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Filed Pursuant to Rule 424b(3)
Registration No. 333-50239
PROSPECTUS
OFFER TO EXCHANGE
9 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
FOR ALL OUTSTANDING 9 1/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
OF
ACCURIDE CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON AUGUST 25,
1998 UNLESS EXTENDED.
Accuride Corporation, a Delaware corporation ("Accuride" or the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its 9 1/4% Senior Subordinated Notes due 2008 (the "Exchange Notes"), which
exchange has been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a registration statement of which this Prospectus
is a part (the "Registration Statement"), for each $1,000 principal amount of
its outstanding 9 1/4% Senior Subordinated Notes due 2008 (the "Private Notes"),
of which $200,000,000 in aggregate principal amount are outstanding as of the
date hereof. The form and terms of the Exchange Notes are the same as the form
and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act, and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) Holders of the Exchange
Notes will not be entitled to certain rights of Holders of the Private Notes
under the Registration Rights Agreement (as defined), which rights will
terminate upon the consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Private Notes (which they replace) and will be
entitled to the benefits of an indenture dated as of January 21, 1998 governing
the Private Notes and the Exchange Notes (the "Indenture"). The Private Notes
and the Exchange Notes are sometimes referred to herein collectively as the
"Notes." See "The Exchange Offer" and "Description of Notes."
The Notes will be unsecured, will be subordinated in right of payment to all
existing and future Senior Indebtedness (as defined) of the Company and will be
effectively subordinated to all obligations of the subsidiaries of the Company.
The Notes will rank PARI PASSU with any future senior subordinated indebtedness
of the Company and will rank senior to all other Subordinated Indebtedness (as
defined) of the Company. As of March 31, 1998, the Company had no Subordinated
Indebtedness. See "Description of the Notes." As of March 31, 1998, the
aggregate amount of the Company's outstanding Senior Indebtedness was $182.5
million ($60.0 million of which represents a guarantee of amounts borrowed
directly by the Company's Canadian subsidiary under the Credit Facility (as
defined)), the Company had no senior subordinated indebtedness outstanding other
than the Private Notes, and the Company's subsidiaries had total liabilities of
$56.2 million, excluding obligations under the Credit Facility. In addition, the
Company had $110.3 million of additional Senior Indebtedness available to be
borrowed under the Revolver (as defined). See "Pro Forma Consolidated Condensed
Financial Statements," "Risk Factors -- Subordination to the Obligations of the
Company's Subsidiaries and Ventures," "-- Dependence on the Company's
Subsidiaries and Ventures," "-- Subordination" and "Description of the Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will bear interest at the
rate of 9 1/4% per annum and the interest thereon will be payable semi-annually
on February 1 and August 1 of each year, commencing August 1, 1998. The Exchange
Notes will bear interest from and including the date of issuance of the Private
Notes (January 21, 1998). Holders whose Private Notes are accepted for exchange
will be deemed to have waived the right to receive any interest accrued on the
Private Notes.
SEE "RISK FACTORS," BEGINNING ON PAGE 14, FOR A DISCUSSION OF CERTAIN
FACTORS THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND
AN INVESTMENT IN THE EXCHANGE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 23, 1998
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The Exchange Notes will be redeemable at the option of the Company, in whole
or in part, on or after February 1, 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest thereon, if any, to the date of
redemption. In addition, at any time on or prior to February 1, 2002, the
Company may, at its option, redeem up to 40% of the original aggregate principal
amount of the Exchange Notes with the net proceeds of one or more Equity
Offerings (as defined), at a price equal to 109.25% of the aggregate principal
amount to be redeemed, together with accrued and unpaid interest, if any, to the
date of redemption; provided that at least 60% of the original aggregate
principal amount of the Exchange Notes remains outstanding immediately after
each such redemption. Upon the occurrence of a Change of Control (as defined),
the Company will have the option, at any time on or prior to February 1, 2003,
to redeem the Exchange Notes, in whole but not in part, at a redemption price
equal to 100% of the principal amount thereof plus the Applicable Premium (as
defined), together with accrued and unpaid interest, if any, to the date of
redemption. Upon the occurrence of a Change of Control, if the Company does not
so redeem such Exchange Notes or if a Change of Control occurs after February 1,
2003, the Company will be required to make an offer to purchase the Exchange
Notes at a price equal to 101% of the original aggregate principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
repurchase. The definition of Change of Control includes a phrase relating to
the sale, lease or transfer of "all or substantially all" of the assets of the
Company and its Subsidiaries (as defined) taken as a whole. Although there is a
developing body of case law interpreting the phrase "substantially all," there
is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease or transfer of less than all
of the assets of the Company and its Subsidiaries taken as a whole to another
Person (as defined) or group may be uncertain. The Credit Facility prohibits the
Company from redeeming any Notes prior to the scheduled maturity thereof,
PROVIDED, HOWEVER, so long as no Default or Event of Default (each as defined in
the Credit Facility) has occurred and is continuing, the Company may redeem the
Notes (i) for an aggregate price not in excess of the Available Amount (as
defined in the Credit Facility) at the time of such redemption or (ii) with
proceeds of certain subordinated Debt (as defined in the Credit Facility). The
Credit Facility also provides that certain change of control events with respect
to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Indebtedness to which the
Company becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing the Notes, or if the Company is required to make an Asset Sale Offer
(as defined) pursuant to the terms of the Notes, the Company could seek the
consent of its lenders to purchase the Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or refinance such borrowings, the Company would remain prohibited from
purchasing the Notes. In such case, the Company's failure to purchase tendered
Notes would constitute an Event of Default (as defined) under the Indenture. If,
as a result thereof, a default occurs with respect to any Senior Indebtedness,
the subordination provisions in the Indenture would likely restrict payments to
the Holders. The provisions relating to a Change of Control included in the
Indenture may increase the difficulty of a potential acquirer obtaining control
of the Company. See "Risk Factors -- Change of Control," "Description of Notes
- -- Repurchase at the Option of Holders -- Change of Control."
The Company will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m., New York City time, on August 25, 1998,
unless the Exchange Offer is extended by the Company in its sole discretion (the
"Expiration Date"). Tenders of Private Notes may be withdrawn at any time prior
to the Expiration Date. Private Notes may be tendered only in integral multiples
of $1,000. The Exchange Offer is subject to certain customary conditions. See
"The Exchange Offer -- Conditions."
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be offered for resale, resold
and otherwise transferred by a Holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under
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the Securities Act or (ii) a person that is an affiliate of the Company within
the meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act; provided
that the Holder is acquiring the Exchange Notes in the ordinary course of its
business and is not participating, and had no arrangement or understanding with
any person to participate, in the distribution of the Exchange Notes. Holders of
Private Notes wishing to accept the Exchange Offer must represent to the
Company, as required by the Registration Rights Agreement, that such conditions
have been met. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Private Notes, where such Private Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of Section 10 of the Securities Act in connection with any resale
of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Private Notes where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. A broker-dealer may not participate in the Exchange Offer with
respect to the Private Notes acquired other than as a result of market-making
activities or other trading activities. The Company has indicated its intention
to make this Prospectus (as it may be amended or supplemented) available to any
broker-dealer for use in connection with any such resale for a period of 90 days
after the Expiration Date. See "The Exchange Offer -- Resale of the Exchange
Notes" and "Plan of Distribution." The Company believes that none of the
registered Holders of the Private Notes is an affiliate (as such term is defined
in Rule 405 under the Securities Act) of the Company.
Prior to the Exchange Offer, there has been no public market for the Notes.
The Exchange Notes will not be listed on any securities exchange, but the
Private Notes are eligible for trading in the National Association of Securities
Dealers, Inc.'s Private Offerings, Resales and Trading through Automatic
Linkages (PORTAL) market. There can be no assurance that an active market for
the Notes will develop. To the extent that a market for the Notes does develop,
the market value of the Notes will depend on market conditions (such as yields
on alternative investments), general economic conditions, the Company's
financial condition and certain other factors. Such conditions might cause the
Notes, to the extent that they are traded, to trade at a significant discount
from face value. See "Risk Factors -- Absence of Public Market; Restrictions on
Transfer."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
this Exchange Offer. See "The Exchange Offer -- Resale of the Exchange Notes."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL OCTOBER 21, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS OFFERING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN
CONNECTION THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or
the "Depositary") and registered in its name or in the name of Cede & Co., as
its nominee. Beneficial interests in the global note representing the Exchange
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. After the initial
issuance of such global note, Exchange Notes in certificated form will be issued
in exchange for the global note only in accordance with the terms and conditions
set forth in the Indenture. See "The Exchange Offer -- Book-Entry Transfer" and
"Book Entry; Delivery and Form."
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed under
"Risk Factors," among others, could cause actual results to differ materially
from those contained in forward-looking statements made in this Prospectus,
including, without limitation, in "Prospectus Summary--Summary Pro Forma
Consolidated Financial Data," "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and in oral
statements made by authorized officers of the Company. When used in this
Prospectus, the words "estimate," "project," "anticipate," "expect," "intend,"
"believe" and similar expressions are intended to identify forward-looking
statements. All of these forward-looking statements are based on estimates and
assumptions made by management of the Company, which, although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed upon such estimates and statements. No assurance can be given that any of
such statements or estimates will be realized and actual results will differ
from those contemplated by such forward-looking statements.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND OTHER FINANCIAL DATA,
INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES THERETO, CONTAINED ELSEWHERE IN
THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES TO THE
"COMPANY" OR "ACCURIDE" SHALL MEAN ACCURIDE CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES. THE COMPANY'S FISCAL YEAR IS THE CALENDAR YEAR. ALL MARKET SHARE
INFORMATION AND OTHER INDUSTRY DATA IN THIS PROSPECTUS ARE BASED ON COMPANY
ESTIMATES DERIVED FROM INTERNALLY GENERATED STUDIES AND INDUSTRY PUBLICATIONS.
UNLESS OTHERWISE INDICATED, ALL MARKET SHARE DATA IS FOR 1997. FOR CERTAIN
DEFINED TERMS USED IN THIS PROSPECTUS, SEE "GLOSSARY."
THE COMPANY
Accuride is North America's largest manufacturer and supplier of wheels and
rims ("Wheels") for heavy and medium commercial vehicles. The Company estimates
that it has approximately a 66% share in the North American Wheel market segment
for heavy and medium trucks, buses, vans ("Heavy/Medium Trucks") and trailers
("Trailers"). The Company offers the broadest product line in the North American
Heavy/Medium Truck and Trailer Wheel industry and is the only North American
manufacturer and supplier of both steel and aluminum Wheels for Heavy/Medium
Trucks and Trailers ("Heavy/Medium Wheels"). For the three months ended March
31, 1998, on an unaudited pro forma basis after giving effect to the
Recapitalization, Accuride's net sales and Adjusted EBITDA were $93.9 million
and $22.3 million, respectively. See "--Summary Pro Forma Consolidated Financial
Data."
The Company sells its Wheels primarily to Heavy/Medium Truck, Trailer and
Light Truck (as defined) original equipment manufacturers ("OEMs"). Major
customers include Ford Motor Company ("Ford"), Freightliner Corporation
("Freightliner"), General Motors Corporation ("General Motors"), Mack Trucks,
Inc. ("Mack"), Navistar International Transportation Corporation ("Navistar")
and Paccar, Inc. ("Paccar"). For over 10 years, the Company's steel Wheels have
been standard equipment at all North American Heavy/Medium Truck OEMs and at a
majority of North American Trailer OEMs. In addition, the Company's steel Wheels
are standard equipment at 82 of North America's 100 largest trucking fleets,
such as J.B. Hunt Transport Services ("J.B. Hunt"), Ryder Truck Rental, Inc.
("Ryder") and Schneider Specialized Carriers, Inc. ("Schneider"). The Company
believes that its leadership position results from its ability to consistently
deliver a broad range of high-quality Wheels cost-effectively.
By leveraging its customer relationships and leading position in the North
American Heavy/Medium Wheel segment, the Company has implemented a number of
growth initiatives to strengthen its position in the worldwide Wheel industry.
In May 1997, the Company and Kaiser Aluminum and Chemical Corporation ("Kaiser")
established AKW, L.P. ("AKW") a joint venture that manufactures and supplies
aluminum Heavy/Medium Wheels. The 50%-owned AKW joint venture replaced a
twenty-five-year buy-and-resell relationship with Kaiser and has significantly
improved the Company's ability to meet the growing aluminum Heavy/Medium Wheel
needs of its customers. In addition, in order to serve more effectively its
customers in Mexico and other Latin American countries, the Company recently
established Accuride de Mexico S.A. de C.V. ("ADM"), a 51%-owned venture with
Industria Automotriz S.A. de C.V. ("IaSa"), Mexico's only commercial vehicle
Wheel manufacturer. Furthermore, in order to expand its presence in the growing
segment for Light Truck Wheels, the Company is developing a new manufacturing
facility in Columbia, Tennessee (the "Tennessee Facility"), which is scheduled
to begin production in mid-1998.
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The North American commercial vehicle industry may be divided into three
segments: (i) Heavy/ Medium Trucks, (ii) Trailers and (iii) commercial and other
vehicles such as light commercial trucks, pick-up trucks, sport utility vehicles
and vans ("Light Trucks"). According to industry sources, new builds in the
North American Heavy/Medium Truck and Trailer segments have grown to 640,000
units in 1997 from 455,000 units in 1992. Over that same period, new builds in
the North American Light Truck segment have grown to 6.9 million units from 4.2
million units. Management believes that the growth in the North American
Heavy/Medium Truck and Trailer segments has been driven by the sustained
economic growth in North America and shorter fleet trade-in cycles, while the
growth in the North American Light Truck segment has been driven by the increase
in the popularity of sport utility vehicles and pick-up trucks, coupled with
sustained economic growth.
RISK FACTORS
HOLDERS OF THE PRIVATE NOTES SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEFORE DECIDING TO TENDER THE PRIVATE NOTES IN THE EXCHANGE
OFFER, WHICH RISK FACTORS ARE GENERALLY APPLICABLE TO THE PRIVATE NOTES AS WELL
AS THE EXCHANGE NOTES. SUCH RISKS INCLUDE, AMONG OTHERS:
- the trading market for the Exchange Notes could be adversely affected if a
large amount of the Private Notes are not exchanged;
- significant indebtedness of the Company may have important consequences,
including, but not limited to, impairment of the Company's ability to
obtain additional financing, reduction of funds available for operations
and business opportunities, obligations under the Credit Facility and the
ADM Credit Facility (as defined) will become due prior to the time
principal payments in respect of the Notes will be made or limitation on
the Company's ability to dispose of assets;
- obligations under the Notes are subordinate to obligations of the
Company's subsidiaries and joint ventures and to all existing and future
Senior Indebtedness;
- Company's ability to service its indebtedness, including the Notes, is
dependent upon operating cash flow of its subsidiaries and joint ventures;
- Notes are unsecured and the Company's obligations under the Credit
Facility are secured by common stock of certain subsidiaries of the
Company and ADM's obligations under the ADM Credit Facility are secured by
substantially all of its assets;
- loss of major customer could have material adverse effect on the Company's
business;
- OEM demands for price reduction may adversely affect profitability;
- cyclical nature of industry could cause fluctuations in demand for
Company's products;
- labor strike may disrupt the Company's supply to its customer base;
- interruption in supply of steel or aluminum could reduce Company's ability
to obtain favorable sourcing of such raw materials;
- Company's competitors could reduce market for the Company's product;
- potential liability of the Company for environmental matters and the costs
of compliance with certain governmental regulations could have a material
adverse effect on the Company's financial condition and may adversely
affect the Company's ability to sell or rent such property or to borrow
using such property as collateral;
- Company may have difficulty in achieving growth strategies and no
assurance that such strategies will be successful or improve operating
results;
- continued service of key management personnel is not guaranteed;
- interests of the principal stockholder of the Company may conflict with
the interests of the Holders;
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- financial and operating covenants in Credit Facility and Indenture limit
discretion of Company's management with respect to certain business
matters;
- Credit Facility prohibits the Company from redeeming the Notes prior to
maturity thereof (including, without limitation, upon a change of control
event), except under certain circumstances, and certain change of control
events would constitute a default under the Credit Facility;
- possible fraudulent conveyance risks in connection with the Company's
issuance of the Notes, which may adversely affect the rights of the
Holders;
- no assurance that the Company's computer software and operating systems,
or those of its customers or suppliers, will be Year 2000 compliant; and
- absence of prior market for the Exchange Notes and no assurance that a
market will develop or be sustained.
CORPORATE HISTORY
Accuride Corporation, a Delaware corporation, and Accuride Canada Inc., a
corporation formed under the laws of the province of Ontario, Canada and a
wholly owned subsidiary of Accuride, were incorporated in November 1986 for the
purpose of acquiring substantially all of the assets and assuming certain of the
liabilities of Firestone Steel Products, a division of The Firestone Tire &
Rubber Company. The respective acquisitions by the companies were consummated in
December 1986. In 1988, the Company was purchased by Phelps Dodge Corporation
("Phelps Dodge"), the sole owner prior to the Recapitalization. See "The
Recapitalization."
THE RECAPITALIZATION
On November 17, 1997 the Company entered into the Subscription and
Redemption Agreement (the "Subscription Agreement") with Phelps Dodge and Hubcap
Acquisition L.L.C. ("Hubcap Acquisition"). Pursuant to the Subscription
Agreement, Hubcap Acquisition made a common equity investment of $108.0 million
in the Company (the "Equity Investment") in consideration for the Company's
issuance to Hubcap Acquisition of shares of common stock of the Company, par
value $.01 per share ("the Common Stock"). The Company used the proceeds from
the Equity Investment, together with approximately $363.7 million of aggregate
proceeds from certain financings described below (collectively, the
"Financings") to (i) redeem shares of Common Stock and obtain a noncompetition
agreement from Phelps Dodge for aggregate consideration of $468.0 million
(collectively, the "Redemption"), and (ii) pay an estimated $20.9 million in
transaction fees and expenses. The Redemption price of $468.0 million was
adjusted for changes in working capital and the difference between actual and
projected capital expenditures, in each case through December 31, 1997. The
adjustment resulted in a reduction in the Redemption price and that the
reduction was used to reduce borrowings under the Revolver (as defined in the
next paragraph). The Equity Investment, Redemption and Financings are
collectively referred to as the "Recapitalization." Immediately after the
closing of the Recapitalization (the "Closing"), Hubcap Acquisition owned 90% of
the Common Stock and Phelps Dodge owned 10% of the Common Stock. Shortly after
the Recapitalization, the Company sold additional shares of Common Stock and
granted options to purchase Common Stock to senior management of the Company
representing, in the aggregate, 10% of the fully diluted equity of the Company.
The Financings included (i) an aggregate of approximately $164.8 million of
bank borrowings by the Company, including $135.0 million of borrowings under
senior secured term loans (the "Term Loans") and $29.8 million of borrowings
under a $140.0 million senior secured revolving credit facility (the "Revolver"
and, together with the Term Loans, the "Credit Facility"), and (ii) $200.0
million aggregate principal amount of Notes. The Revolver will be available for
the Company's working capital requirements and the implementation of the
Company's growth strategy. See "Description of the Credit Facility."
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THE EXCHANGE OFFER
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The Exchange Offer........... The Company is offering to exchange $1,000 principal amount
of Exchange Notes for each $1,000 principal amount of
Private Notes that are properly tendered and accepted. The
Company will issue Exchange Notes on or promptly after the
Expiration Date. There is $200,000,000 aggregate principal
amount of Private Notes outstanding. See "The Exchange Offer
-- Purpose of the Exchange Offer."
Based on an interpretation by the staff of the Commission
set forth in no-action letters issued to third parties, the
Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Private Notes may be
offered for resale, resold and otherwise transferred by a
Holder thereof (other than (i) a broker-dealer who purchases
such Exchange Notes directly from the Company to resell
pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an affiliate of
the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration
and prospectus delivery provisions of the Securities Act;
provided that the Holder is acquiring Exchange Notes in the
ordinary course of its business and is not participating,
and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own
account in exchange for Private Notes, where such Private
Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus meeting the
requirements of Section 10 of the Securities Act in
connection with any resale of such Exchange Notes. A
broker-dealer may not participate in the Exchange Offer with
respect to the Private Notes acquired other than as a result
of market-making activities or other trading activities. See
"The Exchange Offer -- Resale of the Exchange Notes."
Registration Rights
Agreement.................. The Private Notes were sold by the Company on January 21,
1998 to BT Alex. Brown Incorporated, Citicorp Securities and
J.P. Morgan Securities Inc. (collectively, the "Initial
Purchasers") pursuant to a Purchase Agreement, dated January
15, 1998, by and among the Company and the Initial
Purchasers (the "Purchase Agreement"). Pursuant to the
Purchase Agreement, the Company and the Initial Purchasers
entered into a Registration Rights Agreement, dated as of
January 21, 1998 (the "Registration Rights Agreement"),
which grants the Holders of the Private Notes certain
exchange and registration rights. The Exchange Offer is
intended to satisfy such rights, which will terminate upon
the consummation of the Exchange Offer. See "The Exchange
Offer -- Termination of Certain Rights."
Expiration Date.............. The Exchange Offer will expire at 5:00 p.m., New York City
time, on August 25, 1998, unless the Exchange Offer is
extended by the Company in its sole discretion, in which
case the term "Expiration Date" shall mean the latest date
and time to which the Exchange
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Offer is extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
Accrued Interest on the
Exchange Notes and the
Private Notes.............. The Exchange Notes will bear interest from and including the
date of issuance of the Private Notes (January 21, 1998).
Holders whose Private Notes are accepted for exchange will
be deemed to have waived the right to receive any interest
accrued on the Private Notes. See "The Exchange Offer --
Interest on the Exchange Notes."
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain customary
conditions that may be waived by the Company. The Exchange
Offer is not conditioned upon any minimum aggregate
principal amount of Private Notes being tendered for
exchange. See "The Exchange Offer -- Conditions."
Procedures for Tendering
Private Notes.............. Each Holder of Private Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with the
instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such
facsimile, together with such Private Notes and any other
required documentation to U.S. Trust Company, National
Association, as exchange agent (the "Exchange Agent"), at
the address set forth herein. By executing the Letter of
Transmittal, the Holder will represent to and agree with the
Company that, among other things, (i) the Exchange Notes to
be acquired by such Holder of Private Notes in connection
with the Exchange Offer are being acquired by such Holder in
the ordinary course of its business, (ii) if such Holder is
not a broker-dealer, such Holder is not currently
participating in, does not intend to participate in, and has
no arrangement or understanding with any person to
participate in a distribution of the Exchange Notes, (iii)
if such Holder is a broker-dealer registered under the
Exchange Act or is participating in the Exchange Offer for
the purposes of distributing the Exchange Notes, such Holder
will comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff
of the Commission set forth in no-action letters (see "The
Exchange Offer -- Resale of Exchange Notes"), (iv) such
Holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange
Notes obtained by such Holder in exchange for Private Notes
acquired by such Holder directly from the Company should be
covered by an effective registration statement containing
the selling securityholder information required by Item 507
or Item 508, as applicable, of Regulation S-K of the
Commission and (v) such Holder is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the
Company. If the Holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Private
Notes that were acquired as a result of market-making
activities or other trading activities, such Holder will be
required to acknowledge in the Letter
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
of Transmittal that such Holder will deliver a prospectus
meeting the requirements of Section 10 of the Securities Act
in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus,
such Holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See
"The Exchange Offer -- Procedures for Tendering."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Private Notes are registered in
the name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender such Private Notes
in the Exchange Offer should contact such registered Holder
promptly and instruct such registered Holder to tender on
such beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes,
either make appropriate arrangements to register ownership
of the Private Notes in such owner's name or obtain a
properly completed bond power from the registered Holder.
The transfer of registered ownership may take considerable
time and may not be able to be completed prior to the
Expiration Date. See "The Exchange Offer -- Procedures for
Tendering."
Guaranteed Delivery
Procedures................. Holders of Private Notes who wish to tender their Private
Notes and whose Private Notes are not immediately available
or who cannot deliver their Private Notes, the Letter of
Transmittal or any other documentation required by the
Letter of Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Private Notes according to
the guaranteed delivery procedures set forth under "The
Exchange Offer -- Guaranteed Delivery Procedures."
Acceptance of the Private
Notes and Delivery of the
Exchange Notes............. Subject to the satisfaction or waiver of the conditions to
the Exchange Offer, the Company will accept for exchange any
and all Private Notes that are properly tendered in the
Exchange Offer prior to the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer will be
delivered on the earliest practicable date following the
Expiration Date. See "The Exchange Offer --Terms of the
Exchange Offer."
Withdrawal Rights............ Tenders of Private Notes may be withdrawn at any time prior
to the Expiration Date. See "The Exchange Offer --
Withdrawal of Tenders."
Certain Federal Income Tax
Considerations............. The exchange will not be treated as an exchange for federal
income tax purposes because the Exchange Notes will not be
considered to differ materially in kind or extent from the
Private Notes. As a result, no material federal income tax
consequences will result to Holders exchanging the Private
Notes for Exchange Notes. See "Material Federal Income Tax
Considerations."
Exchange Agent............... U.S. Trust Company, National Association is serving as the
Exchange Agent in connection with the Exchange Offer.
</TABLE>
6
<PAGE>
THE EXCHANGE NOTES
The Exchange Offer applies to $200,000,000 aggregate principal amount of the
Private Notes. The form and terms of the Exchange Notes are the same as the form
and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) Holders of the Exchange
Notes will not be entitled to certain rights of Holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
debt as the Private Notes (which they replace) and will be issued under, and be
entitled to the benefits of, the Indenture. For further information and for
definitions of certain capitalized terms used below, see "Description of Notes."
<TABLE>
<S> <C>
Securities Offered............ $200,000,000 principal amount of 9 1/4% Senior Subordinated
Notes due 2008.
Issuer........................ Accuride Corporation
Maturity Date................. February 1, 2008.
Interest Payment Dates........ Interest on the Notes will accrue from the Issuance Date (as
defined) and be payable in cash semi-annually in arrears on
February 1 and August 1, of each year, commencing August 1,
1998.
Optional Redemption........... On or after February 1, 2003, the Notes will be redeemable,
in whole or in part, at the redemption prices set forth
herein, together with accrued and unpaid interest, if any,
to the date of redemption. In addition, at any time on or
prior to February 1, 2002, the Company may redeem up to 40%
of the original aggregate principal amount of the Notes with
the net proceeds of one or more Equity Offerings, at a
redemption price equal to 109.25% of the aggregate principal
amount to be redeemed, together with accrued and unpaid
interest, if any, to the date of redemption; provided that
at least 60% of the original aggregate principal amount of
the Notes remains outstanding immediately after each such
redemption. See "Description of the Notes--Optional
Redemption."
Change of Control............. Upon the occurrence of a Change of Control, the Company will
have the option, at any time prior to February 1, 2003, to
redeem the Notes, in whole but not in part, at a redemption
price equal to 100% of the aggregate principal amount
thereof plus the Applicable Premium, together with accrued
and unpaid interest, if any, to the date of redemption. Upon
the occurrence of a Change of Control, if the Company does
not so redeem the Notes or if a Change of Control occurs
after February 1, 2003, the Company will be required to make
an offer to purchase the Notes at a price equal to 101% of
the principal amount thereof, together with accrued and
unpaid
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
interest, if any, to the date of repurchase. The definition
of Change of Control includes a phrase relating to the sale,
lease or transfer of "all or substantially all" of the
assets of the Company and its Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting
the phrase "substantially all," there is no precise
established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale,
lease or transfer of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another
Person or group may be uncertain. The Credit Facility
prohibits the Company from redeeming any Notes prior to the
scheduled maturity thereof, PROVIDED, HOWEVER, so long as no
Default or Event of Default (each as defined in the Credit
Facility) has occurred and is continuing, the Company may
redeem the Notes (i) for an aggregate price not in excess of
the Available Amount (as defined in the Credit Facility) at
the time of such redemption or (ii) with proceeds of certain
subordinated Debt (as defined in the Credit Facility). The
Credit Facility also provides that certain change of control
events with respect to the Company would constitute a
default thereunder. Any future credit agreements or other
agreements relating to Senior Indebtedness to which the
Company becomes a party may contain similar restrictions and
provisions. In the event a Change of Control occurs at a
time when the Company is prohibited from purchasing the
Notes, or if the Company is required to make an Asset Sale
Offer (as defined) pursuant to the terms of the Notes, the
Company could seek the consent of its lenders to purchase
the Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain
such a consent or refinance such borrowings, the Company
would remain prohibited from purchasing the Notes. In such
case, the Company's failure to purchase tendered Notes would
constitute an Event of Default (as defined) under the
Indenture. If, as a result thereof, a default occurs with
respect to any Senior Indebtedness, the subordination
provisions in the Indenture would likely restrict payments
to the Holders. The provisions relating to a Change of
Control included in the Indenture may increase the
difficulty of a potential acquirer obtaining control of the
Company. The Company's ability to pay cash to the Holders of
Exchange Notes upon a repurchase may be limited by the
Company's then existing financial resources. See "Risk
Factors--Change of Control," and "Description of the Notes--
Repurchase at the Option of Holders--Change of Control."
