<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the fiscal year ended September 30,1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 .
For the transition period from to .
------ ------
Commission file number 333-28751
NEENAH FOUNDRY COMPANY
(Exact name of registrant as it appears in its charter)
Wisconsin 39-1580331
(State or other jurisdiction of (IRS Employer ID Number)
Incorporation or organization)
2121 Brooks Avenue, P.O. Box 729, Neenah, Wisconsin 54957
(Address of principal executive offices) (Zip Code)
(920) 725-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act:
11 1/8% Series B Senior Subordinated Notes Due 2007
11 1/8% Series D Senior Subordinated Notes Due 2007
---------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, Class A, $100 par value- 1,000 shares as of December 22, 1998
Common Stock, Class B, $100 par value- 0 shares as of December 22, 1998
1
<PAGE> 2
PART I
Item 1. BUSINESS
THE COMPANY (OTHER THAN THE RECENTLY ACQUIRED SUBSIDIARIES)
Overview
On April 30, 1997, pursuant to an Agreement and Plan of Reorganization (the
"Merger Agreement") with NC Merger Company and NFC Castings, Inc., Neenah
Corporation (the "Predecessor Company") was acquired by NFC Castings, Inc., a
holding company and wholly owned subsidiary of ACP Holding Company ("ACP
Holdings") (the "Merger"). 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 three wholly owned subsidiaries. On July 1, 1997, Neenah Foundry Company
merged with and into Neenah Corporation and the surviving company changed its
name to Neenah Foundry Company (the "Company"). Unless otherwise stated in this
document or unless the context otherwise requires, references herein to the
"Company" include Neenah Foundry Company, Hartley Controls Corporation and
Neenah Transport, Inc., and exclude Deeter Foundry, Inc. ("Deeter"), Mercer
Forge Corporation ("Mercer"), Dalton Corporation ("Dalton"), and their
respective subsidiaries, each of which were acquired and Advanced Cast Products
("ACP") and its respective subsidiaries, whose capital stock was recently
contributed to the Company by ACP Holdings. Deeter, Mercer, Dalton and ACP are
referred to herein as the "Recently Acquired Subsidiaries." The Company changed
its fiscal year end to September 30 from March 31 effective September 30, 1997.
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 1997. 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 heavy municipal market generated
approximately 40% of the Company's net sales for the year ended September 30,
1998. 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. The industrial market generated approximately 57% of the
Company's net sales for the year ended September 30, 1998. 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 3% of the Company's net sales for the year ended
September 30, 1998.
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. From 1985 to 1997, the Company invested approximately $100.0
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
2
<PAGE> 3
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 have caused net
sales and EBITDA to increase.
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 fiscal year
ended September 30, 1998 and for the Pro forma six months ended September 30,
1997.
<TABLE>
<CAPTION>
Percentage of Net
Sales(1)
----------------------------------------------
Pro forma Fiscal Year
Representative Six Months Ended
Market End Product Customers September 30, 1997 (2) September 30, 1998
------ ----------- --------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Heavy Municipal Standard castings, including State and local 46.5% 40.7%
storm and sanitary sewer government
castings, manhole covers and entities, utility
frames, storm sewer frames companies, precast
and grates; Specialty concrete structure
castings, including heavy producers and
duty airport castings, contractors (3)
specialized trench drain
castings, specialty flood
control castings and
ornamental tree grates
Industrial
Medium- and
Heavy-Duty
Truck Differential carriers and Rockwell 33.8% 37.3%
cases, brackets, cages, International
calipers, caps, carriers, Eaton Corp.
hubs, knuckles, transmission Dana Corp
housings, yokes
Farm
Equipment Various gear housings, planet John Deere 15.8% 16.0%
carrier, axle housings, New Holland
planting and harvesting
equipment parts,
counterweights
Other
Industrial Compressor components, Aisin 3.9% 6.0%
various housing and gear cases The Trane
Company
</TABLE>
(1) Net sales include sales of Neenah Foundry Company only.
(2) The Company changed its fiscal year to September 30 from March 31 effective
September 30, 1997.
(3) No municipal customer represented more than 1.5% of Neenah Foundry Company's
net sales for the pro forma six months ended September 30, 1997 or the
fiscal year ended September 30, 1998.
3
<PAGE> 4
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 1997. 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 that 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 a similar 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 more 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 three years, the Company has introduced what it calls
"lightweighted" parts to the heavy municipal market. These lightweighted parts
have been reengineered in order to reduce both their weight and 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 tolerances, many of
which, the Company believes, are currently not achievable by the its
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.
4
<PAGE> 5
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 heating, venting and air
conditioning (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.
Original equipment manufacturers (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
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 bids for 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
transferable 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 estimates that it has historically 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 and machining and
sub-assembly are both processes which generally provide higher margins and
increase a customer's reliance on the manufacturer.
5
<PAGE> 6
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 that it is one of
the leaders in U.S. heavy municipal casting production and that it has strong
name recognition. The Company has the largest sales and marketing effort of any
foundry serving the heavy municipal market, including 51 Company employees and
24 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, consisting of sales, marketing,
manufacturing, engineering and quality assurance efforts 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. From
1985 to 1997, the Company 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 the fiscal year ended September 30, 1998, the Company had a
combined scrap rate of 2.3%.
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, which 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, including 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.
6
<PAGE> 7
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 also used by most
of the Company's 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 the equipment 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 in-mold 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.
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.
Quality Assurance
Continual 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 certifications, which are provided
with each shipment to most industrial customers. The Company strives to maintain
systems that provide for continual improvement of operations and personnel,
emphasize defect prevention and reduce variation and waste in all areas.
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., a wholly owned subsidiary of
the Company ("Neenah Transport"), which operates a fleet of 28 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 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 as compared to other major heavy
municipal manufacturers.
7
<PAGE> 8
Raw Materials
The primary raw materials used by the Company to manufacture ductile and
gray 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 for 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 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 generally sold to the heavy
municipal market on a bid basis and, after a bid is won, the price for the
municipal casting generally cannot be adjusted for raw material price increases.
However, in most cases the Company believes it 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 an
adverse or positive effect on the Company's 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 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 United States, due in part to costs
associated with transportation. However, 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 U.S. 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.
8
<PAGE> 9
Hartley Controls Corporation
Hartley Controls Corporation, a wholly owned subsidiary of the Company
("Hartley Controls"), 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 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. Harley
Controls is a major U.S. supplier of sand control systems with over 300
installations since 1986. Harley Controls has made investments in process
technology and has several patented technologies related to sand systems,
including the "Automatic Moisture Controller," the "Even-Flo Bin," the
"Automatic Compactibility Tester," the "Automatic Bond Determinator," the "Green
Stand Reconditioner" and the "Sandman." Sales of these sand systems and related
products represented approximately 3% of the Company's net sales for the year
ended September 30, 1998.
Employees
As of September 30, 1998 the Company had 970 full time employees, of whom
761 were hourly employees and 209 were salaried employees. The Local 121B of the
Glass, Molders, Pottery, Plastics and Allied Workers International Union AFL-CIO
is the major bargaining agent for the representative of 726 of the Company's
hourly employees. A 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 35 of the Company's hourly employees. A collective bargaining
agreement with the Independent Patternmakers Union was reached on January 1,
1998 and expires on December 31, 2000. The Company believes that it has a good
relationship with its employees.
Environmental Matters
Each of the Company's and Recently Acquired Subsidiaries' 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, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA"), and the
Occupational Health and Safety Act. The Company believes that its and each of
the Recently Acquired Subsidiaries' operations 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 or any of the Recently Acquired
Subsidiaries' operations, financial condition or competitive position. However,
some risk of environmental liability and other costs is inherent in each of the
Company's and Recently Acquired Subsidiaries' businesses. Any of the Company or
the Recently Acquired Subsidiaries 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 of hazardous substances or
clean-up of physical structures prior to decommissioning.
Under the Federal Clean Air Act Amendments of 1990, the Environmental
Protection Agency ("EPA") is directed to establish maximum achievable control
technology ("MACT") standards for certain industrial operations that are major
sources of hazardous air pollutants ("HAPs"). The iron foundry industry is not
expected to be required to implement the MACT emission limits, control
technologies or work practices until the year 2003 at the earliest. Although the
Company cannot accurately estimate the costs to comply with the MACT standard
until it is issued, the MACT standard, when implemented, and state laws
governing the emission of toxic air pollutants may require that certain of the
Company's or the Recently Acquired Subsidiaries' facilities incur significant
costs for air emission control equipment, air emission monitoring equipment or
process modifications.
9
<PAGE> 10
RECENT ACQUISITIONS
On March 30, 1998, the Company acquired all the capital stock of
Deeter for $24.3 million (excluding fees and expenses incurred in connection
with the acquisition of $0.3 million), consisting of $20.4 million of cash and a
$3.9 million seller note (the "Deeter Seller Note"). The Deeter Seller Note,
which does not bear interest, was issued to the selling shareholders of Deeter
by ACP Holdings and matures on March 30, 1999. Payment of the principal amount
of the Deeter Seller Note is supported by a letter of credit issued under the
Senior Bank Facilities. The Company financed the cash portion of the
consideration and all fees and expenses from cash on hand. Since 1945, Deeter
has been producing gray iron castings for the heavy municipal market. Deeter's
municipal casting product line includes manhole frames and covers, storm sewer
inlet frames, grates and curbs, trench grating and tree grates. Deeter also
produces a wide variety of special application construction castings. These
products are utilized in waste treatment plants, airports, telephone and
electrical construction projects.
On April 3, 1998, the Company acquired all the capital stock of Mercer for
$47.0 million in cash (excluding fees and expenses incurred in connection with
the acquisition of $0.5 million). Concurrently with the acquisition of Mercer,
the Company, ACP Holdings and the lenders party thereto amended and restated the
Credit Agreement (the "Credit Agreement") dated April 30, 1997, as amended and
restated on September 12, 1997. The Credit Agreement, as so amended and
restated, provided availability of $75.0 million of term loans to the Company
(consisting of $20.0 million of Tranche A Loans (as defined) and $55.0 million
of Tranche B Loans (as defined) in addition to the Company's existing $50.0
million Revolving Credit Facility (as defined). On April 3, 1998, the Company
borrowed $55.0 million of the Tranche B Loans, of which $48.6 million was used
to finance the acquisition of Mercer, to pay fees and expenses incurred in
connection with the acquisition and to pay financing costs. The available
Tranche A Loans were not borrowed on April 3, 1998. Founded in 1954, Mercer is a
leading producer of complex-shaped forged components for use in transportation,
railroad, mining and heavy industrial applications. Mercer is also a leading
producer of microalloy forgings. Mercer sells directly to OEMs, as well as to
industrial end users.
On September 8, 1998, the Company acquired all the capital stock of Dalton
for $102.0 million in cash (excluding fees and expenses incurred in connection
with the acquisition of $0.6 million). Dalton manufactures and sells gray iron
castings for refrigeration systems, air conditioners, heavy equipment, engines,
gear boxes, stationary transmissions, heavy duty truck transmissions and other
automotive parts.
On September 8, 1998, the capital stock of ACP was contributed to the
Company by ACP Holdings. In connection with the contribution, the Company
assumed $14.9 million of indebtedness of ACP, $14.6 million of which was
refinanced with borrowings under the Senior Bank Facilities. ACP is a leading
independent manufacturer of ductile and malleable iron castings that are
produced through both traditional casting methods and through ACP's Evapcast
lost foam casting process. ACP's production capabilities also include a range of
finishing operations including austempering and machining. ACP sells its
products primarily to companies in the heavy truck, construction equipment,
railroad, mining, electrical fittings and automotive industries.
In connection with the acquisition of Dalton and the contribution of the
capital stock of ACP, the Company, ACP Holdings and the lenders party thereto
amended and restated the Credit Agreement to provide availability of additional
Tranche B Loans in an aggregate principal amount of $70.0 million and an
Acquisition Loan Facility (as defined) in an aggregate principal amount
outstanding at any one time not to exceed $50.0 million. In connection with the
acquisition of Dalton and the contribution of the capital stock of ACP, the
Company borrowed $29.0 million under the Acquisition Loan Facility, $20.0
million of Tranche A Loans and $70.0 million of Tranche B Loans.
10
<PAGE> 11
Currently, each of the Recently Acquired Subsidiaries is operating as a
separate subsidiary of the Company with independent operations under the
direction of the management that was in place prior to its acquisition by the
Company. Although the Company currently does not have plans to integrate the
operations of the Company with the Recently Acquired Subsidiaries, it may to
some extent do so in the future.
Each of the Deeter, Mercer and Dalton acquisitions were accounted for using
the purchase method of accounting. The acquisition of ACP was accounted for at
historical cost in a manner similar to that in pooling of interest accounting
since the Company and ACP were under common control. Accordingly, prior period
financial statements of the Company for the period during which the Company and
ACP were under common ownership have been restated to reflect the contribution
of capital stock of ACP to the Company.
The foregoing transactions are herein referred to as the "Recent Acquisitions."
The credit facilities available under the Credit Agreement are collectively
referred to herein as the "Senior Bank Facilities".
11
<PAGE> 12
DALTON CORPORATION
Overview
Dalton manufactures and sells gray iron castings for refrigeration systems,
air conditioners, heavy equipment, engines, gear boxes, stationary
transmissions, heavy duty truck transmissions and other automotive parts.
Dalton's four operating facilities have each been structured to manufacture or
machine specific components to customer specifications. Dalton specializes in
using cold box and shell core products as well as precision high-pressure molds
to manufacture gray iron castings. The majority of Dalton's castings range in
size from one pound to 700 pounds.
Products and Markets
During calendar years 1996 and 1997, Dalton produced 180,848 and 192,495
tons of castings, respectively. In the nine months ended September 30, 1998,
Dalton produced 159,728 tons of castings. Dalton's revenues are generated from
customers in several industries, however, refrigeration and air conditioning
represent the largest concentration of tons shipped, which management estimates
was approximately 45% of tons shipped in calendar year 1997, followed by
automotive/light truck and heavy truck, each of which management estimates was
between 10% and 15% of tons shipped in calendar year 1997. Dalton serves
primarily three markets: refrigeration and air conditioning, automotive/truck
market and heavy equipment.
Customers
Dalton has over 100 customers across several industries, with four of
Dalton's largest five customers operating in the refrigeration/air conditioning
industry. Dalton's largest 10 customers accounted for approximately 62% of
Dalton's calendar year 1997 net sales. Dalton's largest customer, Copeland
Corporation, accounted for approximately 17% of Dalton's calendar year 1997 net
sales and Dalton's top three customers accounted for approximately 37% of
Dalton's net sales during the same period.
Raw Materials
The primary raw materials used by Dalton to manufacture iron castings are
steel scrap, pig iron, metallurgical coke and silica sand. While there are
multiple suppliers for each of these commodities, Dalton has sourcing
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, Dalton believes that it will continue to be able to secure raw
materials from its suppliers at competitive prices. The primary energy sources
for Dalton's operations, electricity and natural gas, are purchased through
utilities.
Although the prices of all raw materials used by Dalton vary, the
fluctuations in the price of steel scrap are the most significant to Dalton.
Dalton has arrangements with most of its industrial customers which require
Dalton 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. Rapidly fluctuating scrap prices may have a temporary
adverse or positive effect on the Dalton's results of operations.
Competition
Dalton operates in the same industry as the Company and therefore faces the
same competitive environment as the company. See "-The Company (other than the
Recently
12
<PAGE> 13
Acquired Subsidiaries)-Competition."
Manufacturing Facilities
Dalton currently operates four facilities. The main plant, located in
Warsaw, Indiana ("Warsaw") was established in 1910. Between 1992 and 1995 Dalton
acquired a second plant in Kendallville, Indiana ("Kendallville") and a third
plant in Ashland, Ohio ("Ashland"). In addition, in 1997 Dalton acquired the
remaining 50 percent interest in a machining facility located in Stryker, Ohio
("Stryker"). Dalton has established a separate headquarters and office facility
in Warsaw, Indiana.
Employees
At September 30, 1998, Dalton employed 1,638 individuals, consisting of
1,336 hourly employees and 302 salaried and clerical employees.
Almost all of Dalton's production employees are members of either the Steel
Workers' Union or the Glass, Molders, Pottery, Plastics and Allied Workers
International Union. A collective bargaining agreement is negotiated every three
to five years. The current agreements expire as follows: Warsaw, April 2003;
Kendallville, July 25, 1999; and Ashland, April 26, 1999. Management believes
that employee relations are good.
13
<PAGE> 14
Environmental Matters
Dalton is subject to environmental, health and safety laws comparable to
those governing the Company. See "-The Company (other than the Recently Acquired
Subsidiaries)-Environmental Matters."
Status of Dalton's Air Emission Compliance In connection with Dalton's
submission of draft operating permits for air emission sources at its facilities
in Warsaw and Kendallville under Title V of the federal Clean Air Act Amendments
of 1990 ("Title V"), the Indiana Department of Environmental Management ("IDEM")
has asked Dalton to address several issues of concern: (i) alleged exceedances
of particulate and volatile organic compound emission levels; (ii) the
applicability of Prevention of Significant Deterioration ("PSD") permit review
requirements; and (iii) alleged construction and operation of sources without
the required permits. Depending on the results of ongoing discussions with IDEM
and the course of developing regulations, the costs of addressing Dalton's air
emission control issues could be material.
Dalton has retained an environmental consultant to address the concerns
identified by IDEM. IDEM may require Dalton to perform tests on various emission
sources, install new or upgrade existing emission capture or control equipment,
use substitute materials or modify production rates to reduce regulated
emissions and/or perform PSD review for several sources. IDEM could also assess
penalties against Dalton for the identified concerns, but because the concerns
were voluntarily disclosed to IDEM by Dalton in the Title V permit applications
for these facilities, management believes that any penalties assessed by IDEM
will not be material.
Warsaw Monofill NOVs On May 15, 1998, IDEM issued an NOV to Dalton
regarding Dalton's operation of an authorized landfill used exclusively by the
Warsaw facility to dispose of its foundry waste (the ""monofill"). IDEM issued
the NOV after Dalton notified the agency that it had disposed of materials
outside the authorized landfill area. IDEM is currently reviewing Dalton's
request to modify the landfill permit and allow the disposal of wastes in the
overfilled locations. IDEM is seeking a civil penalty of $100,000 to $150,000
from Dalton to resolve the NOV. Dalton could be required to relocate the
overfill material to an authorized off-site disposal location if IDEM denies the
pending request for permit modification.
ADVANCED CAST PRODUCTS, INC.
Overview
ACP is headquartered in Dublin, Ohio. ACP produces its products through
three principal facilities. The largest operation, Meadville, manufactures
ductile iron castings through both the traditional green sand molding process
and its proprietary Evapcast lost foam casting process. The Belcher operation
manufactures malleable cast iron parts primarily for the electrical fittings
industry. Finally, the Peerless operation produces bearing adapters for use in
rail cars. Peerless is one of only three U.S. companies that manufacture
railroad bearing adapters. Since 1990, ACP has generated gradually increasing
sales and operating income primarily due to increased volume of products
shipped.
Products and Markets
ACP is a leading independent manufacturer of ductile and malleable iron
castings that are produced through both traditional casting methods and through
ACP's Evapcast lost foam
14
<PAGE> 15
casting process. ACP's production capabilities also include a range of finishing
operations including austempering and machining. ACP sells its products
primarily to companies in the heavy truck, construction equipment, railroad,
mining, electrical fittings and automotive industries.
Evapcast and CasTuf are two of ACP's proprietary casting processes.
Evapcast utilizes lost foam molding technology to produce near net-shape
castings, which allow for tighter tolerances, a smoother surface and enhanced
part complexity and require significantly less machining. CasTuf process
produces austempered ductile iron castings with superior strength
characteristics. CasTuf replaces more expensive steel castings, forgings and
fabrications, providing increased design flexibility. Management believes that
ACP is the first and only ductile foundry in the U.S. with its own in-house
austemper furnace and is one of only two ductile iron foundries to have
developed the lost-foam casting process. ACP is also a leading provider of
in-house machined castings through its expanded machining capability, which
utilizes state-of-the-art CNC machines.
ACP's products and processes have enabled the company to develop long-term
working relationships with many key customers. This has allowed ACP to retain
existing customers, build on its customer base and obtain favorable pricing.
Customers
ACP serves a diverse base of approximately 400 customers. Freightliner
Corporation, ACP's largest customer, accounted for more than 16% of ACP's net
sales for its fiscal year ended September 30, 1998. ACP specializes in meeting
the more difficult requirements of its largest customers such as Caterpillar,
Freightliner and Dana. ACP has been presented supplier awards from each of these
OEMs and has earned the ability to obtain new part awards as they become
available.
ACP works closely with its customers from the beginning of the design
process until the shipment of finished parts. Due to this level of customer
service along with its products and services, ACP has been able to increase
sales to existing customers as well as expand its customer base. ACP offers its
customers a package, which includes casting, austempering, machining, painting
and assembly. This combination of products and services reduces the risk of ACP
customers moving their products to other manufacturers.
Raw Materials
The primary raw materials used by ACP to manufacture iron castings are
steel scrap, alloys and silica sand. While there are multiple suppliers for each
of these commodities, ACP has sourcing arrangements with its suppliers of each
of these major raw materials. Due to long standing relationships with each of
its suppliers, ACP believes that it will continue to be able to secure raw
materials from its suppliers at competitive prices. The primary energy sources
for ACP's operations, electricity and natural gas, are purchased through
utilities and competitive third party bidding.
Although the prices of all raw materials used by ACP vary over time, the
fluctuations in the price of steel scrap are the most significant to ACP. ACP
has arrangements with most of its industrial customers which allow ACP to adjust
industrial casting prices to reflect scrap price fluctuations.
15
<PAGE> 16
Competition
ACP operates in the same industry as the Company and therefore faces the
same competitive environment as the Company. See "-The Company (other than the
Recently Acquired Subsidiaries)-Competition."
Manufacturing Facilities
ACP currently operates 3 facilities. Since 1989, ACP has spent over $14.0
million on capital equipment to expand production capacity, improve efficiency,
add new production capabilities, replace equipment and improve the quality of
its products. ACP investments have included, for example, state of the art
Disamatic molding lines at both its Meadville and Belcher facilities and
computer numerical controlled ("CNC") machining centers at Meadville. The new
molding lines have increased capacity and reduced operating costs.
In addition, new capital expenditures are underway for Meadville that
include an autopour unit for its current Disamatic line, a larger Disamatic
molding line for larger castings, a second austemper line, and additional CNC
machines. Belcher's new capital expenditures also include an autopour unit in
addition to a heat treat furnace. Peerless is adding a new CNC machining center.
Employees
ACP has approximately 90 salaried and approximately 370 hourly employees
represented by the United Steelworkers of America. The collective bargaining
agreement for Belcher and Meadville expires in June 1999 and in October 1999,
respectively.
Environmental Matters
ACP is subject to environmental, health and safety laws comparable to those
governing the Company. See "-The Company (other than the Recently Acquired
Subsidiaries)-Environmental Matters."
Intellectual Property
Meadville holds trademark rights on two advanced proprietary processes,
Evapcast and CasTuf. ACP's Evapcast process utilizes a lost foam casting
technique which produces near net shape castings. Evapcast eliminates or reduces
the need for coring and machining resulting in significant cost savings to the
customer. CasTuf is a process to produce a line of austempered ductile iron
castings which have superior strength characteristics and are easier to cast
than steel products, thus providing greater design freedom. Meadville is the
only ductile iron casting company in North America with in-house austempering
capabilities (CasTuf) and one of only two independent, ductile iron foundries
with lost foam technology (EvapCast). Additionally, Meadville was one of the
first foundry operations to provide completely finished parts through an
integrated machining capability.
16
<PAGE> 17
MERCER FORGE CORPORATION
Overview
Founded in 1954, Mercer is a leading producer of complex-shaped forged
components for use in transportation, railroad, mining and heavy industrial
applications. Mercer is also a leading producer of microalloy forgings. Mercer
sells directly to OEMs, as well as to industrial end users.
Until the mid-1980's, Mercer produced military tank parts, but successfully
converted from a defense contractor to a commercial manufacturer and today is
one of the leading suppliers to the heavy duty truck sector. Mercer produces
approximately 500 individually forged components and has developed specialized
expertise in forgings of microalloy steel which management estimates accounts
for approximately 40% of its production.
Products and Markets
Mercer designs its products to customer specification with typical
production runs of 1,000 or more units. Mercer currently operates eight
mechanical press lines, from 1,300 tons to 4,000 tons. Mercer's principal plant
is a 130,000 square foot facility located in Mercer, Pennsylvania. Key markets
for Mercer include truck and automotive parts, railroad equipment and general
industrial machinery.
The following is a summary of Mercer's product capabilities, broken out by
the principal customer categories it serves:
- --------------------------------------------------------------------------------
INDUSTRY PRODUCTS
- --------------------------------------------------------------------------------
Truck Drive Train Components; Sector Shafts; Knuckles,
Spindles; King Pins
- --------------------------------------------------------------------------------
Automotive Transmission Gears; Hubs, Front Wheel Universal
Components; Drive Train Yokes; Spindles
- --------------------------------------------------------------------------------
Mining Equipment Shoes; Fight Bars; Gear Blanks; Hubs; Sleeves
- --------------------------------------------------------------------------------
Railroad Wheels; Draft Gear Components; Tank Car Valves; Piston
Carries; Articulated Car Bearings; Connecting Rods
- --------------------------------------------------------------------------------
Off-Highway/ Yokes; Spindles; Flanges; Gear Blanks; Hubs; Track
Agriculture Links; Roller Shafts; Drive Line Components
- --------------------------------------------------------------------------------
Industrial Gears; Bearings; Wheels; Cams
- --------------------------------------------------------------------------------
Military Ordinance Projectile Components; Missile Components; Center
Guides; End Connectors; Tank Track Components
- --------------------------------------------------------------------------------
The Forged Components Market
Demand for forged products for civilian application closely follows the
general business cycle and the level demand for capital goods. While there is a
consistent base level of demand for replacement parts which is somewhat
inelastic, the strongest expansions in the forging industry coincide with
periods of economic growth. With generally improved economic conditions and a
boom in the transportation sector, Mercer and most other domestic forgers are
currently experiencing growing demand for their products.
Once Mercer's principal products, military forgings currently represent
less than five percent of Mercer's total output. Mercer operates two of its
eight forges under contracts with the U.S. Government, but no longer actively
bids for defense contracts. During the 1990-92 Gulf
17
<PAGE> 18
War period, Mercer was active in producing ordnance components. Management
anticipates, however, that military products will continue to account for an
increasingly smaller proportion of its overall production.
Manufacturing Process
Forgings and casting (together with a third process, fabrication) are the
principal commercial metal working processes. In forging, metal is pressed,
pounded or squeezed under great pressure, with or without the use of heat, into
parts that retain the metal's original grain flow, imparting high strength,
ductility and resistance properties.
Forging itself usually entails one of four principal process: impression
die; open die; cold; and seamless rolled ring forging. Mercer uses impression
die, open die and cold forging, but not seamless rolled ring forging. Impression
die forging, commonly referred to as "closed die" forging, is the principal
process employed by Mercer, and involves bringing two or more dies containing
"impressions" of the part shape together under extreme pressure, causing the
forging stock to undergo plastic reformation. Because the metal flow is
restricted by die containers, this process can yield more complex shapes and
closer tolerances than the "open die" forging process. Impression die forging is
used to produce products such as military and off-highway track and drive train
parts; automotive and truck drive train and suspension parts; railroad engine,
coupling and suspension parts; military ordinance parts and other items where
close tolerances are required.
Open die forging, so called because the metal is not confined laterally by
impression dies during forging, progressively works the starting stock into the
desired shape, generally between flat faced dies. Open die forging allows
production of a broad range of shapes and sizes.
Similar in method to impression die forging, cold forging is a process in
which a chemically-lubricated bar slug is forced into a closed die under
extreme pressure. In this way, unheated metal flows into the desired shape. The
cold forging process is best used to manufacture smaller, cylindrical pats such
as shafts, spindles and small net gears.
Once a rough forging is produced, regardless of the forging process, it
must generally still be machined. This process, known as "finishing" or
"conversion", smooths the component's exterior and mating surfaces and adds any
required specification, such as groves, threads, bolt holes and brand name
markings. The finishing process can contribute significantly to the value of the
end product, in particular in certain custom situations where high value
specialized machining is required. Machining can be performed either in-house by
the forge, by a machine shop which performs this process exclusively or by the
end-user.
An internal staff of five engineers designs products to meet customer
specifications incorporating computer assisted design (CAD) work stations for
tooling design. Because its forged products are inherently less expensive and
stronger, Mercer has been successful in replacing certain cast parts previously
supplied by third party foundries. Management believes that Mercer is an
industry leader in forging techniques using microalloy steel which produces
parts which are lighter and stronger than those forged from conventional carbon
steel.
Customers
Mercer's in-house sales organization sells direct to end users and OEMs. A
key element of Mercer's sales strategy is its ability to develop strong customer
relationships through responsive engineering capability, dependable quality and
just-in-time performance. Mercer currently serves approximately 40 individual
customer accounts. Dana Corporation represents Mercer's largest customer and
accounted for approximately 49% of Mercer's fiscal year ended November 30, 1997
sales.
18
<PAGE> 19
Raw Materials
The principal raw materials used in Mercer's products are carbon and
microalloy steel. Mercer purchases substantially all of its carbon steel from
four principal sources. Mercer typically maintains 30 to 60 days supply on hand.
Mercer buys approximately 40,000 tons of raw steel per year. While Mercer has
never suffered an interruption of materials supply, management believes that, in
the event of any disruption from any individual source, adequate alternative
sources of supply are available within the immediate vicinity although there can
be no assurance in this regard.
Competition
Mercer competes primarily in a highly fragmented industry which includes
several dozen other press forgers and hammer forge shops. Hammer shops cannot
typically match press forgers' high volume, single component manufacturing, or
close tolerance production. Competition in the forging industry has also
historically been determined both by product and geography, with a large number
of relatively small forgers across the country carving out their own product and
customer niches. In addition, most end users manufacture some forgings
themselves, often maintaining a critical minimum level of production in-house
and contracting out the balance. The primary basis of competition in the forging
industry is price, but engineering, quality and dependability are also
important, particularly with respect to building and maintaining customer
relationships. Some of Mercer's competitors have significantly greater resources
than Mercer. There can be no assurance that Mercer will be able to maintain or
improve its competitive position in the markets in which it competes.
Mercer is not aware of any significant offshore competition within its
current product categories. Due to the importance of customer relationships and
engineering capabilities, most foreign producers are unable to compete.
Manufacturing Facilities
Mercer is located in northwest Pennsylvania, about 60 miles north and west
of the Greater Pittsburgh airport. Mercer owns it principal forging facility,
which occupies a twenty-one acre site, and consists of a 130,000 square foot
manufacturing facility (which was partially rebuilt and expanded by 50,000
square feet in 1989) and an adjacent office complex. Mercer also leases an
18,000 square foot machine shop facility located in Sharon, Pennsylvania,
approximately ten miles from Mercer's headquarters.
Mercer's main plant is able to forge complex components in runs from 500 to
more than 10,000 units. Mercer manufactures approximately 500 individual
products (SKUs) of which approximately half run throughout the production year.
Heating capacity is 59,000 pounds per hour through eight induction heaters.
Mercer's existing equipment can handle forging weights from 3 to 100 pounds and
forging diameters ranging from 2 1/2 inches to 13 inches. Shear/saw production
can handle up to 6 inch diameter billets.
Mercer presently operates eight press lines consisting of one 4,000 ton,
two 3,000 ton, two 2,000 ton and three 1,300 ton press lines. This equipment
includes two new press lines including heating equipment, trim presses and
billet loaders. The plant uses four microalloy conveyors. Mercer is also
equipped with saws and shearers to cut billets from round and square steel bars.
Mercer maintains a fully equipped quality control facility, magniflux machine,
shot cleaning equipment, complete die welding facility and die repair machine
shop.
19
<PAGE> 20
Employees
Mercer currently has 155 full time hourly employees, all of whom are
represented by a collective bargaining agreement with United Steel Workers of
America. One such contract runs through March 31, 1999. In addition, Mercer's
machining operation has a nine year contract with the United Steel Workers of
America which expires in 2004. Management believes labor relations are good.
Mercer also occasionally utilizes an outside temporary service in its packing
operation.
Environmental Matters
Mercer is subject to environmental, health and safety laws comparable to
those governing the Company. See "-The Company (other than the Recently
Acquired Subsidiaries)-Environmental Matters."
DEETER FOUNDRY, INC.
Overview
Since 1945, Deeter has been producing gray iron castings for the heavy
municipal market. Deeter's municipal casting product line includes manhole
frames and covers, storm sewer inlet frames, grates and curbs, trench grating
and tree grates. Deeter also produces a wide variety of special application
construction castings. These products are utilized in waste treatment plants,
airports, telephone and electrical construction projects. Deeter's centralized
location in Lincoln, Nebraska allows it to service the majority of its
geographical market area with overnight delivery. In addition, Deeter maintains
2 stockyards located in the midwest and western U.S.
