidiaries, to
its other shareholders on a pro rata basis or on a basis that results in
the receipt by the Company or a Restricted Subsidiary of dividends or
distributions of equal or greater value);
(ii) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of the Company or any Restricted Subsidiary held by Persons
other than the Company or another Restricted Subsidiary;
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(iii) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year
of the date of acquisition); or
(iv) make any Investment (other than a Permitted Investment) in any
Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement, Investment or payment being
herein referred to as a "Restricted Payment") if at the time the Company or
such Restricted Subsidiary makes such Restricted Payment: (1) a Default
will have occurred and be continuing (or would result therefrom); (2) the
Company could not Incur at least $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "-- Limitation on
Indebtedness"; or (3) the aggregate amount of such Restricted Payment and
all other Restricted Payments (the amount so expended, if other than in
cash, to be determined in good faith by the Board of Directors, whose
determination will be conclusive and evidenced by a resolution of the Board
of Directors) declared or made subsequent to the Original Issue Date would
exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the Original Issue Date to the
end of the most recent fiscal quarter ending at least 45 days prior to
the date of such Restricted Payment (or, in case such Consolidated Net
Income will be a deficit, minus 100% of such deficit);
(B) 100% of the aggregate net proceeds received by the Company
(including the fair market value (as determined in good faith by the
Board of Directors, whose determination will be conclusive and evidenced
by a resolution of the Board of Directors) of property received by the
Company; provided, however, that such property is related, ancillary or
complementary to any business of the Company and the Restricted
Subsidiaries conducted on the Original Issue Date) as a capital
contribution or from the issue or sale of Capital Stock (other than
Disqualified Stock) of the Company or Holdings subsequent to the
Original Issue Date (other than an issuance or sale to a Subsidiary of
the Company or an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries to the extent the
purchase by such plan or trust is financed by Indebtedness of such plan
or trust and for which the Company or a Subsidiary is liable, directly
or indirectly, as a guarantor or otherwise (including by the making of
cash contributions to such plan or trust which are used to pay interest
or principal on such Indebtedness));
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary) of any
Indebtedness of the Company or its Restricted Subsidiaries issued
subsequent to the Original Issue Date and convertible or exchangeable
for Capital Stock (other than Disqualified Stock) of the Company (less
the amount of any cash or other property (other than such Capital Stock)
distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange) (including any such exchange pursuant to the
exercise of a conversion right or privilege in connection with which
cash is paid in lieu of the issuance of fractional shares or scrip);
(D) the aggregate Net Cash Proceeds received subsequent to the
Original Issue Date by the Company or Holdings (other than from any
Restricted Subsidiary) upon the exercise of any options or warrants to
purchase Capital Stock (other than Disqualified Stock) of the Company or
Holdings; and
(E) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (i) payments of dividends,
repayments of the principal of loans, return of capital or advances or
other transfers of assets to the Company or any Restricted Subsidiary
from Unrestricted Subsidiaries or (ii) the redesignation of Unrestricted
Subsidi-
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aries as Restricted Subsidiaries (valued in each case as provided in the
definition of "Investment") or the receipt of proceeds from the sale or
other disposition of any portion of any Investment in an Unrestricted
Subsidiary not to exceed, in the case of any Unrestricted Subsidiary,
the amount of Investments previously made by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary, which amount was
included in the calculation of the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase, redemption, retirement or other acquisition of
Capital Stock or Subordinated Obligations of the Company made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary or an employee stock ownership
plan or other trust established by the Company or any of its Subsidiaries
to the extent the purchase by such plan or trust is financed by
Indebtedness of such plan or trust and for which the Company or a
Subsidiary is liable, directly or indirectly, as a guarantor or otherwise
(including by the making of cash contributions to such plan or trust which
are used to pay interest or principal on such Indebtedness)); provided,
however, that (A) such purchase, redemption, retirement or other
acquisition will be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale to the extent so used
will be excluded from clause (iv)(B) of paragraph (a) above;
(ii) any purchase, defeasance, retirement, redemption or other
acquisition of (A) Subordinated Obligations of the Company made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to
paragraph (b) of the covenant described under "-- Limitation on
Indebtedness" or (B) Subordinated Obligations of a Restricted Subsidiary
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of any Restricted Subsidiary or the
Company which is permitted to be Incurred pursuant to paragraph (b) of the
covenant described under "-- Limitation of Indebtedness"; provided,
however, that such purchase, defeasance, retirement, redemption or other
acquisition will be excluded in the calculation of the amount of Restricted
Payments;
(iii) any purchase, redemption, retirement or other acquisition of
Disqualified Stock made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Disqualified Stock; provided, however,
that such purchase, redemption, retirement or other acquisition will be
excluded in the calculation of the amount of Restricted Payments;
(iv) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock"; provided, however,
that such purchase or redemption will be excluded in the calculation of the
amount of Restricted Payments;
(v) upon the occurrence of a Change of Control and within 60 days
after the completion of the offer to repurchase the Notes and Old Notes
pursuant to the covenant described under "-- Change of Control" above
(including the purchase of all Notes tendered), any purchase, defeasance,
retirement, redemption or other acquisition of Subordinated Obligations
required pursuant to the terms thereof as a result of such Change of
Control; provided, however, that such purchase, defeasance, retirement,
redemption or other acquisition will be included in the calculation of the
amount of Restricted Payments;
(vi) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that such dividend will be included
in the calculation of the amount of Restricted Payments;
(vii) the repurchase, for cash or notes, of shares of, or options or
warrants to purchase shares of, or payments to Holdings to enable Holdings
to repurchase shares of, or options or
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warrants to purchase shares of, Capital Stock of Holdings, the Company or
any of the Subsidiaries of the Company from present or former Management
Investors in an amount not in excess of $2.0 million in any one year and
$5.0 million in the aggregate; provided, however, that the amount of such
repurchase will be included in the calculation of the amount of Restricted
Payments;
(viii) payments in lieu of fractional shares in amount not in excess
of $250,000 in the aggregate;
(ix) payments by the Company to Holdings to pay Federal, state and
local taxes to the extent such taxes are attributable to the Company and
its Restricted Subsidiaries; provided, however, that such payments will be
excluded from the calculation of the amount of Restricted Payments;
(x) loans, advances, dividends or distributions by the Company to
Holdings to pay dividends on the common stock of Holdings following a
Public Equity Offering of such stock; but only to the extent that such
loans, advances, dividends or distributions do not exceed 6% per annum of
the net proceeds received by the Company in such Public Equity Offering;
provided, however, that the amount of such loans, advances, dividends or
distributions will be included in the amount of Restricted Payments; or
(xi) in each case to the extent such payments by Holdings are
attributable to the Company and its Restricted Subsidiaries, payments by
the Company to Holdings not to exceed an amount necessary to permit
Holdings to (A) make payments in respect to its indemnification obligations
owing to directors, officers or other Persons under Holding's charter or
by-laws or pursuant to written agreements with any such Person, (B) make
payments in respect of its other operational expenses (other than taxes)
incurred in the ordinary course of business, or (C) make payments in
respect of indemnification obligations and costs and expenses incurred by
Holdings in connection with any offering of common stock of Holdings;
provided, however, that all such payments will be included in the
calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its property or assets to the
Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Original Issue Date;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness entered
into prior to the date on which such Restricted Subsidiary was acquired or
designated as a Restricted Subsidiary by the Company (other than as
consideration in, in contemplation of, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was otherwise acquired by the Company);
(3) any encumbrance or restriction pursuant to (x) an agreement
constituting Refinancing Indebtedness of Indebtedness Incurred pursuant to
an agreement referred to in clause (1) or (2) of this covenant or this
clause (3) or contained in any amendment to an agreement referred to in
clause (1) or (2) of this covenant or this clause (3) or (y) Indebtedness
Incurred pursuant to clause (i) of paragraph (b) of the covenant described
above under "-- Limitation on Indebtedness;" provided, however, that the
encumbrances and restrictions contained in (A) any such refinancing
agreement or amendment referred to in clause (x) above are, collectively,
no more restrictive in any material respect than the encumbrances and
restrictions
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contained in such agreements (as determined in good faith by the Company)
and (B) any instrument relating to any Indebtedness referred to in clause
(y) above, are, collectively, no more restrictive in any material respect
than the encumbrances and restrictions contained in the Senior Bank
Facilities as in effect on the Original Issue Date (as determined in good
faith by the Company);
(4) in the case of clause (iii) above, any encumbrance or restriction
contained in security agreements or mortgages securing Indebtedness of a
Restricted Subsidiary which are not prohibited by the covenant described
under "-- Limitation on Liens" to the extent such encumbrances or
restrictions restrict the transfer of the property or assets subject to
such security agreements or mortgages;
(5) any encumbrance or restriction existing under or by reason of
applicable law;
(6) customary non-assignment provisions of any licensing agreement or
of any lease;
(7) any encumbrance or restriction contained in contracts for sales of
assets otherwise permitted by the Indenture;
(8) with respect to a Restricted Subsidiary, any encumbrance or
restriction imposed pursuant to an agreement that has been entered into for
the sale of all or substantially all of the Capital Stock of such
Restricted Subsidiary; and
(9) Purchase Money Obligations for property acquired in the ordinary
course of business that impose restrictions of the type referred to in
clause (iii) of this covenant.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless:
(i) the Company or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair market value, as may
be determined (and shall be determined, to the extent an Asset Disposition
(or a series of related Asset Dispositions) involves a fair market value
greater than $1.0 million) in good faith by the Board of Directors, whose
determination will be conclusive and evidenced by a resolution of the Board
of Directors (including as to the value of all non-cash consideration), of
the shares and assets subject to such Asset Disposition;
(ii) in the case of an Asset Disposition (or a series of related Asset
Dispositions) having a fair market value of $1.0 million or more, at least
80% (or 100% in the case of lease payments) of the consideration thereof
received by the Company or such Restricted Subsidiary is in the form of
cash or cash equivalents; and
(iii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Restricted Subsidiary,
as the case may be) (A) first, to the extent the Company or such Restricted
Subsidiary elects (or is required by the terms of any Senior Indebtedness),
to prepay, repay or purchase Senior Indebtedness of the Company or a Wholly
Owned Subsidiary or, in the case of a sale by a Restricted Subsidiary which
is not a Wholly Owned Subsidiary, to prepay, repay or purchase Senior
Indebtedness of such Restricted Subsidiary (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company) within 365
days after the later of the date of such Asset Disposition or the receipt
of such Net Available Cash; (B) second, to the extent of the balance of Net
Available Cash after application in accordance with clause (A), to the
extent the Company or such Restricted Subsidiary elects, to reinvest (or
enter into a binding contract to do so) in Additional Assets (including by
means of an Investment in Additional Assets by a Restricted Subsidiary with
Net Available Cash received by the Company or another Restricted
Subsidiary), within 365 days from the later of such Asset Disposition or
the receipt of such Net Available Cash; (C) third, to the extent of the
balance of such Net Available Cash after application in accordance with
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clauses (A) and (B), to make an Offer (as defined below) to purchase Notes
and Old Notes pursuant to and subject to the conditions set forth in
section (b) of this covenant and (D) fourth, to the extent of the balance
of such Net Available Cash after application in accordance with clauses
(A), (B) and (C), to fund (to the extent consistent with any other
applicable provision of the Indenture) any corporate purpose; provided,
however, that in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A) above, the Company or such Restricted
Subsidiary will retire such Indebtedness and will cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this covenant, the Company and its Restricted
Subsidiaries will not be required to apply any Net Available Cash in
accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions in any year which are not
applied in accordance with this covenant exceed $5.0 million in such year.
For the purposes of clause (ii) of this covenant, the following are deemed
to be cash: (w) the assumption of Indebtedness of the Company (other than
Disqualified Stock of the Company) or any Restricted Subsidiary and the release
of the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition, (x) securities received
by the Company or any Restricted Subsidiary from the transferee that are
promptly converted by the Company or such Restricted Subsidiary into cash, (y)
Indebtedness of any Restricted Subsidiary that is no longer a Restricted
Subsidiary as a result of such Asset Disposition, to the extent that the Company
and each other Restricted Subsidiary is released from any Guarantee of such
Indebtedness in connection with such Asset Disposition, and (z) consideration
consisting of Indebtedness of the Company or any Restricted Subsidiary.