Ranking....................... The Notes will be unsecured, will be subordinated in right
of payment to all existing and future Senior Indebtedness of
the Company and will be effectively subordinated to all
obligations of the subsidiaries of the Company. The Notes
will rank PARI PASSU with any future senior subordinated
indebtedness of the Company and will
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
rank senior to all other Subordinated Indebtedness of the
Company. As of March 31, 1998, the Company had no
Subordinated Indebtedness. As of March 31, 1998, the
aggregate amount of the Company's outstanding Senior
Indebtedness was approximately $182.5 million ($60.0 million
of which represents a guarantee of amounts borrowed directly
by the Company's Canadian subsidiary under the Credit
Facility), the Company had no senior subordinated
indebtedness outstanding other than the Notes and the
Company's subsidiaries had total liabilities of $56.2
million, excluding obligations under the Credit Facility.
The Company had $110.3 million of additional Senior
Indebtedness available to be borrowed under the Revolver.
See "Pro Forma Consolidated Condensed Financial Statements,"
"Risk Factors--Subordination to the Obligations of the
Company's Subsidiaries and Ventures," "--Dependence on the
Company's Subsidiaries and Ventures," and "--Subordination."
Certain Covenants............. The indenture under which the Notes will be issued (the
"Indenture") contains covenants that, subject to certain
exceptions, limit, among other things, the ability of the
Company and/or its Restricted Subsidiaries to (i) pay
dividends or make certain other restricted payments or
investments; (ii) incur additional Indebtedness and issue
disqualified stock; (iii) create liens on assets; (iv)
merge, consolidate, or sell all or substantially all of
their assets; (v) enter into certain transactions with
affiliates; (vi) create restrictions on dividends or other
payments by Restricted Subsidiaries of the Company; (vii)
create guarantees of indebtedness by Restricted
Subsidiaries; and (viii) incur other senior subordinated
indebtedness. In addition, the covenant relating to
transactions with affiliates permits transactions by the
Company with customers, clients, suppliers, or purchasers or
sellers of goods or services which are entered into in the
ordinary course of business and are deemed fair by the Board
of Directors or senior management. The effect of this
exception is to permit transactions on reasonable terms
entered into in the ordinary course of business with
affiliates of the Company. See "Description of the Notes."
No Personal Liability of
Directors, Officers, Employees
and Stockholders.............. No director, officer, employee, incorporator or stockholder
of the Company or any Guarantor shall have any liability for
any obligations of the Company or the Guarantors under the
Exchange Notes, the Guarantees or the Indenture or any claim
based on, in respect of, or by reason of such obligation, or
their creation. Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public
policy.
</TABLE>
9
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth certain summary historical consolidated
financial and other data of the Company. The historical consolidated financial
data of the Company for the fiscal years ended December 31, 1995, December 31,
1996, and December 31, 1997 have been derived from, and should be read in
conjunction with, the audited historical consolidated financial statements of
the Company and the related notes thereto included elsewhere in this Prospectus.
The unaudited historical consolidated financial data for the three months ended
March 31, 1997 and 1998 have been derived from, and should be read in
conjunction with, the unaudited consolidated financial statements included
elsewhere in this Prospectus. The unaudited historical consolidated financial
data for the fiscal year ended December 31, 1994 have been derived from the
Company's unaudited consolidated financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included in the unaudited consolidated financial statements of the Company.
Interim results for the three months ended March 31, 1998 are not necessarily
indicative of results for the fiscal year ended December 31, 1998. See
"--Summary Pro Forma Consolidated Financial Data," "Pro Forma Consolidated
Condensed Financial Statements," "Selected Historical Consolidated Financial and
Other Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the historical consolidated financial statements of
the Company and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ----------------------
1994 1995 1996 1997(a) 1997 1998(a)
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OPERATING DATA:
Net sales............................ $ 333,556 $ 357,802 $ 307,830 $ 332,966 $ 81,528 $ 93,908
Gross profit......................... 59,020 64,549 61,723 65,994(b) 9,114(b) 20,156(b)
Operating expenses (c)............... 16,938 16,869 17,941 21,316 4,766 9,550
Income from operations............... 42,082 47,680 43,782 44,678(b) 4,348(b) 10,606(b)
Interest income (expense), net....... 701 717 400 385 192 (6,563)
Equity in earnings (losses) of
affiliates......................... 308 300 115 4,384 48 (2,700)
Other income (expense), net (d)...... (1,684) (1,375) (381) 548 -- (515)
Net income........................... 24,301 26,592 26,466 27,837 2,753 481
OTHER DATA:
Adjusted EBITDA (e).................. $ 62,928 $ 70,101 $ 64,023 $ 76,888 $ 16,598 $ 22,372
Adjusted EBITDA Margin (f)........... 18.8% 19.5% 20.8% 21.8% 20.3% 23.1%
Net cash provided by (used in):
Operating activities............... 44,600 50,012 43,678 38,219 (1,345) 6,548
Investing activities............... (6,342) (6,766) (9,370) (47,065) (1,735) (7,702)
Financing activities............... (14,900) (57,718) (37,463) 9,953 5,432 6,241
Cash interest expense (g)............ 90 35 33 145 7 6,405
Depreciation and amortization........ 20,538 21,121 20,126 20,726 5,102 5,516
Capital expenditures................. 6,535 6,960 9,584 24,032 1,735 7,323
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents............ $ 23,938 $ 9,466 $ 6,311 $ 7,418 $ 8,663 $ 12,505
Working capital...................... 33,385 34,785 38,608 27,416 53,882 26,010
Total assets......................... 341,014 298,900 288,703 347,447 290,624 378,959
Total debt........................... -- -- -- 16,040 -- 381,368
Stockholders' equity (deficiency).... 271,262 239,081 228,451 256,055 236,636 (68,006)
</TABLE>
- ------------------------
(a) Results of operations for the year ended December 31, 1997 (subsequent to
May 1997) and for the three months ended March 31, 1998 do not reflect net
sales and gross profit for aluminum Wheels due to the formation of the AKW
joint venture. Net sales and gross profit for aluminum Wheels were $32.1
million and $2.5 million, respectively, for the period beginning on May 1,
1996 and ending on December 31, 1996, and were $13.8 million
10
<PAGE>
and $.8 million, respectively, for the three months ended March 31, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview" and "Pro Forma Consolidated Condensed Financial
Statements."
(b) Gross profit and income from operations for the year ended December 31, 1997
and for the three months ended March 31, 1997 reflect $7.1 million of costs
incurred in connection with the strike in early 1997 at the Company's
facility in Ontario, Canada (the "Ontario Facility"). Gross profit and
income from operations for the three months ended March 31, 1998 reflect
$2.5 million of costs incurred in connection with the strike in 1998 at the
Company's facility in Henderson, Kentucky.
(c) Operating expenses include selling, general and administrative plus (i) $1.1
million of start-up costs related to the Tennessee Facility incurred during
the first quarter of 1998, (ii) $.81 million of management retention bonuses
to be paid by Phelps Dodge recorded in the first quarter of 1998, and (iii)
$2.24 million of recapitalization professional fees recorded in the first
quarter of 1998.
(d) Other income (expense), net consists of currency hedging and foreign
exchange gains and losses related to the Company's Canadian operations.
(e) Adjusted EBITDA represents income from operations plus depreciation and
amortization plus equity in earnings (losses) of affiliates, plus (i) $7.1
million representing the impact of the strike at the Ontario Facility
incurred during the first quarter of 1997, (ii) $1.0 million of
restructuring charges incurred in 1995, (iii) $3.4 million representing the
impact of the AKW wheel recall campaign implemented in 1998, (iv) $.81
million of management retention bonuses to be paid by Phelps Dodge recorded
in the first quarter of 1998, (v) $2.24 million of recapitalization
professional fees recorded in the first quarter of 1998 and (vi) an
estimated $2.5 million of costs incurred in connection with the strike in
1998 at the Company's facility in Henderson, Kentucky. Adjusted EBITDA is
not intended to represent cash flows from operations as defined by generally
accepted accounting principles ("GAAP") and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. Adjusted EBITDA is
included in this Prospectus as it is a basis upon which the Company assesses
its financial performance and certain covenants in the Company's borrowing
arrangements are tied to similar measures.
(f) Adjusted EBITDA Margin represents Adjusted EBITDA before equity in earnings
(losses) of affiliates and before the $3.4 million impact of the AKW wheel
recall campaign implemented in 1998, as a percentage of net sales.
(g) Cash Interest Expense represents accrued interest expense exclusive of
amortization of deferred financing costs. For the years ended December 31,
1994, 1995, 1996 and 1997, and for the three months ended March 31, 1997,
there was no amortization of deferred financing costs. For the three months
ended March 31, 1998, amortization of deferred financing costs was $.3
million.
11
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth unaudited summary pro forma consolidated
condensed statements of operations and other data of the Company for the year
ended December 31, 1997 and for the three months ended March 31, 1998. The
summary pro forma consolidated condensed statement of operations and other data
for the year ended December 31, 1997 gives effect to (a) the Recapitalization
and (b) the acquisition of the interest in AKW as if such transactions had
occurred on January 1, 1997. The summary pro forma consolidated condensed
statement of operations for the three months ended March 31, 1998 gives effect
to the Recapitalization as if such transaction had occurred on January 1, 1997.
The summary pro forma consolidated financial data should not be considered
indicative of actual results that could have been achieved if the
Recapitalization and the acquisition of the interest in AKW had been consummated
on the dates indicated and the summary pro forma consolidated financial data do
not purport to indicate financial condition or results of operations as of any
future date or for any future period. The data presented below should be read in
conjunction with the historical consolidated financial statements of the
Company, including the related notes thereto, included elsewhere in this
Prospectus, "Pro Forma Consolidated Condensed Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
------------ --------------
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1997 MARCH 31, 1998
------------ --------------
<S> <C> <C>
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
OPERATING DATA:
Net sales.................................................................. $ 313,911 $ 93,908
Gross profit............................................................... 64,859(a) 20,156(a)
Operating expenses......................................................... 21,816 9,578
Income from operations..................................................... 43,043(a) 10,578(a)
Interest income (expense), net (b)......................................... (33,291)(c) (8,500)(c)
Equity in earnings (losses) of affiliates.................................. 5,519 (2,700)
Other income (expense), net (d)............................................ 548 (515)
Net income (loss).......................................................... 8,384 (659)
OTHER DATA:
Adjusted EBITDA (e)........................................................ $ 76,388 $ 22,344
Adjusted EBITDA Margin (f)................................................. 22.6% 23.1%
Cash interest expense (g).................................................. 32,221(c) 8,242(c)
Depreciation and amortization.............................................. 20,726 5,516
Capital expenditures....................................................... 24,032 7,323
Ratio of earnings to fixed charges (h)..................................... 1.37x 1.13x
</TABLE>
- ------------------------
(a) Gross profit and income from operations for the year ended December 31, 1997
reflect $7.1 million of costs incurred in connection with the strike in
early 1997 at the Ontario Facility. Gross profit and income from operations
for the three months ended March 31, 1998 reflect an estimated $2.5 million
of costs incurred in connection with the strike in 1998 at the Company's
facility in Henderson, Kentucky.
(b) A 0.125% increase or decrease in the weighted average interest rate would
change the pro forma interest expense by $0.5 million for the fiscal year
ended December 31, 1997 and $.1 million for the three months ended March 31,
1998. Each $5.0 million increase or decrease in borrowings under the
Revolver would change pro forma interest expense by $0.4 million for the
fiscal year ended December 31, 1997 and $.1 million for the three months
ended March 31, 1998.
(c) In addition to the effect of the Recapitalization, pro forma interest
expense reflects (from the date incurred) ADM's $14.7 million and $17.7
million of indebtedness outstanding as of December 31,
12
<PAGE>
1997 and March 31, 1998, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
(d) Other income (expense), net consists of currency hedging and foreign
exchange gains and losses related to the Company's Canadian operations.
(e) Adjusted EBITDA represents income from operations plus depreciation and
amortization plus equity in earnings of affiliates, plus (i) $7.1 million
representing the impact of the strike at the Ontario Facility incurred
during the first quarter of 1997, (ii) $3.4 million representing the impact
of the AKW wheel recall campaign implemented in 1998, (iii) $.81 million of
management retention bonuses to be paid by Phelps Dodge recorded in the
first quarter of 1998, (iv) $2.24 million of recapitalization professional
fees recorded in the first quarter of 1998 and (v) an estimated $2.5 million
of costs incurred in connection with the strike in 1998 at the Company's
facility in Henderson, Kentucky. Adjusted EBITDA is not intended to
represent cash flows from operations as defined by GAAP and should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. Adjusted
EBITDA is included in this Prospectus as it is a basis upon which the
Company assesses its financial performance and certain covenants in the
Company's borrowing arrangements are tied to similar measures.
(f) Adjusted EBITDA Margin represents Adjusted EBITDA before equity in earnings
(losses) of affiliates and before the $3.4 million impact of the AKW wheel
recall campaign implemented in 1998, as a percentage of net sales.
(g) Pro forma Cash Interest Expense represents pro forma accrued interest
expense exclusive of pro forma amortization of deferred financing costs. For
the fiscal year ended December 31, 1997 pro forma amortization of deferred
financing costs was $1.2 million. For the three months ended March 31, 1998,
pro forma amortization of deferred financing costs was $.1 million.
(h) For purposes of these computations, earnings consist of income before income
taxes plus fixed charges (exclusive of capitalized interest) less
undistributed earnings in unconsolidated joint ventures. Fixed charges
consist of interest expense (including capitalized interest), amortization
of deferred financing costs and one-third of rental expense (the portion
deemed representative of the interest factor).
13
<PAGE>
RISK FACTORS
HOLDERS OF THE PRIVATE NOTES SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS BEFORE
DECIDING TO TENDER THE PRIVATE NOTES IN THE EXCHANGE OFFER. THE RISK FACTORS SET
FORTH BELOW ARE GENERALLY APPLICABLE TO THE PRIVATE NOTES AS WELL AS THE
EXCHANGE NOTES.
FAILURE TO EXCHANGE PRIVATE NOTES
The Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, Holders of Private Notes desiring to tender such Private Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Private
Notes for exchange. Private Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
Holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own accounts in exchange for Private Notes, where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus meeting the requirement of Section 10 of the Securities Act
in connection with any resale of such Exchange Notes. To the extent that Private
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Private Notes could be adversely affected
due to the limited amount, or "float," of the Private Notes that are expected to
remain outstanding following the Exchange Offer. Generally, a lower "float" of a
security could result in less demand to purchase such security and could,
therefore, result in lower prices for such security. For the same reason, to the
extent that a large amount of Private Notes are not tendered or are tendered and
not accepted in the Exchange Offer, the trading market for the Exchange Notes
could be adversely affected. See "Plan of Distribution" and "The Exchange
Offer."
SIGNIFICANT INDEBTEDNESS
The Company continues to be highly leveraged after the Recapitalization. At
March 31, 1998, the Company's total indebtedness was $382.5 million (which
includes $200 million in aggregate principal amount of the Notes), $182.5
million of which the Notes are subordinate and its total stockholders' deficit
was $68.0 million. The Company may incur additional indebtedness in the future,
subject to limitations imposed by the Indenture and the Revolver. At March 31,
1998, the Company had $110.3 million of additional indebtedness available to be
borrowed under the Revolver, to which the Notes will be subordinate upon
borrowing by the Company. See "--Subordination," "The Recapitalization,"
"Capitalization," "Pro Forma Consolidated Condensed Financial Statements,"
"Description of the Notes" and "Description of the Credit Facility."
The Company's ability to make scheduled payments of, or pay interest on, or
to refinance its indebtedness (including the Notes) depends on its future
performance, which, to a certain extent, is subject to general economic,
financial, competitive and other factors beyond its control. Based upon the
current level of operations and anticipated growth, the Company believes that
available cash flow, together with available borrowings under the Credit
Facility and other sources of liquidity (such as ADM's $32.5 million credit
facility (the "ADM Credit Facility")) will be adequate to meet the Company's
anticipated future
14
<PAGE>
requirements for working capital, capital expenditures, scheduled payments of
principal of and interest on its indebtedness, and interest on the Notes and the
implementation of its growth initiatives. However, all or a portion of the
principal payments at maturity on the Notes may require refinancing. There can
be no assurance that the Company's business will generate sufficient cash flow
from operations or that future borrowings will be available in an amount
sufficient to enable the Company to service its indebtedness, including the
Notes, or to make necessary capital expenditures, or that any refinancing would
be available on commercially reasonably terms or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company's high degree of leverage may have important consequences for
the Company and the holders of the Notes (the "Holders") including, but not
limited to, the following: (i) the ability of the Company to obtain additional
financing for acquisitions, working capital, capital expenditures or other
purposes, if necessary, may be impaired or such financing may not be available
on terms favorable to the Company; (ii) a substantial portion of the Company's
cash flow will be used to pay the Company's interest expense and debt
amortization, which will reduce the funds that would otherwise be available to
the Company for its operations and future business opportunities; (iii) a
substantial decrease in net operating cash flows or an increase in expenses of
the Company could make it difficult for the Company to meet its debt service
requirements and force it to modify its operations; (iv) the Company may be more
highly leveraged than its competitors, which may place it at a competitive
disadvantage; (v) the Company's high degree of leverage may make it more
vulnerable to a downturn in its business or the economy generally; (vi) all of
the indebtedness incurred in connection with the Credit Facility and the ADM
Credit Facility will become due prior to the time principal payments in respect
of the Notes will be made; and (vii) the Indenture, the Credit Facility and the
ADM Credit Facility will contain financial and restrictive covenants that limit
the ability of the Company and its subsidiaries to, among other things, borrow
additional funds, dispose of assets or pay cash dividends. See "Description of
the Notes--Repurchase at the Option of Holders--Change of Control," "Description
of the Credit Facility" and "The Recapitalization."
A significant portion of the outstanding indebtedness of the Company will
bear interest at variable rates. While the Company has entered into one or more
interest rate protection agreements to limit its exposure to increases in such
interest rates, such agreements will not eliminate the exposure to variable
rates. Any increase in the interest rates on the Company's indebtedness will
reduce funds available to the Company for its operations and future business
opportunities and will exacerbate the consequences of the Company's leveraged
capital structure.
SUBORDINATION TO THE OBLIGATIONS OF THE COMPANY'S SUBSIDIARIES AND VENTURES
A substantial portion of the Company's operations is conducted through its
subsidiaries and through ventures with third parties. See "Business--Strategic
Alliances." Consequently, the Notes will be effectively subordinated to the
obligations of the Company's subsidiaries and such ventures, including the
guarantee by its subsidiaries of obligations under the Credit Facility (and the
obligations of the Company's Canadian subsidiary, which will be the primary
obligor under a portion of the Term Loans). In the event of an insolvency,
liquidation or other reorganization of any of the subsidiaries of the Company,
the creditors of the Company (including the Holders), as well as stockholders of
the Company, will have no right to proceed against the assets of such
subsidiaries or ventures or to cause the liquidation or bankruptcy of such
subsidiaries or ventures under Federal bankruptcy laws. Creditors of such
subsidiaries and ventures, including lenders under the Credit Facility and the
ADM Credit Facility, would be entitled to payment in full from such assets
before the Company would be entitled to receive any distribution therefrom.
Except to the extent that the Company may itself be a creditor with recognized
claims against such subsidiaries and such ventures, claims of creditors of such
subsidiaries or such ventures will have priority with respect
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to the assets and earnings of such subsidiaries over the claims of creditors of
the Company, including claims under the Notes.
DEPENDENCE ON THE COMPANY'S SUBSIDIARIES AND VENTURES
As a result of a substantial portion of the Company's operations being
conducted through its subsidiaries and through ventures with third parties, the
Company's operating cash flow and its ability to service its indebtedness,
including the Notes, is dependent upon the operating cash flow of its
subsidiaries and ventures and the payment of funds by such subsidiaries and
ventures to the Company in the form of loans, dividends or otherwise. As of
March 31, 1998, the subsidiaries of the Company had total liabilities of $56.2
million, excluding guarantees and direct borrowings of indebtedness under the
Credit Facility. In addition, the ADM Credit Facility prohibits ADM from
distributing cash to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
SUBORDINATION
The Company's obligations under the Notes will be subordinated and junior in
right of payment to all existing and future Senior Indebtedness of the Company
and will be effectively subordinated to all obligations of the subsidiaries of
the Company. As of March 31, 1998, the aggregate amount of the Company's
outstanding Senior Indebtedness was approximately $182.5 million ($60.0 million
of which represents a guarantee of amounts borrowed directly by the Company's
Canadian subsidiary under the Credit Facility) and the Company's subsidiaries
had total liabilities of approximately $56.2 million, excluding obligations
under the Credit Facility. Additional Senior Indebtedness may be incurred by the
Company from time to time, subject to certain restrictions imposed by the
Indenture and the Credit Facility. By reason of such subordination, in the event
of an insolvency, liquidation or other reorganization of the Company, the
lenders under the Credit Facility and other creditors who are holders of Senior
Indebtedness must be paid in full before the Holders may be paid; accordingly,
there may be insufficient assets remaining after payment of prior claims to pay
amounts due on the Notes. In addition, under certain circumstances, no payments
may be made with respect to the Notes if a default exists with respect to
certain Senior Indebtedness. See "--Restrictive Debt Covenants," "Description of
the Credit Facility" and "Description of the Notes--Subordination."
ENCUMBRANCES ON ASSETS
In addition to being subordinated to all existing and future Senior
Indebtedness of the Company, the Notes are not secured by any of the assets of
the Company and its subsidiaries. The Company's obligations under the Credit
Facility are secured by (i) all the common stock of existing and subsequently
acquired direct domestic subsidiaries and direct foreign subsidiaries that are
not corporations and (ii) 66% of the common stock of each existing and
subsequently acquired first tier foreign subsidiary of the Company that is a
corporation (except that, as security for the payment of the Tranche A (as
defined) loan the Company has pledged and granted a security interest in the
remaining 34% of the common stock of the Company's Canadian subsidiary). In
addition, ADM's obligations under the ADM Credit Facility are secured by
substantially all of its assets. If the obligors under either such facility
becomes insolvent or is liquidated, or if payment under such facility is
accelerated, the lenders under either such facility are entitled to exercise the
remedies available to a secured lender under applicable law. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of the Credit
Facility" and "Description of the Notes."
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DEPENDENCE ON MAJOR CUSTOMERS
The Company derived approximately 19%, 17% and 15% of its 1997 net sales
from Ford, Navistar and Freightliner, respectively. The Company has been a
supplier to these companies for many years, and continually engages in efforts
to improve and expand on its relations with each of these customers. The Company
has also supported its position with these customers through direct and active
contact with end users, trucking fleets and dealers, and has located certain of
its sales personnel in offices near these customers and most of its other major
customers. There can be no assurance, however, that the Company will maintain or
improve these relationships or that the Company will continue to supply these
customers or any of its other customers at current levels. The loss of a
significant portion of sales to Ford, Freightliner or Navistar could have a
material adverse effect on the Company's business. In addition, the delay or
cancellation of material orders from, or design, development, delivery or
product problems at, Ford, Freightliner or Navistar or any of the Company's
major customers could have a material adverse effect on the Company. See
"Business--Customers."
THE OEM SUPPLIER INDUSTRY
The Company is a supplier to the Heavy/Medium Truck, Trailer and Light Truck
industries, which are characterized by a small number of OEMs that are able to
exert considerable pressure on component and system suppliers to reduce costs,
improve quality and provide additional design and engineering capabilities. OEMs
continue to demand and receive price reductions and measurable increases in
quality through their use of competitive selection processes, rating programs
and various other arrangements. Although the Company has been able to offset a
portion of such price reductions through production cost savings, there can be
no assurance that it will be able to continue to generate such cost savings in
the future. If the Company were unable to generate sufficient production cost
savings in the future to offset such price reductions, its profitability would
be adversely affected. Additionally, OEMs have generally required component and
system suppliers to provide more design engineering input at earlier stages of
the product development process, the costs of which have, in some cases, been
absorbed by the suppliers. There can be no assurance that future price
reductions, increased quality standards or additional engineering capabilities
required by OEMs will not have a material adverse effect on the Company.
CYCLICAL NATURE OF INDUSTRY
The Heavy/Medium Wheel and Light Truck Wheel industries are highly cyclical
and, in large part, dependent upon the overall strength of the demand for
Heavy/Medium Trucks, Trailers and Light Trucks. The Heavy/Medium Truck, Trailer
and Light Truck industries for which the Company supplies Wheels have
historically experienced significant fluctuations in demand based on such
factors as general economic conditions, interest rates, government regulations
and consumer confidence. There can be no assurance that the Heavy/Medium Truck,
Trailer and Light Truck industries supplied by the Company will not experience
downturns in the future. A significant decrease in overall consumer demand for
Heavy/Medium Trucks, Trailers and/or Light Trucks could have a material adverse
effect on the Company. In addition, the Company's operations are seasonal as a
result of regular customer maintenance and model changeover shutdowns, which
typically occur in the third quarter of each calendar year, resulting in
decreased net sales and profitability during the Company's third fiscal quarter.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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LABOR RELATIONS
At December 31, 1997, approximately 68% of the Company's employees in the
United States at its Henderson, Kentucky facility (the "Henderson Facility")
were represented by the United Auto Workers Union (the "UAW") and approximately
80% of the Company's employees in Canada at the Ontario Facility were
represented by the Canadian Auto Workers Union (the "CAW"). Collective
bargaining agreements with the UAW and the CAW affecting these employees expire
in February 1998 and March 2000, respectively. The Company's contract with the
UAW covering employees at the Henderson Facility expired in February 1998. The
Company was not able to negotiate a mutually acceptable agreement with the UAW.
Therefore, a strike occurred at the Henderson Facility on February 20, 1998. The
Company is continuing to operate with its salaried employees and contractors. On
March 31, 1998, the members of the UAW rejected the Company's final offer for a
new contract. Effective as of March 31, 1998, the Company began an indefinite
lockout, which was prompted by continuing reports to management that some
individuals planned to re-enter the plant and harass employees and damage
equipment and machinery. On May 1, 1998, the Company delivered to the UAW a
revised offer and informed the UAW that the Company's final offer would be
replaced by such revised offer if the final offer was not ratified by the UAW by
May 15, 1998. The revised offer provides less benefits than the final offer and
eliminates a portion of the proposed first year wage increase. The UAW did not
conduct a second vote on the final offer. Therefore, on May 15, 1998, the
Company's revised offer replaced the Company's final offer. Currently, there is,
and the Company believes that there will be, no supply disruption to the
Company's customer base; however, there can be no assurance to that effect. A
supply disruption to the Company's customer base could have a material adverse
effect on the Company.
The Company's existing contract with CAW-represented workers was implemented
in March 1997, following a 53-day strike in which there was no supply disruption
to the Company's customer base. Management estimates that the strike affected
pretax earnings by $7.1 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview." The strike occurred as
a result of the CAW's demand for a contract that had similar terms and
conditions to the contracts that had been negotiated three months earlier among
the CAW and Ford, General Motors and Chrysler. The Company was not willing to
agree to many of these terms, which included limitations on existing management
rights and significant increases in benefits and wages. Ultimately, the Company
achieved a reduction in the CAW's original demands. See "Business--Employees."
DEPENDENCE ON RAW MATERIALS
The raw materials on which the Company depends are steel and aluminum.
Although steel is generally available from a number of sources, the Company has
obtained favorable sourcing by negotiating high-volume contracts with terms
ranging from 1 to 3 years. AKW sources aluminum for its Wheels from various
third-party suppliers. While the Company believes that its supply contracts can
be renewed on acceptable terms, there can be no assurance that such agreements
can be renewed on such terms or at all. A substantial interruption in the
Company's supply of steel or aluminum could have a material adverse effect on
the Company. In addition, although the prices of steel and aluminum have not
been volatile in recent periods and the Company has had success in passing
through steel price increases to its customers, there can be no assurance that
there will not be rapid and significant changes in the price of these materials
or that the Company will be able to pass on any such cost increases to its
customers. See "Business--Supplier Relationships."
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COMPETITION
Due to the breadth of the Company's product line, the Company competes with
different companies in different market segments. Several of these competitors
have substantially greater financial resources than the Company. The Company's
principal competitor in the dual steel Heavy/Medium Wheel and single steel Light
Truck Wheel segments is Hayes Lemmerz International, Inc. ("Hayes Wheels").