Products, Customers and Markets
Deeter manufactures the same products, serves the same markets and sells to
the same customer and market base as Neenah's heavy municipal line. See"-The
Company (other than the Recently Acquired Subsidiaries)-Products, Customers and
Markets."
Raw Materials
The primary raw materials used by Deeter to manufacture iron castings are
steel scrap, pig iron, metallurgical coke and silica sand. While there are
multiple suppliers for each of these commodities, Deeter has sourcing
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, Deeter believes that it will continue to be able to secure raw
materials from its suppliers at competitive prices. The primary energy sources
for Deeter's operations, electricity and natural gas, are purchased through
utilities.
20
<PAGE> 21
Although the prices of all raw materials used by Deeter vary, the fluctuations
in the price of steel scrap are the most significant to Deeter. Deeter builds to
stock based on forecast sales during any given period and generally does not
have any long term customer contracts. As a result, in periods of rapidly rising
or falling scrap prices, prices charged to customers will relatively quickly
reflect the current scrap price. Rapidly fluctuating scrap prices may have a
temporary adverse or positive effect on Deeter's results of operations.
Competition
Deeter operates in the same industry as the Company and therefore faces the
same competitive environment as the Company. See "-The Company (other than the
Recently Acquired Subsidiaries)-Competition."
Manufacturing Facilities
Deeter is located on an 18 acre site with 71,000 square feet of
manufacturing area. Deeter operates three green sand molding lines with a
current annual capacity of 20,000 net saleable tons. Deeter maintains stockyards
located in Denver, Colorado and their primary distribution yard is located on
site in Lincoln, Nebraska.
Employees
At September 30, 1998 Deeter had 97 full time hourly employees and 25
salaried employees. The workers are non-union and Deeter believes its relations
with its employees are good.
Environmental Matters
Deeter is subject to environmental, health and safety laws comparable to
those governing the Company. See "-Company (other than the Recently Acquired
Subsidiaries)-Environmental Matters."
On May 30, 1997, prior to the Company's acquisition of Deeter, Deeter
pleaded guilty to disposing of hazardous waste without a permit and agreed to
pay a fine of $500,000, perform (by its president, Douglas E. Deeter) 300 hours
of community service and provide certain information regarding its waste
handling and disposal practices. Management believes that Deeter has complied
and that the matter will result in no further liabilities.
21
<PAGE> 22
Item 2. PROPERTIES
The Company and the Recently Acquired Subsidiaries maintain the following
locations. All of the facilities are owned, with the exception of Mercer's
machining facility, which is leased.
<TABLE>
<CAPTION>
ENTITY LOCATION PURPOSE
<S> <C> <C>
Neenah Foundry Co Neenah, WI 2 manufacturing facilities
Office facility
Dalton Corporation Warsaw, IN Manufacturing facility
Office facility
Kendallville, IN Manufacturing facility
Ashland, OH Manufacturing facility
Stryker, OH Machining facility
Advanced Cast Products, Inc. Dublin, OH Office facility
Meadville, PA Manufacturing/office facility
South Easton, MA Manufacturing facility
Ironton, OH Manufacturing facility
Mercer Forge Corporation Mercer, PA Manufacturing facility
Office facility
Sharon, PA Machining facility
Deeter Foundry, Inc. Lincoln, NE Manufacturing/office facility
</TABLE>
The principal equipment at the company's facilities consist of molding
machines, presses, machining equipment, welding, grinding and painting
equipment. The Company regards its plant and equipment as well-maintained and
adequate for its needs. In addition to the facilities above, the Company owns
seven and leases seven distribution and sales centers.
Item 3. LEGAL PROCEEDINGS
The Company and Recently Acquired Subsidiaries are 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 operations of the Company, or the Recently Acquired Subsidiaries.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
year ended September 30, 1998.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no public market for the common stock of the Company. There was
one holder of record of the Company's common stock as of September 30, 1998.
22
<PAGE> 23
Item 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth the selected historical consolidated
financial and other data of the Company for the four years ended March 31,1997,
the six months ended March 31, 1997, and the one month ended April 30, 1997 (the
"Predecessor Company"), which have been derived from the Company historical
consolidated financial statements before the Merger and the five months ended
September 30, 1997 and the year ended September 30, 1998, which have been
derived from the Company's historical consolidated financial statements
following the Merger. The information contained in the following table should
also be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the Company's historical
consolidated financial statements and related notes included elsewhere in this
report.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Predecessor Company
-----------------------------------------------------------------
Fiscal Year Ended , March 31,
-----------------------------
1994 1995 1996 1997 Six Months One Month Five Months Fiscal Year
---- ---- ---- ---- Ended Ended Ended Ended
March April September September
31, 1997 30, 1997 30, 1997 (1) 30, 1998 (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF
INCOME DATA:
Net sales $131,982 $160,621 $166,951 $165,426 $75,686 $17,276 $108,353 $303,414
Cost of sales 106,531 120,981 121,631 116,736 53,749 11,351 77,444 222,451
-------- -------- ------- -------- ------- ------- -------- --------
Gross profit 25,451 39,640 45,320 48,690 21,937 5,925 30,909 80,963
Selling, general
and administrative
expenses 13,614 16,673 16,983 17,547 8,247 1,752 8,652 23,230
Amortization expense -- -- -- -- -- -- 3,900 7,727
-------- -------- -------- -------- ------- ------- -------- --------
Operating income 11,837 22,967 28,337 31,143 13,690 4,173 18,357 50,006
Interest expense
(income), net 1,043 397 (481) (1,162) (726) (121) 9,991 27,203
Income before
income taxes
and extraordinary
item 10,794 22,570 28,818 32,305 14,416 4,294 8,366 22,803
Provision for income
taxes 4,213 8,866 11,676 12,467 4,701 1,615 4,000 10,922
-------- -------- -------- -------- ------- ------- -------- -------
Income before
extraordinary item 6,581 13,704 17,142 19,838 9,715 2,679 4,366 11,881
Extraordinary item -- -- -- -- -- -- 1,630 392
----------------------------------------------------------------------------------------------
Net income $ 6,581 $ 13,704 $ 17,142 $19,838 $ 9,715 $ 2,679 $ 2,736 $11,489
======= ======== ======== ======= ======= ======= ======== =======
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA (AT END
OF PERIOD):
Cash and cash
equivalents $ 118 $ 238 $ 10,126 $22,403 $22,403 $ 29,046 $ 20,346 $ 19,798
Working capital 14,419 15,239 28,113 43,707 43,707 34,052 40,849 78,186
Total assets 74,327 73,813 82,957 93,869 93,869 102,067 358,406 584,309
Total debt 13,325 887 241 134 134 129 218,413 371,871
Total
stockholders' 37,929 43,198 54,790 68,857 68,857 74,458 47,407 67,922
equity
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These amounts have been restated from the prior year as the contribution of
the capital stock of ACP was accounted for in a manner similar to a pooling
of interests because the Company and ACP were under common control.
(2) The amounts include the results of Deeter subsequent to March 30, 1998, the
results of Mercer subsequent to April 3, 1998 and the results of Dalton
subsequent to September 8, 1998.
24
<PAGE> 25
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain matters discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and other sections of this annual
report are "forward-looking statements" intended to qualify for the safe
harbors from liability established by the Private Securities Litigation Reform
Act of 1995. These forward-looking statements can generally be identified as
such because the context of the statement will include words such as the
Company "believes," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the Company's future plans, objectives or
goals are also forward-looking statements. Such forward-looking statements are
subject to certain risks and uncertainties which are described in close
proximity to such statements and which may cause actual results to differ
materially from those currently anticipated. The forward-looking statements
made herein are made only as of the date of this report and the Company
undertakes no obligation to publicly update such forward-looking statements to
reflect subsequent events or circumstances.
On April 30, 1997, pursuant to the Merger Agreement, the Predecessor
Company was acquired by NFC Castings, Inc. On July 1, 1997, Neenah Foundry
Company, which was the principal operating subsidiary of Neenah Corporation,
merged with and into Neenah Corporation and the surviving company changed its
name to Neenah Foundry Company.
The following discussion and analysis of the Company's financial condition
and results of operations addresses the periods both before and after the
Merger. The Merger has had a significant impact on the Company's results of
operations and financial condition. The Merger resulted in the recording of
goodwill and identifiable intangible assets totaling $148.8 million. These
amounts are being amortized over their estimated useful lives, ranging from 5
months to 40 years. The Merger has also resulted in a significant increase in
the Company's interest expense as a result of an increased level of
indebtedness. As a result of the Merger, the financial data presented herein for
the Pro Forma Twelve Months Ended September 30, 1997 period represents the
combination of financial data for the Predecessor Company's seven month period
ended April 30, 1997 and the Company's five month period ended September 30,
1997 and does not include any financial data for the Recent Acquisitions,
excluding ACP. The Pro Forma Twelve Months Ended September 30, 1997 data was
prepared by adding together the respective amounts of each line item for such
seven month and five month periods. No purchase accounting or other pro forma
adjustments have been made. The following discussion compares the results of
operations of the Company for the fiscal year ended September 30, 1998
(including the results of operations from the date of acquisition of any
Recently Acquired Subsidiary, excluding ACP, that was acquired during such
period), to the combined historical results of the operations of the Company and
the Predecessor Company for the twelve months ended September 30, 1997.
The Recent Acquisitions have had a significant impact on the Company's
results of operations and financial condition. Each of the Recent Acquisitions
(other than the ACP acquisition) was accounted for using the purchase method of
accounting. These Recent Acquisitions resulted in the recording of goodwill and
identifiable intangible assets totaling $101.1 million. These amounts are being
amortized over their estimated useful lives, ranging from four months to 40
years. The Recent Acquisitions have also resulted in a significant increase in
the Company's interest expense as a result of a substantially increased level of
indebtedness incurred to finance the Recent Acquisitions. The contribution of
the capital stock of ACP was accounted for in a manner similar to a pooling of
interests because the Company and ACP were under common control. The financial
results for the period from inception, May 1, 1997 through September 30, 1997
have been restated to account for this transaction.
The Company changed its fiscal year end to September 30 from March 31
effective September 30, 1997.
25
<PAGE> 26
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, Pro Forma Twelve
--------------- Months Ended Fiscal Year Ended
1996 1997 September 30, 1997 September 30, 1998
---- ---- ------------------ -------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 72.9 70.6 70.8 73.3
Gross profit 27.1 29.4 29.2 26.7
----- ----- ----- -----
Selling, general and
administrative expense 10.1 10.6 9.3 7.7
Amortization of intangible
assets -- -- 1.9 2.5
----- ----- ----- -----
Operating income 17.0% 18.8% 18.0% 16.5%
===== ===== ===== =====
</TABLE>
COMPARISON OF FISCAL YEAR ENDED SEPTEMBER 30, 1998 TO PRO FORMA TWELVE MONTHS
ENDED SEPTEMBER 30, 1997
Net Sales. Net sales for the year ended September 30, 1998 were $303.4
million which was $102.1 million or 50.7% higher than the pro forma twelve
months ended September 30, 1997. The Recently Acquired Subsidiaries excluding
ACP accounted for an increase of $53.5 million in net sales. The inclusion of
ACP for twelve months in 1998 versus five months in 1997 accounted for an
increase of $33.7 million in net sales. Net sales of municipal castings
increased by $3.1 million or 4.2 % due primarily to a strong economy in the
upper Midwest and market share gains in strategic focus areas of the East and
Southwest. Net sales of industrial castings increased by $11.7 million or 11.8%
due to the overall strength of the heavy duty truck market coupled with high
demand in the agricultural business.
Gross Profit. Gross profit for the year ended September 30, 1998 was $81.0
million, an increase of $22.2 million or 37.8%, as compared to the pro forma
twelve months ended September 30, 1997. Approximately $8.0 million of the
increase was from the inclusion of the operating results of the Recently
Acquired Subsidiaries excluding ACP after their acquisition. The inclusion of
ACP for twelve months in 1998 versus five months in 1997 accounted for an
increase of $6.4 million in gross profit. The remaining margin improvement was
due to the combined effect of spreading manufacturing overhead over a greater
volume and improved efficiency in plant operations. Gross profit as a percentage
of net sales decreased to 26.7% during the year ended September 30, 1998 from
29.2% for the pro forma twelve months ended September 30, 1997. The decline in
gross profit percentage is attributable to the mix of industrial products and
lack of seasoning from the Recently Acquired Subsidiaries excluding ACP.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended September 30, 1998 were $23.2
million, an increase of $4.5 million or 24.1% over the $18.7 million for the pro
forma twelve months ended September 30, 1997. The increase in selling, general
and administrative expense was due to the inclusion of $2.7 million of expenses
from the Recently Acquired Subsidiaries, excluding ACP, after their acquisition.
The inclusion of ACP for twelve months in 1998 versus five months in 1997
accounted for an increase of $3.0 million in expenses. As a percentage of net
sales, selling, general and administrative expenses decreased from 9.3% for the
pro forma twelve months ended September 30, 1997 to 7.7% for the year ended
September 30, 1998. The percentage decrease was
26
<PAGE> 27
due to expenses being spread over a larger volume base with the inclusion of the
Recently Acquired Subsidiaries' operating results, excluding ACP.
Amortization of intangible assets. Amortization of intangible assets was
$7.7 million for the year ended September 30, 1998, an increase of $3.8 million,
or 97.4%, as compared to the $3.9 million for the pro forma twelve months ended
September 30, 1997. The increase is due to the recording of twelve months of
amortization during the period ended September 30, 1998 for the goodwill and
identifiable intangible assets arising from the Merger versus five months of
amortization during the period ended September 30, 1997 as well as increased
amortization from goodwill and identifiable intangible assets from the Recently
Acquired Subsidiaries, excluding ACP.
Operating Income. Operating income was $50.0 million for the year ended
September 30, 1998, an increase of $13.8 million or 38.1% from the pro forma
twelve months ended September 30, 1997. The improvement in operating income was
achieved for the reasons discussed above under gross profit. As a percentage of
net sales, operating income decreased from 18.0% for the pro forma twelve months
ended September 30, 1997 to 16.5% for the year ended September 30, 1998. The
decrease in operating income percentage was due to the factors discussed above
under gross profit, as well as increased amortization of intangible assets.
Net Interest Expense. Net interest expense increased from $9.1 million for
the pro forma twelve months ended September 30, 1997 to $27.2 million for the
year ended September 30, 1998. The increased interest expense resulted from the
Company's Senior Subordinated Notes being outstanding for twelve months during
the year ended September 30, 1998 and only five months during the period ended
September 30, 1997 and the interest on the drawings under the Company's Senior
Bank Facilities to finance the Recent Acquisitions.
Provision for Income Taxes. The provision for income taxes for the year
ended September 30, 1998 is higher than the amount computed by applying the
statutory rate of approximately 40% to income before income taxes mainly due to
the amortization of goodwill which is not deductible for income tax purposes.
Extraordinary Item. During the year ended September 30, 1998, the Company
recorded an extraordinary loss of $0.4 million (which is net of an income tax
benefit of $0.3 million) for the write-off of unamortized deferred financing
costs in connection with the repayment in full of indebtedness of ACP prior to
its scheduled maturity. For the pro forma twelve months ended September 30,
1997, the Company recorded an extraordinary loss of $1.6 million (which is net
of an income tax benefit of $1.0 million) for the write-off of unamortized
deferred financing costs in connection with the repayment in full of the term
indebtedness under the Company's Senior Bank Facilities.
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
27
<PAGE> 28
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 the time of the Merger. 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.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the Merger, the Company issued $150.0 million principal
amount of 11-1/8% Senior Subordinated Notes due 2007 (the Senior Subordinated
Notes) and entered into a credit agreement providing for term loans of $45.0
million and a revolving credit facility of up to $30.0 million (the "Senior Bank
Facilities.) On July 1, 1997, the Company issued an additional $45.0 million
principal amount of 11-1/8% Senior Subordinated Notes and used the proceeds of
$47.6 million to pay the term loans under the Senior Bank Facility, the accrued
interest thereon and related fees and expenses. In addition, on September 12,
1997, the Company amended the revolving credit facility under the Senior Bank
Facility to increase the borrowings available under the revolving credit
facility from $30.0 million to $50.0 million and eliminate all borrowing base
limitations. On April 3, 1998, in connection with the acquisition of Mercer, the
Company, ACP Holdings and the lenders party thereto amended the Credit Agreement
to provide availability of $75.0 million of term loans to the Company
(consisting of $20.0 million of Tranche A Loans and $55.0 million of Tranche B
Loans) in addition to the Company's existing $50.0 million Revolving Credit
Facility. On September 8, 1998, in connection with the acquisition of Dalton and
the contribution of the capital stock of ACP, the Company, ACP Holdings and the
lenders party thereto amended and restated the Credit Agreement to provide for
additional Tranche B Loans in an aggregate principal amount of $70.0 million and
an Acquisition Loan Facility in aggregate principal amount outstanding at any
one time not to exceed $50.0 million. On November 24, 1998, the Company sold $87
million principal amount of 11 1/8% Senior Subordinated Notes due 2007 and used
$29 million of the proceeds to paydown borrowings under the Acquisition Loan
Facility. The remaining proceeds are to be used for general corporate purposes.
The Company's liquidity needs will arise primarily from debt service on the
above indebtedness, working capital needs, the funding of capital expenditures
and additional acquisitions. Borrowings under the the Senior Bank Facilities
bear interest at variable interest rates. The Senior Bank Facility imposes
restrictions on the Company's ability to make capital expenditures and both the
Senior Bank Facility and the indentures governing the Senior Subordinated Notes
limit the Company's ability to incur additional indebtedness. The covenants
contained in the Senior Bank Facility also, among other things, restrict the
ability of the Company and its subsidiaries to dispose of assets, incur
guarantee obligations, prepay the Senior Subordinated Notes or amend its
indentures, 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.
28
<PAGE> 29
For the fiscal years ended March 31, 1996 and 1997, the pro forma twelve
months ended September 30, 1997 and the year ended September 30, 1998, capital
expenditures were $7.3 million, $4.5 million, $5.1 million and $13.1 million,
respectively. The capital expenditures for the year ended September 30, 1998
were primarily the result of planned enhancements to certain equipment in the
manufacturing area and include expenditures of the Recently Acquired
Subsidiaries, excluding ACP, since their acquisition date.
The Company's principal source of cash to fund its liquidity needs will be
net cash from operating activities and borrowings under its Senior Bank
Facilities. Net cash from operating activities for the year ended September 30,
1998 was $24.2 million. Net cash from operating activities for the pro forma
twelve months ended September 30, 1997 was $37.4 million. The decrease resulted
from lower net income and a paydown of accounts payable and accrued liabilities
during the year ended September 30, 1998. 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.
The Company believes that cash generated from operations and existing
revolving lines of credit under the Senior Bank Facilities will be sufficient to
meet its normal operating requirements, including working capital needs and
interest payments on the Company's outstanding indebtedness.
Amounts under the $50.0 million Revolving Credit Facility may be used for
working capital and general corporate purposes, subject to certain limitations
under the Senior Bank Facilities. Amounts under the Acquisition Loan Facility
may be used to make acquisitions permitted under the Senior Bank Facilities. The
Company 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.
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 past three years.
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 third and fourth quarters of the Company's 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
29
<PAGE> 30
its second quarter in March. The Company has not historically experienced
seasonality in industrial casting sales.
YEAR 2000
The Company and its subsidiaries have conducted an evaluation of the
actions necessary in order to ensure that its computer systems will be able to
function without disruption with respect to the application of dating systems in
the Year 2000. As a result of this evaluation, each company within the
consolidated entity is engaged in the process of upgrading, replacing and
testing certain of its information and other computer systems in order to
operate without disruption due to Year 2000 issues. The Company's remedial
actions are scheduled to be completed during the first quarter of 1999 and those
of its subsidiaries are anticipated to be completed prior to the third quarter
of 1999. The Company does not anticipate that the costs of its remedial actions
will be material to its results of operations and financial position and are
being expensed as incurred.
Although there can be no assurance that the remedial actions being
implemented by the Company will address every issue relating to the Year 2000
issue, the Company believes it is unlikely that any disruptions resulting from
the Year 2000 issue would have a significant impact on its overall operations.
In addition to its investigations of its own systems, the Company has begun
assessing the Year 2000 readiness of its important vendors and customers.
Management believes that all its important critical vendors and customers either
have or will have addressed any problems associated with the Year 2000 issue
such that there will be no significant deterioration in future business dealings
due to this issue.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates.
The Company does not use derivative financial instruments for speculative or
trading purposes.
Interest Rate Sensitivity. The Company's earnings are affected by changes
in short-term interest rates as a result of its borrowings under the Senior Bank
Facilities. If market interest rates for such borrowings average 1% more during
the fiscal year ended September 30, 1999 than they did during fiscal 1998, the
Company's interest expense would increase, and income before income taxes would
decrease by approximately $1.7 million. This analysis does not consider the
effects of the reduced level of overall economic activity that could exist in
such an environment. Further, in the event of a change of such magnitude,
management could take actions to further mitigate its exposure to the change.
However, due to the uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no changes in the
Company's financial structure.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules are listed in Part IV Item 14 of
this Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
30
<PAGE> 31
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information as of September 30, 1998, with
respect to the persons who are 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 62 Chairman of the Board and Chief Executive Officer
William M. Barrett 52 Vice President and General Manger
Gary W. LaChey 53 Vice President - Finance, Treasurer and Secretary
Charles M. Kurtti 61 Vice President - Manufacturing and Engineering
William J. Martin 51 Vice President and General Manager - Hartley
Controls Corporation
John Z. Rader 50 Vice President - Human Resources
Timothy J. Koller 49 Vice President - Construction Products, Sales, and Engineering
Frank C. Headington 49 Director - Product Reliability
Brenton F. Halsey 69 Director
David F. Thomas 48 Director
John D. Weber 34 Director
</TABLE>
Mr. Hildebrand is Chairman of the Board and Chief Executive Officer of the
Company, a position he has held since May 1, 1997. 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, beneficially owns all
the common equity of both the Company and Advanced Cast Products, Inc. Mr.
Hildebrand devotes substantial time to, and is partially compensated by,
Advanced Cast Products, Inc.
Mr. Barrett is Vice President and General Manager of the Company, a
position he has held since May 1, 1997. 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, a position he has held since May 1, 1997. Mr. LaChey joined the Company
in 1971, serving in a variety of positions of increasing responsibility in the
finance department. Mr. LaChey was most recently Vice President - Administration
of the Company.
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. Martin is Vice President and General Manger - 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. 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.
31
<PAGE> 32
Mr. Koller is Vice President - Construction Products, Sales and Engineering
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.
Mr. Halsey is a director of the Company, a position he has held since May
1, 1997. 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.
Mr. Thomas is a director of the Company, a position he has held since May
1, 1997. 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, a position he has held since May 1,
1997. 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.
Directors of the Company who are officers or employees of the Company or
its affiliates are presently not expected to receive compensation for their
services as directors. No determination has yet been made with respect to
compensation for directors of the Company who are not officers or employees of
the Company or any of its affiliates. Directors of the Company will be 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.
32
<PAGE> 33
ITEM 11. Executive Compensation
The compensation of executive officers of the Company will be determined by
the Board of Directors of the Company. None of the historical benefit or
compensation plans of the Company are described herein because each were
terminated with respect to the named officers and replaced as a group by a
single compensation plan in connection with the Merger (with the exception of a
401(k) plan and 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 the fiscal year
ended September 30, 1998, the five month period ended September 30, 1997 ("FM
1997"), the one month period ended April 30, 1997 ("OM 1997") and the fiscal
year ended March 31, 1997.
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation
Name and Principal Fiscal ------------------- Other Annual Optional LTIP All other
Position Year Salary Bonus Compensation(1) SARs(#) Payouts Compensation
-------- ---- ------ ----- --------------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James K. Hildebrand 1998 $ 120,000 $84,000 $34,107 -- -- --
Chairman and Chief FM 1997 50,000 -- 10,860
Executive Officer OM 1997 -- -- --
1997 -- -- --
William M. Barrett 1998 148,500 85,575 31.490 -- -- --
Vice President and FM 1997 55,000 -- 11,430
General Manager OM 1997 8,225 -- 1,936
1997 98,700 20,000 26,030
Gary W. LaChey 1998 145,345 86,980 31,469 -- -- --
Vice President - FM 1997 59,175 -- 10,723
Finance, Secretary OM 1997 11,833 -- 2,081
and Treasurer 1997 137,998 40,000 26,984
Charles M. Kurtti 1998 137,500 80,850 34,510 -- -- --
Vice President - FM 1997 55,000 -- 11,430
Manufacturing and OM 1997 11,000 -- 2,229
Engineering 1997 127,750 45,000 32,230
John Z. Rader 1998 137,000 80,850 31,303 -- -- --
Vice President - FM 1997 55,000 -- 11,430
Human Resources OM 1997 11,000 -- 2,229
1997 127,750 40,000 29,725
</TABLE>
(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.
MANAGEMENT INCENTIVE PLAN
The Company provides 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.
33
<PAGE> 34
MANAGEMENT EQUITY PARTICIPATION
In connection with the Merger, the then current 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"). In addition, in connection with certain
of the Recent Acquisitions, certain senior managers of certain of the Recently
Acquired Subsidiaries purchased common interests in ACP Products, L.L.C. The
Management Investors and certain other employees of the Company may be given the
opportunity to purchase additional Purchased Interests either in connection with
future acquisitions or otherwise.
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. Any Purchased Interests issued in the
future are expected to be subject to rights and restrictions similar to those of
the Purchased Interests purchased in connection with the Merger. The price of
the future Purchased Interests will be established by ACP Products, L.L.C. in
consultation with the Board of Directors of the Company or a compensation
committee thereof.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 NFC Castings, Inc. and are pledged to the
lenders under the Senior Bank Facilities. NFC Castings, Inc. 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. consist of 95,000
Class A-3 Common Units (the "Class A Common Units"), 936,735 Class B-3 Common
Units (the "Class B Common Units") and 103,500 Class C-3 Common Units (the
"Class C Common Units"), and together with the Class A "Common Units" and the
Class B 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 C Common Units are
entitled to a number of votes per Class C Common Unit based on the total number
of Class C Common Units outstanding, on all matters to be voted upon by the
holders of Class C 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.
34
<PAGE> 35
Set forth below is certain information regarding the beneficial
ownership as of September 30, 1998 of Class A Common Units and Class C Common
Units, respectively, by each person who beneficially owns 5.0% or more of the
outstanding Class A Common Units or Class C 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
54957.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Number of Percentage Percentage of Percentage of
Voting Class A Voting Class of Voting Voting Class Voting
NAME AND ADDRESS OF BENEFICIAL OWNER Common Units C Common Class A C Common Units Common Units
- ------------------------------------ Units Common
Units
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Citicorp Venture Capital, Ltd. (1) (2) 81,000 -- 85.26% -- 40.81%
399 Park Avenue
New York, New York 10043
- ------------------------------------------------------------------------------------------------------------------------------------
Metropolitan Life Insurance Company 5,000 -- 5.26% -- 2.52%
One Madison Avenue
New York, New York 10010
- ------------------------------------------------------------------------------------------------------------------------------------
James K. Hildebrand (1) -- 20,000 -- 19.32% 10.08%
- ------------------------------------------------------------------------------------------------------------------------------------
William M. Barrett (1) -- 13,000 -- 12.56% 6.55%
- ------------------------------------------------------------------------------------------------------------------------------------
Gary W. LaChey (1) -- 13,000 -- 12.56% 6.55%
- ------------------------------------------------------------------------------------------------------------------------------------
Charles W. Kurtti (1) -- 13,000 -- 12.56% 6.55%
- ------------------------------------------------------------------------------------------------------------------------------------
William J. Martin (1) -- 13,000 -- 12.56% 6.55%
- ------------------------------------------------------------------------------------------------------------------------------------
John Z. Rader (1) -- 13,000 -- 12.56% 6.55%
- ------------------------------------------------------------------------------------------------------------------------------------
Mark Clark (1) -- 8,000 -- 7.73% 4.03%
- ------------------------------------------------------------------------------------------------------------------------------------
David F Thomas (1) (3) 84,167 -- 88.60% -- 42.40%
- ------------------------------------------------------------------------------------------------------------------------------------
John D. Weber (1) (3) 81,169 -- 85.44% -- 40.89%
- ------------------------------------------------------------------------------------------------------------------------------------
Directors and named executive officers as a group 89,336 93,000 94.04% 89.05% 91.86%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Such person disclaims beneficial ownership of the Common Stock.
(2) Citicorp Venture Capital, Ltd. and its affiliates (collectively,
"CVC") own 766,794 Class B Common Units representing 81.86% of
the Class B Common Units outstanding.
(3) Consists of the Class A Common Units held directly by Messrs.
Thomas and Weber and those held by CVC, which may be deemed to be
beneficially owned by Messrs. Thomas and Weber. Messrs. Thomas
and Weber disclaim beneficial ownership of Units held by CVC.
Mr. Thomas is a managing director of CVC. Mr. Weber is a vice
president of CVC.
35
<PAGE> 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH ACP HOLDINGS
ACP Products, L.L.C. holds all of the issued and outstanding shares of
capital stock of ACP Holdings. ACP Holdings is the parent company of NFC
Castings, Inc., and thus ACP Holdings 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. Mr. Hildebrand held such positions prior to
the contribution of the capital stock of ACP to the Company and received payment
for such services.
SHAREHOLDER RELATIONSHIPS
The Management Investors and certain institutional investors, including
Citicorp Venture Capital, Ltd., are parties to the Fifth Amended and Restated
Limited Liability Agreement of ACP Products, L.L.C. (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 NFC Castings, Inc. and
the Company, including, without limitation, appointing members of the Board of
Directors of the Company and of NFC Castings, Inc..
CONTRIBUTION OF ACP CAPITAL STOCK
On September 8, 1998, the capital stock of ACP was contributed to the
Company by ACP Holdings. In connection with the contribution, the Company
assumed $14.9 million of indebtedness of ACP, $14.6 of which was refinanced
through borrowings of Tranche A Loans. In connection with the contribution of
the capital stock of ACP to the Company, (i) NFC Castings, Inc. issued a $4.2
million senior subordinated note to CVC in exchange for a $4.2 million current
pay obligation of ACP to CVC and (ii) $6.7 million of outstanding subordinated
debt of ACP to ACP Holdings and NFC Castings, Inc. was contributed to the
capital of ACP.
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 of 1933, as amended, 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 of 1933, as amended,
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.
EMPLOYMENT AGREEMENTS
Prior to the Merger, the Predecessor Company entered into a consulting
agreement with James P. Keating, Jr. a former Senior Vice President of the
Company, 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 such consulting agreement. The Company, ACP, ACP
Holdings and ACP Products, L.L.C. entered into an executive employment and
consulting agreement with James K. Hildebrand dated as of September 15, 1998.
Such agreement provides
36
<PAGE> 37
for (I) an initial term of employment until September 30, 2001 after which,
barring termination by the Company under certain circumstances (including gross
negligence, willful misconduct and commission of certain crimes), Mr. Hildebrand
will serve as a consultant to the Company for a period of two years with
automatic renewal, subject to earlier termination notice by either party, for
successive one year periods up to an additional three years; (ii) a minimum base
salary of $500,000 and a bonus to be calculated based on achieved EBITDA
performance so long as Mr. Hildebrand is employed by the Company; (iii)
severance benefits; (iv) non-competition, non-solicitation and confidentiality
agreements; (v) an option to purchase certain common membership units of ACP
Products L.L.C.; and (vi) other terms and conditions of Mr. Hildebrand's
employment including health benefits. In addition, in connection with the
Company's acquisition of all of the capital stock of Dalton, Dalton entered into
an employment agreement with K.L. Davidson dated as of September 8, 1998 to
serve as President of Dalton. Such agreement provides for (I) an initial one
year term which shall be renewed automatically, subject to earlier termination
notice by either party, for successive one year terms until Mr. Davidson attains
the age of 65; (ii) a minimum base salary and bonus following the end of each
fiscal year so long as Dalton employs Mr. Davidson; (iii) severance benefits;
(iv) non-solicitation, non-compete and confidentiality agreements; and (v) other
terms and conditions of Mr. Davidson's employment.
37
<PAGE> 38
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
<TABLE>
<CAPTION>
(a) (1) Consolidated Financial Statements of Neenah Foundry Company Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 45
Consolidated Balance Sheets 46
Consolidated Statements of Income 48
Consolidated Statements of Changes in Stockholder's Equity 49
Consolidated Statements of Cash Flows 50
Notes to Consolidated Financial Statements 51
Consolidated Financial Statements of Neenah Foundry Company (Predecessor)
Report of Ernst & Young LLP, Independent Auditors 70
Consolidated Balance Sheets 71
Consolidated Statements of Income 73
Consolidated Statements of Changes in Stockholder's Equity 74
Consolidated Statements of Cash Flows 75
Notes to Consolidated Financial Statements 76
(2) Financial Statements Schedules
Report of Ernst & Young LLP, Independent Auditors 88
Schedule II - Valuation and Qualifying Accounts of Neenah Foundry Company 89
(Predecessor)
Report of Ernst & Young LLP, Independent Auditors 90
Schedule II - Valuation and Qualifying Accounts of Neenah Foundry Company 91
</TABLE>
The following schedules are omitted as not applicable or not required under the
rules of regulation S-X: I, III, IV, and V.