(b) In the event of an Asset Disposition that requires the purchase of
Notes and Old Notes pursuant to clause (a)(iii)(C) of this covenant, the Company
will be required to purchase Notes and Old Notes tendered pursuant to an offer,
commenced within 30 days following the expiration of the 365 day period referred
to in clause (a)(iii)(B) of this covenant (or, if the Company so elects, at any
time within such 365 day period), by the Company for the Notes and the Old
Notes, (the "Offer") at a purchase price of 100% of their principal amount plus
accrued and unpaid interest, if any, to the date of purchase in accordance with
the procedures (including prorationing in the event of oversubscription) set
forth in the Indenture. If the aggregate purchase price of Notes and Old Notes
tendered pursuant to the Offer is less than the Net Available Cash allotted to
the purchase of the Notes and Old Notes, the Company will apply the remaining
Net Available Cash in accordance with clause (a)(iii)(D) of this covenant and
upon completion of the purchase of the Notes and Old Notes tendered pursuant to
the Offer, the remaining amount of Net Available Cash, if any, will be reset at
zero. The Company will not be required to make an Offer for Notes or Old Notes
pursuant to this covenant if the Net Available Cash available therefor (after
application of the proceeds as provided in clauses (A) and (B) of section
(a)(iii) of this covenant) is less than $5.0 million (which lesser amount will
be carried forward for purposes of determining whether an Offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes and Old Notes pursuant
to this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction (including the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of the Company
(an "Affiliate Transaction") on terms (i) that are less favorable to the Company
or such Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of
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such transaction in arm's-length dealings with a Person who is not such an
Affiliate and (ii) that, in the event such Affiliate Transaction involves an
aggregate amount in excess of $1.0 million, are not in writing and have not been
approved by a majority of the members of the Board of Directors having no
material direct or indirect financial interest in or with respect to such
Affiliate Transaction. In addition, if such Affiliate Transaction involves an
amount in excess of $5.0 million, a fairness opinion must be obtained from a
nationally recognized appraisal or investment banking firm.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment or Permitted Investment permitted to be made pursuant to the
covenant described under "-- Limitation on Restricted Payments," (ii) fees,
compensation or employee benefit arrangements paid to, and any indemnity
provided for the benefit of, directors, officers or employees of the Company,
Holdings or any Subsidiary of the Company in the ordinary course of business or
any Indebtedness permitted to be Incurred pursuant to clause (xii) of paragraph
(b) of the covenant described under "-- Limitation on Indebtedness," or any
payments in respect thereof, (iii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors, (iv) transactions pursuant to agreements
entered into or in effect on the Original Issue Date, including amendments
thereto entered into after the Original Issue Date, provided that the terms of
any such amendment are not, in the aggregate, less favorable to the Company or
such Restricted Subsidiary than the terms of such agreement prior to such
amendment, (v) loans or advances to employees that are Affiliates of the Company
in the ordinary course of business, but in any event not to exceed $2.0 million
in the aggregate outstanding at any one time, (vi) any transaction between the
Company and a Restricted Subsidiary or between Restricted Subsidiaries (so long
as the other stockholders of any participating Restricted Subsidiaries which are
not Wholly Owned Subsidiaries are not themselves Affiliates of the Company) or
(vii) payments with respect to Indebtedness Incurred pursuant to clause (viii)
of paragraph (b) of the covenant described under "-- Limitation on
Indebtedness."
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not sell any shares of Capital Stock of a
Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock, except (i) to
the Company or a Wholly Owned Subsidiary, (ii) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary, (iii) directors' qualifying shares or (iv)
in a Public Equity Offering as a result of or after which a Public Market
exists. The proceeds of any sale of such Capital Stock permitted by clause (ii)
must be treated as Net Available Cash from an Asset Disposition and must be
applied in accordance with the terms of the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock."
Limitation on Liens. (a) The Company will not, and will not permit any
Guarantor Subsidiary to, directly or indirectly, create or permit to exist any
Lien (the "Initial Lien") on any of its property or assets (including Capital
Stock), whether owned on the Original Issue Date or thereafter acquired,
securing any Indebtedness other than Senior Indebtedness of the Company, in the
case of the Company, or Senior Indebtedness of a Guarantor Subsidiary, in the
case of a Guarantor Subsidiary, unless contemporaneously therewith effective
provision is made to secure the Notes and, in respect of Liens on any Guarantor
Subsidiary's property or assets, the Subsidiary Guaranty of such Guarantor
Subsidiary equally and ratably with (or on a senior basis to, in the case of
Indebtedness expressly subordinated in right of payment to the Notes and such
Subsidiary Guaranty) such obligation for so long as such obligation is so
secured. The preceding sentence will not require the Company or any Restricted
Subsidiary to equally and ratably secure the Notes if the Initial Lien consists
of Permitted Liens.
(b) Any Lien created for the benefit of the Holders of the Notes pursuant
to the foregoing paragraph (a) shall provide by its terms that such Lien shall
be automatically and unconditionally released and discharged upon the release
and discharge of the Initial Lien.
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SEC Reports. Notwithstanding that the Company may not be required to be or
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file with the Commission (after the date the
Exchange Offer or Shelf Registration Statement described under "-- Exchange and
Registration Rights Agreement" below becomes effective), and provide (both prior
to and after such effective date) the Trustee and Noteholders and prospective
Noteholders (upon request) with the annual reports and the information,
documents and other reports which are specified in Sections 13 and 15(d) of the
Exchange Act. The Company also will comply with the other provisions of TIA Sec.
314(a).
Future Guarantor Subsidiaries. The Company will cause (a) each Restricted
Subsidiary that is a Domestic Subsidiary which Incurs Indebtedness and (b) each
Restricted Subsidiary that is not a Domestic Subsidiary and that after the Issue
Date enters into a Guarantee of any of the obligations of the Company, Holdings
or any of the Company's Subsidiaries pursuant to the Senior Bank Facilities to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Subsidiary will Guarantee payment of the Notes; provided, however, that
such Subsidiary shall not be required to execute and deliver a supplemental
indenture pursuant to this section in the event that such Subsidiary is a party
to the Indenture or the Supplemental Indenture at the time of such Incurrence of
Indebtedness. Each Subsidiary Guaranty will be limited to an amount not to
exceed the maximum amount that can be Guaranteed by that Subsidiary without
rendering the Subsidiary Guaranty, as it relates to such Subsidiary, voidable
under applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
Limitation on Lines of Business. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any business other than (i) a Related
Business and (ii) the making of Permitted Investments and the operations of any
business that is part of a Permitted Investment. Holdings will not engage in any
business other than managing its investment in the Company.
Limitation on Sale/Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Restricted Subsidiary would be entitled to Incur Indebtedness in an amount equal
to the Attributable Debt with respect to such Sale/Leaseback Transaction
pursuant to the covenant described under "-- Limitation on Indebtedness" and
(ii) the net cash proceeds received by the Company or any Restricted Subsidiary
in connection with such Sale/Leaseback Transaction are at least equal to the
fair market value (in the case of Sale/Leaseback Transactions involving amounts
in excess of $1.0 million, as determined by the Board of Directors, whose
determination will be conclusive and evidenced by a resolution of the Board of
Directors) of such property and (iii) the transfer of such property is permitted
by, and the Company applies the proceeds of such transaction in compliance with,
the covenant described under "-- Limitation on Sale of Assets and Subsidiary
Stock."
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company") will
be a corporation, limited liability company, limited partnership or business
trust organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia and the Successor Company (if not the
Company) will expressly assume, by an indenture supplemental hereto, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness which
becomes an obligation of the Successor Company or any Restricted Subsidiary as a
result of such transaction as having been Incurred by the Successor Company or
such Restricted Subsidiary at the time of such transaction), no Default will
have occurred and be continuing; (iii) except in the case of a merger the sole
purpose of which is to change the Company's jurisdiction of incorporation,
immediately after giving effect to such transaction, the Successor Company would
be able to Incur
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an additional $1.00 of Indebtedness under paragraph (a) of the covenant
described under "-- Limitation on Indebtedness"; (iv) immediately after giving
effect to such transaction, the Successor Company will have Consolidated Net
Worth in an amount which is not less than the Consolidated Net Worth of the
Company immediately prior to such transaction and (v) the Company will have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but the
predecessor Company in the case of a conveyance, transfer or lease of all or
substantially all its assets will not be released from the obligation to pay the
principal of and interest on the Notes.
DEFAULTS
An Event of Default is defined in the Indenture as:
(i) a default in any payment of interest on any Note when due (whether
or not such payment is prohibited by the provisions described under
"Ranking" above), continued for 30 days;
(ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise (whether or not such payment is prohibited by the
provisions described under "Ranking" above);
(iii) the failure by the Company to comply with its obligations under
the covenant described under "Merger and Consolidation" above;
(iv) the failure by the Company to comply for 30 days after notice
with any of its obligations under the covenants described under "Change of
Control" or "Certain Covenants" above (in each case, other than a failure
to purchase Notes);
(v) the failure by the Company or any Guarantor Subsidiary to comply
for 60 days after notice with its other agreements contained in the Notes
or the Indenture;
(vi) the failure by the Company or any Significant Subsidiary to pay
any Indebtedness within any applicable grace period after final maturity or
the acceleration of any such Indebtedness by the holders thereof because of
a default, if the total amount of such Indebtedness unpaid or accelerated
exceeds $5.0 million or its foreign currency equivalent (the "cross
acceleration provision");
(vii) certain events of bankruptcy, insolvency or reorganization of
the Company or a Restricted Subsidiary (the "bankruptcy provisions");
(viii) the rendering of any judgment or decree in excess of $5.0
million or its foreign currency equivalent (net of amounts paid within 30
days of any such judgment or decree under any insurance, indemnity, bond,
surety or similar instrument) against the Company or a Restricted
Subsidiary by a court or other adjudicatory authority of competent
jurisdiction for which the Company or the Restricted Subsidiary, as
applicable, is not fully insured by a third Person and (A) an enforcement
proceeding is commenced with respect to such judgment or decree or (B) such
judgment or decree remains outstanding the later of (i) the day which is
the sixtieth day after the judgment is rendered and (ii) the day on which
any right to appeal expires (the "judgment default provision"); or
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(ix) any Subsidiary Guaranty ceases to be in full force and effect
(except as contemplated by the terms thereof) or any Guarantor Subsidiary
denies or disaffirms its obligations under the Indenture or any Subsidiary
Guaranty and such Default continues for 10 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (iv) or (v) will not constitute an Event
of Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified in clauses (iv) and (v) hereof after
receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the outstanding Notes by notice to the
Company may declare the principal of and accrued but unpaid interest on all the
Notes to be due and payable. Upon such a declaration, such principal and
interest will be due and payable immediately. If an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of the Company occurs
and is continuing, the principal of and interest on all the Notes will become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. Under certain circumstances, the Holders of a
majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
Holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability. Prior
to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within the earlier of 90 days after it occurs or 30 days after it is known to a
Trust Officer or written notice of it is received by the Trustee. Except in the
case of a Default in the payment of principal of, premium (if any) or interest
on any Note, the Trustee may withhold notice if and so long as a committee of
its Trust Officers in good faith determines that withholding notice is in the
interests of the Noteholders. In addition, the Company is required to deliver to
the Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. The Company also is required to deliver to the Trustee,
within 30 days after the occurrence thereof,
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written notice of any event which would constitute certain Defaults, their
status and what action the Company is taking or proposes to take in respect
thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding and any past default and its consequences or compliance with any
provisions may be waived with the consent of the Holders of a majority in
principal amount of the Notes then outstanding. However, without the consent of
each Holder of an outstanding Note affected, no amendment may (i) reduce the
amount of Notes whose Holders must consent to an amendment or waiver, (ii)
reduce the rate of or extend the time for payment of interest on any Note, (iii)
reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce
the premium payable upon the redemption of any Note or change the time at which
any Note may be redeemed as described under "Optional Redemption" above, (v)
make any Note payable in money other than that stated in the Note, (vi) impair
the right of any Holder to receive payment of principal of and interest on such
Holder's Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such Holder's Notes, (vii) make
any change in the amendment provisions which require each Holder's consent or in
the waiver provisions or (viii) make any change in any Subsidiary Guaranty that
would adversely affect the Noteholders.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add further Guaranties with respect to the Notes, to release Guarantor
Subsidiaries when permitted by the Indenture, to secure the Notes, to add to the
covenants of the Company for the benefit of the Noteholders or to surrender any
right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any Holder or to comply with any requirement of
the Commission in connection with the qualification of the Indenture under the
TIA.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Note selected for redemption or to transfer or exchange
any Note for a period of 15 days prior to a selection of Notes to be redeemed.