Recently, Hayes Wheels has been consolidating the operations of smaller
participants in the dual steel Heavy/ Medium Wheel segment. In addition, Hayes
Wheels has established a significant global presence through its acquisition of
European wheel producer Lemmerz Holding GmbH ("Lemmerz"). Hayes Wheels is the
market leader in the single Light Truck Wheel segment and in the passenger car
wheel segment, which are more diversified segments than the other segments in
which the Company competes. The Company has only recently begun to compete in
the single Light Truck Wheel segment. In the dual steel Light Truck Wheel
segment, the Company's principal competitor is Meritor Automotive, Inc.
("Meritor"), which has a 12% share. Meritor and the Company are the only
suppliers of steel dual Light Truck Wheels in North America. In the dual
aluminum Heavy/Medium Wheel segment, the Company's principal competitor is Alcoa
Aluminum Corporation of America ("Alcoa"), which has the leading share in that
segment. Alcoa does not produce steel Wheels. Ford, Freightliner and Navistar,
which are major customers of the Company, produce some Wheels internally to meet
their respective Wheel needs. These OEMs may expand their internal production of
Wheels, shift sourcing to other suppliers or take other actions that could
reduce the market for the Company's products and have a material adverse effect
on the Company. There can be no assurance that the Company will not encounter
increased competition in the future in its several industry segments or that the
Company's expansion in its segments and planned entry into additional segments
will not expose the Company to an increasing number of well-capitalized
competitors. See "Business--Competition."
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES
The Company's operations are subject to various foreign, federal, state and
local environmental laws, ordinances and regulations, including, without
limitation, those governing discharges into the air and water, the storage,
handling and disposal of solid and hazardous wastes, the remediation of soil and
groundwater contaminated by petroleum products or hazardous substances or
wastes, and the health and safety of employees (collectively, "Environmental
Laws"). Under certain Environmental Laws, a current or previous owner or
operator of property may be liable for the costs of removal or remediation of
certain hazardous substances or petroleum products on, under or in such
property, without regard to whether the owner or operator knew of, or caused,
the presence of the contaminants, and regardless of whether the practices that
resulted in the contamination were legal at the time they occurred. The presence
of, or failure to remediate properly such substances, may adversely affect the
ability to sell or rent such property or to borrow using such property as
collateral. Persons who generate, arrange for the disposal or treatment of, or
dispose of hazardous substances may be liable for the costs of investigation,
remediation or removal of such hazardous substances at or from the disposal or
treatment facility, regardless of whether such facility is owned or operated by
such person. Additionally, the owner of a site may be subject to common law
claims by third parties based on damages and costs resulting from environmental
contamination emanating from a site. Compliance with Environmental Laws,
stricter interpretations of or amendments to any such laws, or more vigorous
enforcement policies by regulatory agencies with respect to any of them may
require material expenditures by the Company. The nature of the Company's
current and former operations and the history of industrial uses at its
facilities expose the Company to the risk of liabilities or claims with respect
to environmental and worker health and safety matters that could have a material
adverse effect on the Company. Phelps Dodge has indemnified the Company with
respect to environmental liabilities at the Henderson Facility and the Ontario
Facility. The Phelps Dodge environmental indemnity, however, does not apply to
liability or injury incurred or sustained by the Company attributable
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to the handling of hazardous substances at any time after the Closing or any
failure after the Closing of the Henderson Facility or the Ontario Facility to
be in compliance with any applicable environmental law or environmental permit.
In addition, the Phelps Dodge environmental indemnity does not apply to
liability or injury arising out of or resulting from the investigation,
assessment or remediation of a hazardous substance not required by or under an
environmental law. Kaiser has also indemnified the Company with respect to
environmental liabilities at the AKW facilities except (i) AKW shall be solely
responsible for claims, losses and liabilities that are caused by or arise from
any action by AKW or in connection with the conduct of the business by AKW, (ii)
Kaiser and AKW shall be responsible for their appropriate share of such claims,
losses and liabilities associated with contamination due to the failure of AKW
to maintain the pits at the AKW Erie facility which contain hydraulic presses,
(iii) Kaiser and AKW shall be responsible for their appropriate share of such
claims, losses and liabilities that arise from both the actions of Kaiser and
AKW, or the conduct of the business by either of them or (iv) to the extent that
any fines or penalties assessed or threatened against AKW during the period in
which Kaiser is implementing an environmental compliance plan at the AKW Erie
facility exceed $1,000,000. See "Business--Environmental Matters."
DIFFICULTY IN ACHIEVING GROWTH STRATEGIES
The growth strategies that have been developed by the Company are based on
the Company's review of its operations and its competitive position. The Company
plans to make significant expenditures to (i) expand in Mexico and into other
Latin American countries through its ADM venture, (ii) expand its aluminum Wheel
production facilities in the United States and (iii) expand its presence in the
Light Truck Wheel market segment. In addition, the Company's strategies include
seeking to form or acquire a global presence through joint ventures, alliances
and other business combinations. The Company may decide to alter or discontinue
certain aspects of the growth strategies described herein and may adopt
alternative or additional strategies. In addition, there can be no assurance
that any such strategies, if implemented, will be successful or will improve
operating results. Certain of the Company's growth strategies entail the risks
of foreign operations, including the impact of foreign tax and other
regulations, currency fluctuations and political and economic instability. As
the Company enters new geographic markets and industry segments or attempts to
increase its shares of existing markets and segments, it may encounter
significant competition from the primary participants in such markets or
segments, some of whom have substantially greater resources than the Company.
Other conditions may exist, such as unforeseen costs and expenses or an economic
downturn, that may offset any improved operating results that are attributable
to such growth strategies. See "--Competition" and "Business--Growth
Strategies."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including,
in particular, the likelihood of the Company's success in developing and
expanding its business. These statements are based upon a number of assumptions
and estimates that are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of the Company, and reflect
future business decisions that are subject to change. Some of these assumptions
inevitably will not materialize, and unanticipated events will occur that will
affect the Company's results. The Company's actual results may differ materially
from the results discussed in such forward-looking statements because of a
number of factors, including those identified in this "Risk Factors" section and
elsewhere in this Prospectus. See "Prospectus Summary," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
The forward-looking statements are made as of the date of this Offering
Memorandum, and the Company assumes no obligation to update the forward-looking
statements or to update the reasons why actual results could differ from those
in the forward-looking statements.
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DEPENDENCE ON KEY MANAGEMENT
The Company's success depends largely upon the abilities and experience of
certain key management personnel. The loss of the services of one or more of
such key personnel, and in particular William P. Greubel, the Company's
President and Chief Executive Officer, could have a material adverse effect on
the Company. The Company does not maintain key-man life insurance policies on
any of its executives. See "Management."
CONTROL BY KKR AFFILIATES
As of May 31, 1998 approximately 87% of the issued and outstanding shares of
Common Stock are held by Hubcap Acquisition. Hubcap Acquisition is a Delaware
limited liability company whose members are KKR 1996 Fund L.P. and KKR Partners
II, L.P. KKR 1996 Fund L.P., which owns more than a 95% equity interest in
Hubcap Acquisition, is a Delaware limited partnership whose sole general partner
is KKR Associates 1996 L.P. KKR Associates 1996 L.P. is a Delaware limited
partnership whose sole general partner is KKR 1996 GP L.L.C. KKR 1996 GP L.L.C.
is a Delaware limited liability company whose members are also the members of
the limited liability company that is the general partner of Kohlberg Kravis
Roberts & Co. L.P. ("KKR"). Accordingly, affiliates of KKR will control the
Company and have the power to elect all of its directors, appoint new management
and approve any action requiring the approval of the Company's shareholders,
including adopting amendments to the Company's Certificate of Incorporation and
approving mergers or sales of substantially all of the Company's assets. There
can be no assurance that the interests of KKR and its affiliates will not
conflict with the interests of the Holders. See "Management," "Principal
Stockholders" and "Certain Relationships and Related Transactions."
RESTRICTIVE DEBT COVENANTS
The Credit Facility and the Indenture contain numerous financial and
operating covenants that limit the discretion of the Company's management with
respect to certain business matters. These covenants place significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to make certain
payments and investments and to sell or otherwise dispose of assets and merge or
consolidate with other entities. The Credit Facility also requires the Company
to meet certain financial ratios and tests. A failure to comply with the
obligations contained in the Credit Facility or the Indenture could result in an
event of default under either the Credit Facility or the Indenture, which could
result in the acceleration of the related debt and the acceleration of debt
under other instruments evidencing indebtedness that may contain
cross-acceleration or cross-default provisions. If, as a result thereof, a
default occurs with respect to Senior Indebtedness, the subordination provisions
in the Indenture would likely restrict payments to the Holders. See "Description
of the Credit Facility," "Description of the Notes--Subordination" and
"--Certain Covenants."
CHANGE OF CONTROL
The Indenture provides that, unless the Company elects to redeem the Notes
prior to 2003, upon the occurrence of a Change of Control, the Company will make
an offer to purchase all or any part of the Notes at a price in cash equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase. The definition of Change of Control includes a
phrase relating to the sale, lease or transfer of "all or substantially all" of
the assets of the Company and its Subsidiaries taken as a whole. Although there
is a developing body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease or transfer
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of less than all of the assets of the Company and its Subsidiaries taken as a
whole to another Person or group may be uncertain. The Credit Facility prohibits
the Company from redeeming any Notes prior to the scheduled maturity thereof,
PROVIDED, HOWEVER, so long as no Default or Event of Default (each as defined in
the Credit Facility) has occurred and is continuing, the Company may redeem the
Notes (i) for an aggregate price not in excess of the Available Amount (as
defined in the Credit Facility) at the time of such redemption or (ii) with
proceeds of certain subordinated Debt (as defined in the Credit Facility). The
Credit Facility also provides that certain change of control events with respect
to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Indebtedness to which the
Company becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing the Notes, or if the Company is required to make an Asset Sale Offer
(as defined) pursuant to the terms of the Notes, the Company could seek the
consent of its lenders to purchase the Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or refinance such borrowings, the Company would remain prohibited from
purchasing the Notes. In such case, the Company's failure to purchase tendered
Notes would constitute an Event of Default (as defined) under the Indenture. If,
as a result thereof, a default occurs with respect to any Senior Indebtedness,
the subordination provisions in the Indenture would likely restrict payments to
the Holders. The provisions relating to a Change of Control included in the
Indenture may increase the difficulty of a potential acquirer obtaining control
of the Company. The Company's ability to pay cash to the Holders of Exchange
Notes upon a repurchase may be limited by the Company's then existing financial
resources. See "--Restrictive Debt Covenants," "Description of the
Notes--Repurchase at the Option of Holders-- Change of Control,"
"--Subordination" and "Description of the Credit Facility."
FRAUDULENT CONVEYANCE RISKS
Management of the Company believes that the indebtedness represented by the
Notes is being incurred for proper purposes and in good faith, and that based on
present forecasts, asset valuations and other financial information, the Company
will be solvent, will have sufficient capital for carrying on its business and
will be able to pay its debts as they mature. See "--Significant Indebtedness."
Notwithstanding management's belief, however, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in a bankruptcy or a debtor-in-possession) were to find that,
at the time of incurrence of such indebtedness, the Company was rendered
insolvent, was rendered insolvent by reason of such incurrence, was engaged in a
business or transaction for which its remaining assets constituted unreasonably
small capital, intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they matured, or intended to hinder, delay or
defraud its creditors, and that the indebtedness was incurred for less than
reasonably equivalent value, then such court could, among other things, (i) void
all or a portion of the Company's obligations to the Holders, the result of
which would be that the Holders might not be repaid in full and/or (ii)
subordinate the Company's obligations to the Holders to other existing or future
indebtedness of the Company to a greater extent than would otherwise be the
case, the effect of which would be to entitle such other creditors to be paid in
full before any payment could be made on the Notes.
YEAR 2000 COMPLIANCE
The Company utilizes a significant number of computer software programs and
operating systems across its entire organization, including applications used in
sales, shipping, financial business systems and various administrative
functions. To the extent that the Company's software applications contain source
code that is unable to appropriately interpret the upcoming calendar year "2000"
and beyond, some level of modification or replacement of such applications will
be necessary. The Company is working to identify its applications that are not
"Year 2000" compliant and plans to modify or replace such applications, as
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necessary. The Company currently expects that identified year 2000 impacted
systems that are critical to the Company's business will be corrected by the end
of 1998. In addition, the Company expects to perform final acceptance testing as
well as correct Year 2000 impacted systems that are not critical to the
Company's business through 1999. The Company also has begun to address whether
significant customers and suppliers may have Year 2000 compliance issues which
will affect their interaction with the Company. Given information known at this
time about the Company's systems that are non-compliant, coupled with the
Company's ongoing, normal course-of-business efforts to upgrade or replace
critical systems, as necessary, management does not expect Year 2000 compliance
costs to have any material adverse impact on the Company. No assurance can be
given, however, that all of the Company's systems, and those of significant
customers and suppliers, will be Year 2000 compliant or the failure to achieve
substantial Year 2000 compliance will not have a material adverse effect on the
Company.
LACK OF PRIOR MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the Holders of the Private Notes.
The Private Notes were offered and sold in January 21, 1998 to a small number of
institutional investors and are eligible for trading in the PORTAL Market. The
Company does not intend to apply for a listing of the Exchange Notes on a
securities exchange. There is currently no established market for the Exchange
Notes and there can be no assurance as to the liquidity of markets that may
develop for the Exchange Notes, the ability of the Holders of the Exchange Notes
to sell their Exchange Notes or the price at which such Holders would be able to
sell their Exchange Notes. If such markets were to exist, the Exchange Notes
could trade at prices that may be lower than the initial market values thereof
depending on many factors, including prevailing interest rates and the markets
for similar securities. Although there is currently no market for the Exchange
Notes, the Initial Purchasers have advised the Company that they currently
intend to make a market in the Exchange Notes. However, the Initial Purchasers
are not obligated to do so, and any market making with respect to the Exchange
Notes may be discontinued at any time without notice.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on January 21, 1998 (the
"Issuance Date") to the Initial Purchasers pursuant to the Purchase Agreement.
The Initial Purchasers subsequently sold the Private Notes to (i) "qualified
institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities Act
("Rule 144A"), in reliance on Rule 144A and (ii) in offshore transactions in
reliance on Regulation S under the Securities Act. As a condition to the sale of
the Private Notes, the Company and the Initial Purchasers entered into the
Registration Rights Agreement on January 21, 1998. Pursuant to the Registration
Rights Agreement, the Company agreed that, unless the Exchange Offer is not
permitted by applicable law or Commission policy, it would (i) file with the
Commission a Registration Statement under the Securities Act with respect to the
Exchange Notes within 120 days after the Closing Date, (ii) use its best efforts
to cause such Registration Statement to become effective under the Securities
Act within 200 days after the Closing Date and (iii) commence the Exchange Offer
and use its best efforts to issue, on or prior to 230 days after the Closing
Date, Exchange Notes in exchange for all Private Notes tendered prior thereto in
the Exchange Offer. A copy of the Registration Rights Agreement has been filed
as an exhibit to the Registration Statement. The Registration Statement is
intended to satisfy certain of the Company's obligations under the Registration
Rights Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a Holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such Holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who exchanges Private Notes for Exchange Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in a
distribution of the Exchange Notes, will be allowed to resell Exchange Notes to
the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any Holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in the distribution of the Exchange Notes or is a broker-dealer,
such Holder cannot rely on the position of the staff of the Commission
enumerated in certain no-action letters issued to third parties and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus meeting
the requirements of Section 10 of the Securities Act in connection with any
resale of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Private Notes where such Private Notes were acquired by such
broker-dealer as a result of market-making or other trading activities. A
broker-dealer may not participate in the Exchange Offer with respect to the
Private Notes acquired other than as a result of market-making activities or
other trading activities. Pursuant to the Registration Rights Agreement, the
Company has agreed to make this Prospectus, as it may be amended or supplemented
from time to time, available to broker-dealers for use in connection with any
resale for a period of 90 days after the Expiration Date. See "Plan of
Distribution."
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<PAGE>
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Private Notes surrendered pursuant
to the Exchange Offer. Private Notes may be tendered only in integral multiples
of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) Holders of the Exchange Notes will not
be entitled to any of the rights of Holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as
the Private Notes (which they replace) and will be issued under, and be entitled
to the benefits of, the Indenture, which also authorized the issuance of the
Private Notes, such that both series of Notes will be treated as a single class
of debt securities under the Indenture.
As of the date of this Prospectus, $200,000,000 in aggregate principal
amount of the Private Notes are outstanding. Only a registered Holder of the
Private Notes (or such Holder's legal representative or attorney-in-fact) as
reflected on the records of the Trustee under the Indenture may participate in
the Exchange Offer. There will be no fixed record date for determining
registered Holders of the Private Notes entitled to participate in the Exchange
Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
August 25, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, and (ii) mail to the
registered Holders an announcement thereof which shall include disclosure of the
approximate number of Private Notes deposited to date, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date.
The Company reserves the right, in its reasonable discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "-- Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent. Any such delay in acceptance,
extension, termination or
25
<PAGE>
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered Holders. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered Holders, and the Company will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the amendment and the manner of disclosure to the registered
Holders, if the Exchange Offer would otherwise expire during such five to ten
business day period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will bear interest at a
rate equal to 9 1/4% per annum. Interest on the Exchange Notes will be payable
semi-annually in arrears on each February 1 and August 1, commencing August 1,
1998. Holders of Exchange Notes will receive interest on August 1, 1998 from the
Issuance Date. Holders of Private Notes that are accepted for exchange will be
deemed to have waived the right to receive any interest accrued on the Private
Notes.
PROCEDURES FOR TENDERING
Only a registered Holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a Holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Private Notes must be received by the Exchange Agent along with the Letter
of Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Private Notes, if such procedure is
available, into the Exchange Agent's account at the Depositary pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with
the guaranteed delivery procedures described below.
The tender by a Holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such Holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered Holder
promptly and instruct such registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name or
obtain a properly completed bond power from the registered Holder. The transfer
of registered ownership may take considerable time.
26
<PAGE>
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes tendered
pursuant thereto are tendered (i) by a registered Holder who has not completed
the box titled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be made by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "Eligible Guarantor Institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (each, an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Private Notes listed therein, such Private Notes must be endorsed
or accompanied by a properly completed bond power, signed by such registered
Holder as such registered Holder's name appears on such Private Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Private
Notes not properly tendered or any Private Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Private Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify Holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes that are not tendered pursuant to the Exchange
Offer, the Company reserves the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "-- Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Private
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each Holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such Holder of
Private Notes in connection with the Exchange Offer are being acquired by such
Holder in the ordinary course of the respective business of such Holder, (ii)
such Holder is not engaged in, and does not intend to engage in, a distribution
of the Exchange Notes, (iii) if such Holder is a resident of the State of
California, it falls under the self-executing institutional investor exemption
set forth under Section 25102(i) of the Corporate Securities Law of 1968 and
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<PAGE>
Rules 260.102.10 and 260.105.14 of the California Blue Sky Regulations, (iv) if
such Holder is a resident of the Commonwealth of Pennsylvania, it falls under
the self-executing institutional investor exemption set forth under Sections
203(c), 102(d) and (k) of the Pennsylvania Securities Act of 1972, Section
102.111 of the Pennsylvania Blue Sky Regulations and an interpretive opinion
dated November 16, 1985, (v) such Holder acknowledges and agrees that any person
who is a broker-dealer registered under the Exchange Act or is participating in
the Exchange Offer for the purposes of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the Exchange
Notes acquired by such person and cannot rely on the position of the staff of
the Commission set forth in certain no-action letters, (vi) such Holder
understands that a secondary resale transaction described in clause (v) above
and any resales of Exchange Notes obtained by such Holder in exchange for
Private Notes acquired by such Holder directly from the Company should be
covered by an effective registration statement containing the selling
securityholder information required by Item 507 or Item 508, as applicable, of
Regulation S-K of the Commission and (vii) such Holder is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company. If the Holder is a
broker-dealer that will receive Exchange Notes for such Holder's own account in
exchange for Private Notes that were acquired as a result of market-making
activities or other trading activities, such Holder will be required to
acknowledge in the Letter of Transmittal that such Holder will deliver a
prospectus in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, such Holder will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are withdrawn
or are submitted for a greater principal amount than the Holders desire to
exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be
returned without expense to the tendering Holder thereof (or, in the case of
Private Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depositary pursuant to the book-entry transfer procedures described
below, such Private Notes will be credited to an account maintained with the
Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Private Notes may be effected through book-entry transfer at the Depositary, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under "--
Exchange Agent" on or prior to the Expiration Date or pursuant to the guaranteed
delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
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<PAGE>
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the Holder, the certificate number(s) of such Private Notes, if
any, and the principal amount of Private Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or a facsimile thereof), together with the certificate(s)
representing the Private Notes in proper form for transfer or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal, will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer or a Book-Entry Confirmation, as the case may be,
and all other documents required by the Letter of Transmittal are received
by the Exchange Agent within three New York Stock Exchange trading days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to 5:00 P.M., New York City time, on the Expiration
Date.
To withdraw a tender of Private Notes in the Exchange Offer, a telegram,
telex, facsimile transmission or letter of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Private Notes to be withdrawn (the "Depositor"), (ii) identify the
Private Notes to be withdrawn (including the certificate number or numbers on a
Book-Entry Confirmation, as the case may be, and principal amount of such
Private Notes) and (iii) be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal by which such Private Notes were
tendered (including any required signature guarantees). All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company in its sole discretion, whose determination shall
be final and binding on all parties. Any Private Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer, and
no Exchange Notes will be issued with respect thereto unless the Private Notes
so withdrawn are validly retendered. Properly withdrawn Private Notes may be
retendered by following one of the procedures described above under "The
Exchange Offer -- Procedures for Tendering" at any time prior to the Expiration
Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates applicable
law, rules or regulations or an applicable interpretation of the staff of the
Commission.
If the Company determines in its reasonable discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering Holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
Expiration Date, subject, however, to the rights of Holders to withdraw such
Private Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Private Notes that have not been withdrawn. If such waiver constitutes a
material change to the Exchange Offer, the Company will promptly disclose such
waiver by means of a prospectus supplement that will be distributed to the
registered Holders of the Private Notes, and the
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<PAGE>
Company will, if requested by law, extend the Exchange Offer for a period of
five to ten business days, depending upon the significance of the waiver and the
manner of disclosure to the registered Holders, if the Exchange Offer would
otherwise expire during such five to ten business day period.
Holders have certain rights and remedies against the Company under the
Registration Rights Agreement with respect to the Exchange Offer. In the event
that (a) the Registration Statement has not been filed with the Commission on or
prior to the 120th calendar day following January 21, 1998 (the "Issuance
Date"), (b) the Registration Statement is not declared effective on or prior to
the 200th calendar day following the Issuance Date, or (c) the Exchange Offer is
not consummated on or prior to the 230th calendar day following the Issuance
Date, the interest rate borne by the Notes shall be increased by one-quarter of
one percent per annum following such 120-day period in the case of clause (a)
above, following such 200-day period in the case of clause (b) above, or
following such 230-day period in the case of clause (c) above which rate will be
increased by an additional one-quarter of one percent per annum for each 90-day
period that any additional interest continues to accrue; PROVIDED that the
aggregate increase in such annual interest rate may in no event exceed one
percent. Upon (x) the filing of the Registration Statement after the 120-day
period described in clause (a) above, (y) the effectiveness of the Registration
Statement after the 200-day period described in clause (b) above, or (z) the
consummation of the Exchange Offer after the 230-day period described in clause
(c) above, the interest rate borne by the Notes from the date of such
effectiveness, consummation or that the Registration Statement again becomes
effective will be reduced to the original interest rate if the Company is
otherwise in compliance with this paragraph; PROVIDED, HOWEVER, that if, after
any such reduction in interest rate, a different event specified in clause (a),
(b) or (c) above occurs, the interest rate may again be increased and thereafter
decreased pursuant to the foregoing provisions.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirely by, all of the provisions of the Registration Rights Agreement.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of Holders of the Private Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Company's continuing obligations (i) to indemnify such Holders (including
any broker-dealers) and certain parties related to such Holders against certain
liabilities (including liabilities under the Securities Act), (ii) to provide,
upon the request of any Holder of a transfer-restricted Private Note, the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Private Notes pursuant to Rule 144A, and (iii) to use its
best efforts to keep the Registration Statement effective to the extent
necessary to ensure that it is available for resales of transfer-restricted
Private Notes by broker-dealers for a period of up to 90 days from the
Expiration Date and (iv) to provide copies of the latest version of the
Prospectus to broker-dealers upon their request for a period up to 90 days after
the Expiration Date.
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<PAGE>
EXCHANGE AGENT
U.S. Trust Company, National Association has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<CAPTION>
BY REGISTERED OR CERTIFIED MAIL: BY HAND DELIVERY:
<S> <C>
U.S. Trust Company, National Association U.S. Trust Company, National Association
c/o United States Trust Company of New York c/o United States Trust Company of New York
P.O. Box 841 Peter Cooper Station 111 Broadway, Lower Level
New York, New York 10276-0841 New York, New York 10006
Attn: Corporate Trust and Attn: Corporate Trust and
Agency Services Agency Services
</TABLE>
<TABLE>
<CAPTION>
BY OVERNIGHT DELIVERY: BY FACSIMILE:
<S> <C>
U.S. Trust Company, National Association 212-420-6155
c/o United States Trust Company of New York
770 Broadway, 13th Floor CONFIRM BY TELEPHONE
New York, New York 10003 800-255-2398
Attn: Corporate Trust and
Agency Services
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$300,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering Holder.
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<PAGE>
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Private
Notes may be resold only (i) to a person whom the seller reasonably believes is
a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.
ACCOUNTING TREATMENT
The carrying value of the Private Notes is expected to become the carrying
value of the Exchange Notes at the time of the Exchange Offer. Accordingly, the
Company will recognize no gain or loss as a result of the Exchange Offer. The
expenses of the Exchange Offer will be amortized over the term of the Exchange
Notes.
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<PAGE>
THE RECAPITALIZATION
THE SUBSCRIPTION AGREEMENT
On November 17, 1997, the Company entered into the Subscription Agreement
with Phelps Dodge and Hubcap Acquisition pursuant to which Hubcap Acquisition
acquired control of the Company. Pursuant to the Subscription Agreement, Hubcap
Acquisition paid $108.0 million as consideration for the Company's issuance to
Hubcap Acquisition of 90 shares of Common Stock. The Company used the proceeds
from the Equity Investment, together with approximately $363.7 million of
aggregate proceeds from the Financings to (i) redeem 90 shares of Common Stock
and obtain a noncompetition agreement from Phelps Dodge for aggregate
consideration of $468.0 million and (ii) pay an estimated $20.9 million in
transaction fees and expenses. The Redemption price of $468.0 million was
adjusted for changes in working capital and the difference between actual and
projected capital expenditures, in each case through December 31, 1997. The
adjustment resulted in a reduction in the Redemption price, and that the
reduction was used to reduce borrowings under the Revolver.
Immediately after the Closing, Hubcap Acquisition owned 90% of the Common
Stock and Phelps Dodge owned 10% of the Common Stock. Shortly after the
Recapitalization, the Company sold additional shares of Common Stock and granted
options to purchase Common Stock to senior management of the Company
representing, in the aggregate, approximately 10% of the fully diluted equity of
the Company.
The Recapitalization was effected to facilitate a change in ownership of the
Company and to provide the Company with additional liquidity to pursue its
growth strategies.
Pursuant to the Subscription Agreement, Phelps Dodge has agreed to indemnify
Hubcap Acquisition, the Company and others for certain damages relating to (i)
breaches of the representations, warranties, covenants and agreements contained
in the Subscription Agreement, (ii) certain environmental liabilities, (iii)
certain self-insured risks, (iv) certain employee benefits owed to employees of
the Company which benefit obligations are to be retained by Phelps Dodge, and
(v) income taxes relating to the operations of the Company prior to the Closing.
However, with respect to representations and warranties, Phelps Dodge will be
required to indemnify Hubcap Acquisition and the Company only to the extent that
a claim with respect to breaches of a representation and warranty is made within
twelve months of the Closing and only if damages for any such breaches exceeds
$8.5 million in the aggregate, and Phelps Dodge's maximum obligation with
respect to damages relating to clause (i) above will be 50% of the amount paid
to Phelps Dodge in the Recapitalization.
In connection with the consummation of the Recapitalization, the Company
paid the fees and expenses incurred by Hubcap Acquisition in connection with the
Subscription Agreement and the transactions contemplated thereby, including a
fee to KKR or its designee of $6.0 million for negotiating the Recapitalization
and arranging the financing therefor.