(b) Reports on Form 8-K.
The Company filed one report on Form 8-K during the quarter ended
September 30, 1998. The report, dated September 21, 1998, disclosed
that the Company had acquired Dalton Corporation and Advanced Cast
Products, Inc.
(c) Exhibits
See Exhibit Index.
38
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Neenah,
State of Wisconsin, on December 22, 1998.
NEENAH FOUNDRY COMPANY
(Registrant)
/s/Gary W. LaChey
----------------------------
Gary W. LaChey
Vice President - Finance, Secretary
and Treasurer
(Principal Financial and Principal
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on December 28, 1998, by the following persons on behalf
of the registrant and in the capacities indicated.
/s/James K. Hildebrand /s/ Brenton F. Halsey
------------------------------- ------------------------------------
James K. Hildebrand Brenton F. Halsey
Chairman of the Board and Director
Chief Executive Officer
(Principal Executive Officer)
/s/ David F. Thomas /s/ Gary W. LaChey
------------------------------- ------------------------------------
David F. Thomas Gary W. LaChey
Director Vice President - Finance, Secretary
and Treasurer
(Principal Financial and Principal
Accounting Officer)
/s/ John D. Weber
-------------------------------
John D. Weber
Director
39
<PAGE> 40
EXHIBIT INDEX
EXHIBITS
- --------
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 Stock Purchase Agreement for the acquisition of Deeter Foundry, Inc.
dated as of March 26, 1998 by and among Neenah Foundry Company and the
Selling Shareholders of Deeter Foundry, Inc. (incorporated by reference
to the Company's Form 10-Q for the period ended March 31, 1998 filed on
May 14, 1998.)
2.7 Stock Purchase Agreement for the acquisition of Mercer dated as of April
3, 1998 by and among Neenah Foundry Company, Mercer Forge Corporation
and the Selling Shareholders of Mercer (incorporated by reference to the
Company's Form 8-K filed on April 14, 1998.)
2.8 Stock Purchase Agreement for the acquisition of Dalton dated as of
August 7, 1998 by and among Neenah Foundry Company, Dalton Corporation
and the Dalton Corporation Employee Stock Ownership Plan and Trust
(incorporated by reference to the Company's Form 8-K filed on September
21, 1998.)
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, 1997
among Neenah Corporation, Neenah Foundry Company, Hartley Controls
Corporation and 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 relating 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. **
40
<PAGE> 41
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.
**
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. **
10.3 Letter Agreement between Neenah Foundry Company and Eaton Corporation
dated April 4, 1996.**
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 1998-2000 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 as Amended and Restated as
of September 12, 1997, as of April 3, 1998, and as of September 8, 1998
by and among Neenah Foundry Company, NFC Castings, Inc., the Chase
Manhattan Bank as Administrative Agent, Chase Securities, Inc. as
Arranger and the other Lenders from time to time party thereto
(incorporated by reference to the Company's Form 8-K filed on September
21, 1998.)
10.8 Employment Agreement dated September 9, 1994 between the Neenah
Corporation, Neenah Foundry Company, Harley 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. **
10.16 Amendment No. 1, Consent and Waiver, dated as of November 18, 1998, to
the Credit Agreement dated as of April 30, 1997 as Amended and Restated
as of September 12, 1997, as of April 3, 1998, and as of September 8,
1998 by and among Neenah Foundry Company, NFC Castings, Inc., the
Lenders from time to time party thereto, and the Chase Manhattan Bank. *
10.17 Cash Collateral Account Agreement dated as of November 24, 1998, between
Neenah Foundry Company and the Chase Manhattan Bank. *
10.18 Executive Employment and Consulting Agreement dated September 15, 1998
by and among Neenah Foundry Co.,Advanced Cast Products, Inc., ACP
Holding Co., ACP Products, LLC and James K. Hildebrand.*
10.19 Dalton Corporation, K.L. Davidson Employment Agreement dated September
8, 1998. *
21.1 Subsidiaries of the Registrant. *
41
<PAGE> 42
27.1 Financial Data Schedule. *
- ----------
* Filed herewith
** Incorporated by reference to the Company's Form S-4 (Registration No.
333-28751) which became effective August 29, 1997.
42
<PAGE> 43
CONSOLIDATED FINANCIAL
STATEMENTS
NEENAH FOUNDRY COMPANY
For the twelve months ended
September 30, 1998 and for the
period from inception, May 1, 1997,
through September 30, 1997
43
<PAGE> 44
Neenah Foundry Company
Consolidated Financial Statements
For the twelve months ended September 30, 1998
and for the period from inception, May 1, 1997,
through September 30, 1997
CONTENTS
Report of Independent Auditors.................................................
Consolidated Balance Sheets....................................................
Consolidated Statements of Income..............................................
Consolidated Statements of Changes in Stockholder's Equity.....................
Consolidated Statements of Cash Flows..........................................
Notes to Consolidated Financial Statements.....................................
44
<PAGE> 45
Report of Independent Auditors
Board of Directors
Neenah Foundry Company
We have audited the accompanying consolidated balance sheets of Neenah Foundry
Company (the Company) as of September 30, 1998 and 1997 and the related
consolidated statements of income, changes in stockholder's equity and cash
flows for the twelve months ended September 30, 1998 and for the period from
inception, May 1, 1997, through September 30, 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 September 30, 1998 and 1997, and the consolidated results of its
operations and its cash flows for the twelve months ended September 30, 1998 and
for the period from inception, May 1, 1997, through September 30, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
November 6, 1998, except for Note 10,
as to which the date is November 24, 1998
45
<PAGE> 46
Neenah Foundry Company
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30
1998 1997
---------------------------------
(Restated -
See Note 2)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,798 $ 20,346
Accounts receivable, less allowance for doubtful accounts of $853
in 1998 and $491 in 1997 71,655 36,907
Inventories 40,841 22,264
Income taxes refundable 375 --
Deferred income taxes 4,888 1,884
Other current assets 5,060 716
---------------------------------
Total current assets 142,617 82,117
Property, plant and equipment:
Land 4,724 2,141
Buildings and improvements 19,954 10,058
Machinery and equipment 147,554 83,906
Patterns 26,439 22,787
---------------------------------
198,671 118,892
Less accumulated depreciation 18,134 6,268
---------------------------------
180,537 112,624
Deferred financing costs, net of accumulated amortization of $1,105 in
1998 and $641 in 1997 8,818 7,672
Identifiable intangible assets, net of accumulated amortization of
$6,153 in 1998 and $2,491 in 1997 61,086 28,480
Goodwill, net of accumulated amortization of $6,268 in 1998 and $2,300
in 1997 184,181 123,333
Other assets 7,070 4,180
---------------------------------
261,155 163,665
---------------------------------
$584,309 $358,406
=================================
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
SEPTEMBER 30
1998 1997
---------------------------------
(Restated -
See Note 2)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 29,920 $ 14,852
Income taxes payable -- 4,805
Accrued wages and employee benefits 13,005 5,863
Accrued interest 9,847 8,454
Other accrued liabilities 7,474 4,622
Current portion of long-term debt 4,185 2,672
---------------------------------
Total current liabilities 64,431 41,268
Long-term debt 367,686 215,741
Postretirement benefit obligations 5,220 4,894
Deferred income taxes 68,069 46,924
Other liabilities 10,981 2,172
---------------------------------
Total liabilities 516,387 310,999
Commitments and contingencies (Note 6)
Stockholder's equity:
Preferred stock, par value $100 per share; authorized 3,000 shares;
no shares issued or outstanding -- --
Common stock, Class A (voting), par value $100 per share; authorized
1,000 shares; issued and outstanding, 1,000 shares
100 100
Common stock, Class B (nonvoting), par value $100 per share; authorized
10,000 shares; no shares issued or outstanding
-- --
Capital in excess of par value 55,167 44,571
Retained earnings 14,225 2,736
Pension liability adjustment (1,570) --
---------------------------------
Total stockholder's equity 67,922 47,407
---------------------------------
$584,309 $358,406
=================================
</TABLE>
See accompanying notes.
47
<PAGE> 48
Neenah Foundry Company
Consolidated Statements of Income
(In Thousands)
<TABLE>
<CAPTION>
YEAR FIVE MONTHS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------------------------------------
(Restated -
See Note 2)
<S> <C> <C>
Net sales $303,414 $108,353
Cost of sales 222,451 77,444
------------------------------------------
Gross profit 80,963 30,909
Selling, general and administrative expenses 23,230 8,652
Amortization expense 7,727 3,900
------------------------------------------
Operating income 50,006 18,357
Other income (expense):
Interest income 893 367
Interest expense (28,096) (10,358)
------------------------------------------
Income before income taxes and extraordinary item 22,803 8,366
Provision for income taxes 10,922 4,000
------------------------------------------
Income before extraordinary item 11,881 4,366
Extraordinary item, net of income tax benefit of $260 in 1998
and $999 in 1997 392 1,630
------------------------------------------
Net income $ 11,489 $ 2,736
==========================================
</TABLE>
See accompanying notes.
48
<PAGE> 49
Neenah Foundry Company
Consolidated Statements of Changes in Stockholder's Equity
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Common Stock
----------------------------
Preferred Capital in Excess
Stock Class A Class B of Par Value
-------------- -------------- ------------- -------------------
<S> <C> <C> <C> <C>
Balance at May 1, 1997 (Restated - See Note 2) $ -- $100 $ -- $44,571
Net income -- -- -- --
-------------- -------------- ------------- -------------------
Balance at September 30, 1997 -- 100 -- 44,571
Additional capital contributions by the
stockholder -- -- -- 10,596
Net income -- -- -- --
Pension liability adjustment -- -- -- --
-------------- -------------- ------------- -------------------
Balance at September 30, 1998 $ -- $100 $ -- $55,167
============== ============== ============= ===================
Pension
Retained Liability
Earnings Adjustment Total
-------------- -------------- --------------
Balance at May 1, 1997 (Restated - See Note 2) $ -- $ -- $44,671
Net income 2,736 -- 2,736
-------------- -------------- --------------
Balance at September 30, 1997 2,736 -- 47,407
Additional capital contributions by the
stockholder -- -- 10,596
Net income 11,489 -- 11,489
Pension liability adjustment -- (1,570) (1,570)
-------------- -------------- --------------
Balance at September 30, 1998 $14,225 $(1,570) $67,922
============== ============== ==============
</TABLE>
See accompanying notes.
49
<PAGE> 50
Neenah Foundry Company
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
-------------------------------------------
(Restated - See Note 2)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,489 $ 2,736
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary item 652 2,629
Depreciation 11,927 3,799
Amortization of identifiable intangible assets and goodwill 7,727 3,900
Amortization of deferred financing costs and premium on notes 713 342
Deferred income taxes (2,437) (2,147)
Other 79 (10)
Changes in operating assets and liabilities:
Accounts receivable (3,926) (4,696)
Inventories 812 5,648
Other current assets (715) 152
Accounts payable (158) 1,403
Income taxes (5,050) 2,143
Accrued liabilities 4,198 9,099
Postretirement benefit obligations 341 141
Other liabilities (1,416) 21
-------------------------------------------
Net cash provided by operating activities 24,236 25,160
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (169,109) (12,530)
Purchase of property, plant and equipment (13,117) (3,081)
Proceeds from redemption of life insurance policy -- 866
Other 58 43
-------------------------------------------
Net cash used in investing activities (182,168) (14,702)
FINANCING ACTIVITIES
Proceeds from long-term debt 175,987 47,588
Payments on long-term debt (15,753) (47,888)
Debt issuance costs (2,850) (1,356)
-------------------------------------------
Net cash provided by financing activities 157,384 (1,656)
-------------------------------------------
Increase (decrease) in cash and cash equivalents (548) 8,802
Cash and cash equivalents at beginning of period 20,346 11,544
===========================================
Cash and cash equivalents at end of period $ 19,798 $ 20,346
===========================================
Supplemental disclosures of cash flow information: Cash paid for:
Interest $ 25,994 $ 1,560
Income taxes 16,340 3,716
</TABLE>
See accompanying notes.
50
<PAGE> 51
Neenah Foundry Company
Notes to Consolidated Financial Statements
September 30, 1998
(In Thousands)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
On April 30, 1997, pursuant to an Agreement and Plan of Reorganization with NC
Merger Company and NFC Castings, Inc., Neenah Corporation (Predecessor Company)
was acquired by NFC Castings, Inc., a holding company and a wholly owned
subsidiary of ACP Holding Company, using (i) $45,000 of cash equity contributed
by NFC Castings, Inc., (ii) $45,000 of term loans, (iii) proceeds from the
issuance of $150,000 of unsecured Senior Subordinated Notes and (iv) cash of
Neenah Corporation. The purchase price was $261,713 including a closing date net
worth adjustment and direct costs of the acquisition. The acquisition has been
accounted for using the purchase method of accounting. The purchase price has
been allocated on the basis of fair values of the underlying assets acquired and
liabilities assumed. The excess of the cost of acquisition over the fair value
of the net tangible and identifiable intangible assets acquired has been
allocated to goodwill.
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 (Neenah, and
together with its subsidiaries, the Company).
Neenah manufactures gray and ductile iron castings for sale to industrial and
municipal customers. Industrial castings are custom-engineered and are produced
for customers in several industries, including the medium and heavy-duty truck
components, farm equipment, heating, ventilation, and air-conditioning
industries. 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 and are sold principally to state and local government
entities, utility companies and contractors.
51
<PAGE> 52
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Neenah has the following subsidiaries, all of which are wholly owned: Neenah
Transport, Inc. (Transport); Hartley Controls Corporation (Hartley); Deeter
Foundry, Inc. (Deeter); Mercer Forge Corporation and subsidiaries (Mercer);
Dalton Corporation and subsidiaries (Dalton); and Advanced Cast Products, Inc.
(ACP). 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. Deeter manufactures
gray iron castings for the municipal market and special application construction
castings which are used in waste treatment plants, airports, telephone and
electrical construction projects. Mercer produces forged components for use in
transportation, railroad, mining and heavy industrial applications and
microalloy forgings for use by original equipment manufacturers and industrial
end users. Dalton manufactures gray iron castings for refrigeration systems, air
conditioners, heavy equipment, engines, gear boxes, stationary transmissions,
heavy duty truck transmissions and other automotive parts. ACP manufactures
ductile and malleable iron castings which are sold to companies in various
industrial segments, including heavy truck, construction equipment, railroad,
mining and automotive.
The Company operates in one business segment - the manufacture of castings and
forged components. The Company's products are sold throughout the United States
and several foreign countries to a large number of well established customers.
Sales to three customers totaled $71,979 of net sales for the year ended
September 30, 1998 and sales to two customers totaled $21,879 of net sales for
the five months ended September 30, 1997. Accounts receivable from such
customers totaled $12,651 and $5,214 at September 30, 1998 and 1997,
respectively. The Company's accounts receivable generally are unsecured.
The Company changed its fiscal year end to September 30 effective September 30,
1997.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Neenah and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
52
<PAGE> 53
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of inventories
for Neenah and Dalton 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. The cost of inventories for Deeter,
Mercer and ACP is determined on the FIFO method. LIFO inventories comprise 67%
and 83% of total inventories at Septem-ber 30, 1998 and 1997, respectively.
PROPERTY, PLANT AND EQUIPMENT
Expenditures for additions and improvements to property, plant and equipment are
capitalized at cost 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 the straight-line method.
DEFERRED FINANCING COSTS
Costs incurred to obtain long-term financing are amortized using the interest
method over the term of the related debt.
53
<PAGE> 54
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IDENTIFIABLE INTANGIBLE ASSETS
Identifiable intangible assets are amortized on a straight-line basis over the
estimated useful lives of four months to 40 years.
GOODWILL
Goodwill is amortized on a straight-line basis over 15 to 40 years.
IMPAIRMENT OF LONG-LIVED ASSETS
Property, plant and equipment, goodwill and other intangible assets are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected undiscounted
cash flows is less than the carrying value of the related asset or group of
assets, a loss is recognized for the difference between the fair value and
carrying value of the asset or group of assets. Such analyses necessarily
involve significant judgment.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product to the customer.
ADVERTISING COSTS
Advertising costs are expensed as incurred, and amounted to $662 for the year
ended September 30, 1998 and $292 for the five months ended September 30, 1997.
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.
54
<PAGE> 55
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held for
trading purposes. The following presents the carrying amounts and estimated fair
values of such instruments:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------------- -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 19,798 $ 19,798 $ 20,346 $ 20,346
Accounts receivable 71,655 71,655 36,907 36,907
Accounts payable 29,920 29,920 14,852 14,852
Long-term debt (1) 371,871 371,367 218,413 234,416
</TABLE>
(1) The fair value of the Senior Subordinated Notes is based on quoted market
prices.
PENDING ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of SFAS No. 133
will have a significant effect on the results of operations or on the financial
position of the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes the standards by which public enterprises are required to report
financial and descriptive information about their operating segments. SFAS No.
131 defines operating segments as components of an enterprise for which separate
financial information is available and evaluated regularly as a means for
assessing segment performance and allocating resources to segments. A measure of
profit or loss, total assets and other related information are required to be
disclosed for each operating segment. In addition, SFAS No. 131 requires the
annual disclosure of information concerning revenues derived from the
enterprise's products or services, countries in which it earns revenue or holds
assets, and major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 131 will not affect
the Company's results of operations, financial position, or cash flows, but may
affect the disclosure of segment information.
2. ACQUISITIONS
On March 30, 1998, Neenah purchased Deeter, a manufacturer of gray iron
castings, for $20,759 in cash (including direct costs of $313) and a $3,850 note
issued by ACP Holding Company payable to the selling shareholders of Deeter
which has been accounted for as a contribution to the capital of Neenah.
55
<PAGE> 56
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
On April 3, 1998, Neenah purchased Mercer, a manufacturer of forged components,
for $47,420 (including direct costs of $525 and net of $154 of acquired cash).
The acquisition of Mercer was financed through borrowings under the Tranche B
term loan.
On September 8, 1998, Neenah purchased Dalton, a manufacturer of gray iron
castings, for $100,930 (including direct costs of $601 and net of $1,679 of
acquired cash). The acquisition of Dalton was financed through drawings under
the Tranche B term loan and the Acquisition Loan Facility.
The acquisitions of Deeter, Mercer and Dalton have been accounted for using the
purchase method of accounting and, accordingly, the purchase price has been
allocated on the basis of fair values to the underlying assets acquired and
liabilities assumed. The excess of the cost of acquisition over the fair value
of the net tangible and identifiable intangible assets acquired has been
allocated to goodwill. The operating results of Deeter, Mercer and Dalton are
included in the consolidated statements of income since the date of their
respective acquisition.
On September 8, 1998, the capital stock of ACP was contributed to Neenah by ACP
Holding Company. ACP is a manufacturer of ductile and malleable iron castings.
In connection with the merger, Neenah assumed $14,613 of indebtedness of ACP
which was subsequently refinanced through borrowings under the Tranche B term
loan. The acquisition of ACP was accounted for in a manner similar to a pooling
of interests because Neenah and ACP were under common control. Accordingly, the
prior period financial statements of the Company for the period during which
Neenah and ACP were under common ownership have been restated.
56
<PAGE> 57
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
2. ACQUISITIONS (CONTINUED)
Pro forma unaudited consolidated operating results of the Company, assuming
Deeter, Mercer and Dalton had all been acquired as of October 1, 1997 and as of
May 1, 1997, are summarized below:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED FIVE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
----------------------------- ----------------------------
<S> <C> <C>
Net sales $507,458 $203,205
Income before extraordinary item 7,644 4,991
Net income 7,252 2,969
</TABLE>
These pro forma results have been prepared for informational purposes only and
include certain adjustments to depreciation expense related to acquired plant
and equipment, amortization expense arising from goodwill and identifiable
intangible assets, interest expense on acquisition debt, and the estimated
related income tax effects of all such adjustments. The pro forma results do not
purport to be indicative of the results of operations which would have resulted
had the business combinations occurred on October 1, 1997 and May 1, 1997, or of
the future results of operations of the consolidated entities.
3. INVENTORIES
Inventories consist of the following as of September 30:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
<S> <C> <C>
Raw materials $ 4,550 $ 2,148
Work in process and finished goods 28,141 15,544
Supplies 8,150 4,572
---------------- -----------------
$40,841 $22,264
================ =================
</TABLE>
If the FIFO method of inventory valuation had been used on all components,
inventories would have been approximately $499 higher than reported at September
30, 1998. At September 30, 1997, inventories valued at LIFO approximated their
FIFO cost.
57
<PAGE> 58
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
4. IDENTIFIABLE INTANGIBLE ASSETS
Identifiable intangible assets consist of the following as of September 30:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
Customer lists $30,341 $14,200
Trade names 19,853 11,700
Assembled work force 8,142 2,050
Facilities in place 3,764 --
Other 5,139 3,021
---------------------------------
67,239 30,971
Less accumulated amortization 6,153 2,491
----------------------------------
$61,086 $28,480
==================================
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following as of September 30:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
11 1/8% Series B Senior Subordinated Notes $150,000 $150,000
11 1/8% Series D Senior Subordinated Notes, including unamortized
premium of $2,259 in 1998 and $2,522 in 1997
47,259 47,522
Term Loan Facilities 145,000 --
Acquisition Loan Facility 29,000 --
12% senior subordinated notes due to shareholder -- 6,746
Bank term loan -- 11,000
Bank revolving credit note payable -- 1,919
Bank equipment loan -- 712
Capital lease obligations 612 514
----------------------------------
371,871 218,413
Less current portion 4,185 2,672
----------------------------------
$367,686 $215,741
==================================
</TABLE>
The Series B and Series D Senior Subordinated Notes (collectively, the Notes)
are unsecured and mature on May 1, 2007. Interest is payable semiannually on May
1 and November 1. The Notes are fully, unconditionally, jointly and severally
guaranteed by Transport, Hartley, Deeter, Mercer, Dalton and ACP (Guarantor
Subsidiaries). The Notes
58
<PAGE> 59
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
5. LONG-TERM DEBT (CONTINUED)
are subordinated to all existing and future senior indebtedness of the Company
but rank equally in right of payment with any future senior subordinated
indebtedness of the Company. The Notes contain covenants which restrict the
Company from incurring additional indebtedness and prohibit dividend payments,
stock redemptions and certain other transactions.
The Series D Senior Subordinated Notes were issued on July 1, 1997. The Company
used the proceeds to repay the term loans used to finance the acquisition of the
Company on April 30, 1997, accrued interest thereon and related fees and
expenses. In connection with the prepayment in full of the term loans during the
five months ended September 30, 1997, the Company recorded an extraordinary
charge to write off the unamortized balance of the related deferred financing
costs of $2,629.
The Company has a Credit Agreement with a bank which provides a) Term Loan
Facilities of $145 million, b) an Acquisition Loan Facility of $50 million and
c) a Revolving Credit Facility of $50 million.
The Term Loan Facilities consist of two tranches of term loans. The Tranche A
term loans total $20 million and mature on September 30, 2003. The Tranche B
term loans total $125 million and mature on September 30, 2005. Installments of
the Tranche A term loans are due in aggregate principal amounts of $750 per
quarter until September 30, 1999, $1,000 per quarter from December 31, 1999
through September 30, 2002 and $1,250 per quarter from December 31, 2002 through
September 30, 2003. Installments on $55 million of the Tranche B term loans are
due in aggregate principal amounts of $250 per quarter until September 30, 2003
and $6,250 per quarter from December 31, 2003 through September 30, 2005.
Installments on $70 million of the Tranche B term loans are due in aggregate
principal amounts of $8,750 per quarter commencing on December 31, 2003 and
continuing through September 30, 2005. Interest on the Tranche A and Tranche B
term loans is at LIBOR (5.5625% at September 30, 1998) plus 2.50% and 2.75%,
respectively.
Loans under the Acquisition Loan Facility may be paid and reborrowed at any time
through September 8, 2000. Outstanding borrowing under the Acquisition Loan
Facility on September 8, 2000 will be repaid quarterly beginning on such date
through June 30, 2004. Interest on borrowings under the Acquisition Loan
Facility is at LIBOR plus 2.50%.
59
<PAGE> 60
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
5. LONG-TERM DEBT (CONTINUED)
The 12% senior subordinated notes were converted into the equity of ACP by ACP
Holding Company, its sole shareholder, effective September 8, 1998. The Company
used the proceeds of the Tranche A term loan to repay the bank term loan,
revolving credit note payable and equipment loan. In connection with the
repayment in full of these bank obligations during the year ended September 30,
1998, the Company recorded an extraordinary charge to write off the unamortized
balance of the related deferred financing costs of $652.
Scheduled maturities of long-term debt during fiscal years subsequent to
September 30, 1998, are as follows:
<TABLE>
<S> <C> <C>
1999 $ 4,185
2000 6,893
2001 12,334
2002 12,280
2003 13,250
Thereafter 320,670
----------------------
$369,612
======================
</TABLE>
The Company is entitled to draw amounts under the Revolving Credit Facility for
general corporate purposes, including permitted acquisitions, as defined. The
Revolving Credit Facility includes a $15 million sub-limit for letters of credit
and matures on April 30, 2002.
Covenants contained in the Revolving Credit Facility restrict the payment of
dividends, capital expenditures and certain other transactions and require the
Company to maintain leverage, net worth and interest coverage ratios.
60
<PAGE> 61
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
6. COMMITMENTS AND CONTINGENCIES
The Company leases certain plants, warehouse space, machinery and equipment,
office equipment and vehicles under operating leases. Rent expense under these
operating leases for the year ended September 30, 1998 and for the five-month
period ended September 30, 1997 totaled $1,485 and $515, respectively. Minimum
rental payments due under these operating leases for fiscal years subsequent to
September 30, 1998 are as follows:
<TABLE>
<S> <C> <C>
1999 $1,483
2000 962
2001 690
2002 514
2003 297
----------------------
$3,946
======================
</TABLE>
The Company is involved in a number of product liability claims and
environmental matters, 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
and is based on current and historical claim information. The accrued liability
may ultimately be settled for an amount greater or lesser than the recorded
amount. Adjustments of the accrued liability are recorded in the period in which
they become known.
As of September 30, 1998, the Company had outstanding letters of credit of
$4,600, which secure certain workers compensation and other obligations. The
outstanding letters of credit reduce the availability under the Revolving Credit
Facility.
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
1998 1997
--------------------------------------
<S> <C> <C>
Current:
Federal $11,126 $ 5,835
State 2,233 1,236
--------------------------------------
13,359 7,071
Deferred (2,437) (3,071)
--------------------------------------
$10,922 $ 4,000
======================================
</TABLE>
61
<PAGE> 62
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
7. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount computed by applying the
federal statutory rate of 35% as of September 30, 1998 and 34% as of September
30, 1997 to income before income taxes and extraordinary item as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS FIVE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1998 1997
------------------------------------------------------
<S> <C> <C>
Provision at statutory rate $ 7,981 $2,844
State income taxes, net of federal tax benefit 1,148 480
Amortization of goodwill 1,389 550
Other 404 126
--------------------------- -------------------------
Provision for income taxes $10,922 $4,000
=========================== =========================
</TABLE>
Deferred income tax assets and liabilities consist of the following as of
September 30:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------
<S> <C> <C>
Deferred income tax liabilities:
Book basis of inventories in excess of tax basis $ (3,221) $ (3,265)
Book basis of property, plant and equipment in
excess of tax basis (46,447) (34,630)
Book basis of identifiable intangible
assets in excess of tax basis (24,476) (11,370)
Employee benefit plans (590) (720)
Other (572) (660)
------------------------ ------------------------
(75,306) (50,645)
Deferred income tax assets:
Employee benefit plans 6,919 2,805
Accrued vacation 1,989 1,117
Other accrued liabilities 2,667 1,299
Other 550 384
------------------------ ------------------------
12,125 5,605
------------------------ ------------------------
Net deferred income tax liability $(63,181) $(45,040)
======================== ========================
Included in the consolidated balance sheet as:
Current deferred income tax asset $ 4,888 $ 1,884
Noncurrent deferred income tax liability (68,069) (46,924)
------------------------ ------------------------
$(63,181) $(45,040)
======================== ========================
</TABLE>
62
<PAGE> 63
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
8. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS
The Company sponsors five defined benefit pension plans covering the majority of
its hourly employees. Retirement benefits under the pension plans are based on
years of service and defined benefit rates. The Company funds the pension plans
based on actuarially determined cost methods allowable under Internal Revenue
Service regulations.
The following table presents the funded status of the pension plans and the
amounts included in the consolidated balance sheet at September 30, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
----------------- --------------------------------
Underfunded Underfunded Overfunded
Plans Plan Plans
----------------- --------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations $ (34,772) $ (821) $(21,174)
================= ================================
Accumulated benefit obligations $ (36,759) $ (836) $(21,768)
================= ================================
Projected benefit obligations $ (36,759) $ (836) $(21,768)
Plan assets at fair value (consisting principally of
pooled investment funds and an investment contract
with an insurance company) 33,299 776 25,307
----------------- --------------------------------
Projected benefit obligations less than (in excess of)
plan assets (3,460) (60) 3,539
Unrecognized net (gain) loss 2,612 (3) (1,585)
Unrecognized prior service cost 313 -- 58
Recorded additional minimum liability (2,931) -- --
----------------- --------------------------------
Prepaid (accrued) pension obligations $ (3,466) $ (63) $ 2,012
================= ================================
Net pension asset (liability) included in:
Other assets $ 1,676 $ 1,949
Other liabilities (5,142) --
----------------- ----------------
$ (3,466) $ 1,949
================= ================
</TABLE>
63
<PAGE> 64
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
Because the accumulated benefit obligation exceeds the fair value of plan assets
at September 30, 1998, the Company has recorded the minimum liability. An
intangible asset of $313 at September 30, 1998 has been recognized related to
the minimum liability. Because the intangible asset may not exceed the amount of
the unrecognized prior service costs, the balance of $2,618, net of deferred
income tax benefit of $1,048, is reported as a reduction of stockholder's
equity.
Components of net periodic pension cost for the year ended September 30, 1998
and the five months ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------
<S> <C> <C>
Service cost - benefits earned during the period $ 749 $ 251
Interest cost on projected benefit obligations 1,716 688
Actual return on plan assets (1,403) (802)
Net amortization and deferral (591) 49
------------------ --------------------
$ 471 $ 186
================== ====================
</TABLE>
The discount rates used in estimating the projected benefit obligations and in
determining the interest cost component of pension expense for the following
year ranged from 6.75% to 7.25% in 1998 (7.25% to 7.5% in 1997). The assumed
long-term rate of return on plan assets used in determining pension expense
ranged from 7.5% to 9.5% in 1998 (7.5% to 9.5% in 1997).
DEFINED CONTRIBUTION RETIREMENT PLANS
The Company sponsors various defined contribution retirement plans (the Plans)
covering substantially all salaried and certain hourly employees. The Plans
allow participants to make 401(k) contributions in amounts ranging from 1% to
15% of their compensation. The Company matches between 35% and 50% of the
participants' contributions, as defined. The Company may make additional
voluntary contributions to the Plans as determined annually by the Board of
Directors. Total Company contributions amounted to $994 and $423 for the year
ended September 30, 1998 and for the five months ended September 30, 1997,
respectively.
64
<PAGE> 65
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
POSTRETIREMENT BENEFITS
The Company sponsors unfunded defined benefit postretirement health care plans
covering substantially all salaried and hourly employees at Neenah and Hartley
and their dependents. For Hartley and salaried employees at Neenah, benefits are
provided from the date of retirement for the duration of the employee's life
while benefits for hourly employees at Neenah are provided from retirement to
age 65. 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 sheet at September 30,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $2,614 $2,191
Fully eligible active participants 45 801
Other active participants 3,455 1,902
------------------------------
6,114 4,894
Unrecognized net gain (894) --
==============================
Accrued postretirement benefit obligations $5,220 $4,894
==============================
</TABLE>
Components of net periodic postretirement benefit costs for the year ended
September 30, 1998 and the five months ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
Service cost $152 $ 58
Interest cost on accumulated postretirement benefit obligations
366 148
------------------------------
$518 $206
==============================
</TABLE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligations was 7.0% in 1998 and 7.5% in 1997, and the
healthcare cost trend rate was assumed to be 8.5% decreasing gradually to 4.5%
in 2010 and then remain at that
65
<PAGE> 66
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
level thereafter. 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 September 30, 1998 by $1,051 and would increase postretirement
benefit expense for the year ended September 30, 1998 by $112.
OTHER EMPLOYEE BENEFITS
The Company provides unfunded supplemental retirement benefits to certain active
and retired employees at Dalton. At September 30, 1998, the present value of the
current and long-term portion of these supplemental retirement obligations
totaled $45 and $2,975, respectively.