The Notes will be issued in registered form and the registered holder of a Note
will be treated as the owner of such Note for all purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance
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trust and obligations to register the transfer or exchange of the Notes, to
replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar
and paying agent in respect of the Notes. The Company at any time may terminate
its obligations under the covenants described under "Certain Covenants," the
operation of the cross acceleration provision, the bankruptcy default provisions
with respect to Subsidiaries and the judgment default provision described under
"Defaults" above and the limitations contained in clauses (iii) and (iv) under
"Merger and Consolidation" above ("covenant defeasance"). If the Company
exercises its legal defeasance option or its covenant defeasance option, each
Guarantor Subsidiary will be released from all of its obligations with respect
to its Subsidiary Guaranty.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect to
Restricted Subsidiaries only), (viii) (with respect to Significant Subsidiaries
only), (ix) or (x) under "Defaults" above or because of the failure of the
Company to comply with clause (iii) or (iv) under "Merger and Consolidation"
above.
Defeasance options with respect to the Notes may be exercised to any
redemption date or the applicable maturity date. In order to exercise either
defeasance option, the Company must irrevocably deposit in trust (the
"defeasance trust") with the Trustee money or U.S. Government Obligations for
the payment of principal, premium (if any) and interest on the Notes and Old
Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of an Opinion of
Counsel to the effect that holders of the Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
The Company will not be permitted to exercise either defeasance option
described above with respect to the Notes unless it defeases the Old Notes
equivalently and substantially simultaneously. Similarly, the Company will not
be permitted to defease the Old Notes unless it defeases the Notes equivalently
and substantially simultaneously.
CONCERNING THE TRUSTEE
United States Trust Company of New York is to be the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"ACP Holdings" means ACP Holding Company, a Delaware corporation.
"ACP Products, L.L.C." means ACP Products, L.L.C., a Delaware limited
liability company.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock), including improvements to existing assets, to
be used by the Company or a Restricted Subsidiary in a Related Business; (ii)
the Capital Stock of a Person that becomes a Restricted Subsidiary as a result
of the acquisition of such Capital Stock by the Company or another Restricted
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Subsidiary; or (iii) Capital Stock constituting a minority interest in any
Person that at such time is a Restricted Subsidiary; provided, however, that, in
the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Transactions with Affiliates" only, "Affiliate" shall also mean any
beneficial owner of shares representing 5% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Applicable Premium" means, with respect to a Note, the greater of (i) 1.0%
of the then outstanding principal amount of such Note and (ii) the excess of (A)
the present value of all remaining required interest and principal payments due
on such Note, computed using a discount rate equal to the Treasury Rate plus 75
basis points, over (B) the then outstanding principal amount of such Note.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or assets (each referred to for the purposes of
this definition as a "disposition") by the Company or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Restricted
Subsidiary; (ii) a disposition of inventory, in the ordinary course of business
consistent with past practices of the Company and its Subsidiaries; (iii)
dispositions with a fair market value of less than $500,000 in the aggregate in
any fiscal year; (iv) a disposition of properties and assets that is governed by
the provisions under the first paragraph of "-- Merger and Consolidation" above;
and (v) for purposes of the provisions described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition subject to the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments."
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
assumed in making calculations in accordance with FAS 13) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
scheduled redemption or similar payment with respect to such Preferred Stock
multiplied by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Senior Bank Facilities or any refinancing or replacements thereof
including principal, premium (if any), interest (including interest accruing on
or after the filing of any petition in bankruptcy or for reorganization relating
to the Company whether or not a claim for post-filing interest is allowed in
such proceeding), fees, charges, expenses, reimbursement obligations, guarantees
and all other amounts payable thereunder or in respect thereof.
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"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Borrowing Base" means, as of the date of determination, an amount equal to
the sum, without duplication, of (i) 80% of the net book value of the Company's
accounts receivable at such date and (ii) 50% of the net book value of the
Company's inventories at such date. Net book value shall be determined in
accordance with GAAP and shall be that reflected on the most recent available
balance sheet (it being understood that the accounts receivable and inventories
of an acquired business may be included if such acquisition has been completed
on or prior to the date of determination).
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP. The amount of Indebtedness represented by a
Capitalized Lease Obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP, and the Stated Maturity thereof shall be the
date of the last scheduled payment of rent or any other amount due under the
relevant lease.
"Citicorp" means Citicorp, a Delaware corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Agreement" means one or more of the following agreements entered
into by a Person and one or more financial institutions: commodity future
contracts, forward contracts, options or other similar arrangements or
agreements designed to protect against fluctuations in the price of, or the
shortage of supply of, commodities from time to time.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination (determined, for the four fiscal quarters ending prior to the
Original Issue Date, or any thereof, on a pro forma basis to give effect to the
Neenah Merger as if it had occurred at the beginning of such period) to (ii)
Consolidated Interest Expense for such four fiscal quarters (determined, for the
four fiscal quarters ending prior to the Original Issue Date, or any thereof, on
a pro forma basis to give effect to the Neenah Merger as if it had occurred at
the beginning of such period); provided, however, that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on such
date of determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness and the application of the
proceeds thereof as if such Indebtedness had been Incurred on the first day of
such period and the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Indebtedness as
if such discharge had occurred on the first day of such period (except that in
the case of Indebtedness to finance seasonal fluctuations in working capital
needs Incurred under a revolving credit or similar arrangement, the amount
thereof shall be deemed to be the average daily balance of such Indebtedness
during such four quarter period);
(2) if since the beginning of such period the Company or any Restricted
Subsidiary shall have disposed of any assets constituting all or substantially
all of the assets of an operating unit of a
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business (a "Disposal"), (x) the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Disposal for such period or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for such period
and (y) Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Disposal for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale);
(3) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of the assets of an operating unit of a
business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness in connection therewith) as if such Investment or acquisition
occurred on the first day of such period; and
(4) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made any
Disposal or any Investment or acquisition of assets that would have required an
adjustment pursuant to clause (2) or (3) above if made by the Company or a
Restricted Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Disposal, Investment or acquisition of assets occurred on the
first day of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating thereto
and the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term as at the date of determination in excess of 12 months). If any
Indebtedness bears, at the option of the Company or a Restricted Subsidiary, a
fixed or floating rate of interest and is being given pro forma effect, then (i)
if any interest had accrued on such Indebtedness prior to the date of
determination, the interest expense on such Indebtedness shall be computed by
applying a fixed or floating rate of interest as selected by the Company or such
Restricted Subsidiary for the interest period immediately preceding such
determination or (ii) if no interest accrued on such Indebtedness prior to the
date of determination, the interest expense on such Indebtedness shall be
computed by applying, at the option of the Company or such Restricted
Subsidiary, either a fixed or floating rate. If any Indebtedness which is being
given pro forma effect was Incurred under a revolving credit facility that was
in effect throughout the applicable period, the interest expense on such
Indebtedness shall be computed based upon the average daily balance of such
Indebtedness during the applicable period.
"Consolidated Interest Expense" means, for any period, the total
consolidated interest expense of the Company and its Restricted Subsidiaries for
such period, plus, to the extent Incurred by the Company and its Restricted
Subsidiaries in such period but not included in such interest expense, (i)
interest expense attributable to Capitalized Lease Obligations and Attributable
Debt, (ii) amortization of debt discount, (iii) capitalized interest, (iv)
noncash interest expense,
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(v) commissions, discounts and other fees and charges with respect to letters of
credit and bankers' acceptance financing, (vi) net costs associated with
Interest Rate Agreements, (vii) the interest portion of any deferred payment
obligation for goods or services, (viii) interest actually paid by the Company
or any Restricted Subsidiary on any Indebtedness of any other Person that is
Guaranteed by the Company or any Restricted Subsidiary, (ix) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company or a Wholly Owned Subsidiary) in
connection with Indebtedness Incurred by such plan or trust and (x) the earned
discount or yield with respect to the sale of receivables (without duplication
of amounts included in Consolidated Net Income); but in no event shall include
(i) amortization of debt issuance costs, (ii) Preferred Stock dividends in
respect of all Preferred Stock of Subsidiaries of the Company and Disqualified
Stock of the Company held by Persons other than the Company or a Wholly Owned
Subsidiary, or (iii) interest Incurred in connection with Investments in
discontinued operations.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and its Subsidiaries for such period; provided,
however, that there shall not be included in such Consolidated Net Income: (i)
any net income (loss) of any Person if such Person is not a Restricted
Subsidiary, except that (A) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income, (ii) for
purposes of subclause (a)(3)(A) of the covenant described under "Limitation on
Restricted Payments" only, any net income (loss) of any person acquired by the
Company or a Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition, (iii) any net income (loss) of any
Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company, except that (A)
subject to the limitations contained in (iv) below, the Company's equity in the
net income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend (subject, in the case of
a dividend that could have been made to another Restricted Subsidiary, to the
limitation contained in this clause) and (B) the Company's equity in a net loss
of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income, (iv) any gain (or loss) realized upon
the sale or other disposition of any asset of the Company or its Consolidated
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not
sold or otherwise disposed of in the ordinary course of business and any gain
(or loss) realized upon the sale or other disposition of any Capital Stock of
any Person, (v) any extraordinary gain or loss, and (vi) the cumulative effect
of a change in accounting principles after the Issue Date. Notwithstanding the
foregoing, for the purpose of the covenant described under "Certain
Covenants-Limitation on Restricted Payments" only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or other
transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof. Notwithstanding anything to the contrary
in the covenant described under "Certain Covenants -- Limitations on Restricted
Payments," all amounts paid to Holdings pursuant to clause (b)(xi)(B) of such
covenant shall be deducted in computing Consolidated Net Income.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and the Restricted Subsidiaries, determined on a
Consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending at least 45 days prior to the taking of any action
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for the purpose of which the determination is being made, as (i) the par or
stated value of all outstanding Capital Stock of the Company plus (ii) paid-in
capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Consolidated Non-Cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Consolidated Subsidiaries for such period, on a Consolidated basis, as
determined in accordance with GAAP (excluding any such other non-cash charge
which consists of an accrual or reserve for cash charges for any future period).
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement as
to which such Person is a party or a beneficiary.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend at least
$25.0 million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to ninety-one days after the
Stated Maturity of the Notes. Disqualified Stock shall not include any Capital
Stock that is not otherwise Disqualified Stock if by its terms the holders have
the right to require the issuer to repurchase such stock upon a Change of
Control (or upon events substantially similar to a Change of Control).
"Domestic Subsidiary" means a Subsidiary that is incorporated or organized
under the laws of the United States of America, any State thereof or the
District of Columbia.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense, (ii) Consolidated Interest Expense and (iii)
Consolidated Non-Cash Charges, in each case for such period. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization of, a Subsidiary of the Company shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income (loss) of such Subsidiary was included in
calculating Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in the
opinions and pronouncements of the
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Accounting Principles Board of the American Institute of Certified Public
Accountants, in statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. All ratios and computations
based on GAAP contained in the Indenture shall be computed in conformity with
GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person through
an agreement enforceable by or for the benefit of the holder of such
Indebtedness and any such obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided,
however, that the term "Guarantee" shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Commodity Agreement, Interest Rate Agreement or Currency
Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Holdings" means NFC Castings, Inc., a Delaware corporation, any Person
succeeding to its ownership, and successors thereto.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such person at the time it becomes a Restricted Subsidiary; provided further,
however, that in the case of a discount security, the accretion of original
issue discount on such security shall not be considered an Incurrence of
Indebtedness if (but only if) at the time of issuance of such security, the
Company elects to treat the whole face amount of such security as Incurred at
such time (and such Incurrence is then permitted in accordance with the terms of
the Indenture).