OTHER AGREEMENTS
As part of the Recapitalization, Hubcap Acquisition, the Company and Phelps
Dodge entered into the following agreements:
STOCKHOLDERS AGREEMENT. Phelps Dodge, the Company and Hubcap Acquisition
entered into a Stockholders Agreement that places restrictions on Phelps Dodge's
ability to transfer its shares of Common Stock, including a right of first
refusal in favor of the Company and Hubcap Acquisition. Under the Stockholders
Agreement, Phelps Dodge has the right to participate pro rata in certain sales
of Common Stock by Hubcap Acquisition or its affiliates (the "Tag Along") and
Hubcap Acquisition or its affiliates has the right to require Phelps Dodge to
participate pro rata in certain sales by Hubcap Acquisition or its affiliates
(the "Drag Along"). The Stockholders Agreement also grants certain demand
(subsequent to an initial public offering of the Common Stock) and piggyback
registration rights to Phelps Dodge.
33
<PAGE>
HUBCAP REGISTRATION RIGHTS AGREEMENT. Hubcap Acquisition and the Company
entered into a registration rights agreement (the "Hubcap Registration Rights
Agreement") granting Hubcap Acquisition certain demand and piggyback
registration rights. See "Certain Relationships and Related Transactions."
TRANSITION SERVICES AGREEMENT. The Company and Phelps Dodge entered into a
transition services agreement (the "Transition Services Agreement") that
provides the Company with transition services in employee benefits, payroll and
certain information technology support for up to six months after the Closing.
The Company generally will reimburse Phelps Dodge for the full costs and
expenses related to the services provided under the agreement on a basis
consistent with past practices.
USE OF PROCEEDS
The Company used the $200.0 million of gross proceeds from the Private
Notes, together with $108.0 million of gross proceeds of the Equity Investment
and borrowings under the Credit Facility of approximately $164.8 million, to (i)
consummate the Redemption and (ii) pay an estimated $20.9 million in transaction
fees and expenses.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes hereby. In consideration for issuing the Exchange Notes as
contemplated in this Prospectus, the Company will receive in exchange the
Private Notes in like principal amount, the terms of which are the same as the
Exchange Notes except that (i) the exchange will have been registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) Holders of the Exchange Notes will not
be entitled to certain rights of Holders of the Private Notes under the
Registration Rights Agreement, which rights will terminate upon consummation of
the Exchange Offer. The Private Notes surrendered in exchange for the Exchange
Notes will not result in any increase in the indebtedness of the Company.
34
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998 the unaudited historical
consolidated cash and cash equivalents and capitalization of the Company. This
table should be read in conjunction with historical consolidated financial
statements of the Company and its subsidiaries and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
--------------
<S> <C>
(DOLLARS IN THOUSANDS)
Cash and cash equivalents......................................................................... $ 12,505
--------------
--------------
Debt (including current portion):
Credit Facility (a)............................................................................. $ 164,750
Notes (b)....................................................................................... 216,618
--------------
Total debt.................................................................................... 381,368
Stockholders' equity (deficiency)................................................................. (68,006)
--------------
Total capitalization.......................................................................... $ 313,362
--------------
--------------
</TABLE>
- ------------------------
(a) As of March 31, 1998, the Company had availability of $110.3 million under
the Revolver. See "Description of the Credit Facility."
(b) Notes consist of $17,700 of ADM notes and $198,918 of Exchange Notes (on a
discounted basis).
35
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed financial
statements have been derived from the application of pro forma adjustments to
the Company's historical consolidated financial statements included elsewhere in
this Prospectus. The unaudited pro forma consolidated condensed statement of
operations for the year ended December 31, 1997 gives effect to (i) the
Recapitalization and (ii) the acquisition of the interest in AKW as if such
transactions had occurred on January 1, 1997. The unaudited pro forma
consolidated condensed statement of operations for the three months ended March
31, 1998 gives effect to the Recapitalization as if such transaction had
occurred on January 1, 1997. The adjustments are described in the accompanying
notes. The pro forma consolidated condensed financial statements should not be
considered indicative of actual results that would have been achieved if the
Recapitalization and the acquisition of the interest in AKW had been consummated
on the date or for the periods indicated and do not purport to indicate results
of operations as of any future date or for any future period. The pro forma
consolidated condensed financial statements should be read in conjunction with
the Company's historical consolidated financial statements and the notes thereto
included in this Prospectus.
36
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------
<S> <C> <C> <C> <C>
PRO FORMA ADJUSTMENTS
--------------------------------------
<CAPTION>
(DOLLARS IN THOUSANDS) HISTORICAL AKW (a) RECAPITALIZATION PRO FORMA
---------- -------- ---------------- ---------
<S> <C> <C> <C> <C>
Net sales................................................... $332,966 $(19,055) $ -- $313,911
Cost of goods sold.......................................... 266,972 (17,920) -- 249,052
---------- -------- ---------------- ---------
Gross profit................................................ 65,994 (1,135) -- 64,859
Operating expenses.......................................... 21,316 -- 500(b) 21,816
---------- -------- ---------------- ---------
Income from operations...................................... 44,678 (1,135) (500) 43,043
Other income (expense):
Interest income (expense), net............................ 385 -- (33,676)(c) (33,291)
Equity in earnings of affiliates.......................... 4,384 1,135 -- 5,519
Other income (expense), net (d)........................... 548 -- -- 548
---------- -------- ---------------- ---------
Income before income taxes.................................. 49,995 -- (34,176) 15,819
Income tax provision........................................ (22,158) 14,723(e) (7,435)
---------- -------- ---------------- ---------
Net income.................................................. $ 27,837 $ -- $ (19,453) $ 8,384
---------- -------- ---------------- ---------
---------- -------- ---------------- ---------
OTHER DATA:
Adjusted EBITDA (f)....................................... $ 76,888 $ 76,388
Adjusted EBITDA Margin (g)................................ 21.8% 22.6%
Cash Interest Expense (h)................................. 145 32,221
Depreciation and amortization............................. 20,726 20,726
Capital expenditures...................................... 24,032 24,032
Ratio of earnings to fixed charges (i).................... 99.9x 1.37x
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
<S> <C> <C> <C>
PRO FORMA ADJUSTMENTS
-----------------------------------------
<CAPTION>
HISTORICAL RECAPITALIZATION PRO FORMA
---------- ---------------- ---------
<S> <C> <C> <C>
Net sales................................................... 93,908 -- 93,908
Cost of goods sold.......................................... 73,752 -- 73,752
---------- ---------------- ---------
Gross profit................................................ 20,156 -- 20,156
Operating expenses.......................................... 9,550 28(b) 9,578
Income from operations...................................... 10,606 (28) 10,578
Other income (expense):
Interest income........................................... 140 -- 140
Interest (expense)........................................ (6,703) (1,937)(c) (8,640)
Equity in earnings (losses) of affiliates................. (2,700) -- (2,700)
Other income (expense), net (d)........................... (515) -- (515)
---------- ---------------- ---------
Income before income taxes.................................. 828 (1,965) (1,137)
Income tax (provision) benefit.............................. (347) 825(e) 478
---------- ---------------- ---------
Net income (loss)........................................... $ 481 $ (1,140) $ (659)
---------- ---------------- ---------
---------- ---------------- ---------
OTHER DATA:
Adjusted EBITDA (f)....................................... 22,372 22,344
Adjusted EBITDA Margin (g)................................ 23.1% 23.1%
Cash Interest Expense (h)................................. 6,405 8,242
Depreciation and amortization............................. 5,516 5,516
Capital expenditures...................................... 7,323 7,323
Ratio of earnings to fixed charges (i).................... 1.46x 1.13x
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Condensed Statements of
Operations.
37
<PAGE>
- ------------------------
(a) Prior to May 1997, the Company sold aluminum Wheels purchased from Kaiser.
See "Business--Strategic Alliances." In May 1997, the Company and Kaiser
formed a joint venture, AKW, and the Company ceased recognizing net sales
and cost of goods sold and began to record only its share of the net
earnings of AKW. Pro forma net sales, costs of goods sold and depreciation
before May 1997 have been decreased and equity in earnings of affiliates has
been increased by a corresponding net amount as though the interest in AKW
was acquired as of January 1, 1997. The pro forma equity in earnings of AKW
before May 1997 should not be considered indicative of actual results that
would have been achieved if the formation of AKW had been consummated on
January 1, 1997.
(b) Reflects the estimated incremental selling, general and administrative
expense associated with the Company operating as an independent entity. The
incremental selling, general and administrative expense consists principally
of: (i) increases in salaries and benefits for corporate employees
(principally tax, treasury, legal and employee benefits) and (ii) additional
expenses for external auditing, periodic filings with the Commission and
compensation and benefits for non-employee directors. The Company has also
estimated an additional $0.5 to $1.0 million in expenses in 1998 which have
been excluded from the pro forma adjustments as such expenses are not
expected to have a continuing impact on the Company.
(c) The pro forma adjustment to interest expense assumes a weighted average
interest rate of 8.8% per annum on $164.8 million of indebtedness under the
Credit Facility and $200.0 million in aggregate principal amount of Private
Notes.
A 0.125% increase or decrease in the weighted average interest rate would
change the pro forma interest expense by $0.5 million for the fiscal year
ended December 31, 1997 and $.1 million for the three months ended March 31,
1998. Each $5.0 million increase or decrease in borrowings under the
Revolver would change pro forma interest expense by $0.4 million for the
fiscal year ended December 31, 1997 and $.1 million for the three months
ended March 31, 1998.
(d) Other income (expense), net consists of currency hedging and foreign
exchange gains and losses related to the Company's Canadian operations.
(e) Reflects the tax effects of the pro forma adjustments at 47% and 42%
effective income tax rates for the fiscal year ended December 31, 1997 and
the three months ended March 31, 1998, respectively.
(f) Adjusted EBITDA represents income from operations plus depreciation and
amortization plus equity in earnings (losses) of affiliates, plus (i) $7.1
million representing the impact of the strike at the Ontario Facility
incurred during the first quarter of 1997, (ii) $3.4 million representing
the impact of the AKW wheel recall campaign implemented in 1998, (iii) $.81
million of management retention bonuses to be paid by Phelps Dodge recorded
in the first quarter of 1998, (iv) $2.24 million of recapitalization
professional fees recorded in the first quarter of 1998 and (v) an estimated
$2.5 million of costs incurred in connection with the strike in 1998 at the
Company's facility in Henderson, Kentucky. Adjusted EBITDA is not intended
to represent cash flows from operations as defined by GAAP and should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. Adjusted
EBITDA is included in this Prospectus as it is a basis upon which the
Company assesses its financial performance and certain covenants in the
Company's borrowing arrangements are tied to similar measures.
(g) Adjusted EBITDA Margin represents Adjusted EBITDA before equity in earnings
of affiliates and before the $3.4 million impact of the AKW wheel recall
campaign implemented in 1998 as a percentage of net sales.
(h) Cash Interest Expense represents accrued interest expense exclusive of
amortization of deferred financing costs. For the fiscal year ended December
31, 1997, pro forma amortization of deferred financing costs was $1.6
million. For the three months ended March 31, 1998, pro forma amortization
of deferred financing costs was $.1 million.
(i) For purposes of these computations, earnings consist of income before income
taxes plus fixed charges (exclusive of capitalized interest) less
undistributed earnings in unconsolidated joint ventures. Fixed charges
consist of interest expense (including capitalized interest), amortization
of deferred financing costs and one-third of rental expenses (the portion
deemed representative of the interest factor).
38
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth selected historical consolidated financial
and other data for the Company. The selected historical consolidated financial
data for each of fiscal years 1995, 1996, and 1997 have been derived from, and
should be read in conjunction with, the audited consolidated financial
statements of the Company for each such period and the related notes thereto
included elsewhere in this Prospectus. The unaudited selected historical
consolidated financial data for the three months ended March 31, 1997 and 1998
have been derived from, and should be read in conjunction with, the unaudited
consolidated financial statements included elsewhere in this Prospectus. The
unaudited selected historical consolidated financial data for the years ended
December 31, 1993 and December 31, 1994 have been derived from the Company's
unaudited consolidated financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included in
the unaudited consolidated financial statements of the Company. Interim results
for the three months ended March 31, 1998 are not necessarily indicative of
results for the fiscal year ended December 31, 1998. See "Pro Forma Consolidated
Condensed Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997(a) 1997 1998(a)
----------- ----------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.............................. $ 281,851 $ 333,556 $ 357,802 $ 307,830 $ 332,966 $ 81,528 $ 93,908
Gross profit........................... 40,625 59,020 64,549 61,723 65,994(b) 9,114(b) 20,156(b)
Operating expenses (c)................. 15,627 16,938 16,869 17,941 21,316 4,766 9,550
Income (loss) from operations.......... 24,998 42,082 47,680 43,782 44,678(b) 4,348(b) 10,606(b)
Interest income (expense), net......... (314) 701 717 400 385 192 (6,563)
Equity in earnings (losses) of
affiliates........................... (176) 308 300 115 4,384 48 (2,700)
Other income (expense), net (d)........ 320 (1,684) (1,375) (381) 548 -- (515)
Net income............................. 14,734 24,301 26,592 26,466 27,837 2,753 481
OTHER DATA:
Adjusted EBITDA (e).................... $ 45,133 $ 62,928 $ 70,101 $ 64,023 $ 76,888 $ 16,598 $ 22,372
Adjusted EBITDA Margin (f)............. 16.1% 18.8% 19.5% 20.8% 21.8% 20.3% 23.1%
Net cash provided by (used in):
Operating activities................. 40,467 44,600 50,012 43,678 38,219 (1,345) 6,548
Investing activities................. (9,266) (6,342) (6,766) (9,370) (47,065) (1,735) (7,702)
Financing activities................. (31,276) (14,900) (57,718) (37,463) 9,953 5,432 6,241
Cash Interest Expense (g).............. 614 90 35 33 145 7 6,405
Depreciation and amortization.......... 20,311 20,538 21,121 20,126 20,726 5,102 5,516
Capital expenditures................... 10,866 6,535 6,960 9,584 24,032 1,735 7,323
Ratio of earnings to fixed charges
(h).................................. 13.4x 67.9x 88.7x 118.1x 99.9x 38.8x 1.46x
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents.............. $ 580 $ 23,938 $ 9,466 $ 6,311 $ 7,418 $ 8,663 $ 12,505
Working capital........................ 33,122 33,385 34,785 38,608 27,416 53,882 26,010
Total assets........................... 323,778 341,014 298,900 288,703 347,447 290,624 378,959
Total debt............................. 6,000 -- -- -- 16,040 -- 381,368
Stockholders' equity (deficiency)...... 255,404 271,262 239,081 228,451 256,055 236,636 (68,006)
</TABLE>
39
<PAGE>
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
(a) Results of operations for the year ended December 31, 1997 (subsequent to
May 1997) and for the three months ended March 31, 1998 do not reflect net
sales and gross profit for aluminum Wheels due to the formation of the AKW
joint venture. Net sales and gross profit for aluminum Wheels were $32.1
million and $2.5 million, respectively, for the period beginning on May 1,
1996 and ending on December 31, 1996, and were $13.8 million and $.8
million, respectively, for the three months ended March 31, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Pro Forma Consolidated Condensed Financial
Statements."
(b) Gross profit and income (loss) from operations for the year ended December
31, 1997 and for the three months ended March 31, 1997 reflect $7.1 million
of costs incurred in connection with the strike in early 1997 at the Ontario
Facility. Gross profit and income from operations for the three months ended
March 31, 1998 reflect an estimated $2.5 million of costs incurred in
connection with the strike in 1998 at the Henderson Facility.
(c) Operating expenses include selling, general and administrative plus (i) $1.1
million of start-up costs related to the Tennessee Facility incurred during
the first quarter of 1998, (ii) $.81 million of management retention bonuses
to be paid by Phelps Dodge recorded in the first quarter of 1998, and (iii)
$2.24 million of recapitalization professional fees recorded in the first
quarter of 1998.
(d) Other income (expense), net consists of currency hedging and foreign
exchange gains and losses related to the Company's Canadian operations.
(e) Adjusted EBITDA represents operating income plus depreciation and
amortization plus equity in earnings (losses) of affiliates, plus (i) $7.1
million representing the impact of the strike at the Ontario Facility
incurred during the first quarter of 1997, (ii) $1.0 million restructuring
charges incurred in 1995, (iii) $3.4 million representing the impact of the
AKW wheel recall campaign implemented in 1998, (iv) $.81 million of
management retention bonuses to be paid by Phelps Dodge recorded in the
first quarter of 1998, (v) $2.24 million of recapitalization professional
fees recorded in the first quarter of 1998 and (vi) an estimated $2.5
million of costs incurred in connection with the strike in 1998 at the
Henderson Facility. Adjusted EBITDA is not intended to represent cash flows
from operations as defined by GAAP and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. Adjusted EBITDA is
included in this Prospectus as it is a basis upon which the Company assesses
its financial performance and certain covenants in the Company's borrowing
arrangements are tied to similar measures.
(f) Adjusted EBITDA Margin represents Adjusted EBITDA before equity in earnings
(losses) of affiliates and before the $3.4 million impact of the AKW wheel
recall campaign implemented in 1998 as a percentage of net sales.
(g) Cash Interest Expense represents accrued interest expense exclusive of
amortization of deferred financing costs. For the years ended December 31,
1993, 1994, 1995, 1996 and 1997, and for the three months ended March 31,
1997, there was no amortization of deferred financing costs. For the three
months ended March 31, 1998, amortization of deferred financing costs was
$.3 million.
(h) For purposes of these computations, earnings consist of income before income
taxes plus fixed charges (exclusive of capitalized interest) less
undistributed earnings in unconsolidated joint ventures. Fixed charges
consist of net interest expense (including capitalized interest),
amortization of deferred financing costs and one-third of rental expense
(the portion deemed representative of the interest factor).
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis of the results of operations of the
Company includes periods before completion of the Recapitalization. Accordingly,
the discussion and analysis of such periods do not reflect the significant
impact that the Recapitalization will have on the Company. See "Risk Factors,"
"Pro Forma Consolidated Condensed Financial Statements" and the discussion below
under "--Liquidity and Capital Resources" for further discussions relating to
the impact that the Recapitalization may have on the Company.
GENERAL
NET SALES. The Company derives a substantial portion of its net sales from
the sale of steel Wheels to North American Heavy/Medium Truck, Trailer and Light
Truck OEMs. The Company also supplies aluminum Heavy/Medium Wheels to North
American Heavy/Medium Truck and Trailer OEMs. In addition, the Company supplies
the aftermarket with replacement products. Revenues are recognized upon shipment
to customers from the Company's production facilities.
Prior to May 1997, the Company participated in the aluminum Wheel segment
through a buy-and-resell agreement with Kaiser. Under that agreement, aluminum
Wheels were engineered and designed by the Company, manufactured by Kaiser and
sold through the Company's distribution channels under the Accuride name.
Therefore, the Company's results of operations reflected revenues received from
the sale of aluminum Wheels and the cost of acquiring the Wheels from Kaiser.
However, under that arrangement, the Company often could not satisfy customer
demand for aluminum Heavy/Medium Wheels because of Kaiser's capacity
constraints. In May 1997, the Company invested $20.8 million for a 50% interest
in AKW, a joint venture with Kaiser. AKW acquired Kaiser's Wheel operations in
Erie, Pennsylvania and Cuyahoga Falls, Ohio. Since its inception, AKW has
increased its capacity by over one-third. Despite this recent expansion, AKW
continues to operate at or near capacity and is in the process of increasing
capacity further to meet customer demand. The Company's participation in AKW's
earnings has been recorded on an equity basis since the establishment of the
joint venture. Accordingly, the Company's financial results are not directly
comparable to periods prior to May 1997.
In addition, the Company recently established ADM, a 51%-owned venture with
IaSa, Mexico's only commercial vehicle Wheel manufacturer. Historically, the
Company supplied OEMs in Mexico from its Henderson Facility and its Ontario
Facility. The Company will use ADM as a platform to supply the growing Latin
American assembly operations of many of the Company's top customers, including
Ford, Freightliner, General Motors, Navistar, Paccar and Volvo Trucks North
America ("Volvo"). ADM is building a new facility in Monterrey, Mexico (the
"Monterrey Facility"), which is scheduled to begin production in mid-1999. Until
such time, IaSa has agreed to contract manufacture ADM's Wheel requirements from
IaSa's existing Wheel operations. IaSa has entered into a noncompetition
agreement with ADM and no longer participates in the Wheel business other than
through its interest in ADM.
Furthermore, in order to expand its presence in the growing Light Truck
Wheel segment, the Company is developing the Tennessee Facility, which is
scheduled to begin production of a chrome-plated plastic, cladded single steel
Wheel marketed under the name CHROMTEC-Registered Trademark- (the
"CHROMTEC-Registered Trademark- Wheel") for Ford's Expedition, Navigator and
F-series trucks in mid-1998. The Company believes that growth opportunities in
this segment include value-added steel Wheel products, such as the
CHROMTEC-Registered Trademark- Wheel, as well as capturing the potential
outsourcing by automotive OEMs of their internal Wheel manufacturing operations.
This facility will cost approximately $24 million, of which the Company had
spent approximately $12.6 million as of March 31, 1998. See "--Liquidity and
Capital Resources." If there is sufficient demand, the Company plans to increase
the capacity of the Tennessee Facility in 1999.
41
<PAGE>
The Company competes in a cyclical industry that historically has
experienced significant fluctuations in demand as a result of factors such as
general economic conditions, interest rates, governmental regulations and
consumer confidence. The Company's results of operations for 1995 benefited from
strong market conditions, with 1995 representing a peak according to most
industry indicators. Although demand declined in 1996, backlogs that had built
up during 1995 kept sales in line with 1995 levels through the first quarter of
1996. However, by the end of the second quarter of 1996, backlogs had declined,
and sales fell significantly. The Company's steel Wheel net sales volume for the
third quarter of 1996 was 15% lower than such net sales volume for the second
quarter of 1996 and 18% lower than such net sales volume for the comparable
period in 1995, with net sales for the year ended December 31, 1996
substantially lower than net sales for 1995. By the second quarter of 1997,
steel Wheel net sales volume was generally comparable to such net sales volume
for the same period in 1995, and steel Wheel net sales volume for the third
quarter of 1997 exceeded such net sales volume for the comparable period in 1995
by approximately 11%. Steel Wheel sales volume for the fiscal year ended 1997
exceeded 1996 levels by 22% and was substantially equivalent to the 1995 levels,
excluding sales generated by ADM. See "Risk Factors--Cyclical Nature of
Industry."
GROSS PROFIT. The Company believes that it is the low-cost North American
supplier of steel Heavy/ Medium Wheels and that it operates the most modern
steel Heavy/Medium Wheel plants in North America. The Company continuously
strives to improve productivity, increase quality and lower costs. Since 1991,
the Company has invested over $50 million to modernize, upgrade and automate its
manufacturing plants. As a result of these expenditures and management's
continuous improvement philosophy, operating costs were reduced by approximately
$18 million in 1997 compared to 1994. As a result of these efforts, the
Company's gross profit as a percentage of net sales has increased to 19.8% in
1997 from 17.7% in 1994. Management has budgeted approximately $9 million in
1998 for Productivity initiatives (in addition to normal maintenance) and
believes that the Company's emphasis on low-cost manufacturing will continue to
yield significant operational improvements. The $9 million Productivity
initiatives include investments to automate and reduce manual operations, to
improve both material and labor efficiencies, and to increase throughput on
assembly lines, disc blankers and paint processes. This investment includes a
flexible assembly line, which facilitates quick changeovers and reductions in
manual operations. See "-- Liquidity and Capital Resources."
Steel costs have been relatively constant, reflecting both overall stability
in the steel market as well as the Company's efforts to improve its material
efficiency and supply sources. Historically, steel product customers generally
have accepted fundamental price increases. Although standard steel Wheel pricing
has been relatively constant, the Company was able to achieve a modest price
increase on standard steel products in early 1996. The aluminum product market
is less mature and, therefore, changes in aluminum prices are generally borne by
the Wheel producer. The Company has entered into hedging and fixed price supply
arrangements to better manage its aluminum costs.
The Company believes that the experience of its labor force is a significant
element in maintaining low-cost production. However, in the first quarter of
1997, the Company experienced a 53-day strike at the Ontario Facility. The
Company estimates that the strike negatively impacted gross profit by $7.1
million in 1997.
The Company's contract with the UAW covering employees at the Henderson
Facility expired in February 1998. The Company was not able to negotiate a
mutually acceptable agreement with the UAW. Therefore, a strike occurred at the
Henderson Facility on February 20, 1998. The Company is continuing to operate
with its salaried employees and contractors. On March 31, 1998, the members of
the UAW rejected the Company's final offer for a new contract. Effective as of
March 31, 1998, the Company began an indefinite lockout which was prompted by
continuing reports to management that some individuals planned to re-enter the
plant and harass employees and damage equipment and machinery. On May 1, 1998,
the Company delivered to the UAW a revised offer and informed the UAW that the
Company's final offer would be replaced by such revised offer if the final offer
was not ratified by the UAW by May 15,
42
<PAGE>
1998. The revised offer provides less benefits than the final offer and
eliminates a portion of the proposed first year wage increase. The UAW did not
conduct a second vote on the final offer. Therefore, on May 15, 1998, the
Company's revised offer replaced the Company's final offer. Currently, there is,
and the Company believes that there will be, no supply disruption to the
Company's customer base; however, there can be no assurance to that effect. A
supply disruption to the Company's customer base could have a material adverse
effect on the Company. See "Risk Factors--Labor Relations."
OPERATING EXPENSES. Operating expenses are comprised of selling, general
and administrative ("SG&A"), start up costs, management retention bonuses and
recapitalization professional fees. SG&A is comprised of corporate overhead,
such as marketing and sales, research and development, finance, human resources,
information systems and administrative as well as related professional
consulting fees. In an effort to support its growth initiatives, the Company has
invested in additional professional and administrative resources, primarily in
sales and marketing. These resource additions resulted in increased SG&A for the
years ended December 31, 1996 and December 31, 1997.
Historically, a portion of the Company's administrative functions were
provided by Phelps Dodge. The Company was charged for the out-of-pocket costs of
services performed by third parties and recorded an allocated portion of the
SG&A of Phelps Dodge. As a result of the Recapitalization (and subject to a six-
month transition period from the consummation of the Recapitalization), the
Company will perform all of its own administrative functions. See "The
Recapitalization-Transition Services Agreement." The Company has estimated that
the performance of these functions will cost the Company an additional $0.5
million annually and an additional $0.5 to $1.0 million in expenses in 1998
which are not expected to have a continuing impact on the Company. However,
there can be no assurance that actual costs will not exceed these estimates. See
"Risk Factors--Difficulty in Achieving Growth Strategies" and "Pro Forma
Consolidated Condensed Financial Statements."
EQUITY IN EARNINGS OF AFFILIATES. Equity in earnings of affiliates includes
the Company's income from (i) AKW, subsequent to its inception in May 1997, and
(ii) AOT, Inc. ("AOT"), a 50%-owned joint venture with Goodyear Tire and Rubber
Company ("Goodyear") to provide Navistar with Wheel/tire assembly services.
Income from AKW and AOT is reported on the equity method and represents the
Company's share of such joint ventures' net income. In 1997, AOT had less than
$7.0 million in net sales. See "Business--Strategic Alliances."
ADJUSTED EBITDA. Adjusted EBITDA represents income from operations plus
depreciation and amortization plus equity in earnings of affiliates, plus (i)
$7.1 million representing the impact of the strike at the Ontario Facility
incurred during the first quarter of 1997 (ii) $1.0 million of restructuring
charges incurred in 1995, (iii) $3.4 million representing the impact of the AKW
wheel recall campaign implemented in 1998, (iv) $.81 million of managment
retention bonuses to be paid by Phelps Dodge recorded in the first quarter of
1998, (v) $2.24 million of recapitalization professional fees recorded in the
first quarter 1998 and (vi) an estimated $2.5 million of costs incurred in
connection with the strike in 1998 at the Henderson facility.
YEAR 2000 COMPLIANCE
The Company utilizes a significant number of computer software programs and
operating systems across its entire organization, including applications used in
sales, shipping, financial business systems and various administrative
functions. To the extent that the Company's software applications contain source
code that is unable to appropriately interpret the upcoming calendar year "2000"
and beyond, some level of modification or replacement of such applications will
be necessary. The Company currently expects that identified year 2000 impacted
systems that are critical to the Company's business will be corrected by the end
of 1998. In addition, the Company expects to perform final acceptance testing as
well as correct Year 2000 impacted systems that are not critical to the
Company's business through 1999. The Company is working to identify its
applications that are not "Year 2000" compliant and plans to modify or replace
such applications, as necessary. The Company also has begun to address whether
significant customers and
43
<PAGE>
suppliers may have Year 2000 compliance issues which will affect their
interaction with the Company. Given information known at this time about the
Company's systems that are non-compliant, coupled with the Company's ongoing,
normal course-of-business efforts to upgrade or replace critical systems, as
necessary, management does not expect Year 2000 compliance costs to have any
material adverse impact on the Company. No assurance can be given, however, that
all of the Company's systems, and those of significant customers and suppliers,
will be Year 2000 compliant or the failure to achieve substantial Year 2000
compliance will not have a material adverse effect on the Company.