Certain of Dalton's hourly employees are covered by a multi-employer defined
benefit pension plan pursuant to a collective bargaining agreement. The
Company's expense was $53 from September 8, 1998, the date of acquisition,
through September 30, 1998.
The Company sponsors a noncontributory, multi-employer defined benefit pension
plan for substantially all of the union employees at Mercer pursuant to a
collective bargaining agreement. The Company's expense was $107 from April 3,
1998, the date of acquisition, through September 30, 1998.
9. GUARANTOR SUBSIDIARIES
All of the wholly owned subsidiaries of Neenah (Transport, Hartley, Deeter,
Mercer, Dalton and ACP collectively, Guarantor Subsidiaries) fully,
unconditionally, jointly and severally guarantee the Notes. The following is
summarized combined financial information of the Guarantor Subsidiaries. Net
sales include net sales to Neenah of $4,613 for the year ended September 30,
1998 and $2,048 for the five months ended September 30, 1997. Separate financial
statements of the Guarantor Subsidiaries are not separately presented because,
in the opinion of management, such financial statements are not material to
investors.
<TABLE>
<CAPTION>
SEPTEMBER 30
1998 1997
----------------------------------------------
<S> <C> <C>
Current assets $ 77,594 $12,188
Noncurrent assets 191,793 22,256
Current liabilities 34,708 10,507
Noncurrent liabilities 32,405 21,006
</TABLE>
66
<PAGE> 67
9. GUARANTOR SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, FIVE MONTHS ENDED
1998 SEPTEMBER 30, 1997
------------------------------------------------------
<S> <C> <C>
Net sales $118,449 $25,492
Gross profit 21,766 5,512
Net income 3,355 897
</TABLE>
10. SUBSEQUENT EVENT
On November 24, 1998, the Company sold $87,000 of 11 1/8% Series E Senior
Subordinated Notes due 2007. The proceeds of $90,045 were used to pay down the
Acquisition Loan Facility and for general corporate purposes.
67
<PAGE> 68
CONSOLIDATED FINANCIAL STATEMENTS
NEENAH FOUNDRY COMPANY
(PREDECESSOR)
Years ended
March 31, 1996 and 1997 and
one month ended April 30, 1997
68
<PAGE> 69
Neenah Foundry Company (Predecessor)
Consolidated Financial Statements
Years ended March 31, 1996 and 1997
and one month ended April 30, 1997
CONTENTS
Report of Independent Auditors..................................................
Consolidated Balance Sheets.....................................................
Consolidated Statements of Income...............................................
Consolidated Statements of Changes in Stockholders' Equity......................
Consolidated Statements of Cash Flows...........................................
Notes to Consolidated Financial Statements......................................
69
<PAGE> 70
Report of 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 the years then ended, and for the one month ended April 30, 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 the years then ended, and for the one month
ended April 30, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
June 4, 1997, except for Notes 1 and 10
as to which the date is July 1, 1997
70
<PAGE> 71
Neenah Foundry Company (Predecessor)
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
============================
</TABLE>
71
<PAGE> 72
<TABLE>
<CAPTION>
MARCH 31
1996 1997
---------------------------------
<S> <C> <C>
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.
72
<PAGE> 73
Neenah Foundry Company (Predecessor)
Consolidated Statements of Income
(In Thousands)
<TABLE>
<CAPTION>
ONE MONTH
ENDED
YEAR ENDED MARCH 31 APRIL 30
1996 1997 1997
---------------------------------------------
<S> <C> <C> <C>
Net sales $166,951 $165,426 $17,276
Cost of sales 121,631 116,736 11,351
---------------------------------------------
Gross profit 45,320 48,690 5,925
Selling, general and administrative expenses 16,983 17,547 1,752
---------------------------------------------
Operating income 28,337 31,143 4,173
Net interest income (expense) 481 1,162 121
---------------------------------------------
Income before income taxes 28,818 32,305 4,294
Provision for income taxes 11,676 12,467 1,615
=============================================
Net income $ 17,142 $ 19,838 $ 2,679
=============================================
</TABLE>
See accompanying notes.
73
<PAGE> 74
Neenah Foundry Company (Predecessor)
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 Retained from Owners
-------------------------------------------------------- to Finance
Shares Amount Shares Amount Shares Amount Earnings Stock Purchase Total
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 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
Collection of notes
receivable from owners - - - - - - - 2,922 2,922
Net income - - - - - - 2,679 - 2,679
------------------------------------------------------------------------------------------------
Balance at April 30, 1997 - $ - 620 $62 3,820 $382 $74,014 $ - $74,458
================================================================================================
</TABLE>
See accompanying notes.
74
<PAGE> 75
Neenah Foundry Company (Predecessor)
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
ONE MONTH
ENDED
YEAR ENDED MARCH 31 APRIL 30
1996 1997 1997
------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 17,142 $19,838 $ 2,679
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 6,776 6,881 518
Deferred income taxes 1,863 (103) (120)
Other 48 (103) -
Changes in operating assets and liabilities:
Accounts receivable 439 (592) (3,764)
Inventories (603) (632) 495
Other current assets 27 (401) 401
Accounts payable (2,653) 373 1,308
Income taxes payable (585) 56 1,734
Accrued liabilities (1,261) 144 (185)
Pension obligations 859 (2,349) 822
Postretirement benefit obligations 221 367 29
------------------------------------------
Net cash provided by (used in) operating activities 22,273 23,479 3,917
INVESTING ACTIVITIES
Purchase of property, plant and equipment (7,275) (4,546) (190)
Proceeds from life insurance policy - 1,439 -
Other (24) 3 (1)
------------------------------------------
Net cash used in investing activities (7,299) (3,104) (191)
FINANCING ACTIVITIES
Dividends paid (4,440) (7,991) -
Redemption of stock - - -
Proceeds from long-term debt 16,370 - -
Payments on long-term debt (17,016) (107) (5)
Collection of notes receivable from owners - - 2,922
------------------------------------------
Net cash provided by (used in) financing activities (5,086) (8,098) 2,917
------------------------------------------
Increase in cash and cash equivalents 9,888 12,277 6,643
Cash and cash equivalents at beginning of period 238 10,126 22,403
------------------------------------------
Cash and cash equivalents at end of period $ 10,126 $22,403 $29,046
==========================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 84 $ 39 $ 1
Income taxes 10,398 12,515 -
</TABLE>
See accompanying notes.
75
<PAGE> 76
Neenah Foundry Company (Predecessor)
Notes to Consolidated Financial Statements
Years ended March 31, 1996 and 1997
and one month ended April 30, 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 for sale to industrial and municipal customers throughout the United
States and several foreign countries. 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. 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 17% and 9% of net sales in fiscal 1996, 16%
and 10% of net sales in fiscal 1997 and 29% and 24% of net sales for the one
month ended April 30, 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.
76
<PAGE> 77
Neenah Foundry Company (Predecessor)
Notes to Consolidated Financial Statements (continued)
(In Thousands)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $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 the years ended March 31, 1996 and 1997 or
the one month ended April 30, 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.
77
<PAGE> 78
Neenah Foundry Company (Predecessor)
Notes to Consolidated Financial Statements (continued)
(In Thousands)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $527, $524 and $55
for the years ended March 31, 1996 and 1997 and one month ended April 30, 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>
78
<PAGE> 79
Neenah Foundry Company (Predecessor)
Notes to Consolidated Financial Statements (continued)
(In Thousands)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (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, SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," on January 1, 1997, and
Statement of Position 96-1, "Environmental Remediation Liabilities," on April 1,
1997. The adoption of these statements 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.
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>
79
<PAGE> 80
Neenah Foundry Company (Predecessor)
Notes to Consolidated Financial Statements (continued)
(In Thousands)
3. LONG-TERM DEBT (CONTINUED)
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.
4. NOTES RECEIVABLE FROM OWNERS
The notes receivable from owners of $2,922 were repaid by the owners prior to
the consummation of the plan of reorganization described in Note 10. The
proceeds of the notes receivable were used to purchase 1,461 shares of Company
Class B common stock from other shareholders, and were secured by such common
stock.
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, 1996 and 1997 and one month ended April 30, 1997
amounted to $996, $1,088 and $85, 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>
80
<PAGE> 81
Neenah Foundry Company (Predecessor)
Notes to Consolidated Financial Statements (continued)
(In Thousands)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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>
ONE MONTH
ENDED
YEAR ENDED MARCH 31 APRIL 30
1996 1997 1997
-------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 9,147 $11,554 $1,460
State 666 1,016 275
-------------------------------------------
9,813 12,570 1,735
Deferred 1,863 (103) (120)
===========================================
$11,676 $12,467 $1,615
===========================================
</TABLE>
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>
ONE MONTH
ENDED
YEAR ENDED MARCH 31 APRIL 30
1996 1997 1997
------------------------------------------
<S> <C> <C> <C>
Provision at statutory rate $10,086 $11,307 $1,503
State income taxes, net of federal
tax benefit 1,126 1,318 112
Other 464 (158) -
==========================================
Provision for income taxes $11,676 $12,467 $1,615
==========================================
</TABLE>
81
<PAGE> 82
Neenah Foundry Company (Predecessor)
Notes to Consolidated Financial Statements (continued)
(In Thousands)
6. INCOME TAXES (CONTINUED)
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
82
<PAGE> 83
Neenah Foundry Company (Predecessor)
Notes to Consolidated Financial Statements (continued)
(In Thousands)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
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.
The following table reconciles the funded status of the pension 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>
83
<PAGE> 84
Neenah Foundry Company (Predecessor)
Notes to Consolidated Financial Statements (continued)
(In Thousands)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
Components of net periodic pension cost are as follows:
<TABLE>
<CAPTION>
ONE MONTH
ENDED
YEAR ENDED MARCH 31 APRIL 30
1996 1997 1997
----------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 880 $ 820 $ 38
Interest cost on projected benefit obligations 1,545 1,742 125
Actual return on plan assets (1,450) (1,531) (132)
Net amortization and deferral 203 220 (1)
==============================================
$ 1,178 $ 1,251 $ 30
==============================================
</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 cost component of pension expense for the following
year was 7.5% for both years. The annual rate of compensation increase assumed
for the SERP in estimating the projected benefit obligations was 6.5% for both
years. The assumed long-term rate of return on plan assets used in determining
pension expense was 7.5% for both years.
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 $891, $915 and $82
for the years ended March 31, 1996 and 1997 and one month ended April 30, 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.
84
<PAGE> 85
Neenah Foundry Company (Predecessor)
Notes to Consolidated Financial Statements (continued)
(In Thousands)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
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>
ONE MONTH
ENDED
YEAR ENDED MARCH 31 APRIL 30
1996 1997 1997
---------------------------------------------
<S> <C> <C> <C>
Service cost $176 $193 $11
Interest cost on accumulated postretirement benefit
obligations 361 370 27
Net amortization and deferral (4) (5) (7)
---------------------------------------------
$533 $558 $31
=============================================
</TABLE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligations was 7.5% for both 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.
85
<PAGE> 86
Neenah Foundry Company (Predecessor)
Notes to Consolidated Financial Statements (continued)
(In Thousands)
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
<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 EVENT
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, (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 $45,000 of unsecured
Senior Subordinated Notes in a Rule 144A private placement and used the proceeds
to repay the term loans.
86
<PAGE> 87
Neenah Foundry Company (Predecessor)
Notes to Consolidated Financial Statements (continued)
(In Thousands)
10. SUBSEQUENT EVENT (CONTINUED)
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 $4,090, $4,012 and $365 for the
years ended March 31, 1996 and 1997 and one month ended April 30, 1997,
respectively. Separate financial statements of the guarantor subsidiaries are
not separately 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
<CAPTION>
ONE MONTH
ENDED
YEAR ENDED MARCH 31 APRIL 30
1996 1997 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Net sales $9,795 $9,971 $703
Gross profit 3,165 3,247 169
Net income (loss) 651 513 (15)
</TABLE>
87
<PAGE> 88
Report of Ernst & Young LLP, Independent Auditors
We have audited the consolidated financial statements of Neenah Foundry Company
as of September 30, 1998 and 1997, and for the twelve months ended September 30,
1998 and for the period from inception, May 1, 1997 through September 30, 1997,
and have issued our report thereon dated November 6, 1998, except for Note 10,
as to which the date is November 24, 1998 (included elsewhere in this Annual
Report on Form 10-K). Our audit also included the financial statement schedule
listed in the index at Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Milwaukee, Wisconsin ERNST & YOUNG LLP
November 6, 1998
88
<PAGE> 89
Schedule II
NEENAH FOUNDRY COMPANY
VALUATION AND QUALIFYING ACCOUNTS
Twelve months ended September 30, 1998 and
period from inception, May 1, 1997, through September 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
BALANCE AT PURCHASE ADDITIONS
BEGINNING ACCOUNTING CHARGED TO BALANCE AT
DESCRIPTION OF PERIOD ADJUSTMENTS EXPENSE DEDUCTIONS END OF PERIOD
- ----------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts receivable:
<S> <C> <C> <C> <C> <C>
1997 $ 483 $ - $ 44 $ 36 (A) $ 491
======= ======= ====== ======= ======
1998 $ 491 $ 325 $ 180 $ 143 (A) $ 853
======= ======= ===== ======= ======
</TABLE>
(A) Uncollectible accounts written off, net of recoveries.
89
<PAGE> 90
Report of Ernst & Young LLP, Independent Auditors
We have audited the consolidated financial statements of Neenah Foundry Company
(formerly Neenah Corporation) as of March 31, 1997 and 1996, and for the years
then ended, and have issued our report thereon dated June 4, 1997, except for
Notes 1 and 10 as to which the date is July 1, 1997 (included elsewhere in this
Annual Report on form 10-k). Our audits also included the financial statement
schedule listed in the index at Item 14(a). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Milwaukee, Wisconsin ERNST & YOUNG LLP
June 4, 1997
90
<PAGE> 91
Schedule II
NEENAH FOUNDRY COMPANY (PREDECESSOR)
VALUATION AND QUALIFYING ACCOUNTS
Years ended March 31, 1996 and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
DESCRIPTION OF YEAR EXPENSE DEDUCTIONS END OF YEAR
- ----------------------------------------------------------------------------------------------------------
Allowance for doubtful
Accounts receivable:
<S> <C> <C> <C> <C>
1996 $ 386 $ 233 $ 233 (A) $ 386
===== ======= ======= ======
1997 $ 386 $ 175 $ 175 (A) $ 386
===== ======= ======= ======
</TABLE>
(A) Uncollectible accounts written off, net of recoveries.
91
<PAGE> 1
Exhibit 10.6
NEENAH FOUNDRY COMPANY
1998-2000
COLLECTIVE BARGAINING AGREEMENT
with
THE INDEPENDENT PATTERNMAKERS UNION OF NEENAH WISCONSIN
<PAGE> 2
TABLE OF CONTENTS
- -----------------
ARTICLE 1 - RECOGNITION
1.1 Union Recognition......................................... 1
1.2 Non-Discrimination........................................ 1
1.3 Union Membership.......................................... 1
1.4 Check-Off................................................. 1
1.5 Probationary Period....................................... 1
ARTICLE 2 - HOURS OF WORK
2.1 Basis of Overtime......................................... 1
2.2 Overtime.................................................. 1
2.3 Saturday Work............................................. 2
2.4 Sunday Work............................................... 2
2.5 Sixth Day of Work......................................... 2
2.6 Lunch Time................................................ 2
2.7 Early Starting............................................ 2
2.8 Federal Law............................................... 2
2.9 Reporting Pay............................................. 2
2.10 Call-In Pay............................................... 2
2.11 Overtime Notification..................................... 2
ARTICLE 3 - VACATIONS
3.1 Eligibility............................................... 3
3.2 Anniversary............................................... 3
3.3 Basis Period.............................................. 3
3.4 Vacation Pay Computation.................................. 3
3.5 Scheduling................................................ 3
3.6 Vacation Preference....................................... 3
3.7 Seniority Basis of Vacation Preference.................... 4
3.8 Less Than One Year's Service.............................. 4
3.9 Lay-Off, Military Leave, Retirement, Death................ 4
3.10 Return from Military Leave or Lay-off..................... 4
3.11 Cash In................................................... 4
ARTICLE 4 - SENIORITY
4.1 Super-Seniority of Union President........................ 4
4.2 Super-Seniority of Pre-January 1, 1977 Employees.......... 4
4.3 Seniority of Employees Hired After January 1, 1977........ 4
4.4 Reduction in Force........................................ 4
4.5 Student Workers........................................... 5
4.6 Recall to Work............................................ 5
4.7 Student Workers Layoff Notification....................... 5
4.8 Loss of Seniority......................................... 5
ARTICLE 5 - GRIEVANCES
5.1 Discussion with Supervisor................................ 5
5.2 Grievance Procedure....................................... 5
5.3 Union and Company Committee............................... 6
5.4 Time Limits............................................... 6
5.5 Agreements Binding........................................ 6
5.6 Selection of Arbitrator................................... 6
5.7 Arbitrator's Authority.................................... 6
5.8 Decisions of Arbitrator................................... 6
<PAGE> 3
5.9 Arbitrator's Fees......................................... 7
5.10 Payment of Union Officials................................ 7
ARTICLE 6 - DISCHARGE AND DISCIPLINE
6.1 Procedures................................................ 7
6.2 Three-Day Absenteeism..................................... 7
6.3 Absence of Less Than Three Days........................... 7
6.4 Time Limits, Discharge Grievances......................... 7
6.5 Expiration of Written Warnings............................ 7
ARTICLE 7 - WAGES
7.1 Minimum Rates............................................. 7
7.2 Pay Days.................................................. 8
7.3 Shift Premium............................................. 8
7.4 Paid Holidays............................................. 8
7.5 Holiday Pay Qualifications................................ 8
ARTICLE 8 - PROMOTIONS AND TRANSFERS
8.1 Transfers Out of Bargaining Unit.......................... 8
8.2 Apprenticeships........................................... 9
8.3 Apprentice Rate Schedule.................................. 9
8.4 Apprentice Starting Pay Rate.............................. 9
8.5 Selection................................................. 9
8.6 Pattern Maintenance Employee Ratio........................ 9
8.7 Pattern Maintenance Pay Rate.............................. 9
ARTICLE 9 - LEAVES OF ABSENCE
9.1 Personal Leave............................................ 9
9.2 Union Service Leave....................................... 10
ARTICLE 10 - MANAGEMENT
10.1 Management Rights Clause.................................. 10
ARTICLE 11 - NO STRIKE - NO LOCKOUT
11.1 No Strike - No Lockout Clause............................. 10
11.2 Expiration of Contract Provision.......................... 10
ARTICLE 12 - FUNERAL LEAVE
12.1 Immediate Family.......................................... 10
12.2 Spouse, Child or Step-Child............................... 10
12.3 Other Relatives........................................... 10
12.4 Qualifications for Funeral Leave.......................... 10
12.5 Funeral Leave Pay Computation............................. 11
ARTICLE 13 - GENERAL
13.1 Bulletin Boards........................................... 11
13.2 Union Representative Access............................... 11
13.3 Sick Pay.................................................. 11
13.4 Safety.................................................... 11
13.5 Seniority List............................................ 11
13.6 Union Shop Committee...................................... 11
13.7 Company Bargaining Committee.............................. 11
13.8 Pass Along Benefits....................................... 11
13.9 Jury Duty Pay............................................. 12
13.10 Furnished Meals........................................... 12
13.11 Legislative Compliance.................................... 12
13.12 Tool Allowance............................................ 12
<PAGE> 4
13.13 Safety Shoe Reimbursement................................. 12
13.14 Prescription Safety Glasses Reimbursement................. 12
ARTICLE 14 - PENSION
14.1 Pension Program........................................... 12
14.2 Basic Coverage............................................ 12
14.3 Monthly Pension Benefit Schedule.......................... 12
14.4 Surviving Spouse Benefit.................................. 12
14.5 Disability Benefit........................................ 12
14.6 MandatoryRetirement....................................... 12
14.7 401-K Savings Plan........................................ 13
ARTICLE 15 - INSURANCE
15.1 Health and Welfare Plan Agreements........................ 13
15.2 Premium Sharing........................................... 13
15.3 Work Connected Death - Continuance of Coverage............ 13
15.4 Insurance Continuation - Layoff........................... 13
ARTICLE 16 - TERMINATION CLAUSE
16.1 Termination of Contract Clause............................ 13
Signature Page............................................................ 13
Exhibit "A" - Wage Rates.................................................. 14
Exhibit "B" - Dues Check-Off Authorization................................ 15
Exhibit "C" - Drug & Alcohol Policy ...................................... 16
Memo of Understanding - Vacations......................................... 19
Policy Letter............................................................. 20
A. Subcontracting
B. Medical Leave
Addendum to Agreement..................................................... 21
Wage Rate-Protected Employees
Duties of Pattern Maintenance............................................. 22
Neenah Foundry Company - Basic Rules...................................... 23
Memo of Understanding - Layout Machine.................................... 24
<PAGE> 5
This AGREEMENT made and entered into between the NEENAH FOUNDRY
COMPANY, Neenah, Wisconsin, and its successors, party of the first part, and
Independent Pattern Makers Union of Neenah, Wisconsin and its successors, party
of the second part.
ARTICLE 1 - RECOGNITION
-----------------------
1.1 The Company recognizes the Independent Pattern Makers Union of Neenah,
Wisconsin as the sole bargaining agency for all pattern makers, pattern maker
apprentices, and pattern maintenance employees of the Company's pattern shops
located in Neenah, Wisconsin, relative to wages, hours, and working conditions
as provided by the National Labor Relations Act. The above employees shall be
considered as a single bargaining unit for purposes of this agreement.
1.2 The Company and the Union will comply with all applicable Federal and State
Statutes concerning discrimination in employment. Wherever the words he, him,
his or other such male gender references appear in this Agreement, such
references shall include and will apply equally to the female gender.
1.3 All employees who as of the effective date of this Agreement are members of
the Union in accordance with its constitution and by-laws and all employees who
become members after that date, shall, as a condition of employment, maintain
their membership in the Union for the duration of this contract.
A. All employees hired on or after the effective date of this Agreement shall
join and become members of the Union no later than their 31st day of employment
or no later than 31 days after the execution of this Agreement, whichever is
later, and shall, as a condition of employment, maintain their membership in the
Union for the duration of this contract.
1.4 The Company agrees to check off the Union dues of such employees who
authorize the same, in writing, in the manner and form set forth in Exhibit "B"
which is attached hereto and made a part hereof. The Company will remit such
dues so collected to the person or persons designated by the Union by the 12th
day of each month, for all dues collected the first payday of each month. The
written authorization for check-off of dues by any employee will not be
effective for any dues or fees owing by such employee prior to the date of the
signed authorization executed by him and delivered to the Company and will be
effective the first payday of the month following the delivery of such signed
authorization to the Company. The Company also agrees to check off fees or
special assessments similarly upon proper presentation of individual signed
authorization forms directing the Company to withhold from wages and pay to the
Independent Pattern Makers Union of Neenah, Wisconsin.
1.5 All new employees shall serve a probationary period of thirty (30) days
worked. Probationary employees shall have no seniority rights and may be
released at any time prior to the expiration of the probationary period. If they
are retained at the expiration of the probationary period, their seniority shall
be from the date of hire.
ARTICLE 2- HOURS OF WORK
------------------------
2.1 Eight (8) hours shall constitute a day's work and there shall be a
recognized starting and quitting time which shall determine the overtime, if
any.
2.2 Except as hereinafter provided, all time in excess of eight (8) hours in any
one day or forty (40) hours in any one week, shall be paid for at the rate of
one and one-half times the regular hourly earnings computed on the basis of the
average straight time weekly earnings excluding overtime premium of any kind and
pay received for hours not worked. Such overtime shall be paid for time in
excess of eight (8) hours in any one day or forty (40) hours in any one week,
whichever is greater, but not for both, so that payment of overtime rates shall
not be duplicated for the same hours worked.
1
<PAGE> 6
2.3 Saturday Work - is to be paid at the rate of one and one-half times the
regular rate. However, if the third shift begins on Friday and extends into
Saturday, the regular rate shall be paid.
2.4 Sunday Work - is to be paid at the rate of double time. However, if the
third shift begins on Sunday and extends into Monday, the regular rate shall be
paid.
2.5 Sixth Day of Work - Third shift employees who start their work week on
Sunday and are scheduled to work on a sixth consecutive work day, will be paid
at the rate of one and one half times the regular rate for all hours worked on
the sixth consecutive shift.
2.6 All employees who are scheduled to work 8 or 9 hour shifts, will be allowed
a paid ten (10) minute lunch period at an established time during the first half
of each shift. An additional paid ten (10) minute break will be allowed on an
eight (8) hour schedule during the balance of the shift. When employees are
scheduled to work nine (9) hours, they will be allowed a paid fifteen (15)
minute break during the balance of the shift.
A. All employees who are scheduled to work 10 hour shifts, will be
allowed a paid fifteen (15) minute break at an established time during the first
half of each shift. An additional paid fifteen (15) minute break will be allowed
during the balance of the shift.
2.7 Any employee who is required to start work before his scheduled starting
time shall be permitted to work until his scheduled quitting time, until he is
assigned a new work schedule.
2.8 It is mutually agreed that the working hours and overtime schedule provided
for in this Agreement shall be governed by all applicable Federal Laws.
2.9 Reporting Pay - When employees are required to report to work or have not
been advised at the end of the previous day that there will be no work, they
shall be given a minimum of four (4) hours employment or a minimum of four (4)
hours pay at their regular straight time hourly earnings, before being dismissed
for the day, provided however, that the Company shall not be liable under this
section for unavoidable breakdowns of machinery, power failure, acts of God or
conditions beyond the control of the Management.
2.10 Call-In Pay - Employees called in for work before the regular shift begins
or after it ends on an emergency basis shall receive two (2) hours straight time
pay plus pay at the appropriate rate for time worked.
2.11 Overtime Notification - Notice of scheduled Saturday or Sunday overtime
will given to the employee(s) affected by no later than the end of his (their)
scheduled shift on Thursday preceding the weekend.
A. When the scheduled of a shop is to be changed, the Company shall
notify the shop employee(s) affected prior to the end of his (their) shift on
the preceding day.
B. Employees may be notified by bulletin board notice and/or personal
communication. Employees so scheduled to work will be expected to work as
scheduled unless excused in advance by their supervisor. Should the Company fail
to provide such advance notice of weekend or shop schedule changes, the employee
or employees affected are free to reject the opportunity to work at the time it
is offered.
C. It is understood that the preceding paragraphs are not applicable to
casual or emergency overtime on a daily basis.
ARTICLE 3 - VACATIONS
---------------------
2
<PAGE> 7
3.1 The Company will grant paid vacations to employees covered by this contract
during each year as follows:
A. Except as hereinafter provided, each employee on the active payroll
on June 1 in any year who has completed one (1) year or more of continuous
service shall be granted a paid vacation.
1. Employees with one year but less than three years of
service on June 1 will be entitled to one week of
vacation.
2. Employees with three years but less than eight years of
service on June 1 will be entitled to two weeks of
vacation.
3. Employees with eight years but less than fourteen years
of service on June 1 will be entitled to three weeks of
vacation.
4. Employees with fourteen years but less than twenty years
of service on June 1 will be entitled to four weeks of
vacation.
5. Employees with twenty years but less than twenty-eight
years of service on June 1 will be entitled to five
weeks of vacation.
6. Employees with twenty-eight years or more of service on
June 1 will be entitled to six weeks of vacation.
3.2 June 1 shall be the anniversary date for all employees for the purpose of
determining vacation eligibility. Employees hired on or after June 1 and before
November 1 shall have June 1 as an anniversary date for purposes of becoming
eligible for more than one week of vacation.
3.3 The vacation pay basis period shall be the last fifty-two (52) week period
ending before May 25.
3.4 Each week of vacation shall be one calendar week. Each week of vacation pay
shall be two percent (2%) of the employee's gross earnings in the basis period.
However, employees who have worked 1500 hours or more during the basis period
shall have the option of receiving forty (40) hours of straight time pay for
each week of vacation. Time lost as a result of compensable injury incurred
while on duty at Neenah Foundry Company shall be counted as hours worked, at the
rate of eight (8) hours per work day, for purposes of determining vacation pay
eligibility.
3.5 The vacation year shall be June 1 through May 31. The Company reserves the
right to establish vacation shutdown period(s) of up to two weeks in any
vacation year for any or all of its operations. The Company shall notify the
Union of its selection(s) prior to April 1 of each year. All employees affected
must schedule vacation during the shutdown period(s).
A. It is understood that if the plant closes, a certain amount of
maintenance and/or production work may be carried on during the shutdown. The
Company will arrange with employees who are to work during the shutdown period.
B. If a vacation shutdown(s) is/are not scheduled, then all employees
eligible for vacation must schedule at least one week of vacation in a weekly
increment. Any vacation remaining may be scheduled in either weekly increments
(one week of vacation eligibility is five work days) or in single or multiple
days. All vacation requests must be approved by the Manager, Pattern Operations.
C. Should a paid holiday occur during the period an employee is on
vacation, he may take an additional day of vacation either prior to or
immediately after the vacation period, or at some other time mutually agreeable
to the supervisor and the employee, prior to the end of the vacation year.
3.6 Vacation requests shall be considered on the basis of Company seniority,
providing normal operations of the Company are not impaired. There will be a
vacation sign-up period each year April 1
3
<PAGE> 8
through April 15 for the vacation year commencing the next June 1. Vacation
requests received during this sign-up period, after approval, are not subject to
change through exercise of seniority by other employees. Vacation requests made
after the sign-up period shall be submitted to the Company in writing at least
30 days prior to the requested vacation period. To insure normal operations, the
Company shall have the right to limit the number of employees taking vacation
simultaneously. It is understood that the Company may extend the vacation
sign-up period by up to one additional week, following April 15, if it is deemed
necessary to finalize vacation scheduling.
3.7 For purposes of vacations, seniority of employees shall be on the basis of
total length of employment with the Company since the date of last hire.
3.8 Employees with less than one year's service:
Any employee who has been continuously employed for three months or
more and who is on the active payroll on June 1 shall be granted vacation pay,
which shall be two percent (2%) of his gross earnings as vacation pay for such
period, as computed above.
3.9 Layoff, Military Leave, Retirement, Death:
In the event an employee who was eligible for vacation pay on June 1 is
laid off, enters military service, retires, or dies during the vacation year, he
shall receive his unused vacation plus pro-rata vacation pay in the amount of
two percent (2%) of his gross earnings up to and including the date of
termination, for each week of vacation for which he would otherwise have
qualified.
3.10 Employees returning from military leave or layoff:
Any employee who returns from Military Leave or layoff and who is on
the active payroll June 1 shall be entitled to a vacation computed the same as
any other employee on the active payroll June 1.
3.11 Cash In:
Employees are not allowed to cash in vacation without approval of the
Company and three members of the Union Negotiating Committee.
ARTICLE 4 - SENIORITY
---------------------
4.1 The President will have super-seniority over all employees for layoffs only.
4.2 Pattern makers and apprentices employed as of January 1, 1977, shall have
super-seniority for the duration of their employment for purposes of layoff over
pattern makers, apprentices and pattern maintenance employees hired after
January 1, 1977.
4.3 For all employees hired after January 1, 1977, for purpose of layoff,
seniority of employment will be on the basis of length of employment in the
pattern shop and such employees shall be recalled in reverse order of layoff.
4.4 In the event a reduction in force requires layoffs among the super-senior
employees, then the following shall apply:
A. For purpose of layoffs and all other provisions of this contract,
except as provided in Article 3.7, seniority of employees will be on the basis
of length of employment in the pattern shop. In the event of scarcity of work
necessitating reduction in the size of the crew, the last man hired shall be the
first laid off, provided however, the Company may deviate from straight
seniority if by following the rule of
4
<PAGE> 9
straight seniority the efficient operation of the pattern shop would be
impaired. If the Company proposes to deviate, it will discuss all such
deviations with the Union Committee and if agreement is reached deviations will
be as agreed upon. If no agreement is reached, the Company will be at liberty to
make such deviations and in any event all employees affected by such deviations
shall have the right of grievance pursuant to the grievance procedure outlined
in the contract. In the event hours of work are reduced below 40 per week, the
Company will discuss this with the President and a member of the Union
Committee.
4.5 Student workers hired on a temporary or part-time basis will not accumulate
seniority until they are on a permanent full-time basis.
4.6 On recall to work the last man laid off will be the first man called to work
and the remainder of the employees will be recalled to work in the same order.
4.7 In the event of layoff or layoffs due to lack of work, the employees
affected and the Union shall be given written notice of at least two (2) days
prior to such layoffs.
4.8 Loss of Seniority - an employee shall lose his seniority for the following
reasons only:
A. If he shall quit.
B. If he shall have been discharged for just cause.
C. If a laid-off employee or employee on leave of absence shall fail
to report for work within five (5) working days after notice was
sent by the Company to his last known address, unless a
satisfactory reason for failure to report is given. A copy of such
notice to report is to be given to the Union Committee.