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of indebtedness of such
Person for borrowed money; (ii) the principal of obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (including reimbursement obligations with respect thereto) other
than letters of credit or similar instruments supporting Trade Payables entered
into in the ordinary course of business of such Person to the extent that such
letters of credit are not drawn upon or, if and to the extent drawn upon, such
drawing is reimbursed not later than the third business day following such
drawing; (iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables), which purchase
price is due more than twelve months after the date of placing such property in
service or taking delivery and title thereto or the completion of such services;
(v) all Capitalized Lease Obligations and all Attributable Debt of such Person;
(vi) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of the Company, any Preferred Stock (but excluding, in
each case, any accrued dividends); (vii) all Indebtedness of other Persons
secured by a Lien on any asset of such Person, whether or not such Indebtedness
is assumed by such Person; provided, however, that the amount of Indebtedness of
such Person shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness of such other
Persons; (viii) all Indebtedness of other Persons to the
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extent Guaranteed by such Person; and (ix) to the extent not otherwise included
in this definition, Hedging Obligations of such Person. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance or loan
(other than advances or loans to customers or suppliers in the ordinary course
of business that are recorded as accounts receivable on the balance sheet of the
Person making such loan or advance) or other extension of credit (including by
way of Guarantee or similar arrangement) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary" and the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments,"
only (i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of the Company at the time that such Subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the time
of such redesignation less (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Investors" means the officers and employees of ACP Holdings,
ACP Products, L.L.C., Holdings, the Company or a Subsidiary of the Company who
acquire Voting Stock of ACP Holdings, ACP Products, L.L.C., Holdings or the
Company on or after the Original Issue Date.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"NC Merger" means NC Merger Company, a Wisconsin corporation.
"Neenah Merger" means the merger, consummated on April 30, 1997 of NC
Merger Company with and into the Company under the terms of the Agreement and
Plan of Reorganization (as amended) by and among Holdings, the Company and NC
Merger Company and dated November 20, 1996.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or from an escrow account or
otherwise, in each case only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring person of
Indebtedness or other obligations relating to the properties or assets that are
the subject of such Asset Disposition or received in any other non-cash form)
therefrom, in each case net of (i) all legal, title and recording expenses,
commissions and other expenses (including fees and expenses of counsel and
investment bankers) incurred, and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset
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Disposition, (ii) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or which must by its terms, or in order to obtain a
necessary consent to such asset disposition, or by applicable law, be repaid out
of the proceeds from such Asset Disposition, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Disposition and (iv) appropriate
amounts to be provided by the party or parties making such Asset Disposition as
a reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Disposition.
"Net Cash Proceeds" with respect to any issuance or sale of Capital Stock,
means the proceeds of such issuance or sale in the form of cash, including
payments in respect of deferred payment obligations when received in form of, or
stock or other assets when disposed for, cash, net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, filing and registration fees, trustee's fees,
consultant and other fees actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Old Notes" means the Company's 11 1/8% Senior Subordinated Notes due 2007
issued under the Original Indenture, and any of the Company's 11 1/8% Series B
Senior Subordinated Notes due 2007 exchanged therefor.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Original Indenture" means the Indenture dated April 30, 1997 between NC
Merger Company and the Trustee, as amended.
"Original Issue Date" means the date of issuance of the Old Notes, April
30, 1997.
"Permitted Holders" means (i) CVC and its Affiliates and Permitted
Transferees and (ii) the Management Investors and their Permitted Transferees.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, (ii) a Restricted Subsidiary or a Person which
will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted Subsidiary is a
Related Business; (iii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iv) Temporary Cash Investments; (v) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (vi) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vii) loans or advances to employees made in the ordinary course of business and
not exceeding $1.0 million in the aggregate outstanding at any one time; (viii)
stock, obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (ix) securities received as
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consideration in sales of assets made in compliance with the covenant described
under "-- Limitation on Sales of Assets and Subsidiary Stock"; (x) other
Investments, of any type, provided that the amount of such Investments made
after the Issue Date in reliance on this clause (x) and outstanding at any time
does not exceed 7.5% of Total Assets; or (xi) Guarantees relating to
Indebtedness which is permitted to be Incurred under the covenant described
under "-- Limitation on Indebtedness."
"Permitted Liens" means with respect to any Person:
(a) Liens to secure Indebtedness permitted under the provisions
described under clause (b)(i) or (ii) under "Certain
Covenants -- Limitation on Indebtedness";
(b) pledges or deposits made or other Liens granted by (1) such Person
under workmen's compensation laws, unemployment insurance laws or similar
legislation, (2) in connection with bids, tenders, contracts (other than
for the payment of Indebtedness) or leases to which such Person is a party,
or (3) to secure public or statutory obligations of such Person or deposits
of cash or United States government bonds to secure surety or appeal bonds
to which such Person is a party, or deposits as security for contested
taxes or import duties or for the payment of rent, in each case Incurred in
the ordinary course of business;
(c) Liens imposed by law, such as carriers', warehousemen's,
mechanics', employees' and other like Liens, in each case for sums not yet
due or being contested in good faith by appropriate proceedings or other
Liens arising out of judgments, awards, decrees or orders of any court or
other governmental authority against such Person with respect to which such
Person shall then be proceeding with an appeal or other proceedings for
review;
(d) Liens for property taxes not yet due or payable or subject to
penalties for non-payment or which are being contested in good faith and by
appropriate proceedings;
(e) Liens in favor of issuers of surety, performance, judgment, appeal
and other like bonds or letters of credit issued pursuant to the request of
and for the account of such Person in the ordinary course of its business;
(f) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, licenses, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes,
or zoning provisions, carveouts, conditional waivers or other restrictions
as to the use of real properties or minor irregularities of title (and with
respect to leasehold interests, mortgages, obligations, Liens and other
encumbrances incurred, created, assumed or permitted to exist and arising
by, through or under a landlord or owner of the leased property, with or
without consent of the lessee) or Liens incidental to the conduct of the
business of such Person or to the ownership of its properties which were
not Incurred in connection with Indebtedness and which do not in the
aggregate materially impair the use of such properties in the operation of
the business of such Person;
(g) Liens existing or provided for under written arrangements existing
on the Original Issue Date;
(h) Liens securing Indebtedness or other obligations of a Subsidiary
of such Person owing to such Person or a wholly owned Subsidiary of such
Person;
(i) Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be under the Indenture, secured by a
Lien on the same property securing such Hedging Obligations;
(j) Liens to secure any refinancing, refunding, replacement, renewal,
repayment or extension (or successive refinancings, refundings,
replacements, renewals, repayments or extensions) as a whole, or in part,
of any Indebtedness secured by any Lien referred to in clause (g), (i),
(l), (m) or (n); provided, however, that (x) such new Lien shall be limited
to all or part of
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the same property that secured the original Lien (plus improvements on such
property) and (y) the Indebtedness secured by such Lien at such time is not
increased to any amount greater than the sum of (A) the outstanding
principal amount or, if greater, committed amount of the Indebtedness
described under clauses (g), (i), (l), (m) and (n) at the time the original
Lien became a Permitted Lien and (B) an amount necessary to pay any fees
and expenses, including premiums, related to such refinancing, refunding,
replacement, renewal, repayment or extension;
(k)(i) mortgages, liens, security interests, restrictions or
encumbrances that have been placed by any developer, landlord or other
third party on property over which the Company or any Restricted Subsidiary
or the Company has easement rights or on any real property leased by the
Company and subordination or similar agreements relating thereto and (ii)
any condemnation or eminent domain proceedings affecting any real property;
(l) Liens on property, assets or shares of stock of a Person at the
time such Person becomes a Subsidiary; provided, however, such Liens are
not created, Incurred or assumed by such Person in connection with, or in
contemplation of, such other Person becoming such a Subsidiary; provided
further, however, that such Liens may not extend to any other property
owned by the Company or any Restricted Subsidiary;
(m) Liens on property or assets at the time the Company or a
Restricted Subsidiary acquired the property or assets, including any
acquisition by means of a merger or consolidation with or into the Company
or a Restricted Subsidiary; provided, however, that such Liens are not
created in connection with, or in contemplation of, such acquisition;
provided further, however, that the Liens may not extend to any other
property owned by the Company or any Restricted Subsidiary; and
(n) any Lien on stock or other securities of an Unrestricted
Subsidiary that secures Indebtedness of such Unrestricted Subsidiary.
"Permitted Transferee" means (a) with respect to CVC (i) Citicorp, any
direct or indirect wholly owned subsidiary of Citicorp, and any officer,
director or employee of CVC, Citicorp or any wholly owned subsidiary of
Citicorp, (ii) any spouse or lineal descendant (including by adoption and
stepchildren) of the officers, directors and employees to in clause (a)(i) above
or (iii) any trust, corporation or partnership 100% in interest of the
beneficiaries, stockholders or partners of which consists of one or more of the
persons described in clause (a)(i) or (ii) above and (b) with respect to any
officer or employee of ACP Products, L.L.C., ACP Holdings, Holdings, the Company
or a Subsidiary of the Company (i) any spouse or lineal descendant (including by
adoption and stepchildren) of such officer or employee and (ii) any trust,
corporation or partnership 100% in interest of the beneficiaries, stockholders
or partners of which consists of such officer or employee, any of the persons
described in clause (b)(i) above or any combination thereof.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Public Equity Offering" means an underwritten public offering of common
stock of ACP Holdings, the Company or Holdings (or, for purposes of the covenant
described under "-- Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries," any Restricted Subsidiary) pursuant to an effective
registration statement (other than a registration statement on Form S-4, S-8 or
any successor or similar forms) under the Securities Act (whether alone or in
conjunction with any secondary public offering); provided, however, that if any
such offering is an offering of the
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common stock of ACP Holdings, only the net proceeds thereof that are contributed
to the Company shall be taken into consideration for the purposes of this
definition.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of ACP Holdings, the Company or Holdings (or, for purposes of the covenant
described under "-- Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries," any Restricted Subsidiary) has been distributed by
means of an effective registration statement under the Securities Act.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of an asset or assets (including Capital Stock and the
assets of an ongoing business) including additions and improvements, any
conditional sale obligation, any obligation under any title retention agreement
or any other purchase money obligation, or (ii) incurred to finance the
acquisition by the Company or a Restricted Subsidiary of an asset or assets
(including Capital Stock and the assets of a Related Business) including
additions and improvements; provided in the case of clause (i) that the Average
Life of such Indebtedness is less than the anticipated useful life of assets
having an aggregate fair market value representing more than 50% of the
aggregate fair market value of all assets so acquired and that in the case of
clauses (i) and (ii) such Indebtedness is incurred within 180 days after the
acquisition by the Company or Restricted Subsidiary of such asset or assets, or
is in existence with respect to any asset or other property at the time such
asset or property is acquired.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances" and "refinanced" shall have
a correlative meaning) any Indebtedness existing on the Original Issue Date or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Restricted Subsidiary (to the extent
permitted in the Indenture) and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of that or another Restricted Subsidiary of the
Company), including Indebtedness that refinances Refinancing Indebtedness;
provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity
no earlier than the Stated Maturity of the Indebtedness being refinanced, (ii)
the Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being refinanced, (iii) such Refinancing Indebtedness is
Incurred in an aggregate principal amount (or, if issued with original issue
discount, an aggregate issue price) that is equal to or less than the aggregate
principal amount (or, if issued with original issue discount, the aggregate
accreted value) then outstanding of the Indebtedness being refinanced plus the
amount of any premium reasonably determined by the Company or such Restricted
Subsidiary, as applicable, as necessary at the time of such refinancing to
accomplish such refinancing or required pursuant to the terms thereof, plus the
amount of expenses of the Company or such Restricted Subsidiary, as applicable,
Incurred in connection with such refinancing and (iv) if the Indebtedness being
refinanced is subordinated in right of payment to the Notes, such Refinancing
Indebtedness is subordinated in right of payment to the Notes to the extent of
the Indebtedness being refinanced provided further, however, that Refinancing
Indebtedness shall not include Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business of the Company and the Restricted
Subsidiaries as conducted on the Issue Date and any business related, ancillary
or complementary thereto.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc. and its successors.
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"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary whereby
the Company or such Restricted Subsidiary transfers such property to a Person
and the Company or such Restricted Subsidiary leases it from such Person, other
than leases between the Company and a Wholly Owned Subsidiary or between Wholly
Owned Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of any Guarantor Subsidiary has a correlative
meaning.
"Senior Bank Facilities" means the credit agreement dated as of the
Original Issue Date, as amended, waived or otherwise modified from time to time,
among Holdings, the Company, the lenders party thereto from time to time and The
Chase Manhattan Bank, a New York banking corporation, as agent (except to the
extent that any such amendment, waiver or other modification thereto would be
prohibited by the terms of the Indenture).