AKW PRODUCT RECALL
On April 17, 1998, AKW, the Company's 50% owned joint venture, submitted a
notice to the National Highway Safety Administration ("NHSA") of AKW's intent to
recall approximately 47,800 aluminum truck wheels (the "Recalled Wheels")
because a defect may exist in the Recalled Wheels that relates to motor vehicle
safety. Kaiser, the Company's partner in AKW, manufactured several hundred of
the Recalled Wheels during the period April 23, 1997 through May 1, 1997. During
the period May 1, 1997 through February 28, 1998, AKW manufactured all of the
remaining Recalled Wheels. The Recalled Wheels were designed by the Company. AKW
estimates that the total costs of recalling and replacing all of the Recalled
Wheels will be approximately $6.8 million, an amount which may vary depending on
the level of customer response to the recall, among other factors. Due to the
Company's 50% ownership of AKW, the Company has reflected a portion of the
recall expenses ($3.4 million) as a reduction in "Equity in earnings (losses) of
affiliates" in the Company's financial statements for the three months ended
March 31, 1998. The Company believes that the recall will not have a material
adverse effect on the Company. The Company is currently not aware of any actual
or potential product liability claims related to the Recalled Wheels. There can
be no assurance, however, that no such claims will be made and that the Company
will not experience any material product liability losses in the future. See
"Business--AKW Product Recall."
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 WITH THREE MONTHS ENDED
MARCH 31, 1997
The following table sets forth certain income statement information of the
Company for the three months ended March 31, 1997 and March 31, 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
--------------------- ---------------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales $ 81,528 100% $ 93,908 100%
Gross profit 9,114 11.2 20,156 21.5
Operating expenses 4,766 5.9 9,550 10.2
Income from operations 4,348 5.3 10,606 11.3
Equity in earnings (losses) of affiliates 48 0.0 (2,700) (2.9)
Net income 2,753 3.4 481 0.1
Adjusted EBITDA $ 16,598 20.3 (a) $ 22,372 23.1%(a)
</TABLE>
(a) Represents Adjusted EBITDA Margin.
NET SALES. Net sales increased by $12.4 million, or 15.2%, to $93.9 million
for the three months ended March 31, 1998, from $81.5 million for the three
months ended March 31, 1997. The increase in net sales is primarily due to
increased steel product sales volume, which corresponded to an overall increase
in industry volume. Net sales for the period ending March 31, 1998 reflect $8.9
million of ADM sales which was formed in November 1997, but do not reflect sales
of aluminum wheels which, prior to the formation of the AKW joint venture in May
1997, were reflected in the Company's net sales and gross profit amounts through
the former buy and resell agreement between the Company and Kaiser. Excluding
$13.8 million in
44
<PAGE>
net sales of aluminum products through the buy and resell agreement for the
three months ended March 31, 1997, net sales increased by $26.2 million, or
38.7%, to $93.9 million for the three months ended March 31, 1998 compared to
$67.7 million for the three months ended March 31, 1997.
GROSS PROFIT. Gross profit increased by $11.0 million, or 121.2%, to $20.2
million for the three months ended March 31, 1998, from $9.1 million for the
three months ended March 31, 1997. Gross profit as a percentage of net sales
increased to 21.5% for the three months ended March 31, 1998 from 11.2% for the
three months ended March 31, 1997. Production costs increased due to the
increase in steel product sales volume and estimated incremental strike costs of
$2.5 million at the Henderson Facility in the first quarter of 1998. Most of
this charge relates to non-recurring costs incurred at the same time that
production was reduced for a period of almost two weeks. Non-recurring costs
included pre-strike preparation costs for training and related overtime for
salaried workers and additional security. Such increases were offset by prior
year strike costs at the London, Ontario facility, estimated to be $7.1 million.
Excluding the gross profit relating to aluminum products (which was through the
former buy and resell agreement for the first four months of 1997) and the
strike costs, gross profit increased by $7.3 million, or 47.4%, to $22.7 million
for the three months ended March 31, 1998 from $15.4 million for the three
months ended March 31, 1997. As a result, gross profit (excluding strike costs
and aluminum sales gross profit) as a percent of sales increased to 24.2% in the
quarter ended March 31, 1998 from 22.7% in the quarter ended March 31, 1997.
OPERATING EXPENSES. Operating expenses increased by $4.8 million, or 100%,
to $9.6 million for the three months ended March 31, 1998 from $4.8 million for
the three months ended March 31, 1997. As a percentage of sales, operating
expenses increased to 10.2% for the three months ended March 31, 1998 from 5.9%
for the three months ended March 31, 1997. This increase was primarily due to
start-up costs of $1.1 million relating to the new Tennessee Facility,
management retention bonuses of $.81 million recorded in conjunction with the
Recapitalization which will be paid by Phelps Dodge, recapitalization
professional fees of $2.24 million and SG&A expenses of ADM of $.9 million.
Excluding the expenses recorded for start-up costs, management retention bonuses
and recapitalization professional fees for the three months ended March 31,
1998, SG&A as a percentage of net sales decreased to 5.7% for the three months
ended March 31, 1998 from 5.9% for the three months ended March 31, 1997.
EQUITY IN EARNINGS (LOSSES) OF AFFILIATES. Equity in earnings (losses) of
affiliates decreased by $2.8 million to $(2.7) million for the three months
ended March 31, 1998 from $.1 million for the three months ended March 31, 1997.
The decrease was primarily due to the effect of a product recall implemented at
AKW. AKW management determined its estimated total liability to replace all
wheels subject to the recall was approximately $6.8 million and the Company has
reflected its portion of the expense, $3.4 million. Excluding the $3.4 million
related to AKW, equity in earnings (losses) of affiliates increased $.6 million
for the three months ended March 31, 1998 to $.7 million from $.1 million for
the three months ended March 31, 1997, due to the formation of the AKW joint
venture beginning in May 1997. See "--AKW Product Recall."
ADJUSTED EBITDA. Adjusted EBITDA increased by $5.8 million, or 34.9%, to
$22.4 million for the three months ended March 31, 1998 from $16.6 million for
the three months ended March 31, 1997 due to higher steel product sales volume.
In determining Adjusted EBITDA for the three months ended March 31, 1998, income
from operations has been increased by (i) $3.4 million to reflect the impact of
the AKW product recall, (ii) $.81 million to reflect the impact of management
retention bonuses, (iii) $2.24 million to reflect the impact of recapitalization
professional fees and (iv) $2.5 million to reflect the impact of the strike at
the Henderson Facility. In determining Adjusted EBITDA for the three months
ended March 31, 1997, income from operations has been increased by $7.1 million
to reflect the impact of the strike at the Ontario Facility. Adjusted EBITDA
Margin increased to 23.1% for the three months ended March 31, 1998 from 20.3%
for the three months ended March 31, 1997.
NET INCOME. Net income decreased by $2.3 million, or 82.5%, to $.5 million
for the three months ended March 31, 1998 from $2.8 million for the three months
ended March 31, 1997 due to lower pretax earnings
45
<PAGE>
and a higher effective tax rate. The provision for income taxes decreased by
$1.5 million, or 81.1%, to $.3 million for the three months ended March 31, 1998
from $1.8 million for the three months ended March 31, 1997, primarily due to
the effects of lower pretax earnings and partially offset by a higher effective
tax rate.
COMPARISON OF FISCAL YEARS 1996 AND 1997
The following table sets forth certain income statement information of the
Company for the fiscal years ended December 31, 1996 and December 31, 1997:
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales............................. $ 307,830 100.0% $ 332,966 100.0%
Gross profit.......................... 61,723 20.1 65,994 19.8
Operating expenses.................... 17,941 5.8 21,316 6.4
Income from operations................ 43,782 14.2 44,678 13.4
Equity in earnings of affiliates...... 115 0.0 4,384 1.3
Net income............................ 26,466 8.6 27,837 8.4
Adjusted EBITDA....................... $ 64,023 20.8%(a) $ 76,888 21.8%(a)
</TABLE>
- ------------------------
(a) Represents Adjusted EBITDA Margin.
NET SALES. Net sales increased by $25.2 million, or 8.2%, to $333.0 million
in 1997 from $307.8 million in 1996. Net sales in 1997 do not reflect sales of
aluminum Wheels subsequent to the commencement of the operations of AKW in May
1997. Excluding net sales of aluminum products, net sales increased by $56.8
million, or 22.1%, to $313.9 million in 1997 from $257.1 million in 1996. The
significant increase in steel product net sales resulted from improved
Heavy/Medium Truck and Trailer builds driven by high freight demand and the
consolidation of ADM sales in November and December. The Company also increased
its market share at several major Trailer OEMs.
GROSS PROFIT. Gross profit increased by $4.3 million, or 6.9%, to $66.0
million in 1997 from $61.7 million in 1996. Gross profit as a percentage of net
sales decreased to 19.8% in 1997 from 20.1% in 1996. Excluding the gross profit
relating to aluminum products, gross profit increased by $7.0 million, or 12.0%,
to $64.9 million in 1997 from $57.9 million in 1996, and gross profit as a
percentage of net sales decreased to 20.7% in 1997 from 22.5% in 1996. The
Company has historically realized lower margins on sales of aluminum products
than on sales of steel products. Production costs increased due to the increase
in steel product sales volume and the impact of the strike at the Ontario
Facility in the first quarter of 1997. These increases were partially offset by
lower manufacturing costs for steel products and additional cost improvements
from the Company's Cost Reduction and Productivity Program, which is an
initiative created by the Company's Customer Focused Manufacturing Council, a
team headed by the Company's Vice President of Operations to achieve process
improvements and waste reduction. Excluding the gross profit relating to
aluminum products and the impact of the strike at the Ontario Facility in the
first quarter of 1997, gross profit increased by $14.1 million, or 24.3%, and
gross profit as a percentage of net sales increased to 22.9% in 1997 from 22.5%
in 1996.
OPERATING EXPENSES. SG&A increased by $3.4 million, or 18.8%, to $21.3
million in 1997 from $17.9 million in 1996. As a percentage of net sales, SG&A
increased to 6.4% in 1997 from 5.8% in 1996. This increase was due to additional
advertising and marketing expenses related to new product initiatives including
premium steel, cast aluminum and forged aluminum Wheels. SG&A also included
costs related to the formation of AKW and ADM. The increase in SG&A as a
percentage of net sales also reflects the reduction in net sales subsequent to
May 1997 due to the formation of AKW. Excluding aluminum Wheel net sales, SG&A
as a percentage of net sales decreased to 6.8% in 1997 from 7.0% in 1996.
46
<PAGE>
EQUITY IN EARNINGS OF AFFILIATES. Equity in earnings of affiliates
increased by $4.3 million to $4.4 million in 1997 from $.1 million in 1996,
primarily due to the Company's interest in the earnings of AKW since May 1997.
ADJUSTED EBITDA. Adjusted EBITDA increased by $12.9 million, or 20.1%, to
$76.9 million in 1997 from $64.0 million in 1996 due to higher steel sales
volumes and increased earnings from aluminum Wheel sales. In determining
Adjusted EBITDA in 1997, income from operations has been increased by $7.1
million to reflect the impact of the strike at the Ontario Facility in the first
quarter of 1997. Adjusted EBITDA growth was limited by the effect of relatively
low volumes in the first quarter of 1997. Adjusted EBITDA Margin increased to
21.8% in 1997 from 20.8% in 1996. On a pro forma basis after giving effect to
the acquisition of the interest in AKW, Adjusted EBITDA Margin declined to 22.6%
in 1997 from 23.1% in 1996.
NET INCOME. Net income increased by $1.3 million, or 5.1%, to $27.8 million
in 1997 from $26.5 million in 1996 due to the higher pretax earnings which were
offset in part by a higher effective tax rate. The provision for income taxes
increased by $4.7 million, or 27.0%, to $22.2 million in 1997 from $17.5 million
in 1996, primarily due to the effects of higher pretax earnings and a higher
effective tax rate.
COMPARISON OF FISCAL YEARS 1995 AND 1996
The following table sets forth certain income statement information of the
Company for the fiscal years ended December 31, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
FISCAL 1995
--------------------- FISCAL 1996
---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales...................................................... $ 357,802 100.0% $ 307,830 100.0%
Gross profit................................................... 64,549 18.0 61,723 20.1
Operating expenses............................................. 16,869 4.7 17,941 5.8
Income from operations......................................... 47,680 13.3 43,782 14.2
Equity in earnings of affiliates............................... 300 0.1 115 0.0
Net income..................................................... 26,592 7.4 26,466 8.6
Adjusted EBITDA................................................ $ 70,101 19.5 (a) $ 64,023 20.8%(a)
</TABLE>
- ------------------------
(a) Represents Adjusted EBITDA Margin.
NET SALES. Net sales decreased by $50.0 million, or 14.0%, to $307.8
million in 1996 from $357.8 million in 1995 due to a 15.0% decrease in steel
Wheel net sales as the industry experienced a general decrease in volume. Steel
Wheel sales declines were encountered at major customers and included both
Heavy/ Medium Truck OEMs and Trailer OEMs. This decrease was partially offset by
a 3.0% average price increase that was instituted for steel products in early
1996. Net sales of aluminum products were relatively less affected due to
increased penetration of aluminum Wheels.
GROSS PROFIT. Gross profit decreased by $2.8 million, or 4.4%, to $61.7
million in 1996 from $64.5 million in 1995. This decrease was due primarily to
reduced steel product sales volume offset in part by significant benefits
derived from the Company's Cost Reduction and Productivity Program instituted in
1994 and improved average pricing. Gross profit as a percentage of net sales
increased to 20.1% in 1996 from 18.0% in 1995.
OPERATING EXPENSES. SG&A increased by $1.1 million, or 6.4%, to $17.9
million in 1996 from $16.9 million in 1995. As a percentage of net sales, SG&A
increased to 5.8% in 1996 from 4.7% in 1995. This increase was due to the
investment in additional marketing resources to support new product initiatives,
including the cost associated with the formation of the Company's Light Wheels
Group.
47
<PAGE>
ADJUSTED EBITDA. Adjusted EBITDA decreased by $6.1 million, or 8.7%, to
$64.0 million in 1996 from $70.1 million in 1995 on significantly lower steel
sales volume. Adjusted EBITDA Margin increased to 20.8% in 1996 from 19.5% in
1995. Earnings were bolstered by major reductions in cost as a result of the
Cost Reduction and Productivity Program instituted in 1994. In determining
Adjusted EBITDA for 1995, income from operations has been increased by certain
restructuring charges aggregating approximately $1.0 million.
NET INCOME. Net income decreased by $0.1 million, or 0.5%, to $26.5 million
in 1996 from $26.6 million in 1995 due to lower pretax earnings which were
offset in part by a lower effective tax rate. The provision for income taxes
decreased $3.3 million, or 15.8%, to $17.5 million in 1996 from $20.7 million in
1995 due to lower pretax earnings and a lower effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL
Historically, the Company has funded its cash needs with cash generated from
operations. Phelps Dodge has made capital contributions to support the Company's
major capital expenditures, including the plant modernization and automation and
cost reduction programs, and the acquisition of the Company's interests in AKW
and ADM. In prior periods, the Company utilized its operating cash flow to
support working capital and ongoing capital expenditures, with any excess cash
flow distributed to Phelps Dodge.
Cash flow from operations decreased by $5.5 million, or 12.6%, to $38.2
million in 1997 from $43.7 million in 1996. The decrease in cash flow from
operations in 1997 was primarily due to increased sales volume combined with a
relatively constant collection rate. Net cash provided by operating activities
was $50.0 million in 1995.
Net cash used in investing activities increased by $37.7 million, or 402%,
to $47.1 million in 1997 from $9.4 million in 1996. The Company's investing
activities in 1997 included the investment in AKW of approximately $20.8 million
and increased capital spending of $14.4 million to $24.0 million in 1997 from
$9.6 million in 1996. Capital expenditures in 1997 includes $9.7 million for the
Tennessee Facility and $1.7 million for the ADM expansion. Net cash used in
investing activities was $6.8 million in 1995.
Net cash provided by financing activities increased by $47.4 million to $9.9
million in 1997 from $37.5 million net cash used in financing activities in
1996. Net cash used in financing activities was $57.7 million in 1995. The funds
in 1997 were provided by Phelps Dodge and through borrowings by ADM and the
funds in 1996 and 1995 were provided by the Company to Phelps Dodge. The Company
had no borrowings from 1995 through 1996 and had $16.0 million outstanding in
borrowings as of December 31, 1997, primarily representing borrowings by ADM.
AFTER THE RECAPITALIZATION
The Company's primary sources of liquidity are cash flow from operations and
borrowings under the Revolver. The Company's primary uses of cash are funding
working capital, capital expenditures and the Company's expansion plans and to
service debt.
The proceeds of the Notes, the Equity Investment and the initial borrowings
under the Credit Facility were used to finance the Redemption and to pay fees
and expenses of approximately $20.9 million incurred in connection with the
Recapitalization, which have been reflected either as recapitalization
professional fees, deferred financing costs or as a component of the cost of the
Redemption.
At March 31, 1998, the Company's total assets amounted to $378.9 million, as
compared to $347.4 million at December 31, 1997. The $31.5 million, or 9.1%
increase in total assets during the three months ended March 31, 1998, was
primarily the result of a $13.7 million increase relating to debt issuance costs
and a $9.2 million increase in customer receivables. The increase in debt
issuance costs was related to the
48
<PAGE>
Recapitalization. The increase in customer receivables reflected increased sales
volume from U.S. customers, as well as the acceleration of production and sales
from ADM during the three months ended March 31, 1998.
At March 31, 1998, the Company's total liabilities amounted to $442.2
million, as compared to $86.5 million at December 31, 1997. The $355.7 million
or 411% increase in total liabilities was primarily due to the $363.7 million
increase in long-term debt and related $5.9 million increase in accrued interest
payable and a $1.7 million increase in short-term notes payable. The increase in
long-term debt was related to the Recapitalization of the Company, at which time
the Company issued $200 million of 9.25% senior subordinated notes at 99.48% due
2008 and obtained $164.8 million in bank borrowings, including $135 million of
borrowings under senior secured term loans due 2005 and 2006 with variable
interest rates and $29.8 million of borrowings under a $140 million senior
secured revolving line of credit expiring 2004 with a variable interest rate.
The increase in accrued interest is attributable to the senior subordinated
notes and bank borrowings described herein. The increase in short-term notes
payable reflects additional borrowings by ADM of $3.0 million offset by
repayments of indebtedness by Accuride Canada of $1.3 million.
The Company expects its capital expenditures (excluding capital expenditures
by ADM) to increase to approximately $33.0 million in 1998. It is anticipated
that these expenditures will fund (i) approximately $14.0 million to develop the
Tennessee Facility; (ii) investments in Productivity improvements in 1998 to its
steel Wheel business, which the Company estimates will require an investment of
approximately $9.0 million during 1998 and (iii) maintenance expenditures of
approximately $10.0 million in 1998. Investments in Productivity improvements
are expected to be focused on additional automation, shop floor and engineering
systems, and improved coating capabilities. If there is sufficient demand, the
Company is contemplating expanding the capacity of the Tennessee Facility in
1999.
In addition, the Company anticipates that ADM will require capital
expenditures of approximately $18.0 million in 1998 to construct and equip the
Monterrey Facility. The Monterrey Facility is expected to be operational in
mid-1999. Total project cost through 1999 is expected to be approximately $29.0
million, of which approximately $3.7 million of total project cost has been
spent through March 31, 1998. ADM will use the ADM Credit Facility to fund its
capital requirements. The ADM Credit Facility prohibits ADM from distributing
cash to the Company.
Management believes that cash flow from operations and availability under
the Revolver will provide adequate funds for the Company's foreseeable working
capital needs, planned capital expenditures and expansion plans and debt service
obligations. Any future acquisitions, joint ventures or other similar
transactions will likely require additional capital, and there can be no
assurance that any such capital will be available to the Company on acceptable
terms or at all. The Company's ability to fund its working capital needs,
planned capital expenditures and scheduled debt payments, to implement its
expansion plans, to refinance indebtedness and to comply with all of the
financial covenants under its debt agreements depends on its future operating
performance and cash flow, which in turn, are subject to prevailing economic
conditions and to financial, business and other factors, some of which are
beyond the Company's control.
At March 31, 1998, the Company's stockholders' equity (deficiency) amounted
to $(68.0) million, as compared to $256.0 million at December 31, 1997. The
decrease in stockholders' equity (deficiency) was primarily due to the cost of
the Redemption of $454.3 million, which was partially offset by the $108.9
million increase in common stock and additional paid-in capital, net of the
related stock subscriptions receivable.
49
<PAGE>
BUSINESS
GENERAL
Accuride is North America's largest manufacturer and supplier of Wheels for
Heavy/Medium Trucks and Trailers. The Company estimates that it has a 66% share
in the North American Wheel market segment for Heavy/Medium Trucks and Trailers.
The Company offers the broadest product line in the North American Heavy/Medium
Wheel industry and is the only North American manufacturer and supplier of both
steel and aluminum Heavy/Medium Wheels. For the three months ended March 31,
1998, on an unaudited pro forma basis after giving effect to the
Recapitalization, Accuride's net sales and Adjusted EBITDA were $93.9 million
and $22.3 million, respectively. See "Pro Forma Consolidated Condensed Financial
Data."
The Company sells its Wheels primarily to Heavy/Medium Truck, Trailer and
Light Truck OEMs. Major customers include Ford, Freightliner, General Motors,
Mack, Navistar and Paccar. For over 10 years, the Company's steel Wheels have
been standard equipment at all North American Heavy/ Medium Truck OEMs and at a
majority of North American Trailer OEMs. In addition, the Company's steel Wheels
are standard equipment at 82 of North America's 100 largest trucking fleets,
such as Consolidated Freightliner, Ryder and Schneider. The Company believes
that its leadership position results from its customers and its ability to
consistently deliver a broad range of high-quality Wheels cost-effectively.
By leveraging its customer relationships and leading position in the North
American Heavy/Medium Wheel segment, the Company has implemented a number of
growth initiatives to strengthen its position in the worldwide Wheel industry.
In May 1997, the Company and Kaiser established AKW, a joint venture that
manufacturers and supplies aluminum Heavy/Medium Wheels. The 50%-owned AKW joint
venture replaced a twenty-five-year buy-and-resell relationship with Kaiser and
has significantly improved the Company's ability to meet the growing aluminum
Heavy/Medium Wheel needs of its customers. In addition, in order to serve more
effectively its customers in Mexico and other Latin American countries, the
Company recently established ADM, a 51%-owned venture with IaSa, Mexico's only
commercial vehicle Wheel manufacturer. Furthermore, in order to expand its
presence in the growing segment for Light Truck Wheels, the Company is
developing the Tennessee Facility, which is scheduled to begin production in
mid-1998.
The North American commercial vehicle industry may be divided into three
segments: (i) Heavy/ Medium Trucks, (ii) Trailers and (iii) Light Trucks.
According to industry sources, new builds in the North American Heavy/Medium
Truck and Trailer segments have grown to 640,000 units in 1997 from 455,000
units in 1992. Over that same period, new builds in the North American Light
Truck market have grown to 6.9 million units from 4.2 million units. Management
believes that the growth in the North American Heavy/Medium Truck and Trailer
segments has been driven by the sustained economic growth in North America and
shorter fleet trade-in cycles, while the growth in the North American Light
Truck market has been driven by the increase in the popularity of sport utility
vehicles and pick-up trucks, coupled with sustained economic growth.
COMPETITIVE STRENGTHS
LEADING MARKET POSITION. The Company is the leading North American
manufacturer and supplier of steel and aluminum Wheels to the Heavy/Medium Truck
and Trailer segments with a 77% share in the steel Heavy/Medium Wheel segment
and a combined 66% share in the steel and aluminum Heavy/ Medium Wheel segment.
The Company believes that its market position is due, in large part, to its
long-standing customer relationships; broad, high-quality product line; and
low-cost manufacturing capabilities.
LONG-STANDING CUSTOMER RELATIONSHIPS. The Company believes that its
long-standing customer relationships provide it with a distinct competitive
advantage. The Company has a proven track record of
50
<PAGE>
customer service marked by a consistent product supply through multiple
manufacturing/distributing locations, short production lead times, 99% on-time
delivery and low defect rates. For over 10 years, the Company has been the only
Wheel manufacturer whose steel Wheels are standard equipment at all North
American Heavy/Medium Truck OEMs. In addition, the Company's steel Wheels are
standard equipment at a majority of the North American Trailer OEMs and at 82 of
North America's 100 largest trucking fleets.
BROAD, HIGH-QUALITY PRODUCT LINE. The Company believes that it has the
broadest product line in the North American Heavy/Medium Wheel industry. Its
products are recognized by the industry and customers for their quality.
Accuride is the only North American manufacturer and supplier of both steel and
aluminum Heavy/Medium Wheels. In addition, the Company manufactures and supplies
single and dual steel Light Truck Wheels. The Company intends to enhance its
Light Truck Wheel product line and meet more fully its customers' Wheel needs by
establishing the Tennessee Facility, which is scheduled to begin production in
mid-1998.
LOW-COST MANUFACTURING. The Company believes that it is the low-cost North
American supplier of steel Heavy/Medium Wheels and that it operates the most
modern steel Heavy/Medium Wheel plants in North America. The Company
continuously strives to improve productivity, increase quality and lower costs.
Since 1991, the Company has invested over $50 million to modernize, upgrade and
automate its manufacturing plants. Operating costs have been reduced by
approximately $18 million in 1997 compared to 1994, and the Company believes
that significant additional savings were achieved in 1997. In addition,
Productivity at the Company's two primary manufacturing facilities has improved
38% and Controllable Costs have improved 15%. Management has budgeted
approximately $9 million in 1998 for Productivity initiatives and believes that
its emphasis on low-cost manufacturing will continue to yield significant
operational improvements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
GROWTH STRATEGIES
The Company plans to capitalize on its leading position in the North
American Wheel industry to broaden its product line further and to expand its
business globally by focusing on the following growth strategies:
EXPAND ALUMINUM SHARE. The Company believes that it can leverage its AKW
joint venture to increase its 24% share of the growing aluminum Heavy/Medium
Wheel segment and to expand its customer base. Historically, the Company often
could not satisfy customer demand for aluminum Heavy/Medium Wheels because of
Kaiser's capacity constraints. Since its inception, however, AKW has increased
its capacity by over one-third. Despite this recent expansion, AKW continues to
operate at or near capacity and is in the process of increasing capacity further
to satisfy customer demand.
INCREASE LIGHT TRUCK WHEEL SHARE. The Company plans to aggressively pursue
opportunities in the North American Light Truck Wheel segment by leveraging its
existing OEM relationships through the application of technology to create
value-added products. The Company, in conjunction with a leading automotive trim
supplier, recently introduced the CHROMTEC-Registered Trademark- Wheel, which
management believes has the potential to penetrate the Wheel segments for Light
Trucks and passenger cars. The CHROMTEC-Registered Trademark- Wheel combines the
aesthetics of aluminum with the cost advantages of steel. The Tennessee Facility
will begin producing CHROMTEC-Registered Trademark- Wheels for Ford's
Expedition, Navigator and F-series trucks in mid-1998.
EXPAND LATIN AMERICAN POSITION. As OEMs expand their manufacturing
operations into Mexico and other Latin American countries, they are looking to
their suppliers to support them at a local level. The ADM venture will serve as
a platform to supply the growing Latin American assembly operations of many of
the Company's top customers, including Ford, Freightliner, General Motors,
Navistar, Paccar and Volvo.
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ESTABLISH GLOBAL PRESENCE. Accuride believes that it will be able to build
on its long-standing customer relationships and extensive product offering to
become a global, single source Wheel manufacturer and supplier. Currently, the
Company has the ability to supply its customers from manufacturing locations in
the U.S., Canada and Latin America. Management believes that opportunities exist
to develop global manufacturing capabilities through joint ventures, alliances
and business combinations with leading Wheel manufacturers in Europe, South
America and Asia.