D. If an employee has been laid off for a period equal to his length
of service with the Company. However, the minimum shall be one (1)
year and the maximum three (3) years.
ARTICLE 5 - GRIEVANCES
----------------------
5.1 It is recognized from time to time, incidents may occur or events may take
place which question the interpretation of the provisions of this Agreement. It
is the intent of the parties to this Agreement to promptly investigate and
resolve differences of opinion or job-related problems. Accordingly, each
employee is encouraged to discuss with his supervisor any problem that may arise
in connection with his work. The Company will not discriminate against any
employee for thereafter referring the problem as a grievance through the
grievance procedure.
5.2 Should differences arise between the Company and its employees, either
individually or collectively, as to the meaning and application of this
Agreement, an earnest effort shall be made to settle any such differences at the
earliest possible time by use of the following grievance procedure:
Step 1 A. As soon as possible but not more than ten (10) working days of
the occurrence of the incident or condition giving rise to any
grievance, an aggrieved employee shall present his grievance to his
supervisor, accompanied by his Committeeman or Steward. If a
settlement is not reached within two (2) working days from the time
the grievance is presented, then;
B. It shall be reduced to writing within two (2) working days, signed
by the aggrieved employee or his representative, and presented to the
supervisor, who will provide a written answer within three (3)
working days of the receipt of the written grievance. Should this
procedure not result in settlement, then;
5
<PAGE> 10
Step 2 Within two (2) working days of receipt of the Supervisor's Step 1
written answer, the grievance shall be presented by a member of the
Bargaining Committee to the Manager of Pattern Operations or his
representative, who will schedule a grievance hearing to be held
within three (3) working days following receipt of the Step 2
grievance, and who will within three (3) working days of such
meeting, provide his written answer to the grievance. If such answer
does not result in settlement of the grievance, then;
Step 3 Within two (2) working days of the receipt of the Step 2 written
answer, the grievance shall be referred to the Union Bargaining
Committee and the Company Committee, who will meet on a date
satisfactory to both parties, within ten (10) working days following
receipt of the Step 3 grievance to resolve the issue. Either or both
parties may be represented at this meeting by outside representatives
of their own choosing. Within three (3) working days of such meeting,
the Company will provide a written answer to the grievance.
Within the times outlined above, the meetings will be scheduled on a date
satisfactory to both parties. In the event that this procedure does not result
in settlement of the grievance, then;
Step 4 Within forty (40) days from the date of the Step 3 answer, the
grievance may be referred by either party to arbitration by serving
written notice on the other. The serving of written notice also
includes notifying the Federal Mediation and Conciliation Service of
either parties intent to arbitrate the grievance. If either party
fails to refer an unresolved grievance to arbitration within the
forty (40) day period, the grievance shall be considered withdrawn
and not arbitrable.
5.3 The Union Bargaining Committee and the Company Committee shall consist of a
maximum of five (5) employees each, designated respectively by the Union and the
Company.
5.4 The time limits referred to above may be accelerated, or extended, or any
step of the procedure may be continued upon mutual agreement of the parties to
this Agreement. If the Union fails to comply with the time requirements in Steps
1b, 2, or 3, the grievance shall be automatically dropped. If the Company fails
to comply with the time requirements in Steps 1b, 2, or 3, the grievance is
automatically granted.
5.5 An agreement reached between the committees shall be final and binding on
the Company, the Union and the employees involved.
SELECTION OF ARBITRATOR
5.6 The Arbitrator for the purpose of this contract, shall be selected in the
following manner, to wit:
A. In the event a grievance has not been resolved under Step 3 of this
Article, either party may notify the Federal Mediation and Conciliation Service
of the dispute and request a panel of seven arbitrators. If the panel is not
acceptable to either party, then either party shall request a second panel,
prior to striking any names from the first panel. The parties will select one
arbitrator, by alternately striking from the panel a total of six arbitrators.
The Arbitrator chosen by this procedure will then arbitrated the grievance. More
than one grievance, may by mutual agreement, be submitted simultaneously to the
same Arbitrator.
5.7 The Arbitrator shall have no authority to change or modify the terms of this
Agreement, but he shall have authority to apply or interpret the meaning of the
terms of this Agreement, and resolve all grievances referred to him under the
terms of this Agreement.
5.8 Within a reasonable time after the hearing the Arbitrator shall tender to
the parties his disposition of the grievance(s) involved. Such disposition shall
be final and binding upon both parties.
6
<PAGE> 11
5.9 The Arbitrator's charge and expense in connection with any grievance
submitted to arbitration shall be borne equally by the Company and the Union.
5.10 The Company shall compensate Union officers and members of bargaining and
grievance committees and individual aggrieved employees, at the straight time
hourly rates at which they are then employed for all time actually spent with
representatives of the Company in collective bargaining negotiations and
grievance adjustments pursuant to this Agreement, when the officers,
committeemen and employees so engaged otherwise would be at work. Time spent in
negotiations and grievance adjustments handled outside of the normal working day
will not be paid for by the Company. Negotiations and grievance adjustment
meetings will be scheduled by the Company and may be held during regular working
hours.
ARTICLE 6 - DISCHARGE AND DISCIPLINE
------------------------------------
6.1 The Company agrees not to discharge or suspend any of its employees except
for just cause. In the event of discharge or suspension, the Company agrees to
give the Union Committee written notice of such discharge or discipline, stating
the reason therefor. Such notice shall be delivered to the Union within 24 hours
of the occurrence of such event. Any employee who is discharged or suspended
under the provisions of this contract shall have the right to grievance as
provided herein.
6.2 Absence without notice for three or more consecutive working days shall be
considered grounds for summary discharge or suspension.
6.3 More than three (3) warning notices on unreported or unauthorized
absenteeism less than indicated above within any consecutive twelve (12) month
period shall be considered just cause for discharge or suspension. If the
warning notice is issued, one copy shall be delivered to the employee, and one
to the Union within twenty-four (24) hours of the time such warning notice is
issued.
6.4 It is further agreed that in all cases of discharge or suspension, if the
employee (or employees) affected desires to file a grievance, he must file a
written grievance immediately or at least within ten (10) days of such discharge
or discipline. In the event it is decided that an employee was unjustly
discharged or suspended, he shall be reinstated to his former position without
loss of seniority and reimbursed for all time lost while under discharge or
suspension, unless some other agreement is reached between the Company and the
Union.
6.5 Warning notices shall expire twelve (12) months from the date of issue.
Written warning notices more than twelve (12) months old shall not be used
against the employee in future progressive discipline.
ARTICLE 7 - WAGES
-----------------
7.1 The Company and the Union hereby agree that the minimum wage rates as agreed
will be effective during the term of this Agreement.
Cost of Living Allowance
------------------------
A. A cost of living allowance, effective in 1988, is agreed as
follows:
1. The base for calculation purposes will be the October,
1987, All Urban Consumer Price Index (All cities, 1967 =
100).
2. The cost of living allowance will be computed on the
basis of $.01 per hour for each 0.4 change in the CPI,
rounded to the nearest cent with a maximum payment of 10
cents.
7
<PAGE> 12
3. The adjustment will reflect the change in the CPI for
the six-month period from October, 1987, through April
1988. The adjustment will be effective July 1, 1988.
4. The contract rates shown in Exhibit "A" are minimum
rates, and are guaranteed. Any increase due to the Cost
of Living formula will be in addition to the contract
rates shown in Exhibit "A".
5. All of Article 7.1 (A), including 7.1(A) 1, 2, 3 and 4
except the first sentence of Article 7.1(A) 4, shall be
inoperative during the life of this Agreement.
7.2 All employees shall be paid weekly on Thursday during their regular shift.
If a Holiday occurs, the payday may be advanced or delayed within the same work
week, Saturday excluded.
7.3 For shift premium pay purposes only, the hours of the first shift will be
6:00 A.M. to 2:00 P.M.; the second shift will be from 2:00 P.M. to 10:00 P.M.;
and the third shift will be from 10:00 P.M. to 6:00 A.M. The employee will be
paid the shift premium applicable to the shift on which he works the majority of
hours. Shift premiums will be $.25 per hour for the second shift and $.35 per
hour for the third shift.
7.4 Effective during the life of this contract the Company will pay holiday pay
for the following holidays: New Year's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Day following Thanksgiving Day,
Christmas Eve Day, Christmas Day, New Year's Eve Day, and a "floating holiday"
to be scheduled by the Company annually. Such pay is to be eight (8) hours at
the average straight time hourly earnings, and all employees covered by this
Agreement, performing service, except those who have not completed their
probationary period, will be entitled to paid holidays.
A. All work performed on any of the holidays recognized in 7.4 or on
the day celebrated in lieu thereof, such as when a holiday falls on Sunday and
is celebrated on Monday, shall be paid for at the rate of double (2) time,
except for those hours whereby a shift beginning before the holidays extends
into the holiday period. If a shift starts during a holiday and extends into a
non-holiday period, all hours worked on such shift shall be paid for at double
time. The above premium pay for time worked shall be in addition to holiday pay.
7.5 To qualify for holiday pay, an employee who is scheduled to work must have
worked his last scheduled work shift prior to and his first scheduled work shift
after such holiday unless excused by the Manager, Pattern Operations for
personal compelling reasons. Employees who have been laid off because of lack of
work within fifteen (15) days immediately prior to the date of the holiday, or
who after having been laid off are recalled to work within fifteen (15) days
after date of holiday shall be eligible for holiday pay.
ARTICLE 8 - TRANSFERS AND PROMOTIONS
------------------------------------
8.1 Transfers Out of the Bargaining Unit - Both parties agree to the principle
of advancing employees to positions outside the bargaining unit. In the event an
employee so advanced is demoted or requests demotion during the first year, he
shall be promptly returned to his former job at the going rate of pay with
credited pattern shop and Company seniority.
A. Employees advanced to positions outside the bargaining unit shall
retain all seniority that they have accrued at the time of such advancement and
shall continue to accrue a maximum of one additional year of pattern shop
seniority after the date of transfer.
B. In the event there is a reduction in force, the employee shall be
entitled to use his pattern shop seniority he had at the expiration of the
accrual period in order to return to the bargaining unit.
8
<PAGE> 13
C. The employee's Company seniority shall continue to accrue during the
employee's entire period of employment with the Company.
D. The selection of employees for transfer to non-bargaining unit work
shall be solely within the discretion of the Company.
Apprentices
-----------
8.2 Apprentices may be employed in the ratio of one apprentice for each shop,
regardless of the number of journeymen, plus one additional apprentice for each
four (4) journeymen in the total group; this ratio to be computed on the average
number of journeymen employed during the previous six months. For the purpose of
determining the maximum number of apprentices only, each of the Company's
pattern shops located in Neenah, Wisconsin, will be counted as one shop, thus
allowing four apprentices for the shops. The last six months of apprenticeship
constitutes completion of the program for the purpose of replacing an
apprentice.
8.3 Apprentices shall be indentured under the rules and supervision of the
Division of Apprenticeship & Training, Department of Workforce Development of
the State of Wisconsin for ten (10) periods of 1040 hours. The schedule of
periods and percentages of the combined journeyman rate and cost-of-living
allowance are as follows:
1st period of 1040 hours 60% of combined journeyman rate and COLA
2nd " " " " 64% " " " " " "
3rd " " " " 68% " " " " " "
4th " " " " 72% " " " " " "
5th " " " " 76% " " " " " "
6th " " " " 80% " " " " " "
7th " " " " 84% " " " " " "
8th " " " " 88% " " " " " "
9th " " " " 92% " " " " " "
10th " " " " 96% " " " " " "
8.4 Apprentices who are pattern maintenance employees when they start their
apprenticeship will be paid at the pattern maintenance rate.
8.5 In the event a selection(s) is made for an apprenticeship, employees who
have not been selected and are interested, as to the reason why, can contact the
Manager of Pattern Operations or his designate for an explanation.
Pattern Maintenance
-------------------
8.6 Pattern Maintenance employees may be employed in the ratio of one pattern
maintenance employee for each journeyman and apprentice; this ratio to be
computed on the average number of journeymen and apprentices employed during the
previous six months.
8.7 The rate of pay for the Pattern Maintenance employees will be $5.00 per hour
less than journeyman rate and cost-of-living allowance, if any. This does not
include shift premium or leadman pay.
ARTICLE 9 - LEAVES OF ABSENCE
-----------------------------
9.1 Employees desiring a leave of absence shall be required to make written
request for said leave of absence, outlining the reason for such request. The
granting of such request shall be by mutual written
9
<PAGE> 14
consent of the Company and the Union, in triplicate, the original to be retained
by the employee, the duplicate by the Company and the triplicate by the Union.
9.2 Members of the Bargaining Unit designated by the Union to attend conventions
and union conferences will be granted time off without pay, and such absence
will be treated as an excused absence. No more than two (2) members of the
Bargaining Unit may be absent for this purpose at any one time.
ARTICLE 10 - MANAGEMENT
-----------------------
10.1 Management of the pattern shop and the direction of the working force,
including the right to hire, discharge, or suspend for proper cause, or
transfer, and the right to relieve employees from duty because of lack of work
or for any other legitimate reasons is vested exclusively in the Company. This
will not be used to violate previous paragraphs, nor to discriminate against any
member of the Union. Any dispute arising hereunder shall be subject to the
grievance procedure.
ARTICLE 11 - NO STRIKE - NO LOCKOUT
-----------------------------------
11.1 It is agreed that as a part of the consideration of this contract, any and
all disputes and any and all claims or demands growing out of said contract or
involved therein shall be settled and determined exclusively by the machinery
provided herein through the grievance procedure and that during the term of this
contract there shall be no strike on the part of the Union nor lockout on the
part of the Company.
11.2 It is specifically understood and agreed that paragraph 11.1 of this
Article shall not be operative under the following circumstances: If at the
expiration of this contract the parties are unable to agree upon the terms or
conditions of a renewal or modification thereof.
ARTICLE 12 - FUNERAL LEAVE
--------------------------
12.1 In the event of the death of an employee's brother, sister, father, mother,
step-father, step-mother, father-in-law, or mother-in-law, the employee may be
absent from work and shall be paid a minimum of eight (8) hours of pay, per day,
up to three (3) days for his scheduled time actually lost from the day of death
to the day of the funeral, inclusive except, if the funeral is in excess of 200
miles from the City of Neenah, Wisconsin, then the day after the funeral shall
be considered an additional day of funeral leave.
12.2 In the event of the death of the employee's spouse, son, daughter, or
step-child, however, paid funeral leave shall be up to five scheduled days lost
at a minimum of 8 hours pay, per day, from the day of death to the seventh day
following the day of death.
12.3 In the event of the death of an employee's grandparent, grandchild,
sister-in-law, brother-in-law, daughter-in-law, son-in-law, or of an employee's
spouse's grandparent, the employee may be absent from work and shall be paid for
scheduled time actually lost up to a minimum of eight (8) hours on the day of
the funeral if it is a scheduled work day and the employee attends the funeral.
12.4 To qualify for paid funeral leave the employee must:
A. have passed his probationary period prior to the death of the
above mentioned family member,
B. attend the funeral unless unable to do so because of illness,
accident, or other just cause, and
10
<PAGE> 15
C. notify the Personnel Department as soon as possible that he
will be absent because of the death.
12.5 Funeral leave pay will be computed at the employee's regular straight time
base rate including any shift premium. No funeral leave pay will be paid for
days on which holiday or vacation pay is paid, or when an employee is on any
kind of leave of absence or Worker's Compensation. Scheduled time lost shall not
be counted as hours worked for purposes of computing overtime pay.
ARTICLE 13 - GENERAL
--------------------
13.1 Space for bulletin board shall be made available by the Company at a
convenient place in the pattern shop for the posting of Union notices.
13.2 Duly accredited representatives of the Union, upon application for
permission, shall have the right of access to the shop and to interview any of
the employees affected by this contract and the Company will provide
accommodations for such interview or interviews on its premises outside of the
pattern shop proper.
SICK PAY
13.3 Any employee covered by this Agreement who is absent because of a
non-industrial accident or illness long enough to collect benefits from the
Neenah Foundry Company Sickness and Accident Insurance Program will be paid up
to the first three (3) scheduled work days of such absence or absences not
covered by the insurance program at the rate of eight (8) hours per day at the
employee's straight time hourly base rate. It is understood that not more than a
total of three (3) scheduled work days will be due an employee during any
calendar year because of a non-industrial sickness or accident or combination
thereof.
A. Any employee who is absent due to an industrial injury or illness
incurred at Neenah Foundry Company will be paid, under this Agreement, for the
first three (3) scheduled work days of absence or absences not covered by
Worker's Compensation Insurance for each such injury or illness, if, (1) the
injury sustained was properly reported on the day of injury, and, (2) these same
days are not later paid for by Worker's Compensation.
B. In any event, no sick pay will be paid for any day not a scheduled
work day, or on which holiday pay or vacation pay is paid.
13.4 The Company will continue to provide, and with the cooperation of its
employees, maintain proper sanitary and safety conditions. A member of the Union
shall be a member of the Safety Committee.
13.5 The Company agrees, within thirty (30) days from the execution of this
contract, to furnish a current seniority list and to keep it current at such
times as may be agreed upon between the Company and the Union.
13.6 The Union will, at the execution of this contract, furnish the Company with
a list of the names of its Union Committee or other committees designated to
handle negotiations and grievances on behalf of the Union. 13.7 The Company
will, at the execution of this contract, furnish the Union with a list of the
names of its Bargaining Group who will have authority to negotiate or adjust
grievances.
13.8 In the event the Company negotiates contract changes in benefits, other
than pensions, for the production employees, during the term of this Agreement,
such changes shall automatically be made with respect to employees covered by
this Agreement. These pass along benefits include insurance, sick pay, safety
shoes, prescription safety glasses, meal allowance, and shift premium.
11
<PAGE> 16
13.9 Upon presentation of proper pay voucher, an employee required to serve jury
duty shall be paid the difference between his jury duty pay and eight hours of
straight time pay at his base rate for each scheduled work day he lost as a
result of the jury duty.
13.10 The Company shall furnish a meal at a cost not to exceed $4.00 for each
employee who works more than two (2) hours beyond his scheduled shift. A paid
twenty-minute lunch period will be provided when meals are furnished; such
period will not be included in the "more than 2 hours" qualifying period, but
will be counted as time worked for overtime purposes.
13.11 The Company and the Union will comply with all laws and regulations
established by Federal and State Governments with regard to military service of
employees.
A. Any Federal or State law which mandatorily changes any of the
provisions of the Agreement shall govern. However, such required changes shall
not change any of the other provisions of the contract.
13.12 A tool allowance of $175.00 will be paid each January to each pattern
maker, pattern maker apprentice, and pattern maker leadman on the payroll as of
January 1 of each year. Similarly, a $175.00 tool allowance will be paid to each
pattern maintenance employee.
13.13 The Company will reimburse each employee $50.00 for one pair of approved
safety shoes purchased by the employee for his personal wear each year.
13.14 The Company will reimburse each employee for replacement of prescription
glasses, or parts thereof, which are damaged at work at the actual cost to a
maximum of $35.00 per year.
ARTICLE 14 - PENSIONS
---------------------
14.1 The Company agrees to continue its pension program started January 1, 1982,
according to separate contract with Connecticut General Life Insurance Company.
This plan is to be wholly financed and owned by the Company.
14.2 The basic coverage of the program provides a normal retirement benefit
based on the years of credited service in the Neenah Foundry Company Pattern
Shops to age 65, with offsets for those years of service which are vested
pension credits earned under the Pattern Makers' Pension Trust Fund as a Neenah
Foundry Company employee through December 31, 1981. The plan provides for
vesting after 5 years of service for pension benefits, and vesting after 10
years of service for disability benefits.
14.3 Effective January 1, 1998, the formula for determining monthly pension
benefits under this plan provides for $26.00 per month as pension base.
14.4 The plan provides a surviving spouse's benefit provision.
14.5 The minimum disability benefit shall be $310.00 per month.
A. Any disability benefits accruing to the employee as a result of
credits earned in the Pattern Makers' Pension Trust Fund as a
Neenah Foundry Company employee will be offset against the
above amounts.
14.6 The normal retirement date is the first of the month following the
employee's 65th birthday. Provisions for early retirement after age 60 are
provided for in the plan.
A. If employees elect to retire at the ages of 62, they will
receive 80% of the regular pension benefit rate.
12
<PAGE> 17
14.7 A 401-K Savings Plan will be implemented by July 1, 1989. (See letter from
Roger Hathaway to Tom Kufahl dated December 22, 1988.) Effective January 1,
1992, employees may elect to place up to 15% of their earnings in the 401-K
savings plan.
ARTICLE 15 - INSURANCE
----------------------
15.1 The insurance benefits in effect at the signing of this Agreement include:
Medical Insurance (Choice of Co-Pay plan or an HMO)
Accidental Death and Dismemberment ($18,000)
Sickness and Accident Coverage ($260.00/week)
Life Insurance ($18,000)
Dental Insurance
15.2 All insurance plans are funded on a cost-sharing basis between the Company
and the employee, and any changes in these plans or in the cost-sharing formulas
will be as provided by Article 13.8.
15.3 In case of a work-connected death of an employee, the Company will continue
the medical and dental insurance coverage in effect for the employee at the time
of his death for a period of thirty-six (36) months for the surviving spouse and
dependent children. The Company will pay the full premium.
15.4 In the event an employee is laid off, the Company shall continue to pay its
percentage share of the premiums of the insurance plans (excluding sickness and
accident benefits) for a period of three months following the month in which the
layoff became effective, provided the employee arranges with the Personnel
Office for payment of his percentage share of the premiums.
ARTICLE 16 - TERMINATION CLAUSE
-------------------------------
16.1 This Agreement signed this day of , 1998, shall become effective as of the
1st day of January, 1998, and shall continue until December 31, 2000, and
thereafter shall be automatically renewed from year to year unless at least
sixty (60) days prior to the termination of any yearly period either party shall
serve on the other written notice that it desires to modify or terminate this
Agreement.
A. In the event this contract has been reopened pursuant to the sixty-day
notice and no agreement has been reached as of the expiration day, the contract
shall be automatically extended until either party gives a written notice to the
other party terminating the contract at the end of five days from receipt of
such notice.
Dated this day of ,1998
-------------- ----------------
INDEPENDENT PATTERN MAKERS NEENAH FOUNDRY COMPANY
UNION OF NEENAH, WISCONSIN
13
<PAGE> 18
EXHIBIT "A"
-----------
The minimum base wage rates shall be effective as follows:
Pattern Makers
--------------
December 28, 1997 $18.78 per hour
January 3, 1999 $19.33 per hour
January 2, 2000 $19.88 per hour
Pattern Maintenance
-------------------
December 28, 1997 $13.78 per hour
January 3, 1999 $14.33 per hour
January 2, 2000 $14.88 per hour
Minimum premium for pattern shop employees assigned to leadman duties is $.50
per hour.
14
<PAGE> 19
EXHIBIT "B"
-----------
Employee Automatic Renewal Authorization Form Date
TO: Neenah Foundry Company
You are hereby authorized and directed to check off from my wages my
membership dues in the Independent Pattern Makers Union of Neenah, Wisconsin.
The dues deduction shall be remitted by you to the Union no later than the 12th
of each month, for dues collected the first payday of each month.
This authorization shall remain in effect until revoked by me in
writing and shall be irrevocable for a period of one year from the date
appearing above (or until the expiration of the present Agreement between the
Company and the Union, whichever is sooner), at which time it may be revoked by
written notice given by me to the Company and the Union at any time during a
period of ten days prior to the expiration of the one-year period (or ten days
prior to the expiration of the present Agreement -- whichever is sooner).
If no such notice is given, this authorization shall be irrevocable for
successive periods of one year thereafter, with the same privilege of revocation
at the end of each such period set forth above.
- --------------
Committeeman Employee
Dues to be deducted according to the following schedule:
Journeyman Per Month
Apprentice first through fifth period Per Month
Apprentice sixth through tenth period Per Month
Pattern Maintenance Per Month
15
<PAGE> 20
EXHIBIT "C"
-----------
DRUG AND ALCOHOL POLICY BETWEEN NEENAH FOUNDRY COMPANY AND
INDEPENDENT PATTERNMAKERS UNION OF NEENAH, WISCONSIN
POLICY FOR SCREENING FOR ABUSE OF ALCOHOL, MARIJUANA AND CHEMICAL SUBSTANCES.
Neenah Foundry Company and the IPMU have a strong commitment to provide a
safe and secure workplace for all employees and to provide high standards of
employee health and productivity. Because of this commitment, both Neenah
Foundry Company and the IPMU agree to a program of screening for use and/or
abuse of alcohol or chemical substances in the workplace.
It is the purpose of this agreement to provide guidelines for addressing such
substance use/abuse by employees.
1. There will be no random drug/alcohol testing except as mandated by law.
2. This agreement applies to employees in situations where the Company has
determined the employee to be under the influence of drugs, marijuana, chemical
or controlled substances, or alcohol while at work or on Company property.
3. If an employee appears to be under the influence of alcohol or drugs, the
supervisor should, if possible, secure the assistance of another supervisor in
observing the employee's action and in escorting the employee to an appropriate
office or area for further investigation. A Union representative or designee
shall be secured to be present during the investigation.
4. If, as a result of the investigation, the supervisor has reasonable cause
to believe that the employee is in a condition that is jeopardizing workplace
safety or cannot perform his or her job because of on-the-job intoxication or
impairment, the employee will be suspended and will be required to submit to a
screen for alcohol/drugs. The supervisor may and if requested by the employee, a
Union representative may accompany the employee to the test site. However,
neither shall be permitted to impede the testing process. The Union
representative will continue to be paid during the time required to accompany
the employee, wait at the test site, and return to work, if he would otherwise
be scheduled to work during this time.
5. The initial screen for suspected drug, marijuana, and chemical substance
use will be an enzyme multiplied immunoassay test. The confirmatory test will be
a gas chromatography-mass spectrometry (GC-MS) test. A confirmatory test will
automatically be performed on any sample that is initially positive. However,
the Company reserves the right to test directly by using the gas
chromatography-mass spectrometry (GC-MS) test rather than the initial enzyme
multiplied immunoassay (EMIT) test.
In those situations where there may be reason to believe that the sample may
have been tampered with by the person giving the sample prior to the sealing and
signing of the samples, the Company may authorize the laboratory to perform a
Specific Gravity test prior to the EMIT/GC-MS test being performed.
6. If available, the appropriate test for suspected alcohol use will be a
breathalyzer test. A blood sample may also be utilized at the discretion of the
Company to determine or verify the results of the breathalyzer test.
6A. State law standards as defined in the motor vehicle code in the state
where the plant exists or incident occurs, will be utilized to determine if the
employee is intoxicated.
7. The initial sample taken for screening for illegal chemical substance,
drugs, marijuana and controlled substances will be split into three samples.
They will be sealed and signed at the time of the taking of the sample by the
person taking the sample and the person giving the sample. One sample will be
used for the EMIT and/or the confirmatory (GC-MS) test. The remaining two (2)
sealed and signed
16
<PAGE> 21
samples will be retained by the testing laboratory. If it is determined
that the GC-MS screen is positive, the employee will have the right
within two (2) weeks of notification of said positive screen test
results, to have the second sample sent to a certified lab of their
choice to be tested. The laboratory selected by the Company will
transmit the sample directly to the laboratory selected by the
employee, with the seal and signature intact to protect the chain of
custody, where a GC-MS confirmatory screen test will be performed.
The employee will be reimbursed for the cost of any screen performed
at his discretion provided the laboratory selected is certified for
testing by the National Institute of Drug Abuse (NIDA)(or a comparable
independent state certified laboratory), and provided the results are
negative. The employee will sign a consent agreement authorizing the
release of the results of the screen to the Company.
In situations where the results of the screen test from the two (2)
labs reach opposite conclusions, then a third certified laboratory will
be selected by the two (2) respective laboratories and the remaining
sealed and signed sample of the original specimen will be sent to the
third certified laboratory to perform a GC-MS screen test.
The results of the third certified laboratory will be binding on all
parties and if the tests are negative, then the employee's record would
be cleared of any suspension or reference to the incident. The Company
will reimburse the employee for time lost at the applicable rate, as
specified in the Union contract, from the date of suspension.
8. Any employee who is asked to submit to a screen for alcohol or drug use
will sign a consent agreement authorizing the release of the results of the
screen to the Company.
9. Refusal to submit to a screen for items covered under this Drug and
Alcohol Abuse Policy or to sign a consent agreement or to take rehabilitation
recommended by appropriate medical authorities will be considered
insubordination and the employee will be suspended pending termination.
10. If the employee is taking prescription or over-the-counter substances
that might affect the results of the screen, the Company will be advised by the
employee PRIOR to the screen being administered.
11. The Company will select a properly licensed, accredited testing NIDA or
comparable state approved/certified facility and follow testing procedures
specified above to assure most accurate results, maintain the most complete
chain of custody and quality control procedures and assure the maximum of
confidentiality.
11A.Outside the Neenah/Menasha area, the Company and Union will accept
reasonable facilities and the results of law enforcement agencies.
12. All screening as well as the results of any screen will be treated in a
confidential manner. All employees who are tested will be given the results of
their tests in writing.
13. Any employee found to be intoxicated (in accordance with 6A), under the
influence of illegal chemical substance, marijuana or controlled substances,
will be offered the opportunity for rehabilitation on the first incident only
except as specified in Item 15 below.
The type of rehabilitation program available will be determined at the
appropriate time after consultation with appropriate medical authorities. Any
treatment must be provided by an approved rehabilitation facility in accordance
with the insurance program specified in the respective Collective Bargaining
Agreement. If the employee agrees to the rehabilitation program, then the
employee will be required to satisfactorily complete such rehabilitation
program. Failure to agree to a rehabilitation program and satisfactorily
complete it, will result in their suspension pending termination.
14. An employee who has completed rehabilitation and is found to be under the
influence of alcohol, (in accordance with 6A), illegal chemical substance,
marijuana, or controlled substance a second time, the employee will be suspended
pending termination.
17
<PAGE> 22
15. Any employee who initially tests positive for use of alcohol (in
accordance with 6A), illegal chemical substances, marijuana, or controlled
substance and, the test is confirmed, will be subject to future tests upon
reasonable cause as specified in (4) and (5) above.
In situations where an employee voluntarily comes forward PRIOR to any
Company inquiry and admits they have an alcohol or drug problem after having
satisfactorily completed the counseling/rehabilitation program shall be given a
second chance at rehabilitation. Any subsequent situations will result in the
employee being suspended pending termination.
16. All new employees will be informed that the Company has an alcohol and
substance abuse testing program.
17. This policy does not replace or interfere in any way with normal
disciplinary procedures.
18. All specimens will be sent to a National Institute of Drug Abuse
Laboratories (NIDA), and all test results will be forwarded to Neenah Foundry
Company.
19. Any dispute with respect to this drug and alcohol policy shall be subject
to the grievance procedure. January 1, 1995
18
<PAGE> 23
MEMO OF UNDERSTANDING
It is understood that the weekly vacation period is from Sunday through the
following Saturday. The Union has requested that when employees request to be
off from work on the Saturday preceding their vacation week, that they will be
granted the time off. Also, when employees take vacation by single days and
their request includes a Friday or Monday as vacation days, again, the request
will be to have Saturday off.
The Company agrees to make every effort to provide employees with the time off
when requested. In the event unusual or emergency situations occur, the Company
may require the employee(s) to work.
19
<PAGE> 24
January 1, 1989
POLICY LETTERS
--------------
Subcontracting - The Company agrees not to subcontract pattern making work where
such subcontracting would immediately deprive a pattern maker of work in the
shops at Neenah Foundry when the pattern maker is available to do the work.
However, where it is not appropriate to meet customer demands for delivery
because of the schedule of work in the department, this work may be
subcontracted, even though there might be a temporary shortage of work in
Pattern Shops.
Medical Leave
Upon satisfactory medical proof that an employee is required to leave the employ
of the Company because of his own ill health or that of a member of his family,
he shall be given pro-rata vacation pay or partial vacation pay in the same
manner and to the same extent that other employees are entitled thereto.
NEENAH FOUNDRY COMPANY
John Rader
Vice President
20
<PAGE> 25
JANUARY 1, 1989
ADDENDUM TO AGREEMENT
---------------------
The Company agrees that all employees in the bargaining unit on January 1,
1977, will be rate-protected on the base wage of Pattern Makers as listed in
Exhibit "A", for the duration of their employment. This means that no pattern
maker employed on January 1, 1977, will be demoted to pattern maintenance rates
as the result of creation of the pattern maintenance classification, unless by
mutual agreement between the employee and the Company.
All employees covered by this agreement may be required to perform any of the
job duties performed by Pattern Maintenance employees.
No pattern maintenance employee in any shop will be given preference for
scheduled overtime in that shop. Unscheduled overtime will be assigned to the
employee in that shop performing the specific work to be done in that shop.