"Senior Subordinated Indebtedness" means the Notes, the Old Notes and any
other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Notes and is not subordinated by its
terms to any Indebtedness or other obligation of the Company which is not Senior
Indebtedness. "Senior Subordinated Indebtedness" of any Guarantor Subsidiary has
a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of clause (w)(1) or
(2) of Rule 1-02 under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the purchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Original Issue Date or thereafter Incurred) which is
expressly subordinate in right of payment to the Notes pursuant to a written
agreement. "Subordinated Obligation" of any Guarantor Subsidiary shall have a
correlative meaning.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers, trustees or members of any other governing body
thereof is at the time owned or controlled, directly or indirectly, by (i) such
Person or (ii) one or more Subsidiaries of such Person.
"Subsidiary Guaranty" means any Guarantee of the Notes which may from time
to time be executed and delivered pursuant to the terms of the Indenture. Each
such Subsidiary Guaranty shall be in the form prescribed in the Indenture.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations (x) of the United States of America or any agency thereof
or obligations Guaranteed by the United States of America or any agency thereof
or (y) of any foreign country recognized by the United States of America rated
at least "A" by S&P or "A-1" by Moody's, (ii) investments in time deposit
accounts, certificates of deposit and money market deposits maturing within 365
days of the date of acquisition thereof issued by a bank or trust company which
is organized under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States of America having capital
and surplus in excess of $250.0 million (or the foreign currency equivalent
thereof) and whose long-term debt is rated "A" (or such similar equivalent
rating) or
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higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act), (iii) repurchase obligations with
a term of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) investments in commercial paper, maturing
not more than 365 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P, (v) investments in securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by S&P or "A" by
Moody's, (vi) any money market deposit accounts issued or offered by a domestic
commercial bank or a commercial bank organized and located in a country
recognized by the United States of America, in each case, having capital and
surplus in excess of $250.0 million (or the foreign currency equivalent
thereof), or investments in money market funds complying with the risk limiting
conditions of Rule 2a-7 (or any successor rule) of the Commission under the
Investment Company Act of 1940, as amended, and (vii) similar investments
approved by the Board of Directors in the ordinary course of business.
"Total Assets" means, at any date of determination, the total consolidated
assets of the Company and its Restricted Subsidiaries, as set forth on the
Company's then most recent consolidated balance sheet.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two Business Days prior to the date
fixed for redemption of the Notes following a Change of Control (or, if such
Statistical Release is no longer published, any publicly available source of
similar market data)) most nearly equal to the then remaining Average Life to
Stated Maturity of the Notes; provided, however, that if the Average Life to
Stated Maturity of the Notes is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the Average Life to
Stated Maturity of the Notes is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Restricted Subsidiary of the
Company that is not a Subsidiary of the Subsidiary to be so designated;
provided, however, that either (A) the Subsidiary to be so designated has total
Consolidated assets of $1,000 or less or (B) if such Subsidiary has
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<PAGE> 98
Consolidated assets greater than $1,000, then such designation would be
permitted under the covenant entitled "Limitation on Restricted Payments." The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "Limitation on Indebtedness" and
(y) no Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the resolution of the Board of Directors giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and, to the extent
required by local ownership laws in foreign countries, shares owned by foreign
shareholders) is owned by the Company or another Wholly Owned Subsidiary
(including shares held of record by a nominee for the benefit of the Company or
another Wholly Owned Subsidiary).
95
<PAGE> 99
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion (including the opinion of counsel described below)
is based upon current provisions of the Internal Revenue Code of 1986, as
amended, applicable Treasury regulations, judicial authority and administrative
rulings and practice. There can be no assurance that the Internal Revenue
Service (the "Service") will not take a contrary view, and no ruling from the
Service has been or will be sought. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conditions set forth herein. Any such changes or interpretations
may or may not be retroactive and could affect the tax consequences to holders.
Certain holders (including insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, foreign corporations and persons who are
not citizens or residents of the United States) may be subject to special rules
not discussed below. The Company recommends that each holder consult such
holder's own tax advisor as to the particular tax consequences of exchanging
such holder's Old Notes for New Notes, including the applicability and effect of
any state, local or foreign tax laws.
Kirkland & Ellis, counsel to the Company, has advised the Company that in
its opinion, the exchange of the Old Notes for New Notes pursuant to the
Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such holder.
As a result, there will be no federal income tax consequences to holders
exchanging Old Notes for New Notes pursuant to the Exchange Offer.
96
<PAGE> 100
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. Each of the Company and the Guarantor Subsidiaries has
agreed that, for a period of 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer to
use in connection with any such resale. In addition, until , 1997
(90 days after the date of this Prospectus), all dealers effecting transactions
in the New Notes may be required to deliver a prospectus.
Neither the Company nor the Guarantor Subsidiaries will receive any
proceeds from any sale of New Notes by broker-dealers. New Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such New Notes.
Any broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company and each of the Guarantor Subsidiaries
has jointly and severally agreed to pay all expenses incident to the Exchange
Offer (including the expenses of one counsel for the holders of the Old Notes)
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Old Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereunder will be passed upon for the
Company and the Guarantor Subsidiaries by Kirkland & Ellis, New York, New York.
Cravath, Swaine & Moore, New York, New York has acted as counsel for the Initial
Purchasers.
EXPERTS
The consolidated financial statements of the Company at March 31, 1996 and
1997, and for each of the three years in the period ended March 31, 1997,
appearing in this Prospectus and in the Registration Statement, and the
financial statement schedule included in the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and in the Registration Statement,
and are included herein in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
97
<PAGE> 101
CHANGE IN INDEPENDENT AUDITORS
The Company's consolidated financial statements at March 31, 1995, 1996 and
1997 and for the years ended March 31, 1994, 1995, 1996 and 1997 were audited by
Ernst & Young LLP. The consolidated financial statements at March 31, 1993 and
1994 and for the year ended March 31, 1993 were audited by Schenck & Associates
SC. During the two most recent years preceding the change in independent
auditors, there were no disagreements with Schenck & Associates SC on any matter
of accounting principles or practices, financial statement disclosures or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of Schenck & Associates SC would have caused them to make reference
thereto in their report on the consolidated financial statements for such years.
98
<PAGE> 102
NEENAH FOUNDRY COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Balance Sheets as of March 31, 1996 and 1997............................. F-3
Consolidated Statements of Income for the years ended March 31, 1995, 1996 and 1997... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended March
31, 1995, 1996 and 1997............................................................. F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1995, 1996 and
1997................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 103
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Neenah Foundry Company (formerly Neenah Corporation -- see Note 1)
We have audited the accompanying consolidated balance sheets of Neenah
Foundry Company (the Company) as of March 31, 1996 and 1997, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended March 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of March 31, 1996 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
April 29, 1997, except for Notes 1 and 10
as to which the date is July 1, 1997
F-2
<PAGE> 104
NEENAH FOUNDRY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 10,126 $ 22,403
Accounts receivable, less allowance for doubtful accounts of $386
at March 31, 1996 and 1997...................................... 20,831 21,423
Inventories........................................................ 13,324 13,956
Other current assets............................................... -- 401
Deferred income taxes.............................................. 2,253 2,325
-------- --------
Total current assets....................................... 46,534 60,508
Property, plant and equipment:
Land............................................................... 847 847
Buildings and improvements......................................... 14,972 15,063
Machinery and equipment............................................ 97,749 101,655
-------- --------
113,568 117,565
Less accumulated depreciation...................................... 79,840 86,186
-------- --------
33,728 31,379
Other assets....................................................... 2,695 1,982
-------- --------
$ 82,957 $ 93,869
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 8,124 $ 8,497
Dividends payable.................................................. 2,220 --
Income taxes payable............................................... 517 573
Accrued wages and employee benefits................................ 5,516 5,545
Other accrued liabilities.......................................... 1,937 2,052
Current portion of long-term debt.................................. 107 134
-------- --------
Total current liabilities.................................. 18,421 16,801
Long-term debt....................................................... 134 --
Pension obligations.................................................. 1,737 --
Postretirement benefit obligations................................... 5,300 5,667
Deferred income taxes................................................ 2,575 2,544
-------- --------
Total liabilities.......................................... 28,167 25,012
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock, par value $100 per share:
Authorized 3,000 shares; no shares issued and outstanding....... -- --
Common stock, par value $100 per share:
Class A (voting):
Authorized 1,000 shares; issued and outstanding, 620 shares... 62 62
Class B (nonvoting):
Authorized 10,000 shares; issued and outstanding, 3,820
shares....................................................... 382 382
Retained earnings.................................................. 57,268 71,335
Notes receivable from owners to finance stock purchase............. (2,922) (2,922)
-------- --------
Total stockholders' equity................................. 54,790 68,857
-------- --------
$ 82,957 $ 93,869
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 105
NEENAH FOUNDRY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales............................................... $160,621 $166,951 $165,426
Cost of sales........................................... 120,981 121,631 116,736
-------- -------- --------
Gross profit............................................ 39,640 45,320 48,690
Selling, general and administrative expenses............ 16,673 16,983 17,547
-------- -------- --------
Operating income........................................ 22,967 28,337 31,143
Net interest income (expense)........................... (397) 481 1,162
-------- -------- --------
Income before income taxes.............................. 22,570 28,818 32,305
Provision for income taxes.............................. 8,866 11,676 12,467
-------- -------- --------
Net income.............................................. $ 13,704 $ 17,142 $ 19,838
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 106
NEENAH FOUNDRY COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
NOTES RECEIVABLE
PREFERRED STOCK CLASS A CLASS B FROM OWNERS
--------------- --------------- --------------- RETAINED TO FINANCE STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT EARNINGS PURCHASE TOTAL
------ ------ ------ ------ ------ ------ -------- ---------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April
1, 1994........ 1,468 $ 147 719 $ 72 4,920 $ 492 $40,140 $ (2,922) $37,929
Redemption and
retirement of
stock........ (1,468) (147) (99) (10) (1,100) (110) (5,932) -- (6,199)
Dividends
declared:
Preferred --
$4.50 per
share...... -- -- -- -- -- -- (5) -- (5)
Common --
$475 per
share...... -- -- -- -- -- -- (2,231) -- (2,231)
Net income..... -- -- -- -- -- -- 13,704 -- 13,704
---- --- --- ------ ---- ------- ------- ------- -------
Balance at March
31, 1995....... -- -- 620 62 3,820 382 45,676 (2,922) 43,198
Common
dividends
declared --
$1,250 per
share........ -- -- -- -- -- -- (5,550) -- (5,550)
Net income..... -- -- -- -- -- -- 17,142 -- 17,142
---- --- --- ------ ---- ------- ------- ------- -------
Balance at March
31, 1996....... -- -- 620 62 3,820 382 57,268 (2,922) 54,790
Common
dividends
declared
-- $1,300 per
share........ -- -- -- -- -- -- (5,771) -- (5,771)
Net income..... -- -- -- -- -- -- 19,838 -- 19,838
---- --- --- ------ ---- ------- ------- ------- -------
Balance at March
31, 1997....... -- $ -- 620 $ 62 3,820 $ 382 $71,335 $ (2,922) $68,857
==== === === ====== ==== ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 107
NEENAH FOUNDRY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................................. $ 13,704 $ 17,142 $ 19,838
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 6,842 6,776 6,881
Deferred income taxes.............................. 2,862 1,863 (103)
Other.............................................. (274) 48 (103)
Changes in operating assets and liabilities:
Accounts receivable.............................. (3,384) 439 (592)
Inventories...................................... (142) (603) (632)
Other current assets............................. 186 27 (401)
Accounts payable................................. 684 (2,653) 373
Income taxes payable............................. 526 (585) 56
Accrued liabilities.............................. 1,388 (1,261) 144
Pension obligations.............................. 900 859 (2,349)
Postretirement benefit obligations............... 289 221 367
-------- -------- --------
Net cash provided by operating activities..... 23,581 22,273 23,479
INVESTING ACTIVITIES
Purchase of property, plant and equipment............. (3,665) (7,275) (4,546)
Proceeds from life insurance policy................... -- -- 1,439
Other................................................. 253 (24) 3
-------- -------- --------
Net cash used in investing activities......... (3,412) (7,299) (3,104)
FINANCING ACTIVITIES
Dividends paid........................................ (1,411) (4,440) (7,991)
Redemption of stock................................... (6,199) -- --
Proceeds from long-term debt.......................... 70,529 16,370 --
Payments on long-term debt............................ (82,968) (17,016) (107)
-------- -------- --------
Net cash used in financing activities......... (20,049) (5,086) (8,098)
-------- -------- --------
Increase in cash and cash equivalents................... 120 9,888 12,277
Cash and cash equivalents at beginning of year.......... 118 238 10,126
-------- -------- --------
Cash and cash equivalents at end of year................ $ 238 $ 10,126 $ 22,403
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest........................................... $ 624 $ 84 $ 39
Income taxes....................................... 5,478 10,398 12,515
</TABLE>
See accompanying notes.