INDUSTRY OVERVIEW
The size of the steel and aluminum commercial vehicle Wheel industry in
North America is approximately $1.6 billion. Wheels are produced for (i)
Heavy/Medium Trucks, which are over-the-road vehicles designed to carry over
10,000 pounds such as large multi-axle rigs, buses and moving trucks; (ii)
Trailers, which includes trailers and chassis; and (iii) Light Trucks, which are
vehicles designed to carry under 10,000 pounds such as pick-up trucks, walk-in
delivery vans and sport utility vehicles. Wheels produced for Heavy/Medium
Trucks and Trailers are larger and heavier dual Wheels. Wheels produced for
Light Trucks are smaller and lighter single or dual Wheels.
The North American commercial vehicle industry may be divided into three
segments: (i) by vehicle category--Heavy/Medium Wheels and Light Truck Wheels,
(ii) by production material--steel and aluminum Wheels, and (iii) by vehicle
application--dual and single Wheels. The following table sets forth the size of
each market segment in 1997.
1997 NORTH AMERICAN HEAVY/MEDIUM WHEEL
AND LIGHT TRUCK WHEEL SEGMENTS
<TABLE>
<CAPTION>
SINGLE
(DOLLARS IN MILLIONS) DUAL WHEELS WHEELS TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
HEAVY/MEDIUM WHEELS
Steel................................................... $ 214 $ -- $ 214
Aluminum................................................ 271 -- 271
----------- ----------- -----------
Total Heavy/Medium Wheels............................. 485 -- 485
LIGHT TRUCK WHEELS
Steel................................................... 40 292 332
Aluminum................................................ 11 760 771
----------- ----------- -----------
Total Light Truck Wheels.............................. 51 1,052 1,103
----------- ----------- -----------
TOTAL..................................................... $ 536 $ 1,052 $ 1,588
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
HEAVY/MEDIUM WHEELS AND LIGHT TRUCK WHEELS. Heavy/Medium Wheels range in
diameter from 17.5" to 24.5". Purchasers of Heavy/Medium Wheels consist
primarily of Heavy/Medium Truck OEMs such as Freightliner, Mack and Navistar,
and Heavy/Medium Trailer OEMs such as Great Dane Trailers, Inc. ("Great Dane"),
Utility Trailer Manufacturing Company ("Utility") and Wabash, Inc. ("Wabash").
The Heavy/Medium Wheel segment is driven by the volume of Heavy/Medium Truck and
Trailer manufacturing, which is tied to macroeconomic trends such as economic
growth and fuel prices. In 1997, industry sales of Heavy/Medium Wheels in North
America were approximately $485 million. According to industry sources, new
builds in the North American Heavy/Medium Truck and Trailer markets have grown
to 640,000 units in 1997 from 455,000 units in 1992. Management believes that
the growth in the North American Heavy/Medium Truck and Trailer markets has been
driven by the sustained economic growth in North America and shorter fleet
trade-in cycles.
Light Truck Wheels range in diameter from 14" to 19.5". Purchasers of Light
Truck Wheels consist primarily of Light Truck OEMs such as Ford and General
Motors. The Light Truck Wheel segment is
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driven by the volume of production of Light Trucks as well as the trend toward
the use of larger diameter Light Truck Wheels in smaller Light Trucks such as
sport utility vehicles to improve styling and performance. In 1997, industry
sales of Light Truck Wheels in North America were approximately $1.1 billion.
According to industry sources, new builds in the North American Light Truck
market have grown to 6.9 million units in 1997 from 4.2 million units in 1992.
Recent growth can be attributed to the increase in the popularity of sport
utility vehicles and pick-up trucks, coupled with sustained economic growth.
STEEL AND ALUMINUM WHEELS. Steel Wheels are more resistant to damage and
hold a substantial price advantage over aluminum Wheels. Aluminum Wheels are
generally lighter in weight, more readily stylized and approximately four times
more expensive than steel Wheels. The growth of aluminum Heavy/Medium Wheel and
Light Truck Wheel sales is driven by the increasing importance of the aesthetic
aspect of Wheels, particularly in the Light Truck Wheel segment, and, to a
lesser extent, reduced vehicle weight.
DUAL AND SINGLE WHEELS. Dual Wheels, which carry higher load ratings, are
used on Heavy/Medium Trucks, Trailers and Light Trucks. Dual Wheels may be
mounted in tandem (i.e., side-by-side, two wheels on each end of an axle) or
individually. Single Wheels are used on Light Trucks and passenger cars. The
Company is the only producer of both dual and single steel Light Truck Wheels in
North America.
PRODUCTS AND SERVICES
GENERAL. The Company has the broadest product line in the North American
Heavy/Medium Wheel industry. The Company also competes in the Light Truck Wheel
segment for larger (with diameters of 16" and over) steel Wheels for Light
Trucks. The Company offers low-cost steel and aluminum Wheels for Heavy/Medium
Trucks and Trailers, heavy-duty Wheels for the construction industry and
stylized steel and aluminum Wheels for Light Trucks. Other than through ADM, the
Company does not produce smaller Wheels (with diameters under 16") or Wheels
with diameters in excess of 24.5". ADM produces a wide range of Wheels, from
smaller passenger car Wheels and motorcycle Wheels to large agricultural vehicle
Wheels with diameters in excess of 24.5".
The following table shows the size of each segment in 1997 and the Company's
market share of each such segment.
ACCURIDE'S SHARE OF THE
1997 NORTH AMERICAN HEAVY/MEDIUM WHEEL
AND LIGHT TRUCK WHEEL SEGMENTS
<TABLE>
<CAPTION>
DUAL WHEELS SINGLE WHEELS TOTAL
-------------------- -------------------- --------------------
(DOLLARS IN MILLIONS) SIZE SHARE SIZE SHARE SIZE SHARE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
HEAVY/MEDIUM WHEELS
Steel..................................... $ 214 77% $ -- --% $ 214 77%
Aluminum.................................. 271 24 -- -- 271 24
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total Heavy/Medium Wheels............... 485 66 -- -- 485 66
LIGHT TRUCK WHEELS
Steel..................................... 40 84 292 7 332 16
Aluminum.................................. 11 -- 760 -- 771 --
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total Light Truck Wheels................ 51 66 1,052 2 1,103 1
--------- --------- ---------
TOTAL....................................... $ 536 $ 1,052 $ 1,588
--------- --------- ---------
--------- --------- ---------
</TABLE>
HEAVY/MEDIUM WHEELS. The Company has a 66% share in the North America
Heavy/Medium Wheel segment. The Company has the most extensive line of
Heavy/Medium Wheels in the North American Heavy/Medium Wheel industry. The
Company's leading share is the result of the Company's emphasis on
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customer service, consistent product quality and production efficiency. The
Company enjoys established relationships with nearly all of the major OEM
producers in this segment. The Company's steel Wheels are offered as standard
equipment by all major Heavy/Medium Truck OEMs, including Ford, Freightliner,
General Motors, Mack, Navistar, Paccar and Volvo. In addition, the Company is
the standard steel Wheel supplier to a majority of North American Trailer OEMs,
including Dorsey Trailers, Inc., Great Dane, Lufkin Motors, Inc., Manac
Coachworks, Monon Corporation, Stoughton Trailers Inc., Trail King Industries
Inc., Transcraft Corporation, Utility and Wabash. By providing a full range of
high-quality products, the Company has been awarded exclusive contracts with
many leading Heavy/Medium Truck OEMs, including Navistar, Paccar and Volvo.
These contracts are typically for 3 years, and give assurance of supply and
price stability in return for standard sourcing. The Company also provides
Navistar with sequenced Wheel and tire assemblies through its AOT joint venture
with Goodyear. See "--Strategic Alliances."
The Company believes that its customers have come to rely on it as a
high-quality manufacturer with a broad product line and a dependable supply
source. In addition, the Company has leveraged its leading position in the North
American steel Heavy/Medium Wheel market to develop a strong and growing
presence in aluminum Wheels. With its broad product line, the Company believes
it is positioned to meet the expanding demands of the major OEMs.
LIGHT TRUCK WHEELS. In addition to its market leadership in the
Heavy/Medium Wheel segment, the Company has built a strong niche position in the
steel Light Truck Wheel market segment. While this segment broadly includes a
number of different sizes and types of Wheels, the Company currently competes
only in the commercial 16" through 19.5" diameter steel Wheel segment. The
Company offers a broad line of steel Light Truck Wheels and is the only North
American source for both single and dual steel Light Truck Wheels. The Company
believes that as OEMs move toward single sourcing, the Company's ability to
supply both single and dual Wheels will be a significant competitive advantage.
The Company's principal Light Truck Wheel customers are Ford and General Motors.
The Company's Light Truck Wheel competitors have traditionally produced smaller
diameter (14" to 16") Light Truck Wheels. The Company believes it has a
significant advantage in larger diameter Light Truck Wheels over its
competitors, since there are technical and manufacturing prerequisites for
producing larger Light Truck Wheels that the Company believes pose significant
barriers to its competitors.
As the trend toward larger-diameter Wheels for passenger cars and Light
Trucks continues, the Company is leveraging both its manufacturing competencies
and adding capacity to exploit this opportunity. The Company has contracted, on
a non-exclusive basis with Lacks, a leading automotive trim supplier, to provide
the CHROMTEC-Registered Trademark- Wheel to Ford for use on its Expedition,
Navigator and F-series trucks. The Company believes that the technology used in
the CHROMTEC-Registered Trademark- Wheel has broader applicability and plans to
extend its agreement with Lacks to permit the Company to participate in the
segment for CHROMTEC-Registered Trademark- Wheels commencing in 1998. However,
there can be no assurance that the Company will be able to enter into an
agreement with Lacks with respect to the application of the technology to any
particular platform. The Company is developing the Tennessee Facility, which
will produce Light Truck Wheels, including the CHROMTEC-Registered Trademark-
Wheel, beginning in mid-1998. This facility will cost approximately $24.0
million, of which the Company had spent approximately $12.6 million as of March
31, 1998. If there is sufficient demand, the Company has plans to increase the
capacity of the Tennessee Facility in 1999. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." In addition, the Company is developing other low-cost, high-quality
styled steel Wheel options to expand the steel Wheel segment.
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<PAGE>
CUSTOMERS
The Company's customers fall into four general categories: (i) Heavy/Medium
Truck OEMs (which represented approximately 52% of the Company's 1997 net
sales); (ii) Trailer OEMs (which represented approximately 17% of the Company's
1997 net sales); (iii) Light Truck OEMs (which represented approximately 15% of
the Company's 1997 net sales); and (iv) aftermarket distributors and others
(which represented approximately 16% of the Company's 1997 net sales). Major
customers include Freightliner, Mack, Navistar and Paccar, which are
Heavy/Medium Truck OEMs; Great Dane, Utility and Wabash, which are Trailer OEMs;
and Ford and General Motors, which are Light Truck OEMs. The Company serves the
aftermarket through a broad network of distributors.
The Company has long-standing relationships with its customers based on its
proven track record of customer service, which is marked by a consistent supply
of products through multiple manufacturing/ distributing locations, short
production lead times, 99% on-time delivery and low defect rates. The Company
believes that its customer relationships provide it with a distinct competitive
advantage. The Company is the only standard source of Wheels at all North
American Heavy/Medium Truck OEMs. In addition, the Company's steel Wheels are
currently standard equipment at a majority of North American Trailer OEMs and at
82 of North America's 100 largest trucking fleets.
The Company's design engineers work closely with its customers to support
the vehicle system design. Established contacts with OEM engineers enable the
Company to track industry trends, including new features and styles, and to
ensure that new products meet changing requirements for new vehicle systems. For
example, over the last few years, the Company has responded to and worked with
customers to complete significant new development programs in the areas of
full-contoured styled steel Wheels, forged aluminum Wheels, cast aluminum Wheels
for Heavy/Medium Truck applications in North America, and Wheels for Light Truck
applications.
In the Heavy/Medium Wheel segment, Wheels are designated as standard
equipment by the OEM, although other Wheels may be selected by fleet managers as
component parts for their fleets. Generally, OEMs will have one standard Wheel
manufacturer for any given vehicle model. Because the Company is the only
standard Wheel manufacturer at all North American Heavy/Medium Truck OEMs, each
Heavy/ Medium Truck produced in North America will have Accuride Wheels unless
the end-purchaser of a particular Heavy/Medium Truck (or fleet of Heavy/Medium
Trucks) specifically requests a Wheel produced by another company. Light Truck
OEMs will ordinarily designate more than one Wheel option as standard for any
particular vehicle model and one Wheel supplier to supply each option.
Consequently, for any particular vehicle model, more than one supplier may have
its Wheels designated as standard equipment. OEMs determine which of the
standard Wheels to use on any one vehicle depending on factors such as
marketing, consumer preference and cost. In some cases, an OEM will allow an
end-consumer to select a Wheel option from the set of Wheels designated as
standard. The process of being designated as a standard supplier of a particular
Wheel can take more than two years from the time of initial design to first
delivery. A potential supplier must first develop a Wheel design based on
styling and engineering specifications provided by the OEM. After a
comprehensive engineering and feasibility review, the OEM designates a specific
supplier for a particular Wheel. The duration of the designation is dependent
upon the life cycle of the vehicle model. A supplier that designs, engineers,
manufactures and conducts quality control testing is generally referred to as a
"Tier I" supplier. The Company is a Tier I supplier for both Ford and General
Motors and believes that its early involvement with the engineers from its
customers affords it a competitive advantage.
STRATEGIC ALLIANCES
The Company has implemented a number of growth initiatives to strengthen its
position in the worldwide Wheel industry. These initiatives include the
Company's (i) AKW joint venture with Kaiser to produce aluminum Wheels, (ii) ADM
venture with IaSa to produce steel Wheels in Mexico, and (iii) AOT joint venture
with Goodyear to assemble Wheels and tires for Navistar.
55
<PAGE>
ACCURIDE/KAISER WHEELS. Prior to the formation of AKW, the Company
participated in the aluminum Wheel segment through a buy-and-resell agreement
with Kaiser. Historically, the Company often could not satisfy customer demand
for aluminum Heavy/Medium Wheels because of Kaiser's capacity constraints. In
response to the growing demand for its aluminum Wheels and a desire to increase
its market share and further its single source capabilities, the Company
invested $20.8 million in May 1997 for a 50% interest in AKW. The Company
believes it can leverage the recent establishment of AKW to increase its 24%
share of the growing aluminum Heavy/Medium Wheel segment and to expand its
customer base. Since its inception, AKW has increased its aluminum Heavy/Medium
Wheel capacity by over one-third. Despite this recent expansion, AKW continues
to operate at or near capacity and is in the process of increasing capacity
further to satisfy customer demand. See "Risk Factors--Competition."
ACCURIDE DE MEXICO. Most of the Company's Heavy/Medium Truck and Light
Truck customers either already produce vehicles in Mexico or plan to do so in
the near future. These customers have indicated that they will require local
sourcing as they expand their operations in Mexico. Historically, the Company
supplied OEMs in Mexico from its Henderson Facility and its Ontario Facility. On
November 5, 1997, the Company invested $4.9 million for a 51% interest in ADM, a
venture with IaSa, Mexico's only commercial vehicle Wheel manufacturer. The
Company will use ADM as a platform to supply the growing Latin American assembly
operations of many of its top customers, including Ford, Freightliner, General
Motors, Navistar, Paccar and Volvo. The Company believes that the ADM venture
will provide a platform for building a position in Latin America. ADM is
building a new facility in Monterrey, Mexico, which is scheduled to begin
production in mid-1999. Until such time, IaSa has agreed to contract manufacture
ADM's Wheel requirements from IaSa's existing Wheel operations. IaSa has entered
into a noncompetition agreement with ADM and no longer participates in the Wheel
business other than through its interest in ADM. Under the ADM venture
agreement, to the extent the Company pursues opportunities in Mexico and other
Latin American countries, the Company is required to offer the right of first
refusal to ADM. Since the facility will be tooled to make some of the products
currently manufactured at the Henderson Facility and the Ontario Facility, the
Company will obtain additional operational flexibility by having another
manufacturing site.
ASSEMBLIES ON TIME. The Company and Goodyear formed the AOT joint venture
in June 1991 in order to assemble Wheels and tires for Navistar near Navistar's
truck assembly operation in Springfield, Ohio. The Company and Goodyear each own
50% of AOT. The Company considers AOT to be a value-added service and is
actively considering the expansion of AOT. The Company believes that similar
assembly services from OEMs may become more common in the future. See
"Properties" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
MANUFACTURING
CONTINUOUS PRODUCTIVITY IMPROVEMENT. The Company believes that it is the
low-cost North American supplier of steel Heavy/Medium Wheels and that it
operates the most modern steel Heavy/Medium Wheel plants in North America. The
Company has developed and implemented a Cost Reduction and Productivity Program
to continuously improve its operations and to modernize, upgrade and automate
its manufacturing plants. Since 1991, the Company invested over $50 million to
improve its facilities, which included selected use of robotics and other
automation, connection of the automated component lines to the assembly lines,
and improvement in product quality through upgrading of key processes. The
success of this program is reflected in improvements in operating results,
cost-reduction, capacity, product quality and plant safety. The Company's Cost
Reduction and Productivity Program has contributed to the reduction of operating
costs by approximately $18 million in 1997 compared to 1994. The Cost Reduction
and Productivity Program also contributed to an increase in the Company's gross
profit as a percentage of net sales to 21.8% in 1997 from 17.7% in 1994. The
Company has budgeted approximately $9 million in 1998 (in addition to normal
maintenance) for continued implementation of these Productivity enhancement
programs. See "Management's Discussion and Analysis of Financial Condition and
Results of
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Operations -- Liquidity and Capital Resources." Management believes that its
emphasis on low-cost manufacturing will continue to yield significant
operational improvements. The Monterrey Facility and the Tennessee Facility will
be automated, modern facilities designed to help the Company service its
customers that are expanding their operations in Mexico and other Latin America
countries and to help the Company increase its share of the Light Wheel segment
through the manufacture of the CHROMTEC-Registered Trademark- Wheel and other
Light Truck Wheels.
MANUFACTURING PROCESS. The Company's Wheels are made using seven primary
manufacturing processes: stamping, spin forming, roll forming, welding,
coating/finishing, forging and machining. The Company's steel Wheel products are
produced by spin forming or stamping of the disc, roll forming of the rim,
welding, and coating and finishing. The Company's forged aluminum Wheels are
produced by AKW using forging, heat treating, spinning, machining and polishing
processes. The following describes the major processes the Company uses to
produce Wheels:
STAMPING. The Company makes discs for single Light Truck Wheels using
stamping, which is the most cost-effective way to produce single steel discs
because it requires the lowest cycle time per part of any available process.
Stamping allows for thinner gauge steels to be used to reduce weight without
sacrificing strength.
SPIN FORMING. The Company makes discs for dual Wheels by using spin
forming, which produces discs with variable wall thicknesses, thus reducing
weight and enhancing the strength-to-weight ratio of the Wheel. Spin forming
also provides a high-quality product with low raw material usage and waste.
The Company believes that it is a leader in this spinning technique due to
its years of experience with, and investment in, this technology.
ROLL FORMING. The Company makes Light and Heavy/Medium steel rims using
roll forming (feeding coiled steel through equipment that forms it into a
cylinder, welds it, then feeds it through rim rollers to shape the rim). The
Company has developed an extensive roll forming expertise in the 40-plus
years that it has used this process, and believes that it has one of the
industry's highest quality yields for rim rolling.
COATING/FINISHING. The Company pre-treats all steel Wheels in zinc
phosphate, then applies an electro-disposition coating ("E-coat"), which is
an acrylic, cathodic, gray or white base coating that provides resistance to
corrosion. Subsequently, some customers may choose to have the Company add a
topcoat over the E-coat for further protection.
FORGING. The Company makes Heavy/Medium aluminum Wheels in the AKW joint
venture by using forging, in which an aluminum billet is compressed into a
basic Wheel shape using high amounts of pressure and energy. Forgings are
formed into their final shape using spinning (in the rim area), and by
machining the entire contour to create final mounting dimensions and
appearance. The Company believes that forging results in structural
integrity that is unsurpassed by any other aluminum metalworking process.
Forgings can offer decisive cost advantages, especially in high-volume
production runs.
SUPPLIER RELATIONSHIPS
STEEL SUPPLIERS. The Company has secured favorable pricing from a number of
different suppliers, by negotiating high-volume contracts with terms ranging
from 1 to 3 years. While the Company believes that its supply contracts can be
renewed on acceptable terms, there can be no assurance that such agreements can
be renewed on such terms or at all. However, the Company believes that it is not
dependent on long-term supply contracts for its steel requirements and has
alternative sources available to it.
ALUMINUM SUPPLIERS. Prior to the formation of AKW, the Company participated
in the aluminum Wheel market through a twenty-five-year buy-and-resell agreement
with Kaiser. The Company now participates in the aluminum Wheel market segment
through AKW, which obtains aluminum through
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various third-party suppliers. The Company believes that aluminum is readily
available from a variety of sources. See "Risk Factors--Dependence on Raw
Materials."
SALES AND MARKETING
The Company has built its brand franchise with a targeted sales and
marketing effort aimed at Heavy/ Medium Truck OEMs, Trailer OEMs, Light Truck
OEMs and independent distributors. The Company actively markets to major end
users, including trucking fleets and dealers. The Company positions its sales
managers near major customers such as Ford and General Motors in Detroit and
Freightliner in Portland. Additional field sales personnel are geographically
located throughout North America to service other OEMs, independent distributors
and trucking fleets. New emphasis is being placed on targeting end-users as the
Company commercializes premium products and expands its aluminum product line.
The majority of the Company's core customers source their requirements either on
annual contracts or standard sourcing contracts. Light Truck Wheels are
typically sourced for the life of the part.
The Company has appointed independent distributors in every major market
area. These distributors are mostly members of the National Wheel and Rim
Association and serve aftermarket needs and small OEMs not serviced directly by
the Company. The Company ships an average of 75 truckloads of Wheels per day to
its customers, and all shipments are made FOB shipping point. As a service to
its independent distributors, the Company also provides order consolidation
services from its warehouse in Taylor, Michigan.
COMPETITION
The Company competes on the basis of price, delivery, quality, product line
breadth and service. As a large portion of the Company's business consists of
sales to Ford, Navistar and Freightliner (representing approximately 19%, 17%
and 15% of 1997 sales, respectively), the loss of a significant portion of the
Company's sales to any of these OEMs could have a material adverse effect on the
Company.
Due to the breadth of the Company's product line, the Company competes with
different companies in different market segments. The Company's principal
competitor in the dual steel Heavy/Medium Wheel and single steel Light Truck
Wheel segments is Hayes Wheels. Recently, Hayes Wheels has been consolidating
the operations of smaller participants in the dual steel Heavy/Medium Wheel
segment. In addition, Hayes Wheels has established a significant global presence
through its acquisition of European wheel producer Lemmerz. Hayes Wheels is the
market leader in the single Light Truck Wheel segment and in the passenger car
Wheel segment, which are more diversified segments than the other segments in
which the Company competes. In the dual steel Light Truck Wheel segment, the
Company's principal competitor is Meritor, which has a 12% share. Meritor and
the Company are the only suppliers of OEM steel dual Light Truck Wheels in North
America. All of the dual Wheels sold by Meritor in North America are produced in
Brazil. In the dual aluminum Heavy/Medium Wheel segment, the Company's principal
competitor is Alcoa, which has the leading share in that segment. Alcoa does not
produce steel Wheels. See "Risk Factors--Competition."
PROPERTIES
The Company operates six facilities in North America. The Company owns
manufacturing facilities in Henderson, Kentucky and London, Ontario, Canada,
leases a distribution warehouse in Michigan and has a sales office in the
greater Detroit area. The Company also operates facilities in Ohio and
Pennsylvania through its joint ventures with Goodyear and Kaiser, respectively.
The Company believes that its plants are adequate and suitable for the
manufacturing of products for the markets in which it sells. The Henderson
Facility, Ontario Facility and all three joint venture facilities are operating
at or near capacity. The Company is in the process of establishing the Monterrey
Facility and the Tennessee Facility, which the Company believes will, together
with its existing facilities, provide production capacity to meet expected
demand for its products. See "--Manufacturing--Continuous Productivity
Improvement."
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AKW PRODUCT RECALL
On April 17, 1998, AKW, the Company's 50% owned joint venture, submitted a
notice to the NHSA of AKW's intent to recall the Recalled Wheels because a
defect may exist in the Recalled Wheels that relates to motor vehicle safety.
Kaiser, the Company's partner in AKW, manufactured several hundred of the
Recalled Wheels during the period April 23, 1997 through May 1, 1997. During the
period May 1, 1997 through February 28, 1998, AKW manufactured all of the
remaining Recalled Wheels. The Recalled Wheels were designed by the Company. AKW
estimates that the total costs of recalling and replacing all of the Recalled
Wheels will be approximately $6.8 million, an amount which may vary depending on
the level of customer response to the recall, among other factors. Due to the
Company's 50% ownership of AKW, the Company has reflected a portion of the
recall expenses ($3.4 million) as a reduction in "Equity in earnings of
affiliates" in the Company's financial statements. The Company believes that the
recall will not have a material adverse effect on the Company. The Company is
currently not aware of any actual or potential product liability claims related
to the Recalled Wheels. There can be no assurance, however, that no such claims
will be made and that the Company will not experience any material product
liability losses in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--AKW Product Recall."
The Company's manufacturing and research facilities are as follows:
<TABLE>
<CAPTION>
SQUARE OWNED/
LOCATION FEET USE LEASED
- -------------------------- --------- ------------------------------------ -----------------
<S> <C> <C> <C>
London, Ontario, Canada 439,425 Heavy/Medium Wheels; steel Light Owned
Truck Wheels
Henderson, Kentucky (a) 364,365 Headquarters; R&D; steel Heavy/ Owned/Leased
Medium Wheels
Taylor, Michigan 7,500 Warehouse Leased
Springfield, Ohio (b) 136,000 Wheel and tire assemblies for Owned
Navistar
Erie, Pennsylvania (c) 126,000 Aluminum Wheels forging Owned/Leased
Cuyahoga Falls, Ohio (d) 130,500 Aluminum Wheels machining Owned/Leased
Columbia, Tennessee (e) 340,000 Steel Light Truck Wheels Owned
Monterrey, Mexico (f) N/A Steel Wheels N/A
</TABLE>
- ------------------------
(a) The land on which this facility is located is leased pursuant to an
industrial revenue financing arrangement. Upon expiration of the arrangement
in 1999, the Company has the right to repurchase the land for $1.00.
(b) Owned by AOT, the joint venture with Goodyear. See "--Products and
Services--Heavy/Medium Truck Wheels" and "--Strategic Alliances--Assemblies
on Time."
(c) The equipment is owned by AKW and the building is leased by AKW from Kaiser.
See "--Strategic Alliances-- Accuride/Kaiser Wheels."
(d) The equipment is owned by AKW and the building is leased by AKW from Kaiser.
See "--Strategic Alliances-- Accuride/Kaiser Wheels."
(e) The facility is under development and is scheduled to begin production in
mid-1998. See "--Products and Services--Light Truck Wheels."
(f) This facility is scheduled to begin production by mid-1999. See "--Strategic
Alliances--Accuride de Mexico."
The address of the Company's principal executive office is 2315 Adams Lane,
P.O. Box 40, Henderson, Kentucky 42420 and the Company's phone number is (502)
826-5000.
EMPLOYEES
As of December 31, 1997, the Company had 1,429 employees. Both the Ontario
Facility and the Henderson Facility are currently unionized. Workers in the
Ontario Facility are represented by CAW Local #27. The existing contract was
implemented in March 1997, following a 53-day strike in which there
59
<PAGE>
was no disruption to the customer base. The strike occurred as a result of the
CAW's demand for a contract that had similar terms and conditions to the
contracts that had been negotiated three months earlier among the CAW and Ford,
General Motors and Chrysler. The Company was not willing to agree to many of
these terms, which included limitations on existing management rights and
significant increases in benefits and wages. Ultimately, the Company achieved a
reduction in the CAW's original demands.
Workers at the Henderson Facility are represented by UAW Local #2036. The
Company's contract with the UAW covering employees at the Henderson Facility
expired in February 1998. The Company was not able to negotiate a mutually
acceptable agreement with the UAW. Therefore, a strike occurred at the Henderson
Facility on February 20, 1998. The Company is continuing to operate with its
salaried employees and contractors. On March 31, 1998, the members of the UAW
rejected the Company's final offer for a new contract. Effective as of March 31,
1998, the Company began an indefinite lockout which was prompted by continuing
reports to management that some individuals planned to re-enter the plant and
harass employees and damage equipment and machinery. On May 1, 1998, the Company
delivered to the UAW a revised offer and informed the UAW that the Company's
final offer would be replaced by such revised offer if the final offer was not
ratified by the UAW by May 15, 1998. The revised offer provides less benefits
than the final offer and eliminates a portion of the proposed first year wage
increase. The UAW did not conduct a second vote on the final offer. Therefore,
on May 15, 1998, the Company's revised offer replaced the Company's final offer.