INDEPENDENT PATTERN MAKERS NEENAH FOUNDRY COMPANY
UNION OF NEENAH, WISCONSIN
- ---------------
21
<PAGE> 26
December 16, 1991
DUTIES OF PATTERN MAINTENANCE
-----------------------------
1. Make and install bottom boards for self-set cores.
2. Build and install gating systems on patterns and in core boxes.
3. Patch or repair patterns and core boxes using appropriate materials to
restore original contours without use of blueprints and without
establishing new center lines. Install fillets and remove obsolete
patterns from boards.
4. Program CNC machines to produce and repair bolster frames, pattern plates,
copes and drag boards, core masks, core fixtures, checking fixtures.
5. Set up patterns for jobbing and construction castings.
6. Perform or assist with basic shop duties such as: load and unload trucks,
changing saw and jointer blades, basic shop and machine maintenance,
drill hold down end irons and sprue buttons.
7. Follow patterns and core boxes in foundry and core room, make molds for
checking cores.
8. Build cope and drag boards, omitting center lines; build insert boards, and
match boards; install core hook plugs; add venting; build squeeze
boards and install pin or bushing holes with use of fixtures or
machines.
9. Clean and polish pattern equipment.
10. Mount flat back and chill patterns (where no critical alignment
dimension need be determined).
11. Reproduce existing or master pattern or core equipment with the use of
synthetic materials.
12. Put center lines on insert boards by using a fixture.
13. It is understood that Pattern Maintenance employees may perform any
work within the skill level of the job, as represented by the above
duties, and that Pattern Maintenance employees will not be used to
perform duties requiring Pattern maker skills.
22
<PAGE> 27
NEENAH FOUNDRY COMPANY
----------------------
BASIC RULES
-----------
In order to maintain the general welfare of the Company and its employees and to
assure fair treatment for all, the following revised rules are effective
immediately.
Disciplinary action, whether it be in the form of a warning, suspension from
work without pay, or discharge, will be based upon the circumstances surrounding
the violation, together with the employee's general record of employment with
the Company.
1. Violation of the contract between the Company and the Independent Pattern
Makers Union of Neenah, Wisconsin.
2. Dishonesty.
3. Insubordination.
4. Unsafe conduct.
5. Unauthorized absence from job for any length of time or unauthorized presence
in the plant.
6. Failure to comply with job requirements and responsibilities.
7. Damage to property on Company premises.
8. Reporting for work while under the influence of intoxicants or use or
possession of intoxicants on Company premises (includes illegal
controlled substances).
9. Conduct detrimental to the welfare of the Company or its employees.
These basic rules are subject to change at any time.
NEENAH FOUNDRY COMPANY
23
<PAGE> 28
NON RENEWAL FOR 1/1/89 CONTRACT
RETAINED ON DISKETTE
January 1, 1986
MEMO OF UNDERSTANDING
---------------------
The layout machine located adjacent to the pattern shop at Plant 1 will be
exclusive jurisdiction of the Independent Pattern Makers Union of Neenah,
Wisconsin during regularly scheduled hours of the Plant 1 pattern shop. The
machine may be used by other than pattern maker bargaining unit employees, as
directed by management, at hours beyond those scheduled for the Plant 1 pattern
shop.
Should the company purchase an additional layout machine, the Independent
Pattern Makers Union of Neenah, Wisconsin will not have jurisdiction over such
additional machine(s). Furthermore, it is agreed that jurisdiction by the Union
is limited to a maximum of one layout machine.
INDEPENDENT PATTERN MAKERS NEENAH FOUNDRY COMPANY
UNION OF NEENAH, WISCONSIN
- ----------------
24
<PAGE> 1
Exhibit 10.16
AMENDMENT NO. 1, CONSENT AND WAIVER dated as of
November 18, 1998 (this "Amendment"), to
the Credit Agreement dated as of April 30, 1997, as
amended and restated as of September 12, 1997, as of
April 3, 1998, and as of September 8, 1998 (the
"Credit Agreement"), among NEENAH FOUNDRY COMPANY, a
Wisconsin corporation (the "Borrower"), NFC CASTINGS,
INC., a Delaware corporation ("Holdings"), the
Lenders from time to time party thereto (the
"Lenders"), and THE CHASE MANHATTAN BANK, a New York
banking corporation, as issuing bank, as
administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent (in
such capacity, the "Collateral Agent") for the
Lenders.
A. Pursuant to the Credit Agreement, the Lenders have extended
and have agreed to extend credit to the Borrower on the terms and subject to the
conditions set forth therein.
B. The Borrower has informed the Administrative Agent that it
intends to acquire (the "Acquisition") all the issued and outstanding capital
stock of Nieman Porter & Co. (d/b/a Cast Alloys, Inc.) ("Cast Alloys") for
aggregate consideration, excluding the payment of fees and expenses, of
approximately $57,500,000 in cash, in a transaction that will constitute a
Permitted Acquisition under the Credit Agreement.
C. The Borrower has also informed the Administrative Agent
that it proposes to issue up to $90,000,000 aggregate principal amount of
Qualified Subordinated Debt (the "New Subordinated Debt"), as permitted by
Section 6.01(k) of the Credit Agreement.
D. The Borrower proposes to use approximately $29,000,000 of
the proceeds of the New Subordinated Debt to prepay the outstanding Acquisition
Loans, without reducing the Acquisition Loan Commitments, and the balance of
such proceeds to finance the Acquisition or another Permitted Acquisition and
related fees and expenses.
E. The Borrower and Holdings have requested that the Required
Lenders consent to the use of proceeds of the New Subordinated Debt as described
in the preceding paragraph and grant such waivers and agree to such
modifications of the Credit Agreement as are necessary to effectuate the same.
F. The Required Lenders are willing to grant such amendments,
consents and waivers pursuant to the terms and subject to the conditions set
forth herein.
G. Capitalized terms used and not otherwise defined herein
shall have the meanings assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Consent and Waiver. Subject to Section 3 hereof,
the Required Lenders hereby (a) consent to the use by the Borrower of the
proceeds of the New Subordinated Debt to finance the Acquisition or, if the
Acquisition is not consummated, one or more other Permitted Acquisitions, and to
pay related fees and expenses (including the amendment fee
1
<PAGE> 2
referred to below) and (b) waive compliance by the Borrower with the requirement
of Section 2.13(d) of the Credit Agreement that the proceeds of the New
Subordinated Debt be used to prepay the Term Loans.
SECTION 2. Amendments. (a) The definition of the term
"Applicable Percentage" in Section 1.01 of the Credit Agreement is hereby
amended by replacing the words "December 4, 1998" in the penultimate line
thereof with the words "June 4, 1999", and in the same line, inserting the word
"Consolidated" before the words "Leverage Ratio".
(b) Section 2.13(d) of the Credit Agreement is hereby amended
by inserting between the words "and" and "permanently" in the parenthetical in
the penultimate line thereof the words ", except with respect to prepayments
with the Net Cash Proceeds of Qualified Subordinated Debt,".
(c) Section 6.06(a)(iv) of the Credit Agreement is hereby
amended by inserting immediately before the semi-colon at the end thereof the
words "or (C) at the maturity thereof, the Seller Note".
SECTION 3. Agreements. The Borrower agrees that, substantially
simultaneously with (and in any event not later than the Business Day next
following) the receipt of the Net Cash Proceeds of the New Subordinated Debt, it
will (a) use a portion of the proceeds thereof to prepay all outstanding
Acquisition Loans in accordance with Section 2.13(d) of the Credit Agreement (as
amended hereby) and (b) deposit the balance of such Net Cash Proceeds (the
"Deposited Funds") in a cash collateral account maintained with the Collateral
Agent for the benefit of the Secured Parties and over which the Collateral Agent
shall have exclusive dominion and control in accordance with this Section 3. The
Collateral Agent will, at the request of the Borrower and so long as no Default
or Event of Default shall have occurred and be continuing, invest the Deposited
Funds in Permitted Investments. So long as no Default or Event of Default shall
have occurred and be continuing, the Borrower shall have the right to withdraw
any or all the Deposited Funds for the purpose of (i) financing the Acquisition
or, if the Acquisition shall not have been consummated, any other Permitted
Acquisition, and related fees and expenses and/or (ii) prepaying Loans in
accordance with Section 2.13(d) of the Credit Agreement (as amended hereby). To
the extent the Deposited Funds are not used to finance the Acquisition or one or
more other Permitted Acquisitions and related fees and expenses on or prior to
February 15, 1999, then the Deposited Funds (but not any investment earnings, if
any, thereon, which shall be for the account of the Borrower) shall be applied
by the Administrative Agent to the prepayment of Loans in accordance with
Section 2.13(d) of the Credit Agreement (as amended hereby). If the maturity of
the Loans has been accelerated pursuant to Article VII of the Credit Agreement,
then the Administrative Agent may, in its discretion, apply the Deposited Funds
(and all investment earnings, if any, thereon) to any of the Obligations in
accordance with the terms of the Credit Agreement and the other Loan Documents.
SECTION 4. Representations and Warranties. To induce the other
parties hereto to enter into this Amendment, each of Holdings and the Borrower
represents and warrants to each other party hereto that (a) after giving effect
to this Amendment, (i) the representations and warranties set forth in Article
III of the Credit Agreement are true and correct in all material respects on and
as of the date hereof, except to the extent such representations and warranties
expressly relate to an earlier date, and (ii) no Default or Event of Default has
occurred and is continuing and (b) the Acquisition constitutes, and on the date
it is consummated will constitute, a Permitted Acquisition.
SECTION 5. Amendment Fee. The Borrower agrees to pay to each
Lender that executes and delivers a copy of this Amendment to the Administrative
Agent (or its counsel) on
2
<PAGE> 3
or prior to November 18, 1998, through the Administrative Agent, a
non-refundable amendment fee in an amount equal to 0.20% of the sum of the
aggregate principal amount outstanding of such Lender's Loans, L/C Exposure and
unused Commitments as of such date; provided that the Borrower shall have no
liability for any such amendment fee if this Amendment does not become effective
in accordance with Section 6 below. Such amendment fee shall be payable in
immediately available funds on, and subject to the occurrence of, the Amendment
Effective Date (as defined below).
SECTION 6. Conditions to Effectiveness. This Amendment shall
become effective on the first date (the "Amendment Effective Date") occurring on
or prior to December 18, 1998, when (a) the Administrative Agent (or its
counsel) shall have received counterparts hereof which, when taken together,
bear the signatures of the Borrower, Holdings and the Required Lenders and (b)
the New Subordinated Debt shall have been issued.
SECTION 7. Effect of Amendment. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect, the rights and remedies of the
Lenders or the Administrative Agent under the Credit Agreement or any other Loan
Document, and shall not alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document, all of which are ratified and affirmed in
all respects and shall continue in full force and effect. Nothing herein shall
be deemed to entitle Holdings or the Borrower to a consent to, or a waiver,
amendment, modification or other change of, any of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement or any
other Loan Document in similar or different circumstances. This Amendment shall
apply and be effective only with respect to the provisions of the Credit
Agreement specifically referred to herein. This Amendment shall constitute a
Loan Document for all purposes under the Credit Agreement and the other Loan
Documents.
SECTION 8. Expenses. The Borrower agrees to pay the
reasonable out-of-pocket costs and expenses incurred by the Administrative Agent
in connection with the preparation of this Amendment.
SECTION 9. Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto on separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all of which together shall constitute a single instrument. Delivery of an
executed counterpart of a signature page of this Amendment by facsimile
transmission shall be as effective as delivery of a manually executed
counterpart hereof.
3
<PAGE> 4
SECTION 10. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 11. Headings. The headings of this Amendment are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their duly authorized officers, all as of the
date and year first above written.
NEENAH FOUNDRY COMPANY,
by
/s/ James K. Hildebrand
--------------------------------------
Name: James K. Hildebrand
Title: CEO
NFC CASTINGS, INC.,
by
/s/ James K. Hildebrand
--------------------------------------
Name: James K. Hildebrand
Title: CEO
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent,
Collateral Agent and Issuing Bank,
by
/s/ Peter S. Predun
--------------------------------------
Name: Peter S. Predun
Title: Vice President
AERIES FINANCE LTD.,
by
/s/ Ian David Moore
--------------------------------------
Name: Ian David Moore
Title: Director
AMARA-1 FINANCE, LTD.,
by
/s/ Andrew Ian Wignall
--------------------------------------
Name: Andrew Ian Wignall
Title: Director
4
<PAGE> 5
AMARA-2 FINANCE, LTD.,
by
/s/ Andrew Ian Wignall
--------------------------------------
Name: Andrew Ian Wignall
Title: Director
BALANCED HIGH-YIELD FUND I LTD.,
by BHF-Bank Aktiengesellschaft, acting
through its New York branch as
attorney-in-fact,
by
/s/ John Sykes
--------------------------------------
Name: John Sykes
Title: Vice President
by
/s/ Anthony Heyman
--------------------------------------
Name: Anthony Heyman
Title: Assistant Vice President
THE BANK OF NOVA SCOTIA,
by
/s/ F.C.H. Ashby
--------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager
Loan Operations
BANK ONE, WISCONSIN,
by
/s/ Mark P. Bruss
--------------------------------------
Name: Mark P. Bruss
Title: Vice President
BHF-BANK AKTIENGESELLSCHAFT,
by
/s/ John Sykes
--------------------------------------
Name: John Sykes
Title: Vice President
by
/s/ Anthony Heyman
--------------------------------------
Name: Anthony Heyman
Title: Assistant Vice President
5
<PAGE> 6
CAPTIVA II FINANCE LTD.,
by
/s/ David Egglishaw
--------------------------------------
Name: David Egglishaw
Title: Director
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
by
/s/ Renay Jeune
--------------------------------------
Name: Renay Jeune
Title: Senior Credit Analyst
CYPRESSTREE INSTITUTIONAL FUND, LLC,
by CypressTree Investment Management
Company, Inc., its Managing Member
by
/s/ Timothy M. Barns
--------------------------------------
Name: Timothy M. Barns
Title: Managing Director
CYPRESSTREE INVESTMENT FUND, LLC,
by CypressTree Investment Management
Company, Inc., its Managing Member,
by
/s/ Timothy M. Barns
--------------------------------------
Name: Timothy M. Barns
Title: Managing Director
CYPRESSTREE SENIOR FLOATING RATE
FUND, by CypressTree Investment
Management Company, Inc., as Portfolio
Manager,
by
/s/ Timothy M. Barns
--------------------------------------
Name: Timothy M. Barns
Title: Managing Director
EATON VANCE SENIOR INCOME TRUST,
by Eaton Vance Management, as its
Investment Advisor,
6
<PAGE> 7
by
/s/ Scott H. Page
--------------------------------------
Name: Scott H. Page
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
by
/s/ Kevin Christensen
--------------------------------------
Name: Kevin Christensen
Title: Vice President
FIRST SOURCE FINANCIAL LLP,
by First Source Financial, Inc., its
Agent/Manager,
by
/s/ John L. Walding
--------------------------------------
Name: John L. Walding
Title: Vice President
HELLER FINANCIAL, INC.,
by
/s/ Linda W. Wolf
--------------------------------------
Name: Linda W. Wolf
Title: Senior Vice President
KZH III LLC,
by
/s/ Shari Finkelstein
--------------------------------------
Name: Shari Finkelstein
Title: Authorized Agent
KZH CYPRESSTREE-1 LLC,
by
/s/ Shari Finkelstein
--------------------------------------
Name: Shari Finkelstein
Title: Authorized Agent
7
<PAGE> 8
KZH RIVERSIDE LLC,
by
/s/ Shari Finkelstein
--------------------------------------
Name: Shari Finkelstein
Title: Authorized Agent
MERRILL LYNCH PRIME RATE PORTFOLIO,
by Merrill Lynch Asset Management, LP,
as its Investment Advisor,
by
/s/ Andrew C. Liggio
--------------------------------------
Name: Andrew C. Liggio
Title: Assistant Vice President
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.,
by
/s/ Andrew C. Liggio
--------------------------------------
Name: Andrew C. Liggio
Title: Assistant Vice President
NATIONAL CITY BANK,
by
/s/ Robert C. Rowe
--------------------------------------
Name: Robert C. Rowe
Title: Vice President
NORTH AMERICAN SENIOR FLOATING RATE
FUND, by CypressTree Investment
Management Company, Inc., as
Portfolio Manager,
by
/s/ Timothy M. Barns
--------------------------------------
Name: Timothy M. Barns
Title: Managing Director
8
<PAGE> 9
OXFORD STRATEGIC
INCOME FUND, by Eaton Vance
Management, as its
Investment Advisor,
by
/s/ Scott H. Page
--------------------------------------
Name: Scott H. Page
Title: Vice President
PACIFICA PARTNERS FUND,
by Imperial Credit Asset Management,
Inc., as Investment Advisor,
by
/s/ Michael J. Bacevich
--------------------------------------
Name: Michael J. Bacevich
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION,
by
/s/ Lynn Koncz
--------------------------------------
Name: Lynn Koncz
Title: Vice President
SENIOR DEBT PORTFOLIO,
by Boston Management and Research as
Investment Advisor,
by
/s/ Scott H. Page
--------------------------------------
Name: Scott H. Page
Title: Vice President
STAR BANK, NATIONAL ASSOCIATION,
by
/s/ Mark A. Whitsen
--------------------------------------
Name: Mark A. Whitsen
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST,
by
/s/ Jeffrey W. Maillet
--------------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President
& Director
9
<PAGE> 1
EXHIBIT 10.17
CASH COLLATERAL ACCOUNT AGREEMENT dated as
of November 24, 1998 (this "Agreement"), between
NEENAH FOUNDRY COMPANY, a Wisconsin corporation, as
grantor (the "Grantor") and THE CHASE MANHATTAN BANK
("Chase"), a New York banking corporation, as
administrative agent, (in such capacity, the
"Administrative Agent") and as collateral agent, (in
such capacity, the "Collateral Agent") for the
Lenders (as defined below).
A. Pursuant to the Credit Agreement dated as of April 30,
1997, as amended and restated as of September 12, 1997, as of April 3, 1998, and
as of September 8, 1998, and as further amended by Amendment No. 1, Consent and
Waiver dated as of November 18, 1998 (the "Amendment"), among the Grantor, NFC
Castings Inc., the financial institutions from time to time party thereto (the
"Lenders") and Chase, as issuing bank, as Administrative Agent, and as
Collateral Agent for the Lenders (such credit agreement, as so amended, the
"Credit Agreement"), the Lenders have extended and have agreed to extend credit
to the Grantor on the terms and subject to the conditions set forth therein.
B. Pursuant to the Amendment, the Required Lenders have
consented to the issuance of the New Subordinated Debt (as defined in the
Amendment), and the Grantor has agreed to deposit certain of the net proceeds of
the New Subordinated Debt in a cash collateral account with the Collateral
Agent, pending disposition of such proceeds as permitted by the Amendment.
Accordingly, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used herein, capitalized terms
defined in the Amendment or the Credit Agreement and not otherwise defined
herein are used herein as so defined, and the following terms shall have the
following meanings:
"Account" shall have the meaning assigned in Section 2.01 hereof.
"Collateral" shall have the meaning assigned in Section 2.01 hereof.
"Proceeds" shall mean "proceeds" as such term is defined in Section
9-306(1) of the UCC.
"UCC" shall mean the Uniform Commercial Code as in effect from time
to time in the State of New York.
1
<PAGE> 2
ARTICLE II
Grant of Security Interest
--------------------------
SECTION 2.01. Security Interest. As security for the prompt
and complete payment and performance in full of all the Obligations, the Grantor
hereby grants to the Collateral Agent for the ratable benefit of the Secured
Parties a first priority security interest in and continuing lien on all of such
Grantor's right, title and interest in, to and under the account (the "Account")
of the Grantor identified in Schedule I hereto, together with all funds, items,
instruments, investments, securities and other things of value at any time paid
to, deposited to, credited to or held (whether for collection, provisionally or
otherwise) in such Account and all other property of the Grantor from time to
time in transit to such Account, and all Proceeds of all the foregoing,
including, without limitation, any of the foregoing from time to time paid to,
deposited to, credited to or held in such Account (all of which being
hereinafter collectively called the "Collateral").
SECTION 2.02. Account. (a) The Grantor shall cause the
Deposited Funds to be deposited in the Account on the date hereof. The Account
shall be under the sole dominion and control of the Collateral Agent, and the
Collateral Agent shall have the sole right to make withdrawals from the Account
and to exercise all rights with respect to the Collateral from time to time
therein as set forth in this Agreement and the Loan Documents; provided,
however, that so long as no Default or Event of Default has occurred and is
continuing or would occur as a result of a requested disbursement, the
Collateral Agent shall, from time to time, disburse all or any portion of the
Collateral to the Grantor upon receipt of a written request executed on behalf
of the Grantor by any Person purporting to be a Responsible Officer of the
Grantor (an "Officer") in such amounts as shall be specified in such requests to
be used by the Grantor to finance the Acquisition (as defined in the Amendment)
or any other Permitted Acquisition and related fees and expenses, or to prepay
Loans in accordance with Section 2.13(d) of the Credit Agreement.
(b) Until the termination of this Agreement, the Collateral
Agent is authorized to and, so long as no Default or Event of Default has
occurred and is continuing, shall at the direction of any Officer invest the
Collateral in Permitted Investments maturing on or prior to February 15, 1999,
and shall take such other actions with respect to such Collateral as any such
Officer may reasonably direct. As long as no Default or Event of Default has
occurred and is continuing all interest and other income accruing on or to the
Collateral shall be distributed to the Grantor at its direction. All risk of
loss in respect of such investments shall be borne by the Grantor.
(c) The Collateral Agent is hereby authorized to sell
Collateral in order to permit the disbursements and withdrawals from the Account
contemplated by this Agreement. In connection with any disbursement requested by
the Grantor under paragraph (a) above, the Collateral Agent shall, if any
Officer shall specify Collateral to be sold, first sell such specified
Collateral.
ARTICLE III
Representations and Warranties
------------------------------
The Grantor hereby represents and warrants to the Collateral
Agent, which representations and warranties shall survive execution and delivery
of this Agreement, as follows:
SECTION 3.01. Validity, Perfection and Priority. The security
interests in the Collateral purported to be granted to the Collateral Agent
hereunder by the Grantor constitute valid and continuing first priority
perfected security interests in the Collateral.
2
<PAGE> 3
SECTION 3.02. No Liens; Other Financing Statements. (a) Except
for the Lien granted to the Collateral Agent hereunder or under any other Loan
Document, the Grantor owns and, as to all Collateral in which a security
interest is purported to be created hereunder, whether now existing or hereafter
acquired, will continue to own, each item of such Collateral free and clear of
any and all Liens, rights or claims of all other Persons, and the Grantor shall
defend such Collateral against all claims and demands of all Persons at any time
claiming the same or any interest therein adverse to the Collateral Agent
hereunder or under any other Loan Document.
(b) No financing statement or other evidence of Lien covering
or purporting to cover any of the Collateral purported to be granted hereby by
the Grantor is on file in any public office other than financing statements
filed or to be filed in connection with the security interests granted to the
Collateral Agent hereunder or under any other Loan Document.
SECTION 3.03. Basic Representations and Warranties. (a) The
Grantor is duly organized and validly existing in good standing as a corporation
under the laws of Wisconsin.
(b) The Grantor has the power and authority to execute,
deliver and carry out the terms and provisions of this Agreement and to
establish the Account and has taken all necessary action to authorize the
execution, delivery and performance by it of this Agreement and the
establishment and maintenance of the Account. The Grantor has duly executed and
delivered this Agreement, and this Agreement constitutes its legal, valid and
binding obligation of the Grantor, enforceable against it in accordance with its
terms.
ARTICLE IV
Further Assurances
------------------
The Grantor will from time to time at the expense of the
Grantor, promptly execute, deliver, file and record all further instruments,
endorsements and other documents, and take such further action as the Collateral
Agent may deem reasonably desirable in obtaining the full benefits of this
Agreement and of the rights, remedies and powers herein granted.
ARTICLE V
Power of Attorney
-----------------
The Grantor hereby irrevocably constitutes and appoints the
Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Grantor and in the name of the
Grantor or in its own name, upon the occurrence and during the continuance of an
Event of Default, from time to time in the Collateral Agent's discretion, for
the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action by any technologically available means, which may include,
without limitation, any form of electronic data transmission, and to execute in
any appropriate manner, which may include, without limitation, using any symbol
that the Collateral Agent may adopt to signify the Grantor's intent to
authenticate, any and all documents and instruments which may be necessary or
desirable to protect the Collateral Agent and the Secured Parties' interest in
the Collateral or to exercise the rights and remedies with respect thereto
hereunder and under the other Loan Documents.
3
<PAGE> 4
This power of attorney is a power coupled with an interest
and shall be irrevocable.
ARTICLE VI
Remedies; Rights Upon Default
-----------------------------
SECTION 6.01. Rights and Remedies Generally. If an Event of
Default shall occur and be continuing, then and in every such case, the
Collateral Agent shall have all the rights of a secured party under the UCC,
shall have all rights now or hereafter existing under all other applicable laws,
and, subject to any mandatory requirements of applicable law then in effect,
shall have all the rights set forth in this Agreement and all the rights set
forth with respect to the Collateral or this Agreement in any other Security
Document.
SECTION 6.02. Expenses; Attorneys Fees. The Grantor shall
reimburse the Collateral Agent for all its reasonable expenses in connection
with the exercise of its rights hereunder, including, without limitation, all
reasonable attorneys' fees and legal expenses incurred by the Collateral Agent.
All such expenses shall be secured hereby.
SECTION 6.03. Limitation on Duties Regarding Preservation of
Collateral. The Collateral Agent's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the UCC or otherwise, shall be to deal with it in the same
manner as the Collateral Agent deals with similar property for its own account.
Except as otherwise provided herein or in any other Loan Document, the
Collateral Agent shall have no other obligation with respect to the Collateral.
ARTICLE VII
Miscellaneous
-------------
SECTION 7.01. Termination. This Agreement shall terminate on
February 15, 1999, or such earlier date on which all Deposited Funds have been
used (i) to finance the Acquisition, (ii) to finance other Permitted
Acquisitions, (iii) to pay related fees and expenses or (iv) to prepay Loans in
accordance with Section 2.13(d) of the Credit Agreement. At the time of such
termination, so long as no Default or Event of Default shall have occurred and
be continuing, to the extent that there is Collateral remaining in the Account,
such Collateral (but not any investment earnings, if any, thereon, which shall
be for the account of the Grantor) shall be applied by the Administrative Agent
to the prepayment of Loans in Accordance with Section 2.13(d) of the Credit
Agreement. If the maturity of the Loans has been accelerated pursuant to Article
VII of the Credit Agreement, then the Administrative Agent may, in its
discretion, apply the Collateral remaining in the Account (and all investment
earnings, if any, thereon) to any of the Obligations in accordance with the
terms of the Credit Agreement and the other Loan Documents.
SECTION 7.02. Right of Setoff. If an Event of Default shall
have occurred and be continuing, the Collateral Agent is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all amounts in the Account against any of and all the
Obligations now or hereafter existing under the Credit Agreement and other Loan
Documents, irrespective of whether or not any demand under the Credit Agreement
or such other Loan Document shall have been made and although such obligations
may be unmatured. The rights of the Collateral
4
<PAGE> 5
Agent under this Section 7.02 are in addition to any other rights and remedies
(including other rights of setoff) which the Collateral Agent may have.
SECTION 7.03. Notices. All notices and other communications
hereunder shall be made at the addresses, in the manner and with the effect
provided in Article IX of the Credit Agreement.
SECTION 7.04. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
SECTION 7.05. Loan Document. This Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof.
IN WITNESS WHEREOF, the Grantor, the Administrative Agent, and
the Collateral Agent have caused this Agreement to be duly executed and
delivered as of the date first above written.
NEENAH FOUNDRY COMPANY,
by
---------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as Administrative
Agent and Collateral Agent,
by
----------------------------------
Name:
Title:
5
<PAGE> 6
SCHEDULE I
Account
-------
Account Name Account No.
- ------------ -----------
Neenah Foundry Co ###-##-####
Cash Collateral A/C
6
<PAGE> 1
EXHIBIT 10.18
EXECUTION COPY
EXECUTIVE EMPLOYMENT AND CONSULTING AGREEMENT
EXECUTIVE EMPLOYMENT AND CONSULTING AGREEMENT dated as of September
15, 1998, by and among Neenah Foundry Company, a Wisconsin corporation,
("Neenah"), Advanced Cast Products, Inc., a Delaware corporation and wholly
owned subsidiary of Neenah ("ACP"), ACP Holding Company, a Delaware corporation
("Holding"), ACP Products L.L.C., a Delaware limited liability company (the
"LLC") for purposes of Articles III and IV hereof only, and James K. Hildebrand
("Executive").
WHEREAS, Executive, ACP and Holding are party to that certain
Executive Employment and SAR Agreement dated as of September 1, 1995, as amended
by the First Amendment thereto dated as of April 30, 1997 (the "Original
Employment Agreement").
WHEREAS, ACP, Holding and Executive desire to terminate the Original
Employment Agreement as of the date hereof, without recourse thereunder and
substitute this Agreement in its stead.
WHEREAS, Neenah, ACP and Executive desire to enter into an agreement
that will provide for (i) the employment of Executive as President and Chief
Executive Officer of Neenah and ACP, (ii) the engagement of Executive as a
consultant to Neenah after the expiration of the term of Executive's employment
hereunder, and (iii) the grant to Executive of certain rights to purchase Units
of the LLC as provided below, for the purpose of granting Executive incentives
which are tied to the success of Neenah, all upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual undertakings contained
herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used herein, the following terms shall have the
following meanings.
"Cause" means (i) Executive's gross negligence or willful misconduct
in the performance of his duties as an employee of Neenah or any other member of
the Neenah Group, or (ii) commission by Executive a felony or a crime involving
moral turpitude or other act causing material harm to the standing and
reputation of any member of the Neenah Group.
<PAGE> 2
EXECUTION COPY
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means collectively (i) the Class A Common Stock, par
value $100.00 per share, and the Class B Common Stock, par value $100.00 per
share of Neenah, and (ii) any capital stock of Neenah issued or issuable with
respect to the securities referred to in clause (i) by way of a stock split,
stock dividend, share combination, share exchange, recapitalization, merger,
consolidation or other reorganization.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
"Executive Units" means, collectively, (i) any Units or securities of
the LLC, Holding, NFC or Neenah hereafter acquired or received by the Executive
from the LLC, Holding, NFC or Neenah pursuant to Section 3.1 hereof or
otherwise, and (ii) any Units or other securities of the LLC, Holding, NFC or
Neenah issued in exchange for or with respect to the Units or securities set
forth in clauses (i) and (ii). Executive Units shall continue to be Executive
Units in the hands of any holder other than such Executive (including, without
limitation, any Permitted Transferee of the Executive), except for the LLC, CVC
or any transferee in an underwritten public offering registered under the
Securities Act. Except as otherwise provided herein, each such other holder of
Executive Units will succeed to all rights and obligations attributable to the
Executive as a holder of Executive Units hereunder. Executive Units will also
include any interest or security issued with respect to the Executive Units by
way of a split, reverse split, dividend, distribution or other recapitalization.
"Fair Market Value" means, as of any date of determination, for each
Executive Unit, the average of the closing per share prices of the sales of the
Common Stock on all securities exchanges on which the Common Stock may at the
time be listed, or, if there have been no sales on any such exchange on any day,
the average of the highest bid and lowest asked prices on all such exchanges at
the end of such day, or, if on any day the Common Stock is not so listed, the
average of the representative bid and asked per share prices quoted in the
NASDAQ National Market System as of 4:00 P.M., New York time, or, if on any day
the Common Stock is not quoted in the NASDAQ National Market System, the average
of the highest bid and lowest asked per share prices on such day in the domestic
over-the-counter market as reported by the NASDAQ National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 trading days consisting of the day as of which the Fair
Market Value is being determined and the 20 consecutive trading days prior to
such day. If at any time the Common Stock is not so listed on any securities
exchange or quoted in the NASDAQ National Market System or the domestic
over-the-counter market, the Fair Market Value will be determined in good faith
by the Required Neenah Members in consultation with the Board.
-2-
<PAGE> 3
EXECUTION COPY
"GAAP" means U.S. generally accepted accounting principles applied in
accordance with Neenah's accounting methodologies and procedures applied on a
consistent basis over the period in question.
"Independent Third Party" means any Person who, immediately prior to
the contemplated transaction, does not own in the aggregate in excess of 5% of
Neenah's Common Stock on a fully-diluted basis (a "5% Owner"), who is not
controlling, controlled by or under common control with any such 5% Owner and
who is not the spouse or descendent (by birth or adoption) of any such 5% Owner
and/or such other Persons. Notwithstanding the foregoing, in no event shall any
of the stockholders of Holding, or Neenah as of the date hereof or any of their
respective affiliates be deemed an Independent Third Party hereunder.
"Neenah Group" means, collectively, Holding, Neenah and their
respective Subsidiaries, successors and assigns.
"NFC" means, NFC Castings, Inc., a Delaware corporation and
wholly-owned subsidiary of Holding.