F-6
<PAGE> 108
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
(IN THOUSANDS)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Prior to July 1, 1997, Neenah Foundry Company was one of three wholly owned
subsidiaries of Neenah Corporation, a holding company with no significant assets
or operations other than its holdings in the common stock of its subsidiaries.
On July 1, 1997, Neenah Foundry Company merged into Neenah Corporation and the
surviving company changed its name to Neenah Foundry Company (the Company).
The Company operates in one business segment for financial reporting
purposes: the manufacture of gray and ductile iron castings. The Company
manufactures castings sold directly to industrial and municipal customers
throughout the United States and several foreign countries either directly or
through representatives. Industrial castings are custom-engineered and are
produced for customers in several industries, with a concentration in the medium
and heavy-duty truck components, farm equipment, and heating, ventilation, and
air-conditioning industries. Heavy municipal castings include manhole covers and
frames, storm sewer frames and grates, trench drain systems, tree grates and
specialty castings for a variety of applications.
Industrial castings are generally sold to large, well-established
companies, with two customers accounting for 18% and 15% of net sales in fiscal
1995, 17% and 9% of net sales in fiscal 1996, and 16% and 10% of net sales in
fiscal 1997. Combined receivables from these two customers totaled $4,974 and
$6,651 at March 31, 1996 and 1997, respectively. Municipal castings are sold to
a large number of customers. The Company's accounts receivable generally are
unsecured.
The Company has two wholly owned subsidiaries -- Neenah Transport, Inc.
(Transport) and Hartley Controls Corporation (Hartley). Transport is a common
and contract carrier licensed to operate in the continental United States. The
majority of Transport's revenues are derived from transport services provided to
the Company. Hartley designs and manufactures customized sand control systems
for the foundry industry, which are sold and serviced throughout the United
States and several foreign countries. Hartley and Transport each account for
less than 10% of consolidated net sales, net income and total assets.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Transport and Hartley. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents. Cash equivalents, consisting principally
of investments in commercial paper, totaled $11,598 and
F-7
<PAGE> 109
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$23,028 at March 31, 1996 and 1997, respectively. The cost of these debt
securities, which are considered as "available for sale" for financial reporting
purposes, approximates fair value at both March 31, 1996 and 1997. There were no
realized gains or losses recognized on these securities during any of the three
years in the period ended March 31, 1997.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
on the last-in, first-out (LIFO) method for substantially all inventories except
for supplies, for which cost is determined on the first-in, first-out (FIFO)
method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Expenditures for
additions and improvements are capitalized while replacements, maintenance and
repairs which do not improve or extend the lives of the respective assets are
expensed as incurred.
Depreciation for financial reporting purposes is provided over the
estimated useful lives of the respective assets, using accelerated and
straight-line methods. Depreciation expense includes amortization of machinery
and equipment recorded under capitalized leases.
REVENUE RECOGNITION
Revenue from the sale of castings and sand control systems is recognized
upon shipment to the customer.
ADVERTISING COSTS
Advertising costs are expensed as incurred, and amounted to $467, $527 and
$524 for the years ended March 31, 1995, 1996 and 1997, respectively.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of the Company's assets and liabilities
and are measured using currently enacted tax rates and laws.
FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all financial
instruments at March 31, 1996 and 1997 does not differ materially from the
carrying value of such instruments recorded in the accompanying consolidated
balance sheets, as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Cash and cash equivalents...................................... $10,126 $22,403
Accounts receivable............................................ 20,831 21,423
Accounts payable............................................... (8,124) (8,497)
Long-term debt................................................. (241) (134)
</TABLE>
F-8
<PAGE> 110
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING STANDARDS
The Company adopted FASB Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Assets to
Be Disposed Of," and SFAS No. 123, "Accounting for Stock-Based Compensation," on
April 1, 1996 and SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," on January 1, 1997. The
adoption of these standards did not have any effect on the Company's
consolidated financial statements. In accordance with SFAS No. 121, the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets. The Company is required to adopt AICPA
Statement of Position 96-1, "Environmental Remediation Liabilities," on April 1,
1997. The pending adoption of this standard is not expected to have a material
impact on the Company's consolidated financial statements.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Raw materials.................................................. $ 2,214 $ 2,017
Work in process and finished goods............................. 13,957 14,324
Supplies....................................................... 4,886 4,860
------- -------
Inventories at FIFO cost....................................... 21,057 21,201
Excess of FIFO cost over LIFO cost............................. (7,733) (7,245)
------- -------
$13,324 $13,956
======= =======
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------
1996 1997
---- ----
<S> <C> <C>
Capital lease obligations............................................ $241 $134
Less current portion................................................. 107 134
---- ----
$134 $ --
==== ====
</TABLE>
The Company has a revolving credit agreement (the Agreement) with a bank
that provides for borrowings up to $25,000 through July 31, 1998. Interest is
payable monthly on outstanding borrowings at the bank's Reference Rate (8.25% at
March 31, 1997). The Agreement contains an option that allows the Company to
designate a portion (minimum of $2,000) of the borrowings to bear a fixed rate
of interest for a specified period of time. Borrowings under the Agreement are
unsecured and a quarterly fee is charged by the bank on the unused portion of
the facility.
The capital lease obligations consist of leases for a propane system and
semi-tractors and trailers. Included in machinery and equipment is $567 and
$397, and included in accumulated depreciation is $272 and $179 at March 31,
1996 and 1997, respectively, related to these capital leases.
F-9
<PAGE> 111
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES RECEIVABLE FROM OWNERS
The notes receivable from owners of $2,922 are due April 1, 1999, with
interest adjusted annually to the Company's borrowing rate plus .1%. The
proceeds of the notes receivable were used to purchase 1,461 shares of Company
Class B common stock from other shareholders, and are secured by such common
stock. These notes were repaid by the owners prior to the consummation of the
plan of reorganization described in Note 10.
5. COMMITMENTS AND CONTINGENCIES
The Company leases warehouse space, machinery and equipment, office
equipment and vehicles under operating leases. Rent expense under these
operating leases for the years ended March 31, 1995, 1996 and 1997 amounted to
$850, $996 and $1,088, respectively. Minimum rental payments due under these
operating leases for subsequent fiscal years are as follows:
<TABLE>
<S> <C>
1998........................................................................ $ 736
1999........................................................................ 586
2000........................................................................ 287
2001........................................................................ 115
------
$1,724
======
</TABLE>
The Company is involved in a number of product liability claims, none of
which, in the opinion of management, is expected to have a material adverse
effect on the consolidated financial statements.
The Company is partially self-insured for workers compensation claims. An
accrued liability is recorded for claims incurred but not yet paid or reported,
with such accrual based on current and historical claim information. The accrual
may ultimately be settled for an amount greater or lesser than the recorded
amount. Adjustments of the accrual are recorded in the period in which they are
determined.
As of March 31, 1997, the Company had outstanding letters of credit in the
aggregate amount of $595, which secure certain workers compensation and other
obligations.
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Current:
Federal............................................ $5,556 $ 9,147 $11,554
State.............................................. 448 666 1,016
------ ------- -------
6,004 9,813 12,570
Deferred............................................. 2,862 1,863 (103)
------ ------- -------
$8,866 $11,676 $12,467
====== ======= =======
</TABLE>
F-10
<PAGE> 112
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the provision for income taxes and income taxes
computed using the statutory U.S. federal income tax rate of 35% is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Provision at statutory rate.......................... $7,900 $10,086 $11,307
State income taxes, net of federal tax benefit....... 801 1,126 1,318
Other................................................ 165 464 (158)
------ ------- -------
Provision for income taxes........................... $8,866 $11,676 $12,467
====== ======= =======
</TABLE>
The components of the Company's deferred income tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Deferred income tax liabilities:
Tax depreciation in excess of book depreciation.............. $(5,621) $(5,156)
Employee benefit plans....................................... (602) (441)
Other........................................................ (437) (127)
------- -------
(6,660) (5,724)
Deferred income tax assets:
Inventories.................................................. 560 560
Employee benefit plans....................................... 3,316 3,128
Accrued vacation............................................. 825 855
Other accrued liabilities.................................... 672 790
State tax credit carryforwards............................... 676 --
Other........................................................ 289 172
------- -------
6,338 5,505
------- -------
Net deferred income tax liability.............................. $ (322) $ (219)
======= =======
Included in the consolidated balance sheets as:
Current deferred income tax asset............................ $ 2,253 $ 2,325
Noncurrent deferred income tax liability..................... (2,575) (2,544)
------- -------
$ (322) $ (219)
======= =======
</TABLE>
The Company has not recorded a valuation allowance with respect to any
deferred tax assets at March 31, 1996 or 1997.
7. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS
The Company sponsors two defined benefit pension plans covering
substantially all hourly employees and previously sponsored a defined benefit
supplemental executive retirement plan (SERP) which covered certain salaried
employees. During the year ended March 31, 1997, the Company purchased
nonparticipating annuity contracts to settle the vested benefit obligations
under the SERP. Retirement benefits for the pension plans are based on years of
credited service and defined benefit rates while retirement benefits for the
SERP were based on compensation levels. The Company funds the pension plans
based on an actuarially determined cost method allowable under Internal Revenue
Service regulations. The SERP was unfunded.
F-11
<PAGE> 113
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reconciles the funded status of the plans, as of
December 31, 1995 and 1996 (the Company uses a measurement date as of December
31), to the amounts included in the consolidated balance sheets at March 31,
1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------------------------- -------------------------
UNDERFUNDED OVERFUNDED UNDERFUNDED OVERFUNDED
PLANS PLAN PLAN PLAN
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Accumulated benefit obligations............ $(3,944) $(19,805) $(845) $(20,150)
Effect of assumed increases in compensation
on SERP.................................. (2,593) -- -- --
------- -------- ----- --------
Projected benefit obligations.............. (6,537) (19,805) (845) (20,150)
Plan assets at fair value (consisting
principally of pooled investment funds
and an investment contract with an
insurance company)....................... 697 21,110 735 22,169
------- -------- ----- --------
Projected benefit obligations less than (in
excess of) plan assets................... (5,840) 1,305 (110) 2,019
Unrecognized net loss (gain)............... 2,055 (1,940) (8) (2,966)
Unrecognized prior service cost............ 259 4,833 160 4,452
Unrecognized net transition obligation
(asset).................................. 782 (2,695) (21) (2,411)
Adjustment to recognize additional minimum
liability................................ (503) -- (131) --
------- -------- ----- --------
Prepaid (accrued) pension obligation, at
December 31, 1995 and December 31, 1996,
respectively............................. (3,247) 1,503 (110) 1,094
Contributions between January 1 and March
31, 1996 and 1997, respectively.......... 7 -- -- --
------- -------- ----- --------
Prepaid (accrued) pension obligations...... $(3,240) $ 1,503 $(110) $ 1,094
======= ======== ===== ========
Net pension asset (obligation) included in
the consolidated balance sheets.......... $(1,737) $ 984
======= =====
</TABLE>
Components of net periodic pension cost are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the year..... $ 822 $ 880 $ 820
Interest cost on projected benefit obligations...... 1,437 1,545 1,742
Actual return on plan assets........................ (1,412) (1,450) (1,531)
Net amortization and deferral....................... 217 203 220
------- ------- -------
$ 1,064 $ 1,178 $ 1,251
======= ======= =======
</TABLE>
As a result of the settlement of the SERP, the Company recognized a
curtailment gain of $1,317 and a settlement loss of $878 during the year ended
March 31, 1997. The discount rate used in estimating the projected benefit
obligations and in determining the interest component of pension expense for the
following year for all plans was 7.5% for all years. The annual rate of
compensation increase assumed for the SERP in estimating the projected benefit
obligations was 6.5% for all years. The assumed long-term rate of return on plan
assets used in determining pension expense was 7.5% for all years.