Currently, there is, and the Company believes that there will be, no supply
disruption to the Company's customer base; however, there can be no assurance to
that effect. A supply disruption to the Company's customer base could have a
material adverse effect on the Company. See "Risk Factors--Labor Relations."
In addition, the Company's ADM, AKW and AOT ventures have 51, 146 and 61
employees, respectively. The AKW employees at the Erie, Pennsylvania plant are
represented by UAW Local #1186 pursuant to a collective bargaining agreement
that expires in May 1999.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various Environmental Laws. Under
certain Environmental Laws, a current or previous owner or operator of property
may be liable for the costs of removal or remediation of certain hazardous
substances or petroleum products on, under or in such property, without regard
to whether the owner or operator knew of, or caused, the presence of the
contaminants, and regardless of whether the practices that resulted in the
contamination were legal at the time they occurred. The presence of, or failure
to remediate properly such substances, may adversely affect the ability to sell
or rent such property or to borrow using such property as collateral. Persons
who generate, arrange for the disposal or treatment of, or dispose of hazardous
substances may be liable for the costs of investigation, remediation or removal
of such hazardous substances at or from the disposal or treatment facility,
regardless of whether such facility is owned or operated by such person.
Additionally, the owner of a site may be subject to common law claims by third
parties based on damages and costs resulting from environmental contamination
emanating from a site. Compliance with Environmental Laws, stricter
interpretations of or amendments to any such laws, or more vigorous enforcement
policies by regulatory agencies with respect to any of them may require material
expenditures by the Company. The nature of the Company's current and former
operations and the history of industrial uses at its facilities expose the
Company to the risk of liabilities or claims with respect to environmental and
worker health and safety matters that could have a material adverse effect on
the Company. Phelps Dodge has indemnified the Company with respect to
environmental liabilities at the Henderson Facility and the Ontario Facility.
The Phelps Dodge environmental indemnity, however, does not apply to liability
or injury incurred or sustained by the Company attributable to the handling of
hazardous substances at any time after the Closing or any failure after the
Closing of the Henderson Facility or the Ontario Facility to be in compliance
with any applicable environmental law or environmental permit. In addition, the
Phelps Dodge environmental indemnity does not apply to liability or injury
arising out of or resulting from the investigation, assessment or remediation of
a hazardous substance not required by or under an environmental law. Kaiser has
also
60
<PAGE>
indemnified the Company with respect to environmental liabilities at the AKW
facilities except (i) AKW shall be solely responsible for claims, losses and
liabilities that are caused by or arise from any action by AKW or in connection
with the conduct of the business by AKW, (ii) Kaiser and AKW shall be
responsible for their appropriate share of such claims, losses and liabilities
associated with contamination due to the failure of AKW to maintain the pits at
the AKW Erie facility which contain hydraulic presses, (iii) Kaiser and AKW
shall be responsible for their appropriate share of such claims, losses and
liabilities that arise from both the actions of Kaiser and AKW, or the conduct
of the business by either of them or (iv) to the extent that any fines or
penalties assessed or threatened against AKW during the period in which Kaiser
is implementing an environmental compliance plan at the AKW Erie facility exceed
$1,000,000. See "Risk Factors--Potential Exposure to Environmental Liabilities."
LEGAL PROCEEDINGS
The Company does not believe that there are any pending or threatened legal
proceedings that, if adversely determined, could have a material adverse effect
on the Company.
61
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, and their ages as of
April 8, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
William P. Greubel..................... 46 Director, President and Chief Executive Officer
Birum G. Campbell...................... 50 Vice President--Light Wheel Business
Robert J. Fagerlin..................... 51 Vice President and General Manager, Mexico
Elizabeth I. Hamme..................... 47 Vice President--Human Resources and Continuous Improvement
Terrence J. Keating.................... 48 Vice President--Operations
John R. Murphy......................... 47 Vice President--Finance and Chief Financial Officer
William D. Noll........................ 49 Vice President--Product Development & Technology
Bradford C. Schultz.................... 55 Senior Vice President--Sales
Henry L. Taylor........................ 43 Vice President--Marketing and International Sales
Henry R. Kravis........................ 53 Director
George R. Roberts...................... 54 Director
James H. Greene, Jr.................... 47 Director
Todd A. Fisher......................... 32 Director
</TABLE>
WILLIAM P. GREUBEL. Mr. Greubel has been a director and the Chief Executive
Officer of the Company since January 21, 1998. Mr Greubel has been president of
the Company since 1994. He is also a director of AOT, AKW and ADM. Prior to
joining the Company, from 1974 to 1994, Mr. Greubel held positions at
AlliedSignal Corporation in sales, marketing and operations. His last two
positions were Vice President and General Manager for the Environmental
Catalysts and Engineering Plastics businesses. Mr. Greubel holds a B.A. in
Economics and an M.B.A. from Rutgers University.
BIRUM G. CAMPBELL. Mr. Campbell joined the Company in his present position
in August 1996. Prior to joining the Company, Mr. Campbell spent over 26 years
with Hayes Wheels (formerly Kelsey-Hayes) in a variety of functions, including
sales account management, materials management, general management aftermarket,
strategic and product directors positions and, finally, as Director/Sales and
Marketing for its aluminum Wheels business unit. Mr. Campbell holds a B.S. in
Industrial Economics from Purdue University.
ROBERT J. FAGERLIN. Mr. Fagerlin has been with Accuride/Firestone since
1976 and holds the newly created position of General Manager of ADM. Prior to
this, he served as Vice President of Business Development. Mr. Fagerlin serves
as the Board Chairman of AOT and is designated a board member and President of
ADM. Mr. Fagerlin holds a B.S. in Industrial Management from the University of
Akron.
ELIZABETH I. HAMME. Ms. Hamme joined the Company, in her present position
in February 1995. Prior to joining the Company, Ms. Hamme served as an
independent consultant to the manufacturing and financial services sectors for
several years. Ms. Hamme has held positions in the Human Resources Divisions of
such companies as FMC Corporation, SunTrust Banks Inc., American Bankers
Association and General Motors. Ms. Hamme holds a B.A. in Political Science and
an M.A. in Adult Education from the George Washington University.
TERRENCE J. KEATING. Mr. Keating has been in his current position since
December 1996. Mr. Keating has a background as a supplier to major automotive
accounts, and Heavy/Medium Truck OEMs, resulting from his operations positions
with the Company, Navistar and Schwitzer, Inc. Mr. Keating holds a B.S. in
Mechanical Engineering Technology from Purdue University and an M.B.A. in
Operations from Indiana University. He is certified by the American Production
and Inventory Control Society (APICS) as an inventory management professional.
62
<PAGE>
JOHN R. MURPHY. Mr. Murphy joined the Company in April, 1998 Prior to
joining the Company, Mr. Murphy was the President and Chief Executive Officer of
Falconite, Inc., a privately held rental equipment company. From 1994 to 1997,
Mr. Murphy was Executive Vice President-Administration, Chief Financial Officer
and Corporate Secretary of North American Stainless, Inc. Mr. Murphy also held
the position of Vice President of Finance and Strategic Planning for Armco
Advanced Materials Company, a stainless and electrical specialty steel
manufacturing company. Mr. Murphy holds a B.S. in Accounting from the
Pennsylvania State University and an M.B.A. from the University of Colorado.
WILLIAM D. NOLL. Mr. Noll joined the Company in 1971. He worked as a design
engineer in product development and was subsequently promoted to Manager,
Product Engineering, in 1979. In 1983, Mr. Noll became Manager/Product Quality.
In 1991, Mr. Noll was promoted to his current position. He is currently a member
and company representative for SAE on the Truck/Bus Council, a member and
company representative for The Maintenance Council of the American Trucking
Association, a member and past president of the Tire and Rim Association, the
ISO Representative for the United States for Truck Wheels and a member of ASME.
Mr. Noll holds a B.S. in Mechanical Engineering from the University of Detroit
and an M.B.A. and a M.S. in Engineering Management, both from the University of
Evansville.
BRADFORD C. SCHULTZ. Mr. Schultz joined Firestone Tire and Rubber Company
(the prior owner of the Company) in 1964 as a college class trainee. He assumed
his current position in 1991. Mr. Schultz is also a director of AOT and serves
as the Company's representative for the Truck Trailer Manufacturers Association.
Mr. Schultz holds a B.A. from Muskingum College, New Concord, Ohio.
HENRY L. TAYLOR. Mr. Taylor joined the Company, in his present position, in
April 1996. From 1988 to 1996, he worked at Rockwell Automotive, in product
management, marketing, international business and business development. From
1980 to 1988, Mr. Taylor was employed by AlliedSignal's Bendix Heavy Vehicle
Systems Group, where he held positions in operations management, field sales,
product management and business development. Mr. Taylor holds a B.S. in
Marketing and Management from the University of Nevada, Reno ("UNR") and has
completed graduate courses in business at UNR, St. Louis University and Case
Western University.
HENRY R. KRAVIS. Mr. Kravis is a director of the Company. He is a managing
member of KKR & Co., L.L.C., the limited liability company which serves as the
general partner of KKR. He is also a director of Act III Cinemas, Inc., Amphenol
Corporation, Borden, Inc., Boyds Collection, Ltd., Bruno's, Inc., Evenflo &
Spalding Holdings Corporation, The Gillette Company, IDEX Corporation,
KinderCare Learning Centers, Inc., KSL Recreation Group, Inc., Newsquest Capital
plc, Owens-Illinois, Inc., Owens-Illinois Group, Inc., PRIMEDIA, Inc., Randall's
Food Markets, Inc., Regal Cinemas, Inc., RELTEC Corporation, Safeway Inc.,
Sotheby's Holdings Inc., and World Color Press, Inc.
GEORGE R. ROBERTS. Mr. Roberts is a director of the Company. He is a
managing member of KKR & Co., L.L.C., the limited liability company which serves
as the general partner of KKR. He is also a director of Act III Cinemas, Inc.,
Amphenol Corporation, AutoZone, Inc., Borden, Inc., Boyds Collection, Ltd.,
Bruno's, Inc., Evenflo & Spalding Holdings Corporation, IDEX Corporation,
KinderCare Learning Centers, Inc., KSL Recreation Group, Inc., Owens-Illinois,
Inc., Owens-Illinois Group, Inc., PRIMEDIA, Inc., Randall's Food Markets, Inc.,
Regal Cinemas, Inc., RELTEC Corporation Safeway Inc., and World Color Press,
Inc.
Messrs. Kravis and Roberts are first cousins.
JAMES H. GREENE, JR. Mr. Greene is a director of the Company. He is a
member of KKR & Co., L.L.C., the limited liability company which serves as the
general partner to KKR. He is also a director of Bruno's, Inc., Owens-Illinois,
Inc., Owens-Illinois Group, Inc., Randall's Food Markets, Inc., RELTEC
Corporation and Safeway Inc.
TODD A. FISHER. Mr. Fisher is a director of the Company. He has been an
executive of KKR since 1993. From July 1992 to June 1993, Mr. Fisher was an
associate at Goldman, Sachs & Co. Mr. Fisher serves as a director of Layne
Christensen Company.
63
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid by the Company for services rendered during the year ended December 31,
1997 to the Chief Executive Officer and to each of the four other most highly
compensated executive officers of the Company (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION AWARDS
------------------------------------ --------------------------------
(a) (b) SECURITIES PAYOUTS
OTHER ANNUAL RESTRICTED UNDERLYING -------------
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION STOCK AWARD(S) OPTIONS/ SARS LTIP PAYOUTS
- ------------------------------------------ ---------- --------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William P. Greubel
(President)............................. $ 200,000 $ 78,900 $ 38,222 -- -- --
Bradford C. Schultz
(Senior Vice President, Sales).......... 144,900 41,900 7,899 -- -- --
Terrence Keating
(Vice President, Operations)............ 135,000 12,701 1,338 -- -- --
William D. Noll
(Vice President, Product Development and
Technology)............................. 117,300 35,300 815 -- -- --
J. Greg Szabo (d)
(Vice President, Finance and Chief
Financial Officer)...................... 97,620 -- 744 -- -- --
<CAPTION>
(c)
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION
- ------------------------------------------ -------------
<S> <C>
William P. Greubel
(President)............................. $ 24,434
Bradford C. Schultz
(Senior Vice President, Sales).......... 16,194
Terrence Keating
(Vice President, Operations)............ 22,793
William D. Noll
(Vice President, Product Development and
Technology)............................. 13,907
J. Greg Szabo (d)
(Vice President, Finance and Chief
Financial Officer)...................... 36,338
</TABLE>
- ------------------------
(a) Compensation includes medical reimbursements, restricted stock dividends,
safety awards, financial planning service fees, spousal travel, imputed
income, and gross-ups on financial planning, and qualified and non-qualified
plan and vested liabilities as follows:
<TABLE>
<CAPTION>
FINANCIAL
RESTRICTED PLANNING FINANCIAL
MEDICAL STOCK SAFETY SERVICE SPOUSAL IMPUTED PLANNING
REIMBURSEMENT DIVIDENDS AWARDS FEES TRAVEL INCOME GROSS-UP
----------------- ----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mr. Greubel...................... $ 80 $ 10,000 $ 401 $ 8,800 -- -- $ 6,333
Mr. Schultz...................... -- -- 411 -- $ 1,058 -- --
Mr. Keating...................... 349 -- 415 -- -- $ 574 --
Mr. Noll......................... 242 -- 415 -- -- 26 --
Mr. Szabo........................ -- -- 428 -- -- 316 --
<CAPTION>
VESTED
LIABILITIES
-----------
<S> <C>
Mr. Greubel...................... $ 12,608
Mr. Schultz...................... 6,430
Mr. Keating...................... --
Mr. Noll......................... 132
Mr. Szabo........................ --
</TABLE>
(b) Consists of awards of common stock of Phelps Dodge. No restricted stock
grants were made during 1997. As of December 22, 1997, Mr. Greubel held
5,000 shares of Phelps Dodge restricted stock valued at $305,469. Dividends
are payable on a quarterly basis. The reported value is based on the market
value of unrestricted shares of Phelps Dodge's stock, as of December 22,
1997, and as such does not reflect any discount attributable to the
restrictions on transferability and risk of forfeiture inherent in the
restricted stock.
(c) Compensation includes relocation, vacation sold, and contribuions made by
Phelps Dodge to the employees' qualified or non-qualified savings plan
(company match and/or profit sharing), or the
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<PAGE>
Executive Life Insurance Plan, which provides employees with a bonus to pay
for a universal life insurance policy that is fully owned by the employee,
as follows:
<TABLE>
<CAPTION>
COMPANY MATCH &
RELOCATION VACATION SOLD PROFIT SHARING ELIP PREMIUMS
----------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Mr. Greubel.................................. -- $ 3,077 $ 18,996 $ 2,361
Mr. Schultz.................................. -- -- 13,794 2,400
Mr. Keating.................................. $ 21,564 -- -- 1,229
Mr. Noll..................................... -- 1,523 11,266 1,118
Mr. Szabo.................................... 33,721 2,212 -- 405
</TABLE>
(d) Mr. Szabo became employed by the Company on February 25, 1997. His
annualized salary from January 1, 1997 would have been $115,020. Effective
as of April 8, 1998, Mr. Szabo has resigned as the Company's Vice
President-Finance and Chief Financial Officer. John R. Murphy has been
elected by the Company's Board of Directors as the new Vice
President-Finance and Chief Financial Officer.
The following table sets forth certain information concerning the number of
options to purchase Phelps Dodge common shares held by the Named Executive
Officers as of December 31, 1997, and the value of in-the-money options
outstanding as of such date.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
SHARES YEAR-END YEAR-END
ACQUIRED ON (a) -------------------------- ------------------------------
NAME EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ------------- ---------------- ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
William P. Greubel................ 14,066 $ 187,922 13,600 13,134 $ 14,378 $ 0
Bradford C. Schultz............... -- -- 19,133 4,167 163,376 0
Terrence Keating.................. -- -- 1,166 2,334 0 0
William D. Noll................... -- -- 13,400 3,934 77,925 0
J. Greg Szabo..................... -- -- -- -- -- --
</TABLE>
- ------------------------
(a) The value was based on the high and low stock price of Phelps Dodge common
shares on the Consolidated Trading Tape on the date of exercise.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE ----------------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
- ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$125,000................................ $ 31,552 $ 42,070 $ 52,587 $ 63,104 $ 73,622 $ 81,747
150,000................................ 38,302 51,070 63,837 76,604 89,372 99,122
175,000................................ 45,052 60,070 75,087 90,104 105,122 116,497
200,000................................ 51,802 69,070 86,337 103,604 120,872 133,872
225,000................................ 58,552 78,070 97,587 117,104 136,622 151,247
250,000................................ 65,302 87,070 108,837 130,604 152,372 168,622
300,000................................ 78,802 105,070 131,337 157,604 183,872 203,372
400,000................................ 105,802 141,070 176,337 211,604 246,872 272,872
450,000................................ 119,302 159,070 198,837 238,604 278,372 307,622
500,000................................ 132,802 177,070 221,337 265,604 309,872 342,372
</TABLE>
The above table details estimated annual benefits for Accuride salaried
employees retiring December 31, 1997 at age 65. Benefits include benefits
payable from a predecessor plan.
65
<PAGE>
The Phelps Dodge Corporation Retirement Plan for salaried employees (the
"Retirement Plan") provides a member upon retirement at age 65 with a pension
for life with five years of payments guaranteed. Under the Retirement Plan,
average compensation means the monthly average of a participant's compensation
for the period on and after January 1, 1985. For plan years prior to November 1,
1987, compensation excluded bonus payments. Beginning November 1, 1987, the plan
was amended to include bonus payments up to a maximum amount of 4.5% of base
salary. For plan years beginning on or after November 1, 1988, total
compensation includes the full bonus amount.
Benefit service includes all periods of employment with Phelps Dodge.
Benefits under the Retirement Plan are subject to certain limitations under the
Internal Revenue Code of 1986, as amended, and to the extent the result of such
limitations would be a benefit less than would otherwise be paid under such
Plan, the difference is provided under the supplementary retirement provisions
of the Phelps Dodge Corporation Supplemental Retirement Plan (the "Supplemental
Plan"). The formula for determining benefits payable under the Retirement Plan
is based on covered compensation for an employee reaching age 65 in 1997.
The expected credited years of benefit service at normal retirement for the
President and each of the four other most highly compensated executive officers
as of December 31, 1997 are as follows: Mr. Greubel, 22 years; Mr. Schultz, 35
years; Mr. Keating, 18 years, Mr. Szabo, 28 years; and Mr. Noll, 40 years. The
years of service are based on normal retirement for all executive officers under
the Retirement Plan and the applicable provisions of the Supplemental Plan.
1998 STOCK PURCHASE AND OPTION PLAN
After the Closing, the Company adopted the 1998 Stock Purchase and Option
Plan for Key Employees of Accuride Corporation and Subsidiaries (the "1998
Plan").
The 1998 Plan provides for the issuance of shares of authorized but unissued
or reacquired shares of Common Stock, subject to adjustment to reflect certain
events such as stock dividends, stock splits, recapitalizations, mergers or
reorganizations of or by the Company. The 1998 Plan is intended to assist the
Company in attracting and retaining employees of outstanding ability and to
promote the identification of their interests with those of the stockholders of
the Company. The 1998 Plan permits the issuance of Common Stock (the "1998 Plan
Purchase Stock") and the grant of Non-Qualified Stock Options (the "1998 Plan
Options") to purchase shares of Common Stock (the issuance of 1998 Plan Purchase
Stock and the grant of 1998 Plan Options pursuant to the 1998 Plan being a "1998
Plan Grant"). Unless sooner terminated by the Company's Board of Directors, the
1998 Plan will expire ten years after adoption. Such termination will not affect
the validity of any 1998 Plan Grant outstanding on the date of the termination.
The Compensation Committee of the Board of Directors will administer the
1998 Plan, including, without limitation, the determination of the employees to
whom 1998 Plan Grants will be made, the number of shares of Common Stock subject
to each 1998 Plan Grant, and the various terms of 1998 Plan Grants. The
Compensation Committee of the Board of Directors may from time to time amend the
terms of any 1998 Plan Grant, but, except for adjustments made upon a change in
the Common Stock by reason of a stock split, spin-off, stock dividend, stock
combination or reclassification, recapitalization, reorganization,
consolidation, change of control, or similar event, such action shall not
adversely affect the rights of any participant under the 1998 Plan with respect
to the 1998 Plan Purchase Stock and the 1998 Plan Options without such
participant's consent. The Board of Directors retain the right to amend, suspend
or terminate the 1998 Plan.
SEVERANCE AGREEMENTS
After the Closing, the Company entered into severance agreements with senior
management employees, including the Named Executive Officers, pursuant to which
in the event of any such employee's termination "without cause" or "for good
reason" (as defined therein) the Company will pay such
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<PAGE>
employee one year's base salary less any other severance payments to which the
employee is entitled from the Company and less any payments received by the
employee from Phelps Dodge in the nature of severance or bonus payments.
EMPLOYEE EQUITY ARRANGEMENTS
After the Closing and pursuant to the 1998 Plan, the Company sold 1998 Plan
Purchase Stock and issued 1998 Plan Options to selected employees, including the
Named Executive Officers (excluding Mr. Szabo), which will represent, in the
aggregate, approximately 10% of the fully diluted Common Stock (of which the
Named Executive Officers will hold approximately 37%). In connection with such
arrangements, the Company and each such employee entered into an Employee
Stockholders' Agreement and a Stock Option Agreement. The Employee Stockholders'
Agreement (i) places restrictions on each such employee's ability to transfer
shares of 1998 Plan Purchase Stock and Common Stock acquired upon exercise of
the 1998 Plan Options, including a right of first refusal in favor of the
Company, (ii) provides each such employee the right to participate pro rata in
certain sales of Common Stock by Hubcap Acquisition or its affiliates and (iii)
provides Hubcap Acquisition and its affiliates the right to require each such
employee to participate pro rata in certain sales of Common Stock by Hubcap
Acquisition or its affiliates. The Stockholders' Agreement also grants
(subsequent to an initial public offering of the Common Stock) piggyback
registration rights to each such employee pursuant to the Hubcap Registration
Rights Agreement. In addition, the Employee Stockholders' Agreement gives the
Company the right to purchase shares and options held by each such employee upon
termination of employment for any reason and permits each such employee to sell
stock and options in the event of death, disability or retirement after turning
65 years of age.
COMPENSATION COMMITTEE
Messrs. Greene and Fisher, with Mr. Greene as Chairman, are all of the
members of the compensation committee of the Board of Directors of the Company.
See "Certain Relationships and Related Transactions."
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of May 31, 1998, KKR 1996 GP L.L.C. beneficially owns approximately 87%
of the Company's outstanding shares of Common Stock. See "Principal
Stockholders." The managing members of KKR 1996 GP L.L.C. are Messrs. Henry R.
Kravis and George R. Roberts and the other members of which are Messrs. Paul E.
Raether, Michael W. Michelson, James H. Greene, Jr., Michael T. Tokarz, Clifton
S. Robbins, Edward A. Gihuly, Perry Golkin, Scott M. Stuart and Robert I.
MacDonnell. Messrs. Kravis, Roberts and Greene are also directors of the
Company, as is Todd A. Fisher, who is an executive of KKR & Co., L.L.C. Each of
the members of KKR 1996 GP L.L.C. is also a member of KKR & Co., L.L.C, which
serves as the general partner of KKR.
KKR, an affiliate of Hubcap Acquisition, received a fee of $6.0 million in
cash for negotiating the Recapitalization and arranging the financing therefor,
plus the reimbursement of its expenses in connection therewith, and from time to
time in the future, KKR may receive customary investment banking fees for
services rendered to the Company in connection with divestitures, acquisitions,
and certain other transactions. In addition, KKR has agreed to render
management, consulting and financial services to the Company for an annual fee
of $0.6 million. See "Management--Directors and Executive Officers" and
"Principal Stockholders."
Hubcap Acquisition has the right, under certain circumstances and subject to
certain conditions, to require the Company to register under the Securities Act
shares of Common Stock held by it pursuant to the Hubcap Registration Rights
Agreement and the Stockholders Agreement. Such registration rights are generally
available to Hubcap Acquisition until registration under the Securities Act is
no longer required to enable it to resell the Common Stock owned by it. The
Hubcap Registration Rights Agreement provides, among other things, that the
Company will pay all expenses in connection with the first six demand
registrations requested by Hubcap Acquisition and in connection with any
registration commenced by the Company as primary offering in which Hubcap
Acquisition participates through piggyback registration rights granted under
such agreement. Hubcap Acquisition's exercise of its registration rights under
the Hubcap Registration Rights Agreement is subject to the Tag Along and the
Drag Along rights of Phelps Dodge provided for in the Stockholders Agreement.
See "The Recapitalization--Other Agreements."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the ownership of the Common Stock as of May
31, 1998 by each person known to be the owner of 5% or more of the Common Stock,
by each person who is a director or Named Executive Officer of the Company and
by all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY
OWNED
--------------------------
NAME AND ADDRESS SHARES (a) PERCENT (a)
- ------------------------------------------------------------------------------------------ ----------- -------------
<S> <C> <C>
KKR 1996 GP L.L.C. (b)
c/o Kohlberg Kravis Roberts & Co. L.P.
9 West 57th Street
New York, New York 10019.................................................................. 21,600 87.4%
Henry R. Kravis (b)..................................................................... -- --
George R. Roberts (b)................................................................... -- --
James H. Greene, Jr. (b)................................................................ -- --
Phelps Dodge Corporation
2600 North Central Avenue
Phoenix, Arizona 85004.................................................................... 2,400 9.7%
William P. Greubel........................................................................ 150 *
Terrence J. Keating....................................................................... 40 *
William D. Noll........................................................................... 40 *
Bradford C. Schultz....................................................................... 40 *
J. Greg Szabo............................................................................. -- --
Todd A. Fisher (b)........................................................................ -- --
All executive officers and directors as a group....................................... 470 1.9%
</TABLE>
- ------------------------
* Less than one percent.
(a) The amounts and percentage of Common Stock beneficially owned are reported
on the basis of regulations of the Commission governing the determination of
beneficial ownership of securities. Under the rules of the Commission, a
person is deemed to be a "beneficial owner" of a security if that person has
or shares "voting power," which includes the power to vote or to direct the
voting of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities of which that person has a
right to acquire beneficial ownership within 60 days. Under these rules,
more than one person may be deemed a beneficial owner of the same securities
and a person may be deemed to be a beneficial owner of securities as to
which he has no economic interest. The percentage of class outstanding is
based on 24,704 shares of Common Stock outstanding as of May 31, 1998. The
Company effected a 240 to 1 stock split immediately after the Closing.
(b) Shares of Common Stock shown as beneficially owned by KKR 1996 GP L.L.C. are
held by Hubcap Acquisition. KKR 1996 GP L.L.C. is the sole general partner
of KKR Associates 1996 L.P., which is the sole general partner of KKR 1996
Fund L.P. KKR 1996 Fund L.P. is one of two members of Hubcap Acquisition and
owns more than a 95% equity interest in Hubcap Acquisition. KKR 1996 GP
L.L.C. is a limited liability company, the managing members of which are
Messrs. Henry R. Kravis and George R. Roberts, and the other members of
which are Messrs. Paul E. Raether, Michael W. Michelson, James H. Greene,
Jr., Michael T. Tokarz, Clifton S. Robbins, Edward A. Gihuly, Perry Golkin,
Scott M. Stuart and Robert I. MacDonnell. Messrs. Kravis, Roberts and Greene
are directors of the Company. Each of such individuals may be deemed to
share beneficial ownership of any shares beneficially owned by KKR 1996 GP
L.L.C. Each of such individuals disclaims beneficial ownership. Mr. Todd A.
Fisher is a director of the Company and is also an executive of KKR and a
limited partner of KKR Associates 1996 L.P. Mr. Fisher disclaims that he is
the beneficial owner of any shares beneficially owned by KKR Associates 1996
L.P.
69
<PAGE>
DESCRIPTION OF THE CREDIT FACILITY
The Credit Facility was provided by a syndicate of banks and other financial
institutions (the "Lenders") led by Citicorp USA, Inc., as administrative agent
(the "Administrative Agent"), Citicorp Securities, Inc., as arranger, Bankers
Trust Company, as syndication agent, and Wells Fargo Bank, as documentation
agent. The Credit Facility provides for Term Loans of $135.0 million and the
$140.0 million Revolver. The Revolver includes a borrowing capacity of up to
$20.0 million for letters of credit, and up to $10.0 million for short-term
borrowings. The Term Loans are comprised of a $60.0 million loan that will
mature on January 21, 2005 ("Tranche A") and a $75.0 million loan that will
mature on January 21, 2006 ("Tranche B"). The Company's Canadian subsidiary is
the borrower under Tranche A, and the Company has guaranteed the repayment of
such borrowing under Tranche A and all other obligations of such Canadian
subsidiary under the Credit Facility. The Term Loans provide for nominal annual
amortization (approximately 1% per year). The commitment under the Revolver will
decline to $100.0 million on January 21, 2003 and final maturity of loans under
the Revolver will be January 21, 2004.