"Original Cost" means for each Unit acquired by the Executive, the
amounts per Unit paid by the Executive to the LLC or the transferor thereof as
the purchase price for such Unit, in each case, as adjusted for any merger,
consolidation, reclassification, split, reverse split, dividend, distribution or
other recapitalization, as applicable.
"Permitted Transferee" means, as to any Person, a trust, or trusts,
established solely for the benefit of such Person's spouse and/or descendants.
"Person" means an individual, a partnership, a corporation, an
- -association, a joint stock company, a limited liability company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Sale of Neenah" means the sale of Neenah to an Independent Third
Party or group of Independent Third Parties pursuant to which such party or
parties acquire (a) a majority of the outstanding Common Stock of Neenah,
calculated on a fully diluted basis (whether by merger, consolidation,
recapitalization, reorganization or sale or transfer of Neenah's Common Stock or
otherwise), or (b) all or substantially all of Neenah's assets determined on a
consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting
-3-
<PAGE> 4
EXECUTION COPY
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a partnership, association or other business entity, a majority of
the partnership or other similar ownership interest thereof is at the time owned
or controlled, directly or indirectly, by any Person or one or more Subsidiaries
of that Person or a combination thereof. For purposes hereof, a Person or
Persons shall be deemed to have a majority ownership interest in a partnership,
association or other business entity if such Person or Persons shall be
allocated a majority of partnership, association or other business entity gains
or losses or shall be or control the managing director or general partner of
such partnership, association or other business entity.
1.2 Other Terms. Capitalized terms used herein without
definition shall have the meaning ascribed thereto in the Fifth Amended and
Restated Limited Liability Company Agreement of ACP Products, L.L.C. dated as of
September 8, 1998, as the same may be amended, restated or modified from time to
time.
ARTICLE II
EMPLOYMENT
2.1 Employment; Consulting. (a) Neenah agrees to employ
Executive, and Executive hereby accepts employment with Neenah, upon the terms
and conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in Section 2.4 (the "Employment Period"); and (b)
Neenah agrees to retain Executive as a consultant and Executive hereby agrees to
serve as a consultant to Neenah and its Subsidiaries, upon the terms and
conditions set forth in this Agreement, for the period beginning on the last day
of the Employment Period, if not earlier terminated, and ending as provided in
Section 2.5 (the "Consulting Period").
2.2 Position and Duties.
(a) During the Employment Period, Executive shall
serve as President and Chief Executive Officer of Neenah under the supervision
and direction of Neenah's board of directors (the "Board").
(b) During the Employment Period, Executive shall
devote his best efforts and his full business time and attention (except for
permitted vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Neenah Group; provided, that in
the event the Board shall have approved a qualified replacement for Executive
(an "Approved Replacement"), prior to the termination of the Employment Period
but after the
-4-
<PAGE> 5
EXECUTION COPY
second anniversary of the date hereof, Executive shall be required to devote not
more than 40 hours per week to the business affairs of the Neenah Group form the
date such Approved Replacement shall have been appointed by the Board and
commenced exercising the duties of Executive until the end of the Employment
Period (such interim period being referred to herein as, the "Replacement
Period"). Executive shall perform his duties and responsibilities to the best of
his abilities in a diligent, trustworthy, businesslike and efficient manner. So
long as Executive is the duly appointed and acting Chief Executive Officer and
President of Neenah, Executive shall serve as the Chairman of the board of
directors of Neenah and each of its Subsidiaries.
2.3 Base Salary and Benefits.
(a) Base Salary. During the Employment Period,
Executive's base salary shall be $500,000 per annum or such higher rate as the
Board may designate from time to time (the "Base Salary"). Executive's Base
Salary shall be payable in regular installments in accordance with Neenah's
general payroll practices and shall be subject to customary withholding.
(b) Executive Bonus Plan. For each fiscal year during
the Employment Period, Executive will be eligible to receive an annual bonus
based on Neenah's achievement of the Target EBITDA for each such fiscal year as
set forth on the annual business plan for that year as approved by the Board
(with respect to each year, the "Business Plan"). In the event that Neenah, or
one or more of it Subsidiaries consummates an acquisition of another Person
after the date hereof and prior to September 30, 2001, the Business Plan for the
year in which such acquisition occurred will be adjusted in good faith by senior
management and subject to approval by the Board, and such adjusted and approved
plan shall, once approved, be deemed the Business Plan for such year for all
purposes hereunder.
(i) Once the Board has determined (which
determination shall be made within thirty (30) days from the issuance
of the LLC's audited financial statements) the percentage of EBITDA
achieved for such fiscal year as compared to the Target EBITDA for such
fiscal year (the "Achieved EBITDA Percentage"), so long as the Achieved
EBITDA Percentage for such fiscal year equals or exceeds 80%, Executive
shall be entitled to receive a bonus payment in an amount equal to the
product of (x) the Bonus Multiple (as set forth opposite the Achieved
EBITDA Percentage below and as adjusted pursuant to paragraph (ii)
below), (y) 40% and (z) Executive's Base Salary for such fiscal year.
The bonus payment shall be made within thirty (30) days of the Board's
determination of the Achieved EBITDA Percentage, except that quarterly
payments shall be made within thirty (30) days of the end of each of
the first three quarters of the fiscal year such that total payments
amounting to 50% of the estimated accumulated bonus shall have been
paid as of the end of each of the first three quarters of each fiscal
year.
-5-
<PAGE> 6
EXECUTION COPY
ACHIEVED EBITDA
PERCENTAGE BONUS MULTIPLE
----------------------- -----------------------
> 80% 50%
>100% 100%
>110% 150%
>120% 200%
(ii) Each Bonus Multiple set forth above shall
increase linearly as the Achieved EBITDA Percentage increases;
therefore, so long as the Achieved EBITDA Percentage equals or exceeds
80%, in the event the actual Achieved EBITDA Percentage falls between
any of the target Achieved EBITDA Percentages set forth above, the
applicable Bonus Multiple shall be adjusted accordingly; provided, that
in no event shall the Bonus Multiple exceed 200%. For example, (i) in
the event the actual Achieved EBITDA Percentage is 90%, the Bonus
Multiple shall be 75% or (ii) in the event the actual Achieved EBITDA
Percentage is 115%, the Bonus Multiple shall be 175%.
(iii) Notwithstanding the foregoing, no Bonus
shall in any event (A) exceed 100% of Executive's Base Salary for the
applicable fiscal year of Neenah and (B) be payable in the event that
any event of default or default shall have occurred (and shall not have
been cured or waived) with respect to any material contracts,
agreements, loans or other instruments relating to any indebtedness of
Neenah or any other member of the Neenah Group. For the fiscal year
ended September 30, 1998, Executive shall be eligible to receive the
annual bonus ("1998 Bonus") for which Executive would have been paid
pursuant to the terms of the Original Employment Agreement. For
example, if ACP achieves EBITDA of $7.5 million for the 1998 fiscal
year, the 1998 Bonus would equal $61,875 in respect of the ACP bonus
plan and Executive's bonus in respect of Neenah will be in accordance
with the Neenah bonus plan as in existence as of the date hereof.
(c) Benefits. In addition to the Base Salary and any Bonuses
payable to Executive pursuant to this Section 2.3, Executive shall be entitled
to the following benefits during the Employment Period, unless otherwise
modified by the Board:
(i) health insurance and disability insurance of
such coverage as reasonably determined by the Board and as provided to
other senior executives of Neenah;
-6-
<PAGE> 7
EXECUTION COPY
(ii) split dollar life insurance in a manner
previously provided to Executive by ACP prior to the date hereof, the
details of which are described on Exhibit A hereto;
(iii) reimbursement (up to a maximum of $800.00
per year) for the cost of one (1) annual physical examination by a
physician of Executive's choice;
(iv) reimbursement for reasonable business
expenses incurred by Executive in the course of performing his duties
under this Agreement which are consistent with Neenah's policies in
effect from time to time and subject to Neenah's requirements with
respect to reporting and documentation of such expenses; and
(v) use of one (1) automobile owned or leased by
Neenah at an expense to Neenah of not more than $12,000.00 per annum.
2.4 Term.
(a) The Employment Period shall end on September 30,
2001, subject to earlier termination (i) by reason of Executive's death or
permanent disability or incapacity (as determined by the Board in its good faith
judgment), (ii) by resolution of the Board, with or without Cause or (iii) upon
Executive's voluntary resignation.
(b) If the Employment Period is terminated by the
Board without Cause, Executive shall be entitled to receive his Base Salary for
the remainder of the Employment Period but no less than eighteen months (but not
any benefits or bonus except as provided in 2.4(c) below) from the date of
termination of Executive's employment, if and only if Executive has not breached
as of the date of termination the provisions of Sections 2.6, 2.7 and 2.8 hereof
and does not breach such sections at any time during such 18 month or longer
period; provided, that Neenah's obligation to make such payments will terminate
upon the occurrence of any such breach during such 18 month period. Any payments
pursuant to this Section 2.4 shall be made in installments on the payment dates
on which such salary would have been paid if the Employment Period had
continued, and as of the date of the final such payment neither Neenah nor any
other member of the Neenah Group shall have any further obligation to Executive
pursuant to this Section 2.4 except as provided by law. EXECUTIVE HEREBY AGREES
THAT NO SEVERANCE COMPENSATION SHALL BE PAYABLE AND HEREBY WAIVES ANY CLAIM FOR
SEVERANCE COMPENSATION EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 2.4.
(c) All of Executive's rights to fringe benefits and
bonuses hereunder (if any) accruing after the termination of the Employment
Period shall cease upon such termination; provided, that (i) such termination
shall have no effect on Executive's rights to benefits and bonuses which have
accrued on or prior to the date of such termination, including,
-7-
<PAGE> 8
EXECUTION COPY
for avoidance of doubt, the amount of the bonus for the year of termination
accrued through the date of termination, and (ii) Neenah shall continue to
provide health insurance and the split dollar life insurance as described in
Section 2.3(c)(i) and (ii) to Executive in the event that, and for period during
which, Executive is entitled to receive payments pursuant to Section 2.4(b)
above.
2.5 Consulting Period.
(a) Consulting Services. Unless the Employment Period
shall have been terminated pursuant to Section 2.4(a)(i), (ii) or (iii), Neenah
agrees to engage Executive as an independent contractor, and not as an employee,
to render consulting services to the Neenah Group as hereinafter provided, and
Executive hereby agrees to accept such engagement, for a period commencing on
the last day of the Employment Period and terminating on the second anniversary
of such date (the "Consulting Period"); provided, that the Consulting Period
shall be automatically extended on an annual basis for consecutive one year
terms unless Executive or Neenah shall have given the other notice (a
"Non-Continuation Notice") not less than 3 months prior to the last day of the
then current Consulting Period of such party's desire to terminate the
Consulting Period as of the last day of the current term; provided, that in no
event shall the Consulting Period be automatically extended beyond the fifth
anniversary of the termination of the Employment Period. During the Consulting
Period, Executive shall not have any authority to bind or act on behalf of
Neenah or any other member of the Neenah Group. During the Consulting Period,
Executive shall render such consulting services to the members of the Neenah
Group in connection with their respective businesses as Neenah from time to time
requests, which services shall include, but shall not be limited to, those
rendered to Neenah and its affiliates by Executive prior to the date hereof or
during the Employment Period; provided, that during the Consulting Period,
Executive shall not be required to perform such services more than five days per
month in the aggregate and such services shall no longer require Executive's
full time and attention.
(b) Compensation; Reimbursement. In consideration of
Executive's consulting services set forth in Section 2.5(a) above, Neenah shall
pay to Executive $ 10,000 per month (the "Consulting Payment"), in regular
installments on the dates on which such payments would have been made had the
Employment Period continued, provided, that Neenah shall have no obligation to
make the Consulting Payment otherwise required hereunder for any succeeding
one-month period if Executive has failed to render such services to Neenah
pursuant hereto as Neenah shall have requested during the immediately preceding
month. During the Consulting Period, Executive shall not be entitled to any
fringe benefits or perquisites from Neenah except that the benefits described in
Section 2.3(c)(i) and (ii) above shall continue during the Consulting Period.
Neenah shall reimburse Executive for all reasonable expenses incurred by him in
the course of performing his duties under this Section 2.5 which are consistent
with Neenah's policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to Neenah's requirements with
respect to reporting and documentation of such expenses.
-8-
<PAGE> 9
EXECUTION COPY
(c) Tax Returns. From and after the commencement of
the Consulting Period, Executive shall file all tax returns and reports required
to be filed by him on the basis that Executive is an independent contractor,
rather than an employee, as defined in Treasury Regulation Section
31.3121(d)-1(c)(2), and Executive shall indemnify Neenah for the amount of any
employment taxes paid by Neenah as the result of Executive not withholding
employment taxes from the Consulting Payment.
2.6 Confidential Information. Executive acknowledges that the
information, observations and data obtained by him while employed by Neenah or
any other member of the Neenah Group concerning the business or affairs of the
Neenah Group ("Confidential Information") are the property of Neenah or such
other member of the Neenah Group. Therefore, Executive agrees that he shall not
disclose to any unauthorized person or use for his own account any Confidential
Information without the prior written consent of the Board, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive shall deliver to Neenah at the termination of Executive's
employment, or at any other time Neenah may request, all memoranda, notes,
plans, records, reports, computer tapes and software and other documents and
data (and copies thereof) relating to the Confidential Information, Work Product
(as defined below) and the business of the Neenah Group which he may then
possess or have under his control.
2.7 Inventions and Patents. Executive agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports, and all similar or related information which relates to the
Neenah Group's actual or anticipated business, research and development or
existing or future products or services and which are conceived, developed or
made by Executive while employed by Neenah or any other member of the Neenah
Group ("Work Product") belong to Neenah or such other member of the Neenah
Group. Executive will promptly disclose such Work Product to the Board and
perform all actions reasonably requested by the Board (whether during or after
Executive's employment period) to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
2.8 Noncompete, Nonsolicitation.
(a) Executive acknowledges that in the course of his
employment with Neenah or any other member of the Neenah Group he has become
familiar, and he will become familiar, with the Neenah Group's trade secrets and
with other Confidential Information and that his services have been and will be
of special, unique and extraordinary value to the Neenah Group. Therefore,
Executive agrees that, during the Employment Period and the Consulting Period
and such other time as he is employed by Neenah or any other member of the
Neenah Group and for eighteen months thereafter (the "Noncompete Period"),
Executive shall not directly
-9-
<PAGE> 10
EXECUTION COPY
or indirectly own, manage, control, participate in, consult with, render
services for, or in any manner engage in any business (including by himself or
through any other entity) competing with the businesses of the Neenah Group as
such businesses exist or are in process on the date of the termination of
Executive's employment, within any geographical area in which the Neenah Group
engages or plans on the date of the termination of Executive's employment to
engage in such businesses. Nothing herein shall prohibit Executive from being a
passive owner of not more than 2% of the outstanding stock of a corporation
which is publicly traded, so long as Executive has no active participation in
the business of such corporation.
(b) During the Noncompete Period, Executive shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of Neenah or any other member of the Neenah Group to leave the
employ of Neenah or such other member of the Neenah Group, or in any way
interfere with the relationship between any member of the Neenah Group and any
employee thereof, (ii) hire any person who was an employee of the Neenah Group
at any time within the six-month period prior to the date of termination of
Executive's employment with Neenah or any other member of the Neenah Group, or
(iii) induce or attempt to induce any customer, supplier, licensee or other
business relation of Neenah or any other member of the Neenah Group to cease
doing business with Neenah or such other member of the Neenah Group, or in any
way interfere with the relationship between any such customer, supplier,
licensee or business relation and Neenah or any other member of the Neenah
Group.
(c) If, at the time of enforcement of this Section
2.8, a court shall hold that the duration, scope or area restrictions stated
herein are unreasonable under circumstances then existing, the parties agree
that the maximum duration, scope or area reasonable under such circumstances
shall be substituted for the stated duration, scope or area and that the court
shall be allowed to revise the restrictions contained herein to cover the
maximum period, scope and area permitted by law.
(d) In the event of a breach or a threatened breach
by Executive of any of the provisions of this Section 2.8, Neenah or any other
member of the Neenah Group, in addition and supplementary to other rights and
remedies existing in its favor, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof
(without posting a bond or other security).
(e) In the event that (i) the Employment Period is
terminated, (ii) Neenah is obligated to make the payments to Executive described
in Section 2.4, and (iii) Neenah fails to tender to Executive two consecutive
installments of such payments (as set forth in Section 2.4), Executive's
obligations to the Neenah Group under this Section 2.8 shall terminate as of the
date such second installment was due and not paid.
-10-
<PAGE> 11
EXECUTION COPY
ARTICLE III
RIGHTS TO PURCHASE UNITS
3.1 Units Offered to Management. (a) During the Employment
Period, other than any Replacement Period, and subject to the provisions of this
Article III and Article IV hereof, if any Units of the LLC are offered to the
senior managers of Neenah or of any other member of the Neenah Group, Executive
shall be entitled to purchase such number of Units as the Board and the LLC
shall determine, on terms and conditions no less favorable to Executive than the
terms and conditions on which such Units are offered to any of such managers.
(b) As an inducement to Neenah to enter into this
Agreement to employ Executive and as an inducement to the LLC to offer Units to
Executive in accordance with Section 3.1(a) above, and upon the sale to
Executive of 11,137.26 Class C-3 Common Units pursuant to that certain Executive
Unit Purchase Agreement dated as of the date hereof by and among the LLC, CVC
and Executive (the "SAR Exchange Agreement"), Executive hereby waives and
relinquishes all rights of Executive under the Original Employment Agreement,
including, without limitation, pursuant to Section 3.2 thereof. As a further
inducement to the LLC to offer Units to Executive, and as a condition thereto,
Executive acknowledges and agrees that neither the issuance of any Units to
Executive nor any provision contained herein, other than the provisions of
Article II, shall entitle Executive to remain in the employment of Neenah, ACP
or any other member of the Neenah Group or affect the right of Neenah, ACP or
any other member of the Neenah Group to terminate Executive's employment at any
time for any reason.
3.2 Closing. The issuance and delivery of any Executive Units
shall occur at such time and place as Executive, Neenah and the LLC shall agree
(each a "Unit Closing Date"). On each Unit Closing Date, (i) Executive shall pay
to the LLC the purchase price for the Executive Units in immediately available
funds or such other form of payment acceptable to the LLC and (ii) the LLC will
issue and deliver certificates for the Executive Units to Executive to the
extent such Units are certificated.
3.3 83(b) Election. Within thirty (30) days after Executive
acquires any Executive Units from the LLC, Executive will make an effective
election with the Internal Revenue Service under Section 83(b) of the Code in
the form attached hereto as EXHIBIT B.
ARTICLE IV
VESTING OF UNITS
4.1 Vesting. All Executive Units are subject to the vesting
provisions contained in this Article IV and, unless otherwise agreed between the
LLC, Neenah, CVC and Executive, none of the Executive Units will be vested as of
the date of acquisition thereof; provided, that for the avoidance of doubt, the
Units acquired by Executive pursuant to the SAR Exchange
-11-
<PAGE> 12
EXECUTION COPY
Agreement shall be subject to the vesting provisions contained therein. So long
as Executive shall have been employed by Neenah pursuant to Section 2.1 or shall
have been performing the services requested of Executive, if any, pursuant to
Section 2.5 through each anniversary (each, a "Vesting Date") of the date or
dates on which any Executive Units are purchased or otherwise acquired by
Executive (each, a "Purchase Date"), twenty percent of the total Executive Units
acquired on any given Purchase Date shall vest in Executive as of such Vesting
Date (such Executive Units which have so vested, the "Vested Units", and any
Executive Units which have not so vested, the "Unvested Units") such that the
total number of Executive Units acquired on any given Purchase Date shall have
become Vested Units as of the fifth anniversary of each such Purchase Date
assuming compliance with the preceding clause. If the Consulting Period
terminates in accordance with its terms as a result of Neenah or Executive
having given a Non- Continuation Notice, any Executive Units which are Unvested
Units as of the last day of the Consulting Period shall continue to vest on each
anniversary date of a Purchase Date, subject to earlier repurchase pursuant to
Section 4.2, in accordance with the preceding sentence notwithstanding that
Executive shall no longer be employed by Neenah.
4.2 Repurchase of Executive Units; Sale of Neenah.
(a) Repurchase Option. If (i) prior to the earlier of
the date Executive's successor as President and Chief Executive Officer of
Neenah has been appointed to such position by the Board or September 30, 2001,
Executive ceases to be employed by Neenah for any reason, including the death or
permanent disability of Executive, or (ii) Executive shall be in material breach
of any provision of this Agreement (the date as of which such termination or
other event occurs, the "Termination Date"), the LLC and CVC shall have an
option (a "Repurchase Option"), exercisable within 180 days following the
Termination Date (the "Expiration Date"), to purchase, or designate a third
party to purchase, from Executive and his or her Permitted Transferees, if any,
any of Executive Units held thereby at a price per share as determined pursuant
to Section 4.2(e) below. In connection with such Repurchase Option, the LLC
shall provide written notice to CVC promptly after the Termination Date, of the
number of Executive Units subject to the Repurchase Option and the purchase
price for each such Executive Unit. CVC may transfer its rights under this
Section 4.2 to any of its Permitted Transferees.
(b) Repurchase by the LLC. Within 45 days after the
Termination Date, the LLC may exercise, or designate a third party to exercise,
its Repurchase Option by delivery of written notice (each, a "Repurchase
Notice") to the holder or holders of Executive Units. The Repurchase Notice
shall set forth the number of Executive Units to be acquired from such holder or
holders of Executive Units, and the aggregate consideration to be paid for such
Executive Units. The number of Executive Units to be repurchased by the LLC
shall first be satisfied to the extent possible from Executive Units held by
Executive at the time of delivery of the Repurchase Notice. If the number of
Executive Units held by Executive is less than the total number of Executive
Units the LLC has elected to purchase, the LLC shall purchase the
-12-
<PAGE> 13
EXECUTIVE COPY
remaining Executive Units elected to be purchased from the Permitted
Transferee(s) of Executive Units, pro rata according to the number of Executive
Units held by such Permitted Transferee(s) on the Termination Date (determined
as nearly as practicable to the nearest unit).
(c) Repurchase by CVC. If for any reason the LLC does
not elect to purchase all of Executive Units pursuant to the Repurchase Option,
then CVC shall be entitled to exercise, or designate a third party to exercise,
the Repurchase Option for all or any portion of the number of Executive Units
the LLC, or its designee, has not elected to purchase (the "Available Units").
As soon as practicable after the LLC has determined that there will be Available
Units, but in any event within 60 days after the Termination Date, the LLC shall
deliver a written notice (the "Option Notice") to CVC (or its designees) setting
forth the number of Available Units and the purchase price therefor, as
determined pursuant to Section 4.2(e). CVC (or its designee) shall have the
right to purchase all or any portion of the Available Units by giving written
notice to the LLC within 90 days after the Option Notice has been given by the
LLC. As soon as practicable, and in any event within ten (10) days after the
expiration of the 90-day period set forth above, the LLC shall deliver written
notice to each holder of Executive Units and CVC as to the number of Executive
Units being purchased from each such holder by the LLC and CVC and the time and
place of the closing of the transaction (the "Supplemental Repurchase Notice").
At the time the LLC delivers the Supplemental Repurchase Notice to each such
holder of Executive Units, CVC (or its designees) shall also receive written
notice from the LLC setting forth the number of Available Units it has elected
to purchase, the aggregate purchase price and the time and place of the closing
of the transaction. The Repurchase Option with respect to any Executive Units
not repurchased on or prior to the Expiration Date shall terminate (provided
Executive complies with the provisions of this Section 4.2).
(d) Closing of Repurchase of Executive Units. The
purchase of Executive Units pursuant to this Section 4.2 will be closed at the
LLC's executive offices at the time specified in the Supplemental Repurchase
Notice. At the closing, the purchaser or purchasers shall pay the purchase price
in the manner specified in Section 4.2(e) and the holder or holders of Executive
Units being so purchased shall deliver the certificate or certificates (or duly
executed affidavits of lost certificates) representing any such Executive Units
to the purchaser or purchasers or their nominees, accompanied by duly executed
transfer powers. Any purchaser of Executive Units under this Section 4.2 shall
be entitled to receive customary representations and warranties from such holder
or holders of Executive Units being so purchased regarding good title to such
Executive Units, free and clear of any liens or encumbrances.
(e) Repurchase Option Purchase Price.
(i) In the event of Executive's termination of
employment with Neenah for any reason other than for Cause or
Executive's resignation, the
-13-
<PAGE> 14
EXECUTION COPY
purchase price per unit of Executive Units repurchased pursuant to this
Section 4.2 shall be the Fair Market Value thereof, except that the
purchase price per unit of Executive Units which are Unvested Units
shall be the Original Cost thereof.
(ii) In the event of Executive's termination of
employment with Neenah for Cause or Executive's resignation, the
purchase price per unit of Executive Units repurchased pursuant to this
Section 4 shall be the lower of the Fair Market Value thereof and
Original Cost thereof.
For purposes of this Section 4.2(e), Fair Market Value shall be
determined as of the Termination Date. The purchase price for Executive Units
repurchased pursuant to the Repurchase Option shall be paid by a transfer of
immediately available funds or by cashier's or certified check which shall be
delivered to Executive at the closing of such purchase; provided, that the LLC,
to its designee, shall be entitled to pay such purchase price for such Units by
offsetting amounts outstanding under any indebtedness or obligations owed by
Executive to the LLC or such designee.
(f) Termination of Repurchase Option. All rights and
obligations created pursuant to Sections 4.2(a) through 4.2(e) above shall be
extinguished upon the Sale of Neenah.
4.3 Restrictions on Transfer/Pledge. Executive acknowledges
that he shall not sell, transfer, assign, pledge or otherwise dispose of
(whether with or without consideration and whether voluntarily or involuntarily
or by operation of law) any interest in any Executive Units, except in
accordance with the LLC Agreement and with the prior written consent of the LLC
and the Required Voting Neenah Members. Any attempted transfer in violation of
the preceding sentence shall be deemed null and void for all purposes, and the
LLC will not record any such transfer on its books or treat any purported
transferee as the owner of such Unit for any purpose.
4.4 First Refusal Rights. (a) Subject to Section 4.4(b), at
least 60 days prior to any sale, transfer, assignment, pledge or other disposal
(a "Transfer") of Executive Units by Executive, or any Permitted Transferee
thereof, such Person making such Transfer (the "Transferor") shall deliver a
written notice (the "Transfer Notice") to the Company, the LLC and CVC
specifying in reasonable detail the number of Units proposed to be Transferred,
the proposed purchase price (which shall be payable solely in cash), the
proposed transferee (the "Transferee") and the other terms and conditions of the
Transfer. The Company and/or the LLC may elect to purchase all or any portion of
the Executive Units to be so Transferred, upon the same terms and conditions as
those set forth in the Transfer Notice, by delivering a written notice of such
election to the Transferor within 30 days after the Transfer Notice has been
delivered to the Company and the LLC. If the Company and the LLC have not
elected, in the aggregate, to purchase all of the Executive Units to be
Transferred, CVC (or its designee) may elect to
-14-
<PAGE> 15
EXECUTION COPY
purchase all or any portion of the remaining Executive Units to be so
Transferred, upon the same terms and conditions as those set forth in the
Transfer Notice, by giving written notice of such election to the Transferor
within 30 days after the Transfer Notice has been given to CVC (the "CVC Option
Period"). If the Company, the LLC and CVC (or its designee), collectively have
not elected to purchase all of the Executive Units specified in the Transfer
Notice, then the Transferor may Transfer the balance of any Executive Units
specified in the Transfer Notice at a price and on terms no more favorable to
the Transferee thereof than specified in the Transfer Notice, during the 60-day
period immediately following the expiration of the CVC Option Period. Any
Executive Units not Transferred within such 60-day period will be subject to the
provisions of this Section 4.4(a) upon subsequent Transfer.
(a) The restrictions contained in Section 4.4(a) shall not
apply with respect to any Transfer of Executive Units by Executive, pursuant to
applicable laws of descent and distribution or to any Permitted Transferees of
Executive; provided, that the restrictions contained in Section 4.4(a) shall
continue to be applicable to such Executive Units after any such Transfer;
provided further, that the transferees of such Executive Units shall have agreed
in writing to be bound by the provisions of the LLC Agreement, which affect the
Executive Units so transferred, by executing a joinder in substantially the form
attached hereto as Exhibit A.
ARTICLE V
MISCELLANEOUS
5.1 Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
5.2 Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
will be in writing and will be deemed to have been given when delivered
personally, mailed by certified or registered mail, return receipt requested and
postage prepaid, or sent via a nationally recognized overnight courier, or sent
via facsimile to the recipient. Such notices, demands and other communications
will be sent to the chief executive office or last known address of such party,
or to the address indicated below:
-15-
<PAGE> 16
EXECUTION COPY
To Neenah, ACP or the LLC:
2121 Brooks Avenue
Box 729
Neenah, WI 54957
Attention: President
Telecopy No.: (920) 729-3633
with copies (which shall not constitute notice to Neenah) to:
Citicorp Venture Capital, Ltd.
399 Park Avenue - 14th Floor
New York, NY 10043
Attention: John D. Weber
Telecopy No.: (212) 888-2940
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
To Executive:
James K. Hildebrand
c/o Advanced Cast Products, Inc.
525 Metro Place North
Suite 330
Dublin, OH 43017
Telecopy No.: (614) 889-8308
with a copy (which shall not constitute notice to Executive) to:
Carlile Patchen & Murphy
366 East Broad Street
Columbus, OH 43215
Attention: Richard V. Patchen, Esq.
Telecopy No.: (614) 221-0216
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
-16-
<PAGE> 17
EXECUTION COPY
5.3 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
5.4 Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral including, without limitation, the Original Employment
Agreement.
5.5 Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
5.6 Successors and Assigns. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement shall bind and
inure to the benefit of and be enforceable by Executive, Neenah, LLC, with
respect to its rights hereunder, Holding, with respect to its rights hereunder,
CVC, with respect to its rights hereunder, and their respective successors and
assigns; provided that in no event shall Executive's obligations to perform
future services for Neenah or any other member of the Neenah Group be delegated
or transferred by Executive without the prior written consent of Neenah (which
consent may be withheld in its sole discretion). Neenah may assign or transfer
its rights hereunder to any of its affiliates or to a successor corporation in
the event of merger, consolidation or transfer or sale of all or substantially
all of the assets of Neenah.
5.7 No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be applied
to this Agreement.
5.8 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
5.9 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES
HERETO WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF
LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK. ALL QUESTIONS CONCERNING THE LLC OR ITS
-17-
<PAGE> 18
EXECUTION COPY
UNITS OR THE RIGHTS OF ITS MEMBERS SHALL BE GOVERNED BY THE DOMESTIC LAWS OF THE
STATE OF DELAWARE WITH RESPECT TO LIMITED LIABILITY COMPANIES.
5.10 Remedies. Each of the parties to this Agreement
(including CVC) will be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorneys'
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction (without posting any
bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
5.11 Amendment and Waiver. The provisions of this Agreement
may be amended and waived only with the prior written consent of Neenah,
Executive and CVC and any other party hereto that would be affected thereby.
* * * * *
-18-
<PAGE> 19
EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have executed this
Executive Employment and Consulting Agreement as of the date first written
above.
NEENAH FOUNDRY COMPANY
By:
----------------------------
Name:
Title:
ADVANCED CAST PRODUCTS, INC.
By:
----------------------------
Name:
Title:
ACP HOLDING COMPANY
By:
----------------------------
Name:
Title:
ACP PRODUCTS, L.L.C.
By:
----------------------------
Name:
Title:
--------------------------------
JAMES K. HILDEBRAND
ACKNOWLEDGED AND AGREED,
as Third Party Beneficiary
CITICORP VENTURE CAPITAL, LTD.
By:
-------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.19
DALTON CORPORATION,
K. L. DAVIDSON EMPLOYMENT AGREEMENT
THIS AGREEMENT is executed the 8th day of September, 1998, between
Dalton Corporation, an Indiana corporation with its principal office in Warsaw,
Indiana ("Company"), and which is a wholly owned subsidiary of Neenah Foundry
Company ("Neenah"), a Wisconsin corporation with its principal offices in
Neenah, Wisconsin and K. L. Davidson ("Executive").
RECITALS
The Executive currently is employed as Chairman, President and Chief
Executive Officer of the Company, pursuant to an Employment Agreement Contract
dated April 26, 1996 (the "Prior Employment Agreement"), which amended and
restated an agreement initially executed on February 10, 1986. The Executive and
the Company are also parties to certain other agreements, including a Split
Dollar Agreement executed on April 26, 1996, but effective January 1, 1996 (the
"Split Dollar Agreement"), and an Agreement for Payment of Supplemental Benefits
executed on April 26, 1996, but effective January 1, 1996 (the "SERP Agreement"
and together with the Prior Employment Agreement and the Split Dollar Agreement,
the "Prior Agreements"). The Prior Agreements contained certain provisions
relating to payments in the event of a change in control of the Company and post
employment payments and benefits. The Executive, the Company and Neenah wish to
cancel and terminate the Prior Agreements in their entirety, subject to the
incorporation of the Split Dollar Agreement in its entirety and incorporation of
certain terms of the other Prior Agreements into this Agreement, as and to the
extent provided herein, as well as establish an employment relationship between
the Company and Executive for the future.