F-12
<PAGE> 114
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROFIT-SHARING AND SAVINGS RETIREMENT PLAN
The Company sponsors a Profit-Sharing and Savings Retirement Plan covering
substantially all salaried employees. The plan allows participants to make
401(k) contributions in an amount from 1% to 5% of their compensation. The
Company matches 50% of the participants contributions. The Company may make
additional voluntary contributions to the plan as determined annually by the
Board of Directors. Total Company contributions amounted to $859, $891 and $915
for the years ended March 31, 1995, 1996 and 1997, respectively.
POSTRETIREMENT BENEFITS
The Company sponsors defined benefit postretirement health care plans
covering substantially all salaried employees and their dependents. Benefits are
provided from the date of retirement for the duration of the employee's life up
to a maximum of $1 million per individual. Retirees' contributions to the plans
are based on years of service and age at retirement. The Company funds benefits
as incurred.
The following table reconciles the funded status of the postretirement
benefit plans to the amounts included in the consolidated balance sheets at
March 31:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees....................................................... $2,047 $1,830
Fully eligible active participants............................. 654 810
Other active participants...................................... 2,534 2,784
------ ------
5,235 5,424
Plan assets...................................................... -- --
------ ------
5,235 5,424
Unrecognized net gain............................................ 65 243
------ ------
Accrued postretirement benefit obligations....................... $5,300 $5,667
====== ======
</TABLE>
Components of net periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $164 $176 $193
Interest cost on accumulated postretirement benefit
obligations............................................... 340 361 370
Net amortization and deferral............................... (4) (4) (5)
---- ---- ----
$500 $533 $558
==== ==== ====
</TABLE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligations for both plans was 7.5% for all years, and
the healthcare cost trend rate was projected to have annual increases of 8.5%.
The healthcare cost trend rate assumption has a significant effect on the
amounts reported. Increasing the healthcare cost trend rate by one percentage
point would increase the accumulated postretirement benefit obligations as of
March 31, 1997 by $1,014 and would increase postretirement benefit expense for
the year ended March 31, 1997 by $131.
F-13
<PAGE> 115
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCKHOLDERS' EQUITY
The Company has a Restrictive Stock Transfer Agreement with certain of its
stockholders which permits the transfer of its stock held by such stockholders
to permitted transferees, as defined. In the event a stockholder wishes to sell
stock to a third party who is not a permitted transferee, the stock must first
be offered for sale to the Company. If the Company accepts the offer of sale,
the purchase price is based on a formula, as defined. The purchase price will be
financed by a promissory note payable in ten equal annual installments with
interest at the prime rate less 1%. The Restrictive Stock Transfer Agreement was
terminated concurrently with the consummation of the plan of reorganization
described in Note 10.
9. UNAUDITED QUARTERLY RESULTS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
------------------------------------------------------
QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales............................ $ 46,277 $ 44,454 $ 39,015 $ 37,205
Gross profit......................... 12,976 12,243 10,199 9,902
Net income........................... 5,325 5,024 3,839 2,954
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
------------------------------------------------------
QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales............................ $ 44,309 $ 45,430 $ 37,815 $ 37,872
Gross profit......................... 13,140 13,613 10,825 11,112
Net income........................... 5,178 5,558 4,635 4,467
</TABLE>
10. SUBSEQUENT EVENTS
On April 30, 1997, pursuant to an Agreement and Plan of Reorganization with
NC Merger Company and NFC Castings, Inc., Neenah Corporation was acquired by NFC
Castings, Inc. using (i) $45,000 of cash equity contributed by NFC Castings,
Inc., (ii) $45,000 of term loans borrowed under Senior Bank Facilities, (iii)
proceeds from the issuance of $150,000 of unsecured Senior Subordinated Notes in
a Rule 144A private placement and (iv) Company cash. The consideration for the
acquisition is subject to a closing date net worth adjustment.
On July 1, 1997 the Company issued $45 million principal amount of Senior
Subordinated Notes and used the proceeds to pay the term loans borrowed under
the Senior Bank Facilities.
As described in Note 1, on July 1, 1997, Neenah Foundry Company, the
principal operating subsidiary of Neenah Corporation, merged into Neenah
Corporation. Transport and Hartley, wholly owned subsidiaries of the Company,
fully, unconditionally, jointly and severally guarantee the Senior Subordinated
Notes issued in the private placement discussed above. The following is
summarized combined financial information of the wholly owned subsidiaries. Net
sales includes net sales to Neenah Foundry Company of $4,181, $4,090 and $4,012
for the years ended March 31, 1995, 1996 and 1997, respectively. Separate
financial statements of the guarantor subsidiaries are not sepa-
F-14
<PAGE> 116
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rately presented because, in the opinion of management, such financial
statements are not material to investors.
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1997
------ ------
<S> <C> <C>
Current assets............................................. $1,494 $1,867
Noncurrent assets.......................................... 1,661 1,918
Current liabilities........................................ 941 1,006
Noncurrent liabilities..................................... 401 453
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net sales................................................. $9,131 $9,795 $9,971
Gross profit.............................................. 2,719 3,165 3,247
Net income................................................ 501 651 513
</TABLE>
F-15
<PAGE> 117
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
- ------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information................ 2
Prospectus Summary................... 3
Risk Factors......................... 15
Use of Proceeds...................... 20
Capitalization....................... 21
Selected Consolidated Financial and
Other Data......................... 22
Unaudited Pro Forma Consolidated
Financial Information.............. 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 32
Exchange Offer....................... 37
Business............................. 43
Management........................... 55
Ownership of Securities.............. 58
Certain Relationships and Related
Transactions....................... 58
Description of Senior Bank
Facilities......................... 59
Description of Notes................. 61
Certain United States Federal Income
Tax Considerations................. 95
Plan of Distribution................. 96
Legal Matters........................ 96
Experts.............................. 96
Change in Independent Auditors....... 97
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
LOGO
--------------------
PROSPECTUS
--------------------
OFFER TO EXCHANGE ITS
11 1/8% SERIES D SENIOR SUBORDINATED
NOTES DUE 2007 FOR
11 1/8% SERIES C SENIOR SUBORDINATED
NOTES DUE 2007
, 1997
<PAGE> 118
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee.................................................... $14,420.75
Blue Sky Fees and Expenses.............................................. *
Printing Expenses....................................................... *
Accounting Fees and Expenses............................................ *
Legal Fees and Expenses................................................. *
Trustee's Fees and Expenses............................................. *
Miscellaneous........................................................... *
--------
Total......................................................... $ *
========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 180.0850 to 180.0859 of the Wisconsin Statutes require a
corporation to indemnify any director or officer who is a party to any
threatened, pending or completed civil, criminal, administrative or
investigative action, suit, arbitration or other proceeding, whether formal or
informal, which involves foreign, federal, state or local law and which is
brought by or in the right of the corporation or by any other person. A
corporation's obligation to indemnify any such person includes the obligation to
pay any judgment, settlement, penalty, assessment, forfeiture or fine, including
any excise tax assessed with respect to an employee benefit plan, and all
reasonable expenses including fees, costs, charges, disbursements, attorney's
and other expenses except in those cases in which liability was incurred as a
result of the breach or failure to perform a duty which the director or officer
owes to the corporation and the breach or failure to perform constitutes: (i) a
willful failure to deal fairly with the corporation or its shareholders in
connection with a matter in which the director or officer has a material
conflict of interest; (ii) a violation of criminal law, unless the person has
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful; (iii) a transaction from which the person
derived an improper personal profit; or (iv) willful misconduct.
Unless otherwise provided in a corporation's articles of incorporation or
by-laws or by written agreement, an officer or director seeking indemnification
is entitled to indemnification if approved in any of the following manners: (i)
by majority vote of a disinterested quorum of the board of directors, or if such
quorum of disinterested directors cannot be obtained, by a majority vote of a
committee or two or more disinterested directors; (ii) by independent legal
counsel; (iii) by a panel of three arbitrators; (iv) by affirmative vote of
shareholders; (v) by a court; or (vi) with respect to any additional right to
indemnification granted by any other method permitted in Section 180.0859 of the
Wisconsin Statutes.
Reasonable expenses incurred by a director or officer who is a party to a
proceeding may be reimbursed by a corporation at such time as the director or
officer furnishes to the corporation written affirmation of his good faith
belief that he has not breached or failed to perform his duties and a written
undertaking to repay any amounts advanced if it is determined that
indemnification by the corporation is not required.
The indemnification provisions of Sections 180.0850 to 180.0859 are not
exclusive. A corporation may expand an officer's or director's right to
indemnification (i) in its articles of incorporation or
II-1
<PAGE> 119
by-laws; (ii) by written agreement, (iii) by resolution of its board of
directors; or (iv) by resolution of a majority of all of the corporation's
voting shares then issued and outstanding.
As permitted by Section 180.0859, the Registrant has adopted
indemnification provisions in its By-Laws which closely track the statutory
indemnification provisions with certain exceptions. In particular, Article VIII
of the Registrant's By-Laws provides that payment or reimbursement of expenses,
subject to certain limitations, will be mandatory rather than permissive.
The Registrant maintains and has in effect insurance policies covering all
of their respective directors and officers against certain liabilities for
actions taken in such capacities, including liabilities under the Securities Act
of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
See Exhibit Index
(b) Financial Statement Schedules.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(5) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
II-2
<PAGE> 120
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 20 or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(6) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(8) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(9) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-3
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Neenah,
State of Wisconsin, on August 8, 1997.
NEENAH FOUNDRY COMPANY
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief
Executive Officer
POWER OF ATTORNEY
The undersigned hereby severally constitute and appoint Gary W. LaChey for
the undersigned in any and all capacities, with the power of substitution, to
sign any amendment to this Registration Statement, and to file the same with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------- ------------------------------------- ---------------
<C> <S> <C>
* Chairman of the Board and Chief August 8, 1997
- ------------------------------------- Executive Officer (principal
James K. Hildebrand executive officer)
* Vice President and General Manager August 8, 1997
- -------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer August 8, 1997
- ------------------------------------- and Secretary (principal financial
Gary W. LaChey officer)
* Vice President -- Manufacturing and August 8, 1997
- ------------------------------------- Engineering
Charles M. Kurtti
* Director August 8, 1997
- -------------------------------------
David F. Thomas
* Director August 8, 1997
- -------------------------------------
John D. Weber
* Director August 8, 1997
- -------------------------------------
Brenton F. Halsey
*By: /s/ GARY W. LACHEY
- -------------------------------------
Gary W. LaChey
Attorney-in-fact
</TABLE>
II-4
<PAGE> 122
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Neeneh,
State of Wisconsin, on August 8, 1997.
Hartley Controls Corporation
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and President
POWER OF ATTORNEY
The undersigned hereby severally constitute and appoint Gary W. LaChey for
the undersigned in any and all capacities, with the power of substitution, to
sign any amendment to this Registration Statement, and to file the same with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------- ------------------------------------- ----------------
<C> <S> <C>
* Chairman and President (principal August 8, 1997
- ------------------------------------- executive officer)
James K. Hildebrand
* Vice President and General Manager August 8, 1997
- -------------------------------------
William J. Martin
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer August 8, 1997
- ------------------------------------- and Secretary (principal financial
Gary W. LaChey officer)
* Vice President -- Human Resources August 8, 1997
- -------------------------------------
John Z. Rader
* Director and Vice President and August 8, 1997
- ------------------------------------- Assistant Secretary
John D. Weber
* Director August 8, 1997
- -------------------------------------
David F. Thomas
* Director August 8, 1997
- -------------------------------------
Brenton F. Halsey
*By: /s/ GARY W. LACHEY
- -------------------------------------
Gary W. LaChey
Attorney-in-fact
</TABLE>
II-5
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Neenah,
State of Wisconsin, on August 8, 1997.
NEENAH TRANSPORT, INC.
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and President
POWER OF ATTORNEY
The undersigned hereby severally constitute and appoint Gary W. LaChey for
the undersigned in any and all capacities, with the power of substitution, to
sign any amendment to this Registration Statement, and to file the same with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ --------------------------------- ---------------
<C> <S> <C>
* Chairman and President August 8, 1997
- ------------------------------------------ (principal executive officer)
James K. Hildebrand
/s/ GARY W. LACHEY Vice President -- Finance, August 8, 1997
- ------------------------------------------ Treasurer and Secretary
Gary W. LaChey (principal financial officer)
* Vice President -- Human Resources August 8, 1997
- ------------------------------------------
John Z. Rader
* Director and Vice President and August 8, 1997
- ------------------------------------------ Assistant Secretary
John D. Weber
* Director August 8, 1997
- ------------------------------------------
David F. Thomas
* Director August 8, 1997
- ------------------------------------------
Brenton F. Halsey
*By: /s/ GARY W. LACHEY
---------------------------------------
Gary W. LaChey
Attorney-in-fact
</TABLE>
II-6
<PAGE> 124
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
2.1 Agreement and Plan of Reorganization, dated November 20, 1996, by and among NFC
Castings, Inc., NC Merger Company and Neenah Corporation.**
2.2 First Amendment to Agreement and Plan of Reorganization, dated as of January 13,
1997, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation.**
2.3 Second Amendment to Agreement and Plan of Reorganization, dated as of February 21,
1997, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation.**
2.4 Third Amendment to Agreement and Plan of Reorganization, dated as of April 3, 1997,
by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation.**
2.5 Merger Agreement, made as of July 1, 1997, by and between Neenah Corporation and
Neenah Foundry Company.**
2.6 Articles of Merger of Neenah Foundry Company into Neenah Corporation, dated as of
July 1, 1997.*
3.1 Restated Articles of Incorporation of Neenah Foundry Company.**
3.2 By-laws of Neenah Foundry Company.**
3.3 [Intentionally omitted].
3.4 [Intentionally omitted].
3.5 Restated Articles of Incorporation of Hartley Controls Corporation.**
3.6 By-laws of Hartley Controls Corporation.+
3.7 Restated Articles of Incorporation of Neenah Transport, Inc.**
3.8 By-laws of Neenah Transport, Inc.+
4.1 Indenture dated as of April 30, 1997 among NC Merger Company and United States Trust
Company of New York.**
4.2 Purchase Agreement dated as of April 23, 1997 among NC Merger Company, Chase
Securities Inc. and Morgan Stanley & Co. Incorporated.**
4.3 Exchange and Registration Rights Agreement dated as of April 30, 1994 among Neenah
Corporation, Neenah Foundry Company, Hartley Controls Corporation, Neenah Transport,
Inc. and Chase Securities, Inc.**
4.4 First Supplemental Indenture, dated as of April 30, 1997 among Neenah Corporation,
Neenah Foundry Company, Neenah Transport, Inc. and Hartley Controls Corporation and
United States Trust Company of New York.**
4.5 Letter Agreement, dated as of April 30, 1997 among Neenah Corporation, Neenah
Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc. and Chase
Securities Inc. and Morgan Stanley & Co. Incorporated.**
4.6 Form of Global Note related to the Indenture dated as of April 23, 1997.**
4.7 Indenture dated as of July 1, 1997 among Neenah Corporation, Neenah Foundry Company,
Neenah Transport, Inc., Hartley Controls Corporation and United States Trust Company
of New York.**
4.8 Purchase Agreement dated as of June 26, 1997 among Neenah Corporation, Neenah
Foundry Company, Hartley Controls Corporation, Neenah Transport, Inc. and Chase
Securities Inc.**
4.9 Exchange and Registration Rights Agreement dated as of July 1, 1997 by and between
Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation, Neenah
Transport, Inc. and Chase Securities, Inc.**
4.10 Form of Global Note related to the Indenture dated as of July 1, 1997.**
5.1 Opinion of Kirkland & Ellis.*
8.1 Opinion of Kirkland & Ellis as to federal income tax consequences.**
</TABLE>
<PAGE> 125
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
10.1 Master Lease Agreement between Neenah Foundry Company and Bank One Leasing
Corporation dated December 14, 1992.+
10.2 Agreement between Neenah Foundry Company and Rockwell International Corporation
effective April 1, 1995. (Subject to a request for confidential treatment)**
10.3 Letter Agreement between Neenah Foundry Company and Eaton Corporation dated April 4,
1996. (Subject to a request for confidential treatment)**
10.4 [Intentionally omitted].
10.5 1996-1998 Collective Bargaining Agreement between Neenah Foundry Company and Local
121B Glass, Molders, Pottery, Plastics and Allied Workers International Union
AFL-CIO-CLC.**
10.6 1995-1997 Collective Bargaining Agreement between Neenah Foundry Company and The
Independent Patternmakers Union of Neenah, Wisconsin.**
10.7 Credit Agreement, dated as of April 30, 1997 among Chase Manhattan Bank, N.A., NFC
Castings, Inc. and NC Merger Company.**
10.8 Employment Agreement dated September 9, 1994 between the Neenah Corporation Neenah
Foundry Company, Hartley Controls Corporation, Neenah Transport, Inc. and James P.
Keating, Jr.**
10.9 Consulting Agreement dated September 9, 1994 between the Neenah Foundry Company and
the Guarantors and James P. Keating, Jr.**
10.10 First Amendment to Employment Agreement, dated September 9, 1994, between Neenah
Foundry Company, Neenah Corporation, Hartley Controls Corporation and James P.
Keating, Jr.**
10.11 Pledge Agreement dated as of April 30, 1997, among NC Merger Company, a Wisconsin
corporation, NFC Castings, Inc., a Delaware corporation.**
10.12 Subsidiary Guarantee Agreement dated as of April 30, 1997, among each of the
subsidiaries listed of NC Merger Company, a Wisconsin corporation, and The Chase
Manhattan Bank, a New York banking corporation, as collateral agent for the secured
parties.**
10.13 Parent Guarantee Agreement dated as of April 30, 1997, between NFC Castings, Inc., a
Delaware corporation and The Chase Manhattan Bank, a New York banking corporation,
as collateral agent for the secured parties.**
10.14 Security Agreement dated as of April 30, 1997, among NC Merger Company, a Wisconsin
corporation, each subsidiary of the borrower and The Chase Manhattan Bank, a New
York banking corporation, as collateral agent for the secured parties.**
10.15 Form of Mortgage.**
12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Charges.**
21.1 Subsidiaries of the Registrant.**
23.1 Consent of Ernst & Young LLP.**
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
24.1 Powers of Attorney (included in signature page).**
25.1 Statement of Eligibility of Trustee on Form T-1.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Tender Instructions.**
</TABLE>
- ---------------
* Filed herewith
** Filed as an exhibit to the Registrant's Registration Statement on Form S-4
(Registration No. 333-28751) and incorporated herein by reference.
+ To be filed by amendment
<PAGE> 1
EXHIBIT 2.6
ARTICLES OF MERGER
OF
NEENAH FOUNDRY COMPANY
INTO
NEENAH CORPORATION
The undersigned, NEENAH CORPORATION ("Neenah"), a Wisconsin
corporation and NEENAH FOUNDRY COMPANY ("NFC"), a Wisconsin corporation and the
wholly owned subsidiary of Neenah, each give notice of corporate action
effecting the merger of NFC into Neenah, and acting by their respective officers
and pursuant to Section 180.1105 of the Wisconsin Business Corporation Law,
hereby certify, each with respect to the facts and acts relating to it, the
following:
1. Plan of Merger.
(a) The surviving corporation shall be Neenah and it
shall be governed by the laws of the State of Wisconsin.
(b) The terms and conditions of the merger, the manner
and basis of exchanging shares of each corporation into shares and
cash, and other provisions relating to the merger are set forth in the
Merger Agreement which is attached as Addendum A hereto and which is
incorporated herein by reference.
2. Approval of Merger Agreement. The Merger Agreement
has been adopted and approved by the respective boards of directors and approved
by the respective shareholders of Neenah and NFC in accordance with Section
180.1103 of the Wisconsin Business Corporation Law.
3. Effective Time. The merger shall be effective upon
the filing of these Articles of Merger with the State of Wisconsin Department of
Financial Institutions.
<PAGE> 2
IN WITNESS WHEREOF, each of the parties hereto has caused
these Articles of Merge to be executed on its behalf by its respective duly
authorized officers, this __ day of ________, 1997.
NEENAH CORPORATION
By:
------------------------------------
Name:
Title:
Attest:
--------------------------------
, Secretary
--------------------
NEENAH FOUNDRY COMPANY
By:
------------------------------------
Name:
Title:
Attest:
--------------------------------
, Secretary
--------------------
This document was drafted by:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
-2-
<PAGE> 1
EXHIBIT 5.1
Neenah Foundry Company
August 8, 1997
Page 1
August 8, 1997
Neenah Foundry Company
Hartley Controls Corporation
Neenah Transport, Inc.
2121 Brooks Avenue, Box 729
Neenah, Wisconsin 54927
Re: 11-1/8% Series D Senior Subordinated Notes due 2007
Ladies and Gentlemen:
We are acting as special counsel to Neenah Foundry Company, a Wisconsin
corporation (the "Company"), Hartley Controls Corporation, a Wisconsin
corporation ("Hartley") and Neenah Transport, Inc., a Wisconsin corporation
("Transport", and together with the Company and Hartley, the "Registrants") in
connection with the proposed registration by the Company of up to $45,000,000 in
aggregate principal amount of the Company's 11-1/8% Series D Senior Subordinated
Notes due 2007 (the "Exchange Notes"), pursuant to a Registration Statement on
Form S-4 filed with the Securities and Exchange Commission (the "Commission") on
July 29, 1997 under the Securities Act of 1933, as amended (the "Securities
Act") (such Registration Statement, as amended or supplemented, is hereinafter
referred to as the "Registration Statement"), for the purpose of effecting an
exchange offer (the "Exchange Offer") for the Company's 11-1/8% Series C Senior
Subordinated Notes due 2007 (the "Old Notes"). The Exchange Notes are to be
issued pursuant to the Indenture (the "Indenture"), dated as of July 1, 1997,
among the Registrants and United States Trust Company of New York, as Trustee,
in exchange for and in replacement of the Company's outstanding Old Notes, of
which $45,000,000 in aggregate principal amount is outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the corporate and organizational documents of each of the
Registrants, (ii) minutes and records of the corporate proceedings of each of
the Registrants with respect to the issuance of the Exchange Notes, (iii) the
Registration Statement and exhibits thereto and (iv) the Exchange and
Registration Rights Agreement, dated as of July 1, 1997, among the Registrants
and Chase Securities, Inc.
<PAGE> 2
Neenah Foundry Company
August 8, 1997
Page 2
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Registrants, and the due authorization, execution
and delivery of all documents by the parties thereto other than the Registrants.
As to any facts material to the opinions expressed herein which we have not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Registrants and
others.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
(1) Each of the Registrants is a corporation existing and in good
standing under the Wisconsin Business Corporation Law.
(2) The sale and issuance of the Exchange Notes has been validly
authorized by the Company.
(3) When, as and if (i) the Registration Statement shall have become
effective pursuant to the provisions of the Securities Act, (ii) the Indenture
shall have been qualified pursuant to the provisions of the Trust Indenture Act
of 1939, as amended, (iii) the Old Notes shall have been validly tendered to the
Company and (iv) the Exchange Notes shall have been issued in the form and
containing the terms described in the Registration Statement, the Indenture, the
resolutions of each of the Registrant's Board of Directors (or authorized
committee thereof) authorizing the foregoing and any legally required consents,
approvals, authorizations and other order of the Commission to be obtained, the
Exchange Notes when issued pursuant to the Exchange Offer will be legally
issued, fully paid and nonassessable and will constitute valid and binding
obligations of the Registrants.
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity
<PAGE> 3
Neenah Foundry Company
August 8, 1997
Page 3
(regardless of whether enforcement is considered in a proceeding in equity or at
law), (iii) public policy considerations which may limit the rights of parties
to obtain certain remedies and (iv) except for purposes of the opinions in
paragraphs 1 and 2, any laws except the laws of the State of New York. We advise
you that issues addressed by this letter may be governed in whole or in part by
other laws, but we express no opinion as to whether any relevant difference
exists between the laws upon which our opinions are based and any other laws
which may actually govern. For purposes of the opinion in paragraph 1, we have
relied exclusively upon recent certificates issued by the Wisconsin Secretary of
State and such opinion is not intended to provide any conclusion or assurance
beyond that conveyed by such certificates. We have assumed without investigation
that there has been no relevant change or development between the respective
dates of such certificates and the date of this letter.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance of the Exchange Notes.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of New York be changed by legislative action, judicial
decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes.
Yours very truly,
KIRKLAND & ELLIS