All of the issued and outstanding stock of the Company has been
acquired by Neenah pursuant to a Stock Purchase Agreement dated August 7, 1998,
the closing of such transaction (the "Closing") occurring immediately prior to
the execution of this Agreement.
The Company, and Neenah desire, due to the Executive's knowledge and
experience, to continue by contract his services as President of the Company,
and the Executive is willing to accept continued employment in such capacities
and in such other capacities as the Board of Directors or the Chairman of the
Board of Neenah shall assign, under the terms and conditions of this Employment
Agreement (the "Agreement").
THEREFORE, in consideration of their mutual undertakings, the parties
agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs the Executive as
President, to render full-time services to the Company and its Subsidiaries for
the term(s) specified in Section 2 and thereafter until such services are
terminated, as herein provided. The Executive hereby accepts and agrees to such
employment. For purposes of this Agreement, "Subsidiary" shall mean any
corporation more than 50% of whose total combined voting stock of all classes is
held by the Company or by another corporation which qualifies as a Subsidiary of
the Company under this definition.
-1-
<PAGE> 2
SECTION 2. TERM. Subject to the provisions for termination as provided in
Section 7, the term of the Executive's employment under this Agreement shall be
one (1) year, commencing on the date of this Agreement. Such one year term shall
be renewed automatically for successive one (1) year terms thereafter, upon
mutual agreement of the Company and the Executive. Subject to the provisions for
termination as provided in Section 7, the Agreement shall continue to renew
annually (but to a date not later than the last day of the month in which the
Executive attains age sixty-five (65)), unless either the Company or the
Executive elects not to renew this Agreement by serving written notice not to
renew on the other party at least three (3) months prior to the anniversary of
the execution of this Agreement. The initial one year term and any extension or
renewal thereof, is referred to herein as the "Employment Period."
SECTION 3. DUTIES.
(a) During the Employment Period, the Executive agrees diligently to
perform such executive duties and administrative functions which are appropriate
to his office and as, from time to time, may be assigned to him by the Board of
Directors of the Company (the "Board") and the Chairman of the Board of Neenah,
and he further agrees to give his full business time and attention to, and his
best efforts to promote, the business and affairs of the Company. The Executive
further agrees to hold such office or offices in any Subsidiary of the Company
to which he may be elected or appointed and to perform and discharge the duties
thereof faithfully and to the best of his ability.
(b) The Executive, subject to the direction and control of the Board,
shall have the power and authority commensurate with his executive status and
necessary to perform his duties hereunder.
SECTION 4. COMPENSATION.
(a) For his services hereunder, during the Employment Period, the
Company shall pay to the Executive, a salary of twenty five thousand and 00/100
Dollars ($25,000) per month, payable in accordance with the normal salary
payment practices of the Company and subject to customary withholding; and,
(b) For each fiscal year during the Employment Period, Executive will
be eligible to receive an annual bonus based on the Company's achievement of the
Target EBITDA for each such fiscal year as set forth on the annual business plan
for that year as approved by the Board (with respect to each year, the "Business
Plan").
(i) Once the Board has determined the percentage of EBITDA achieved for
such fiscal year as compared to the Target EBITDA for such fiscal year (the
"Achieved EBITDA Percentage"), so long as the Achieved EBITDA Percentage for
such fiscal year equals or exceeds 80%, Executive shall be entitled to receive a
bonus payment in any amount equal to the product of (x) the Bonus Multiple (as
set forth opposite the Achieved EBITDA Percentage below and as adjusted pursuant
to paragraph (ii) below), (y) 40% and (z) Executive's Base Salary for such
fiscal year. The bonus payment shall be made within thirty (30) days of the
Board's determination of the Achieved EBITDA Percentage.
Achieved EBITDA
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Percentage Bonus Multiple
---------- --------------
<S> <C>
>80%<100% 50%
>100%<110% 100%
>110%<120% 150%
>120% 200%
</TABLE>
(ii) Each Bonus Multiple set forth above shall increase linearly as the
Achieved EBITDA Percentage increases; therefore, so long as the Achieved EBITDA
Percentage equals or exceeds 80%, in the event the actual Achieved EBITDA
Percentage falls between any of the target Achieved EBITDA Percentages set forth
above, the applicable Bonus Multiple shall be adjusted accordingly; provided,
that in no event shall the Bonus Multiple exceed 200%. For example, in the event
the actual Achieved EBITDA Percentage is 90%, the Bonus Multiple shall be 75% or
in the event the actual Achieved EBITDA Percentage is 115%, the Bonus Multiple
shall be 175%.
(iii) Notwithstanding the foregoing, no bonus shall in any event (A)
exceed 80% of the Executive's Base Salary for the applicable fiscal year and (B)
be payable in the event that any event of default or default shall have occurred
(and shall not have been cured or waived) with respect to any material
contracts, agreements, loans or other instruments relating to any indebtedness
of Neenah or any of its Subsidiaries including the Company.
SECTION 5. EMPLOYEE BENEFITS.
(a) The Executive shall be entitled to participate in such life
insurance (including group life and accidental death and dismemberment
insurance), disability, health benefit and retirement plans and other employee
benefit programs as may be approved from time to time by the Company for the
benefit of its executives.
(b) The Company shall maintain in effect a term policy or policies of
insurance on the life of the Executive in the face amount of Five Hundred
Thousand Dollars ($500,000), owned by the Executive's spouse and payable to such
beneficiary or beneficiaries as the Owner may designate from time to time.
(c) The Executive shall be entitled to a period or periods of paid
vacation each calendar year in accordance with the Company's customary vacation
policy. It is further agreed that Executive may, subject to demands of his
employment and agreement by the Chairman of the Board of Neenah, utilize
vacation above and beyond the customary vacation.
SECTION 6. REIMBURSEMENT OF EXPENSES. The Company shall pay to the
Executive or, to the extent paid in the first instance by him, shall reimburse
the Executive for all reasonable expenses incurred by him in connection with the
performance of his duties hereunder, including travel entertainment and similar
expenses which are consistent with Neenah's policies in effect from time to time
and subject to Neenah's requirements with respect to reporting and
documentation.
SECTION 7. TERMINATION.
(a) The Company shall have the right at any time to terminate the
Executive's employment upon ninety (90) days' prior notice to the Executive, and
the Executive shall have the right to terminate his employment at any time and
for any reason upon ninety (90) days' prior notice
-3-
<PAGE> 4
to the Company and to the Chairman of the Board of Neenah. The Executive's
employment shall also terminate upon his death.
(b) Any termination of the Executive's employment by the Company or by
the Executive shall be communicated by written Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the date on which employment is
anticipated to terminate.
(c) As used herein, "Date of Termination" shall mean (i) if the
Executive's employment is terminated by his death, the date of his death, (ii)
if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination
SECTION 8. PAYMENTS AND OBLIGATIONS UNDER PRE-EXISTING AGREEMENTS.
(a) The Company shall maintain split dollar insurance on the life of
the Executive pursuant to and in accordance with the Split Dollar Agreement
among the Company, the Executive and Fort Wayne National Bank, Trustee, executed
February 3, 1995, as amended and restated, as such Agreement may further be
amended from time to time, which Split Dollar Agreement is attached hereto as
Exhibit 8(a) and made a part hereof.
(b) The Company and Executive hereby agree that the Agreement For
Payment Of Supplemental Benefits between the Company and the Executive executed
February 20, 1995, as amended and restated hereby terminated and is cancelled in
its entirety as of the date hereof and in lieu thereof, commencing on the Date
of Termination of Executive, the Company shall: (i) pay to Executive the sum of
Seven Thousand Four Hundred Sixty-Two Dollars ($7,462) per month for a period of
one hundred eighty (180) months and, in the event of his death before such one
hundred eighty (180) monthly payments are completed, shall continue such
payments to his estate until the expiration of such 180-months period; and (ii)
in addition the Company shall pay to Executive the sum of Five Thousand
Thirty-Eight Dollars ($5,038) per month during his lifetime for a maximum period
of one hundred eighty (180) months and, in the event of this death before such
one hundred eighty monthly payments are completed, shall continue such payment
to his spouse, Carolyn L. Davidson (if she survives), during her lifetime until
the earlier of her death or the expiration of such 180-months period.
SECTION 9. COMPENSATION IN SATISFACTION OF CHANGE OF CONTROL PROVISION
OBLIGATIONS. Under the terms of the Prior Agreement, Executive is entitled to
certain payments upon the change in control of the Company. Included within
those payment entitlements is a cost of living adjustment clause and a formula
based compensation amount. In order to eliminate the necessity of calculation of
the formula bonus and to establish certainty in the sums to be paid, the Company
and Executive agree that the Prior Employment Agreement is hereby terminated and
cancelled in its entirety and the following shall be paid in lieu of the change
of control provisions of the Prior Employment Agreement:
(a) Commencing on the first regular monthly compensation payment date
for the Company following the execution of this Agreement, the Company shall pay
to Executive the sum of Forty-Five Thousand One Hundred Forty-Seven and 58/100
Dollars ($45,147.58) per month, through and including the month of December,
2000 or a total of twenty-eight such monthly payments. In the event of the
Executive's death prior to completion of all payments pursuant to this
-4-
<PAGE> 5
Section 9, the Company shall continue payments required hereby to Executive's
spouse, Carolyn L. Davidson (if she survives) until a total of twenty-eight (28)
such monthly payments have been made. In the event that fewer than twenty-eight
monthly payments have been made at the time of the death of Carolyn L. Davidson,
the remaining payments shall be made to a beneficiary or beneficiaries
designated in a written instrument by the Executive and filed with the Secretary
of the Company. If no such designated beneficiary survives the Executive or if
the Executive fails to designate a beneficiary, payment shall be made to the
Executive's estate. If the designated beneficiary to whom payment has commenced
should die before payments are completed, payment shall be continued to the
estate of the deceased beneficiary.
(b) In addition to the payments required by Section 8(a) of this
Agreement, the Company shall pay to the Executive, on or before September 30,
1998, the sum of Two Hundred Twenty-Seven Thousand One Hundred Forty-Nine and
28/100 dollars ($227,149.28) in lieu of the pro rata portion of the compensation
which would be due to Executive pursuant to Section 4 of the Prior Employment
Agreement.
SECTION 10. POST TERMINATION OBLIGATION OF COMPANY.
(a) Upon the termination of employment of the Executive, whether by the
Company, or the Executive, the Company shall maintain (or cause to be
maintained) in full force and effect, for the continued benefit of the
Executive, until the earlier of (i) the date he attains age sixty-five (65) or
(ii) the date of his death, The Dalton Foundries, Inc. Employees Health Benefit
Plan in which the Executive was entitled to participate as provided in Section 5
of this Agreement, provided the Executive's continued participation is possible
under the general terms and conditions of such plan. In the event the
Executive's continued participation in such plan is barred, the Company shall
arrange to provide the Executive with benefits substantially similar to those
which he would otherwise have been entitled to receive under such plan.
(b) Following any termination of the Executive's employment and in
addition to any rights of indemnification otherwise provided or available to
him, if the Executive is made or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he was an
officer or a director of the Company or served at the request of the Company as
an officer, director, employee or agent of another entity or enterprise, whether
or not for profit, the Company shall indemnify the Executive against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement reasonably incurred in connection with such action, suit or
proceeding if his actions were taken in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, he had no reasonable cause, to
believe the conduct was unlawful or had reasonable grounds to believe the
conduct was lawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the Executive did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his conduct was
unlawful.
(C) EXECUTIVE HEREBY ACKNOWLEDGES AND AGREES THAT (I) THE COMPANY HAS
NO OTHER OBLIGATIONS TO THE EXECUTIVE IN RESPECT TO HIS EMPLOYMENT WITH THE
COMPANY EXCEPT AS
-5-
<PAGE> 6
PROVIDED HEREIN, (II) NO SEVERANCE COMPENSATION OF ANY KIND, NATURE OR AMOUNT
SHALL BE PAYABLE TO EXECUTIVE UPON THE TERMINATION OF THIS AGREEMENT AND HIS
EMPLOYMENT WITH THE COMPANY OTHER THAN IN ACCORDANCE WITH THIS AGREEMENT AND
(III) EXECUTIVE HEREBY WAIVES ANY CLAIM FOR ANY SEVERANCE OR OTHER COMPENSATION
IN CONNECTION THEREWITH EXCEPT AS EXPRESSLY SET FORTH IN SECTION 8 AND SECTION 9
ABOVE.
(d) All of Executive's rights to salary, fringe benefits and bonuses
hereunder (if any) accruing after the termination of the Employment Period shall
cease upon such termination, subject to the requirements of Section 10(a) above,
provided that Executive shall continue to be entitled to payment set forth in
Section 8 and Section 9 above.
SECTION 11.FURTHER COVENANTS OF EXECUTIVE.
(a) For purposes of this Section 11, the term "Company" includes any
direct or indirect parent or Subsidiary of the Company.
(B) CONFIDENTIAL INFORMATION. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
concerning the business or affairs of the Company ("Confidential Information")
are the property of the Company. Therefore, Executive agrees that he shall not
disclose to any unauthorized person or use for his own account any Confidential
Information without the prior written consent of the Board, unless and to the
extent that the aforementioned matters become generally known to and available
for use by the public other than as a result of Executive's acts or omissions to
act. Executive shall deliver to Neenah at the time of termination of Executive's
employment, or at any other time Neenah may request, all memoranda, notes,
plans, records, reports, computer tapes and software and other documents and
data (and copies thereof) relating to the Confidential Information, Work Product
(as defined below) and the business of the Company which he may them possess or
have under his control.
(C) INVENTIONS AND PATENTS. Executive agrees that all inventions,
innovations, improvements, developments, methods, designs, analyses, drawings,
reports, and all similar or related information which relates to the Company's
actual or anticipated business, research development or existing or future
products or services and which are conceived, developed or made by Executive
while employed by the Company ("Work Product") belong to the Company. Executive
will promptly disclose such Work Product to the board and perform all actions
reasonably requested by the Board (whether during or after Executive's
employment period) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
(D) NONCOMPETE, NON-SOLICITATION.
(i) Executive acknowledges that in the course of his employment with the
Company he has become familiar, and he will become familiar, with the Company's
trade secrets and with other Confidential Information and that his services have
been and will be of special, unique and extraordinary value to the Company.
Therefore, Executive agrees that, during the Employment Period and such other
time as he is employed by or otherwise receiving compensation from the Company
and for two years thereafter (the "Noncompete Period"), Executive shall not
directly or indirectly own, manage, control, participate in, consult with,
render services for, or in any manner engage in any business (including by
himself or through any other entity) competing with the
-6-
<PAGE> 7
businesses of the Company as such businesses exist or are in process on the date
of the termination of Executive's employment, within any geographic area in
which the Company engages or plans on the date of the termination of Executive's
employment to engage in such businesses. Nothing herein shall prohibit Executive
from being a passive owner of not more than 2% of the outstanding stock of a
corporation which is publicly traded, so long as Executive has no active
participation in the business of such corporation.
(ii) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (A) induce or attempt to induce any employee
of the Company to leave the employ of the Company, or any way interfere with the
relationship between any member of the Company and any employee thereof, (B)
hire any person who was an employee of the Company at the time within the
twelve-month period prior to the date of termination of Executive's employment
with the Company, or (C) induce or attempt to induce any customer, supplier,
licensee or other business relation to the Company to cease doing business with
the Company, or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company.
(iii) If, at the time of enforcement of this Section 11, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(iv) In the event of a breach or a threatened breach by Executive of any
of the provisions of this Section 11, the Company, in addition and supplementary
to other rights and remedies existing in its favor, may apply to any court of
law or equity of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any violations of the
provisions hereof (without posting a bond or other security).
SECTION 12. NOTICE. All notices, consents or demands given under this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered to, or mailed by prepaid registered or certified mail addressed to,
the party for whom intended, as follows, or to such other address as may be
furnished by such party in the manner provided herein:
If to the Executive: K. L Davidson
3 EMS T 35 A Lane
Leesburg, Indiana 46538
-7-
<PAGE> 8
If to the Company: Dalton Corporation
P. O. Box 230
Warsaw, Indiana 46581-0230
with copies, which shall not constitute notice to the Company, to:
Neenah Foundry Company
2121 Brooks Avenue
Neenah, Wisconsin 54957
If to Neenah: Neenah Foundry Company
2121 Brooks Avenue
Neenah, Wisconsin 54957
with copies, which shall not constitute notice to the Neenah, to:
Kirkland & Ellis
Attn: Kirk A. Radke
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
SECTION 13. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed under the laws of the State of Indiana applicable to
agreements fully to be performed in the State of Indiana.
SECTION 14. ENTIRE AGREEMENT. This Agreement, and the exhibits and
attachments hereto, sets forth the entire understanding of the parties hereto
with respect to its subject matter, merges and supersedes all prior and
contemporaneous understandings with respect to its subject matter including
without limitation, the Prior Agreements, and may not be waived or modified, in
whole or in part, except by a writing signed by each of the parties hereto. No
waiver of any provision of this Agreement in any instance shall be deemed to be
a waiver of the same or any other provision in any other instance.
SECTION 15. SUCCESSOR TO COMPANY. Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business or assets of the Company, by
agreement in form and substance satisfactory to the Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. A failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder. As used in this
Agreement, "Company" shall mean the Company as herein defined and any successor
to its business or assets.
-8-
<PAGE> 9
SECTION 16. ASSIGNMENT; BINDING EFFECT. This Agreement is personal to the
Executive and shall not be assigned by him. Neither shall the Executive grant a
security interest in or otherwise transfer his right or interest in any benefit
under this Agreement, nor shall any such right or interest be subject to
attachment, levy, execution or other legal or equitable process. The Company may
assign its rights under this Agreement to a parent or subsidiary corporation or
to any successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) of substantially all of its business or assets. Subject to the
foregoing provisions of this Section 16, this Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors,
assigns, personal representatives, heirs, legatees and beneficiaries.
SECTION 17. PROVISIONS WHICH SURVIVE. The provisions of Section 5 and
Section 8 through Section 16 (as well as any other provision necessary for these
sections to be effective) shall survive the termination of the Executive's
employment hereunder and the termination of this Agreement for any reason.
SECTION 18. SEVERABILITY. If any provision of this Agreement or its
application to any person or entity or in any circumstance is held to be invalid
or unenforceable to any extent or in any jurisdiction by a court of competent
jurisdiction, this Agreement shall be interpreted and enforceable as if such
provision were severed or limited, to the extent necessary to render such
provision and this Agreement enforceable, but the application of its provisions
to other persons or entities or in other circumstances and in other
jurisdictions shall not be affected.
SECTION 19. COUNTERPARTS. This Agreement may be executed in two (2) or
more counterparts, each shall be an original, but all of which together shall
constitute one and the same instrument.
EXECUTED on the date first stated above.
COMPANY
DALTON CORPORATION
By:_________________________________
Title:______________________________
EXECUTIVE
_________________________________
K. L. Davidson
-9-
<PAGE> 10
K. L. DAVIDSON SPLIT DOLLAR AGREEMENT
(AMENDED AND RESTATED)
THIS AGREEMENT is executed the 26th day of April, 1996, effective the
1st day of January, 1996, among The Dalton Foundries, Inc., an Indiana
corporation (Company), K. L. Davidson (Executive) and Fort Wayne National Bank,
as Trustee of the Kenneth L. Davidson Irrevocable Trust dated the 6th day of
December, 1994 (Owner).
RECITALS
The Executive holds a key executive and management position with the
Company and currently is employed pursuant to an Amended and Restated Employment
Agreement executed currently herewith (Employment Agreement). The Company, the
Executive and the Owner entered into a Split Dollar Agreement executed February
3, 1995, effective the 1st day of December, 1994 (1994 Agreement) to provide
life insurance protection for the Executive's family upon his death under a
policy of life insurance insuring his life (Policy) issued by Metropolitan Life
Insurance Company (Insurer). The Policy is described in Exhibit "A" attached to
the 1994 Agreement and is incorporated as if fully set forth herein.
The Owner is the Policy owner and possesses all incidents of ownership
in and to the Policy. Pursuant to the 1994 Agreement the Company agreed to pay
all premiums due on the Policy as an additional employment benefit to the
Executive, and the Owner collaterally assigned the Policy to the Company to
secure the repayment of Policy premiums paid by the Company, with the
understanding that the Company shall have only the right to repayment with the
Owner retaining all other Policy ownership rights.
The parties have now agreed to amend and restate the 1994 Agreement,
upon the terms and conditions of this Amended and Restated Agreement
(Agreement).
THEREFORE, in consideration of their mutual undertakings, the parties
agree as follows:
-10-
<PAGE> 11
1. Purchase of Policy. The Owner has purchased the Policy from the
Insurer, and the Insurer has issued the Policy. The parties shall take such
further action, if any, as may be necessary to cause the Policy to conform to
the provisions of this Agreement. The Policy shall be subject to the terms and
conditions of this Agreement and the Collateral Assignment (referred to in
Paragraph 4) filed with the Insurer.
2. Ownership of Policy.
(a) The Owner is and shall be the sole and absolute owner of the
Policy. In such capacity the Owner shall have the right to designate
the beneficiary or beneficiaries, the right to change the beneficiary
or beneficiaries, and the right to elect settlement options under the
Policy. In general, the Owner shall possess all incidents of ownership
in the Policy and shall be entitled to exercise all of the rights and
privileges available to the Owner of the Policy under the terms
thereof, subject to the terms and conditions of this Agreement.
(b) The Company shall have no incidents of ownership in the
Policy within the meaning of Section 2042 of the Internal Revenue Code
and the regulations thereunder, shall have no right to borrow against
the Policy nor make any type of loan against the security of the
Policy, and shall not surrender the Policy for cancellation nor assign
its rights in the Policy to anyone other than the Owner. The parties
intend that the Company's sole right under this Agreement shall be the
refund, from the proceeds of the Policy, of amounts it has paid toward
Policy premiums. Specifically, but without limitation, the Company
shall neither have nor attempt to exercise any right as collateral
assignee of the Policy which could impair the Owner's right to receive
the cash surrender value or death proceeds of the Policy in excess of
amounts due the Company hereunder. All provisions of this Agreement
and the collateral assignment shall be construed and enforced to carry
out such intention.
3. Premiums. On or before the due date of each Policy premium the
Company shall pay the full amount of the premium to the Insurer and shall upon
written request furnish the Owner with evidence of such timely payment. The
Company shall furnish the Executive an annual statement of the Executive's
reportable income for federal and state income tax purposes arising as a result
of the insurance protection provided to the Owner as Policy beneficiary. The
premium payment period may be changed by the Company to the extent necessary to
maintain compliance of the Policy with Sections 7702 and 7702A of the Internal
Revenue Code and the regulations thereunder. Upon a failure of the Company to
pay any policy premium as required under this Agreement, the Owner shall have
the right to pay such premium. Payment by the Owner shall not relieve the
Company of its continuing obligation to pay policy premiums.
4. Collateral Assignment. As security for the Company's right to
receive repayment of Policy premiums, the Owner has executed a collateral
assignment of the Policy, in the form prescribed by the Insurer for such
purpose, providing that the sole right of the Company thereunder is to be repaid
the amounts paid by the Company toward Policy premiums under this Agreement.
Such
11
<PAGE> 12
repayment shall be made from the Policy cash surrender value (as defined in the
Policy) if this Agreement is terminated or if the Owner surrenders or cancels
the Policy, or from Policy death proceeds if the Executive dies while the Policy
and this Agreement remain in effect. In no event shall the Company have any
right to borrow against or make withdrawals from the Policy, to surrender or
cancel the Policy, or to take any other action which would impair the Owner's
rights in and to the Policy. The collateral assignment to the Company shall not
be terminated, amended or otherwise modified by the Owner while this Agreement
is in effect without the express written consent of the Company.
5. Policy Proceeds.
(a) Upon the Executive's death or upon any cancellation of the
Policy, the Company and the Owner shall cooperate to secure the prompt
payment by the Insurer of all Policy proceeds, whether in the form of
the death benefit or the cash surrender value ("Proceeds").
(b) Following the Executive's death the Company shall have the
unqualified right to receive that portion of the Proceeds equal to the
total amount of the Company's premium payments under this Agreement.
The balance of the Proceeds shall be paid to the Owner in accordance
with applicable Policy provisions.
(c) Notwithstanding any other provision of this Agreement, in the
event no death benefit is payable under the Policy upon the
Executive's death for any reason and in lieu of such payment the
Insurer refunds all or any part of the Policy premiums paid, the
Company shall be entitled to such premium refund.
(d) The Company may request or the Insurer may be required to
provide an increase in the Policy death benefit in order to maintain
compliance of the Policy with Sections 7702 and 7702A of the Internal
Revenue Code and the regulations thereunder.
6. Termination.
(a) Following the Executive's death this Agreement shall terminate
upon payment of the Policy proceeds to the Company and the Owner, in
accordance with their respective interests as provided in this
Agreement.
(b) Subject to the provisions of Paragraph 8, this Agreement shall
terminate during the Executive's lifetime upon the occurrence of:
(i) the termination of the Executive's employment, by the
Company, for Cause;
(ii) the termination, by the Executive, of his employment
pursuant to Section 7(a) of the Employment Agreement prior to his
retirement at or after age 65 (unless the Board of Directors in its
discretion shall approve his retirement at an earlier age); or
(iii) the mutual, written consent of the Company and the Owner.
12
<PAGE> 13
For purposes of this Agreement, "Cause" shall have the meaning provided
in Section 7(b) of the Employment Agreement.
7. Disposition of Policy on Termination During Employee's Lifetime.
(a) For sixty (60) days following the termination of this Agreement
during the Executive's lifetime as provided in Paragraph 6(b), the
Owner shall have the option to obtain the release of the collateral
assignment to the Company by paying to the Company an amount equal to
the proceeds to which the Company would be entitled upon surrender of
the Policy as permitted herein. Upon receipt of such amount, the
Company shall release the collateral assignment of the Policy by the
execution and delivery of an appropriate instrument of release.
(b) If the Owner fails to exercise such option, then at the request
of the Company the Owner shall execute such documents as required by
the Insurer to transfer the Owner's interest in the Policy to the
Company. Alternatively, the Company may enforce its right to be repaid
the Policy premiums paid by it from the Policy's cash surrender value
under the collateral assignment; provided, that in the event the
Policy's cash surrender value exceeds the amount due the Company, any
excess shall be paid to the Owner. Thereafter, neither the Owner nor
the Owner's successors, assigns or beneficiaries shall have any
further interest in the Policy, either under the terms thereof or
under this Agreement.
8. Change in Control. If the Executive's employment is terminated for
any reason (other than his death) following a Change in Control of the Company,
upon such termination the Executive shall be deemed conclusively to have
attained the age of 65 and retired on the Date of Termination. In such event
this Agreement and the Company's obligation to pay Policy premiums shall
continue in full force and effect. Upon any failure to pay such premiums the
Company shall be deemed conclusively to have waived its right to reimbursement
of Policy premiums paid or to be paid, and the collateral assignment of the
Policy shall be deemed conclusively to have been released. (If requested by the
Insurer, the Company shall promptly execute and deliver an appropriate
instrument of release.) However, such release or deemed release of the
collateral assignment shall not relieve the Company of its obligation to
continue the payment of Policy premiums. For purposes of this Agreement, "Change
in Control" shall have the meaning provided in Section 7(c)(2) of the Employment
Agreement, and "Date of Termination" shall have the meaning provided in Section
7(e) of the Employment Agreement.
9. Insurer Not a Party. The Insurer shall not be deemed to be party to
this Agreement for any purpose nor shall it be deemed in any way responsible for
its validity. The Insurer shall not be obligated to inquire as to the
distribution or application of any monies payable or paid by it under the
Policy, and payments or other performance of its contract obligations in
accordance with the terms of the Policy shall fully discharge the Insurer from
any and all liability under the Policy.
10. ERISA Claims Procedures.
(a) In accordance with the Employee Retirement Income Security Act
of 1974 (ERISA), the Company is hereby designated as the named
fiduciary under this Agreement. The named fiduciary shall have the
authority and
13
<PAGE> 14
responsibility to administer this Agreement and to make all
determinations concerning rights to benefits under this Agreement.
(b) Any decision by the named fiduciary denying a claim for
benefits by any beneficiary of this Agreement shall be stated in
writing and delivered or mailed to such beneficiary. Such decision
shall set forth the specific reasons for the denial, written in a
manner that may be understood without legal or actuarial counsel. In
addition, the named fiduciary shall afford a reasonable opportunity to
such beneficiary for a full and fair review of the decision denying
such claim.
11. Tax Indemnity. To the extent that payments made to the Executive
pursuant to this Agreement (or when added to payments under any other agreement
with the Company) constitute an "excess parachute payment", as such term is
defined in Section 280G(b)(1) of the Internal Revenue Code (Code), such payments
to him shall be grossed up in full for any excise tax or surtax incurred under
Section 280G of the Code, so that the amount he retains, after paying all
applicable federal income, surtaxes and excise taxes due with respect to
payments to him under this Agreement, is the same as the amount he would have
retained if Section 280G of the Code had not been applicable.
12. Successors and Assigns. This Agreement shall be binding upon,
enforceable against, and inure to the benefit of the Company, the Owner and the
Executive, and their respective heirs, successors and assigns.
13. Notice. All notices required or permitted to be sent to any party
shall be in writing and sent by any self-authenticating means. If to the
Company, notices shall be sent to the principal office of the Company; if to the
Owner, notices shall be sent to the principal office of the Owner; if to the
Executive, notices shall be sent to his residence as shown in the Company's
employment records. Notices shall be effective when received (or when receipt is
refused), as evidenced by the date of the return receipt or confirmation of
delivery. Any party may change its address for notice by sending a notice in the
manner required by this Paragraph 13.
14. Governing Law. This Agreement shall in all respects be governed by
and construed under the laws of the State of Indiana applicable to agreements
fully to be performed in the State of Indiana.
15. Entire Agreement. This Agreement sets forth the entire
understanding of the parties with respect to its subject matter, merges and
supersedes all prior and contemporaneous understandings with respect to its
subject matter, and may not be waived or modified, in whole or in part, except
by a writing signed by each of the parties hereto. No waiver of any provision of
this Agreement in any instance shall be deemed to be a waiver of the same or any
other provision in any other instance.
16. Successor to Company. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Executive, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. A failure of the Company to obtain such
14
<PAGE> 15
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement. In such event the Company shall be deemed conclusively to have
waived its right to reimbursement of Policy premiums paid or to be paid, and the
collateral assignment of the Policy shall thereupon be deemed conclusively to
have been released. (If requested by the Insurer, the Company shall promptly
execute and deliver an appropriate instrument of release.) However, such release
or deemed release of the collateral assignment shall not relieve the Company of
its obligation to continue the payment of Policy premiums. As used in this
Agreement, "Company" shall mean the Company as herein defined and any successor
to its business or assets.
17. Counterparts. This Agreement may be executed in three (3) or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
EXECUTED on the date first stated above, effective as of January 1,
1996.
COMPANY
THE DALTON FOUNDRIES, INC.
By: ________________________
Vice President and Chief Financial Officer
EXECUTIVE
________________________
K. L. Davidson
OWNER
FORT WAYNE NATIONAL BANK, TRUSTEE
By: ________________________
15
<PAGE> 1
Exhibit 21.1
Subsidiaries of the Registrant
1. Neenah Foundry Company
Hartley Controls Corporation - wholly owned.
Neenah Transport, Inc. - wholly owned.
Deeter Foundry, Inc. - wholly owned.
Mercer Forge Corporation - wholly owned.
Dalton Corporation - wholly owned.
Advanced Cast Products, Inc. - wholly owned.
90
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMEMTS OF NEENAH FOUNDRY COMPANY AS OF AND
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 19,798
<SECURITIES> 0
<RECEIVABLES> 72,508
<ALLOWANCES> 853
<INVENTORY> 40,841
<CURRENT-ASSETS> 142,617
<PP&E> 198,671
<DEPRECIATION> 18,134
<TOTAL-ASSETS> 584,309
<CURRENT-LIABILITIES> 64,431
<BONDS> 367,686
0
0
<COMMON> 100
<OTHER-SE> 67,822
<TOTAL-LIABILITY-AND-EQUITY> 584,309
<SALES> 303,414
<TOTAL-REVENUES> 303,414
<CGS> 222,451
<TOTAL-COSTS> 222,451
<OTHER-EXPENSES> 30,957
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (27,203)
<INCOME-PRETAX> 22,803
<INCOME-TAX> 10,922
<INCOME-CONTINUING> 11,881
<DISCONTINUED> 0
<EXTRAORDINARY> (392)
<CHANGES> 0
<NET-INCOME> 11,489
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