The interest rate under the Term Loans fluctuates based on leverage and
initially is expected to be, at the option of the Company, Eurodollar Rate (as
defined in the Credit Facility) plus 2.125% to 2.25% or Base Rate (as defined in
the Credit Facility) plus 1.125% to 1.25%. The interest rate under the Revolver
fluctuates based on leverage and initially is expected to be, at the option of
the Company, the Eurodollar Rate plus 2.0% or the Base Rate plus 1.0%. The
Company may elect interest periods of 1, 2, 3, 6 and, if available, 9 or 12
months for Eurodollar Rate borrowings. The Credit Facility defines "Base Rate"
as the highest of Citibank's base rate, the Federal Funds Rate plus 0.50% and
the CD Rate plus 0.50%. The Eurodollar Rate and the CD Rate will at all times
include statutory reserves (and, in the case of the CD Rate, FDIC assessment
rates).
The Company will pay a commitment fee at a rate of which will fluctuate
based on leverage and initially will equal 0.425% per annum on the undrawn
portion of the commitments in respect of the Credit Facility, commencing to
accrue with respect to each Lender's commitment upon the acceptance by the
Company of such Lenders' commitment, paid initially at Closing and quarterly in
arrears after the Closing.
The Company will pay a letter of credit fee equal to a rate per annum equal
to the margin for Eurodollar Rate loans under the Revolver, less 0.125% on the
aggregate face amount of outstanding letters of credit under the Revolver,
payable in arrears quarterly and upon the termination of the Revolver. In
addition, the Company shall pay to the Fronting Bank (as defined in the Credit
Facility), for its own account, (a) a fronting fee of 0.125% per annum on the
aggregate face amount of outstanding letters of credit, payable in arrears at
the end of each quarter or upon the termination of the Revolver, and (b)
customary issuance, amendment and administration fees.
The Credit Facility contains provisions under which commitment fees and
interest rates will be adjusted in increments based on the ratio (the "Leverage
Ratio") of consolidated total debt to consolidated adjusted EBITDA in effect
from time to time. For purposes of this summary, the term "EBITDA" is as defined
in the Credit Facility.
The Term Loans are subject to mandatory prepayment with (a) 100% of the net
cash proceeds of certain non-ordinary course asset sales or other dispositions
of property by the Company and its subsidiaries, except to the extent that such
proceeds are reinvested in the business of the Company and its subsidiaries
(subject to the line of business covenant) within a specified time period and
subject to certain other exceptions, and (b) 50% of excess cash flow (as defined
in the Credit Facility), if the Leverage Ratio exceeds 4.0:1, subject to the
right of each Lender of Term Loans to waive the mandatory prepayment as to
itself, in which case 50% of the waived prepayment will be applied as a
permanent reduction of the Revolver. Voluntary prepayments and Revolver
commitment reductions will be permitted in whole or in part at the option of the
Company, in minimum principal amounts, without premium or penalty, subject to
reimbursement of certain of the Lenders' costs under certain conditions.
70
<PAGE>
The Company's obligations under the Credit Facility are secured by a
perfected first priority pledge of and security interest in all the common stock
of each existing and subsequently acquired direct domestic subsidiary of the
Company and each direct foreign subsidiary that is not a corporation, and 66% of
the common stock of each existing and subsequently acquired direct foreign
subsidiary that is a corporation (except that, as security for the payment of
the Tranche A loan the Company will pledge and grant a security interest in the
remaining 34% of the common stock of the Company's Canadian subsidiary) and, in
certain circumstances, non-cash consideration received for certain sales of
assets, in each case subject to certain exceptions. In addition, indebtedness
under the Credit Facility are guaranteed by each existing, and will be
guaranteed by subsequently acquired, domestic subsidiary of the Company, subject
to certain exceptions. See "Risk Factors--Subordination" and "--Encumbrances on
Assets to Secure Credit Facility" and "Description of the Notes--Subordination."
The Credit Facility contains customary covenants and restrictions on the
Company's ability to, among other things, incur debt, grant liens, merge with
other persons, sell assets, pay dividends, make investments or incur capital
expenditures. In addition, under the Credit Facility, the Company is prohibited
from redeeming the Notes prior to the scheduled maturity thereof; PROVIDED,
HOWEVER, so long as no Default or Event of Default (each as defined in the
Credit Facility) has occurred and is continuing, the Company may redeem the
Notes (i) for an aggregate price not in excess of the Available Amount (as
defined in the Credit Facility) at the time of such redemption or (ii) with
proceeds of certain subordinated Debt (as defined in the Credit Facility). The
Credit Facility provides that the Company must meet or exceed ratios of
consolidated EBITDA to consolidated interest expense of 1.50 to 1.00 in fiscal
years 1998 and 1999 and gradually increasing from 2.00 to 1.00 by the end of the
first quarter of 2002 and increasing by the end of the third quarter of fiscal
year 2004 and thereafter to 2.50 to 1.00 and consolidated adjusted EBITDA to
consolidated fixed charges (consisting of consolidated interest expense, certain
capital expenditures funded out of operations or borrowings under the revolving
portion of the Credit Facility and principal amounts payable on long-term
indebtedness) of 1.05 to 1.00, and the Company must not exceed a leverage ratio
of consolidated long-term debt to consolidated adjusted EBITDA of 6.00 to 1.00
through fiscal year 1998 and gradually decreasing by the end of the first
quarter of fiscal year 2004 and thereafter to 4.00 to 1.00.
Events of Default under the Credit Facility include (i) nonpayment of
principal with no period of grace and nonpayment of interest, fees or other
amounts due under the Credit Facility within five days after the same becomes
due; (ii) material breach of any representation or warranty; (iii) failure to
observe (1) any term, covenant or agreement contained in the negative or
financial covenants set forth in the Credit Facility or (2) any other term,
covenant or agreement contained in the Credit Facility for 30 days following
written notice thereof; (iv) the failure by the Company or its subsidiaries to
make payments in respect of any Debt when due and such failure continues after
the applicable period of grace, or any cross-acceleration (or cross-default
permitting acceleration) of such Debt occurs, where the aggregate outstanding
principal amount of such Debt is equal to or exceeds $20 million; (v) certain
events of bankruptcy or insolvency with respect to the Company or its
subsidiaries; (vi) judgments against the Company or its subsidiaries of $20
million or greater that remain unsatisfied, unvacated or unstayed pending appeal
for a period of 60 days after entry; (vii) any provision of certain documents
delivered in connection with the Credit Facility shall cease to be valid and
binding on or enforceable the Company or its subsidiaries; (viii) any security
document delivered in connection with the Credit Facility shall cease to create
a valid and perfected first priority lien in the collateral purported to be
covered thereby; (ix) a Change of Control (as defined) occurs; or (x) the
occurrence of certain events under the Employee Retirement Income Security Act
of 1974, as amended.
71
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Private Notes were issued pursuant to the Indenture (the "INDENTURE")
between the Company and U.S. Trust Company, National Association, as trustee
(the "TRUSTEE"). The Indenture is limited in aggregate principal amount to
$300.0 million, of which $200.0 million were issued as Private Notes. Additional
notes may be issued in one or more series from time to time, subject to the
limitations set forth under "Certain Covenants--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock," which may vote as a class with
the Notes. The Indenture is subject to and governed by the Trust Indenture Act
of 1939, as amended (the "TRUST INDENTURE ACT"). The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act. The following summary of the material provisions of
the Indenture does not purport to be complete and is qualified in its entirety
by reference to the provisions of the Indenture, including the definitions
therein of certain terms used below. The definitions of certain terms used in
the following summary are set forth below under "--Certain Definitions." For
purposes of this summary, the term "Company" refers only to Accuride Corporation
and not to any of its Subsidiaries.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company. As of March 31, 1998 the aggregate amount of the Company's
outstanding Senior Indebtedness was approximately $182.5 million ($60.0 million
of which represents a guarantee of amounts borrowed directly by the Company's
Canadian subsidiary under the Credit Facility). The Indenture permits the
incurrence of additional Senior Indebtedness in the future. See "Risk
Factors--Significant Indebtedness."
Operations of the Company are conducted primarily through its Subsidiaries
and joint ventures and, therefore, the Company is dependent upon the cash flow
of its Subsidiaries to meet its obligations, including its obligations under the
Notes. The Notes will be effectively subordinated to all Indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
the Company's Subsidiaries and joint ventures. Any right of the Company to
receive assets of any of its Subsidiaries or joint ventures upon the latter's
liquidation or reorganization (and the consequent right of the Holders to
participate in those assets) will be effectively subordinated to the claims of
that Subsidiary's or joint venture's creditors, except to the extent that the
Company is itself recognized as a creditor of such Subsidiary or joint venture,
in which case the claims of the Company still would be subordinate to any
security in the assets of such Subsidiary or joint venture and any indebtedness
of such Subsidiary or joint venture senior to that held by the Company. As of
March 31, 1998, the Company's Subsidiaries had approximately $56.2 million of
liabilities, excluding obligations under the Credit Facility outstanding. See
"Risk Factors--Subordination to the Obligations of the Company's Subsidiaries
and Ventures," "-- Dependence on the Company's Subsidiaries and Ventures," and
"--Subordination."
As of March 31, 1998, all of the Company's Subsidiaries were Restricted
Subsidiaries. However, under certain circumstances, the Company will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to any of the restrictive
covenants set forth in the Indenture.
SUBORDINATION
The payment of the Subordinated Note Obligations will be subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full in
cash equivalents of all Senior Indebtedness, whether outstanding on the date of
the Indenture or thereafter incurred. Upon any distribution to creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior
Indebtedness will be entitled to receive payment in full in cash or cash
equivalents of such Senior Indebtedness and all outstanding Letter of Credit
Obligaitons shall be fully cash collateralized before the Holders will be
72
<PAGE>
entitled to receive any payment with respect to the Subordinated Note
Obligations, and until all Senior Indebtedness is paid in full in cash
equivalents, any distribution to which the Holders would be entitled shall be
made to the holders of Senior Indebtedness (except that Holders may receive (i)
shares of stock and any debt securities that are subordinated at least to the
same extent as the Notes to (a) Senior Indebtedness and (b) any securities
issued in exchange for Senior Indebtedness and (ii) payments made from the
trusts described under "--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Subordinated Note Obligations (except in such subordinated securities or from
the trust described under "--Legal Defeasance and Covenant Defeasance") if (i) a
default in the payment of the principal of, premium, if any, or interest on, or
of unreimbursed amounts under drawn letters of credit or in respect of bankers'
acceptances or fees relating to letters of credit or bankers' acceptances
constituting, Senior Indebtedness occurs and is continuing beyond any applicable
period of grace (a "PAYMENT DEFAULT") or (ii) any other default occurs and is
continuing with respect to Designated Senior Indebtedness that permits holders
of the Designated Senior Indebtedness as to which such default relates to
accelerate its maturity (a "NON-PAYMENT DEFAULT") and the Trustee receives a
notice of such default (a "PAYMENT BLOCKAGE NOTICE") from a representative of
holders of such Designated Senior Indebtedness. Payments on the Notes, including
any missed payments, may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived or shall have
ceased to exist or such Senior Indebtedness shall have been discharged or paid
in full in cash or cash equivalents and all outstanding Letter of Credit
Obligations shall be fully cash collateralized and (b) in case of a nonpayment
default, the earlier of (x) the date on which such nonpayment default is cured
or waived, (y) 179 days after the date on which the applicable Payment Blockage
Notice is received (each such period, the "PAYMENT BLOCKAGE PERIOD") or (z) the
date such Payment Blockage Period shall be terminated by written notice to the
Trustee from the requisite holders of such Designated Senior Indebtedness
necessary to terminate such period or from their representative. No new period
of payment blockage may be commenced unless and until 365 days have elapsed
since the effectiveness of the immediately preceding Payment Blockage Notice.
However, if any Payment Blockage Notice within such 365-day period is given by
or on behalf of any holders of Designated Senior Indebtedness (other than the
agent under the Senior Credit Facilities), the agent under the Senior Credit
Facilities may give another Payment Blockage Notice within such period. In no
event, however, may the total number of days during which any Payment Blockage
Period or Periods is in effect exceed 179 days in the aggregate during any 365
consecutive day period. No nonpayment default that existed or was continuing on
the date of delivery of any Payment Blockage Notice to the Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been cured or waived for a period of not less than 90 days.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provision referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the Holders to accelerate the maturity
thereof.
The Indenture requires that the Company promptly notify holders of Senior
Indebtedness if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
insolvency, bankruptcy, administration, reorganization, receivership or similar
proceedings relating to the Company, Holders may recover less ratably than
creditors of the Company who are holders of Senior Indebtedness. In addition,
the Notes will be structurally subordinated to the liabilities of Subsidiaries
of the Company. At March 31, 1998, the aggregate amount of the Company's
outstanding Senior Indebtedness was approximately $182.5 million ($60.0 million
of which represents a guarantee of amounts borrowed directly by the Company's
Canadian subsidiary under the Credit Facility), the Company had no senior
subordinated indebtedness outstanding other than the Notes and the Company's
subsidiaries had total liabilities of $56.2 million, excluding obligations under
the Senior Credit Facilities. The Indenture permits the Company to incur
additional indebtedness, including up to $145.0 million of additional Senior
Indebtedness under
73
<PAGE>
the Credit Facilities, and permits ADM to incur additional indebtedness, that
together with Existing Indebtedness, does not exceed $30.0 million, subject to
certain limitations. Although the Indenture contains limitations on the amount
of additional Indebtedness that the Company and its Subsidiaries may incur,
under certain circumstances the amount of such Indebtedness could be substantial
and, in any case, such Indebtedness may be Senior Indebtedness. See "--Certain
Covenants--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock."
"DESIGNATED SENIOR INDEBTEDNESS" means (i) Senior Indebtedness under the
Senior Credit Facilities and (ii) any other Senior Indebtedness permitted under
the Indenture the principal amount of which is $25.0 million or more and that
has been designated by the Company as Designated Senior Indebtedness.
"SENIOR INDEBTEDNESS" means (i) the Obligations under the Senior Credit
Facilities and (ii) any other Indebtedness permitted to be incurred by the
Company under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes, including, with respect to
clauses (i) and (ii), interest accruing subsequent to the filing of, or which
would have accrued but for the filing of, a petition for bankruptcy, in
accordance with and at the rate (including any rate applicable upon any default
or event of default, to the extent lawful) specified in the documents evidencing
or governing such Senior Indebtedness, whether or not such interest is an
allowable claim in such bankruptcy proceeding. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (1) any
liability for federal, state, local or other taxes owed or owing by the Company,
(2) any obligation of the Company to any of its Subsidiaries, (3) any accounts
payable or trade liabilities arising in the ordinary course of business
(including instruments evidencing such liabilities) other than obligations in
respect of letters of credit under the Senior Credit Facilities, (4) any
Indebtedness that is incurred in violation of the Indenture, (5) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to the Company, (6) any
Indebtedness, guarantee or obligation of the Company which is subordinate or
junior to any other Indebtedness, guarantee or obligation of the Company, (7)
Indebtedness evidenced by the Notes and (8) Capital Stock of the Company.
"SUBORDINATED NOTE OBLIGATIONS" means any principal of, premium, if any, and
interest on the Notes payable pursuant to the terms of the Notes or upon
acceleration, together with and including any amounts received upon the exercise
of rights of rescission or other rights of action (including claims for damages)
or otherwise, to the extent relating to the purchase price of the Notes or
amounts corresponding to such principal, premium, if any, or interest on the
Notes.
The Notes will rank senior in right of payment to all Subordinated
Indebtedness of the Company. As of March 31, 1998, the Company had no
Subordinated Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to $200.0
million and will mature on February 1, 2008. Interest on the Notes will accrue
at the rate of 9 1/4% per annum and will be payable semi-annually in arrears on
February 1 and August 1, commencing on August 1, 1998, to Holders of record on
the immediately preceding January 15 and July 15. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Issuance Date. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal of,
premium, if any, and interest on the Notes will be payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of interest may be made by
check mailed to the Holders at their respective addresses set forth in the
register of Holders; PROVIDED that all payments of principal, premium, if any,
and interest with respect to Notes represented by one or more permanent global
Notes registered in the name of or held by The Depository Trust Company or its
nominee will be made by wire transfer of immediately available funds to the
accounts specified by the Holder or Holders thereof. Until otherwise designated
by the Company, the Company's office or agency in New York will be the office of
the Trustee maintained for such purpose. The Exchange Notes will be issued in
denominations of $1,000 and integral multiples thereof.
74
<PAGE>
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
OPTIONAL REDEMPTION
Except as described below, the Notes will not be redeemable at the Company's
option prior to February 1, 2003. From and after February 1, 2003, the Notes
will be subject to redemption at any time at the option of the Company, in whole
or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on
February 1 of each of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------------------------------ ----------------
<S> <C>
2003............................................................................................ 104.625%
2004............................................................................................ 103.083
2005............................................................................................ 101.542
2006 and thereafter............................................................................. 100.000%
</TABLE>
In addition, at any time or from time to time, on or prior to February 1,
2002, the Company may, at its option, redeem up to 40% of the aggregate
principal amount of Notes originally issued under the Indenture on the Issuance
Date at a redemption price equal to 109.25% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the redemption
date, with the net proceeds of one or more Equity Offerings; PROVIDED that at
least 60% of the aggregate principal amount of Notes originally issued under the
Indenture on the Issuance Date remains outstanding immediately after the
occurrence of each such redemption; PROVIDED FURTHER that each such redemption
occurs within 60 days of the date of closing of each such Equity Offering. The
Trustee shall select the Notes to be purchased in the manner described under
"Repurchase at the Option of Holders--Selection and Notice."
At any time on or prior to February 1, 2003, the Notes may also be redeemed
as a whole at the option of the Company upon the occurrence of a Change of
Control, upon not less than 30 nor more than 60 days prior notice (but in no
event more than 90 days after the occurrence of such Change of Control or
transfer event) mailed by first-class mail to each Holder's registered address,
at a redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium as of, and accrued and unpaid interest, if any, to, the date
of redemption (the "Redemption Date") (subject to the right of Holders of record
on the relevant record date to receive interest due on the relevant interest
payment date).
"APPLICABLE PREMIUM" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such Note
at February 1, 2003 (such redemption price being described under "-- Optional
Redemption") plus (2) all required interest payments due on such Note through
February 1, 2003, computed using a discount rate equal to the Treasury Rate plus
75 basis points, over (B) the principal amount of such Note.
"TREASURY RATE" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the
period from the Redemption Date to February 1, 2003; PROVIDED, HOWEVER, that if
the period from the Redemption Date to February 1, 2003 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the Redemption Date to February 1, 2003 is
less than one year, the weekly average
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yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL. The Indenture provides that, upon the occurrence of a
Change of Control, unless the Company has elected to redeem the Notes in
connection with such Change of Control, the Company will make an offer to
purchase all or any part (equal to $1,000 or an integral multiple thereof) of
the Notes pursuant to the offer described below (the "CHANGE OF CONTROL OFFER")
at a price in cash (the "CHANGE OF CONTROL PAYMENT") equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase. The Indenture provides that within 30 days following any
Change of Control, the Company will mail a notice to each Holder, with a copy to
the Trustee, with the following information: (1) a Change of Control Offer is
being made pursuant to the covenant entitled "Change of Control," and that all
Notes properly tendered pursuant to such Change of Control Offer will be
accepted for payment; (2) the purchase price and the purchase date, which will
be no earlier than 30 days nor later than 60 days from the date such notice is
mailed, except as may be otherwise required by applicable law (the "CHANGE OF
CONTROL PAYMENT DATE"); (3) any Note not properly tendered will remain
outstanding and continue to accrue interest; (4) unless the Company defaults in
the payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer will cease to accrue interest on the
Change of Control Payment Date; (5) Holders electing to have any Notes purchased
pursuant to a Change of Control Offer will be required to surrender the Notes,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Notes completed, to the paying agent specified in the notice at the address
specified in the notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date; (6) Holders will be entitled to
withdraw their tendered Notes and their election to require the Company to
purchase such Notes, provided that the paying agent receives, not later than the
close of business on the last day of the Offer Period (as defined in the
Indenture), a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of Notes tendered for purchase, and
a statement that such Holder is withdrawing his tendered Notes and his election
to have such Notes purchased; and (7) that Holders whose Notes are being
purchased only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof.
The Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 30 days following a Change of Control, the
Company will either repay all outstanding Senior Indebtedness or obtain the
requisite consents, if any, under any outstanding Senior Indebtedness in each
case necessary to permit the repurchase of the Notes required by this covenant.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Notes pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
The Indenture provides that on the Change of Control Payment Date, the
Company will, to the extent permitted by law, (1) accept for payment all Notes
or portions thereof properly tendered pursuant to the Change of Control Offer,
(2) deposit with the paying agent an amount equal to the aggregate Change of
Control Payment in respect of all Notes or portions thereof so tendered and (3)
deliver, or cause to be delivered, to the Trustee for cancellation the Notes so
accepted together with an Officers' Certificate stating that such Notes or
portions thereof have been tendered to and purchased by the Company. The
Indenture provides that the paying agent will promptly mail to each Holder the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any, PROVIDED, that each
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such new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The Senior Credit Facilities provides and future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may, prohibit the Company from purchasing any Notes as a result of a Change of
Control and/or provide that certain change of control events with respect to the
Company would constitute a default thereunder. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing the Notes, the
Company could seek the consent of its lenders to the purchase of the Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing the Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture. If, as a result thereof, a default occurs with respect to any
Senior Indebtedness, the subordination provisions in the Indenture would likely
restrict payments to the Holders.
The existence of a Holder's right to require the Company to repurchase such
Holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control. The Company's ability to pay cash to the Holders of
Exchange Notes upon a repurchase may be limited by the Company's then existing
financial resources.
ASSET SALES. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, cause, make or suffer to exist an
Asset Sale, unless (x) the Company, or its Restricted Subsidiaries, as the case
may be, receives consideration at the time of such Asset Sale at least equal to
the fair market value (as determined in good faith by the Company) of the assets
sold or otherwise disposed of and (y) at least 75% of the consideration therefor
received by the Company, or such Restricted Subsidiary, as the case may be, is
in the form of cash or Cash Equivalents; PROVIDED that the amount of (a) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto) of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes), that are assumed by the transferee of any such assets, (b) any
securities received by the Company or such Restricted Subsidiary from such
transferee that are converted by the Company or such Restricted Subsidiary into
cash (to the extent of the cash received) within 180 days following the closing
of such Asset Sale and (c) any Designated Noncash Consideration received by the
Company or any of its Restricted Subsidiaries in such Asset Sale having an
aggregate fair market value, taken together with all other Designated Noncash
Consideration received pursuant to this clause (c) that is at that time
outstanding, not to exceed the greater of (x) $50.0 million or (ii) 15% of Total
Assets at the time of the receipt of such Designated Noncash Consideration (with
the fair market value of each item of Designated Noncash Consideration being
measured at the time received and without giving effect to subsequent changes in
value), shall be deemed to be cash for purposes of this provision and for no
other purpose.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted
Subsidiary, at its option, may (i) apply the Net Proceeds from such Asset Sale
to permanently reduce (x) Obligations under the Senior Credit Facilities (and to
correspondingly reduce commitments with respect thereto), (y) other Senior
Indebtedness or Pari Passu Indebtedness (PROVIDED that if the Company shall so
reduce Obligations under Pari Passu Indebtedness, it will equally and ratably
reduce Obligations under the Notes if the Notes are then prepayable or, if the
Notes may not be then prepaid, the Company shall make an offer (in accordance
with the procedures set forth below for an Asset Sale Offer) to all Holders to
purchase at 100% of the principal amount thereof, plus the amount of accrued but
unpaid interest, if any, on the amount of Notes that would otherwise be prepaid)
or (z) Indebtedness of a Wholly Owned Restricted Subsidiary, (ii) apply the Net
Proceeds from such Asset Sale to an investment in any one or more businesses,
capital expenditures or acquisitions of other assets in each case, used or
useful in a Similar Business and/or (iii) apply the Net Proceeds from such Asset
Sale to an investment in properties or assets that replace the properties and
assets that are the
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subject of such Asset Sale. Pending the final application of any such Net
Proceeds, the Company or such Restricted Subsidiary may temporarily reduce
Indebtedness under a revolving credit facility, if any, or otherwise invest such
Net Proceeds in Cash Equivalents or Investment Grade Securities. The Indenture
provides that any Net Proceeds from the Asset Sale that are not invested or
applied as provided and within the time period set forth in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $15.0 million, the Company shall
make an offer to all Holders (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes, that is an integral multiple of $1,000, that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date fixed for the closing of such offer, in accordance with the
procedures set forth in the Indenture. The Company will commence an Asset Sale
Offer with respect to Excess Proceeds within ten Business Days after the date
that Excess Proceeds exceeds $15.0 million by mailing the notice required
pursuant to the terms of the Indenture, with a copy to the Trustee. To the
extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased in the manner described under the
caption "Selection and Notice" below. Upon completion of any such Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions
of any securities laws or regulations conflict with the provisions of the
Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
The Senior Credit Facilities and future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may prohibit the Company from purchasing any Notes pursuant to this Asset Sales
covenant. In the event the Company is prohibited from purchasing the Notes, the
Company could seek the consent of its lenders to the purchase of the Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing the Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture. If, as a result thereof, a default occurs with respect to any
Senior Indebtedness, the subordination provisions in the Indenture would likely
restrict payments to the Holders.
SELECTION AND NOTICE. If less than all of the Notes are to be redeemed at
any time or if more Notes are tendered pursuant to an Asset Sale Offer than the
Company is required to purchase, selection of such Notes for redemption or
purchase, as the case may be, will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
such Notes are listed, or, if such Notes are not so listed, on a pro rata basis,
by lot or by such other method as the Trustee shall deem fair and appropriate
(and in such manner as complies with applicable legal requirements); provided
that no Notes of $1,000 or less shall be purchased or redeemed in part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of Notes to be purchased or redeemed at such
Holder's registered address. If any Note is to be purchased or redeemed in part
only, any notice of purchase or redemption that relates to such Note shall state
the portion of the principal amount thereof that has been or is to be purchased
or redeemed.
A new Note in principal amount equal to the unpurchased or unredeemed
portion of any Note purchased or redeemed in part will be issued in the name of
the Holder thereof upon cancellation of the original Note. On and after the
purchase or redemption date unless the Company defaults in payment of
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the purchase or redemption price, interest shall cease to accrue on Notes or
portions thereof purchased or called for redemption.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests,
including any dividend or distribution payable in connection with any merger or
consolidation (other than (A) dividends or distributions by the Company payable
in Equity Interests (other than Disqualified Stock) of the Company or (B)
dividends or distributions by a Restricted Subsidiary so long as, in the case of
any dividend or distribution payable on or in respect of any class or series of
securities issued by a Subsidiary other than a Wholly Owned Subsidiary, the
Company or a Restricted Subsidiary receives at least its pro rata share of such
dividend or distribution in accordance with its Equity Interests in such class
or series of securities); (ii) purchase, redeem, defease or otherwise acquire or
retire for value any Equity Interests of the Company or any direct or indirect
parent of the Company; (iii) make any principal payment on, or redeem,
repurchase, defease or otherwise acquire or retire for value in each case, prior
to any scheduled repayment, or maturity, any Subordinated Indebtedness (other
than Indebtedness permitted under clauses (g) and (h) of the covenant described
under "--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock"); or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) immediately before and immediately after giving effect to such
transaction on a pro forma basis, the Company could incur $1.00 of
additional Indebtedness under the provisions of the first paragraph of
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issuance Date (including Restricted Payments
permitted by clauses (i), (ii) (with respect to the payment of dividends on
Refunding Capital Stock pursuant to clause (b) thereof), (iv) (only to the
extent that amounts paid pursuant to such clause are greater than amounts
that would have been paid pursuant to such clause if $5.0 million and $10.0
million were substituted in such clause for $10.0 million and $20.0 million,
respectively), (v), (viii) and (ix) of the next succeeding paragraph, but
excluding all other Restricted Payments permitted by the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net Income
of the Company for the period (taken as one accounting period) from the
fiscal quarter that first begins after the Issuance Date to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, in the
case such Consolidated Net Income for such period is a deficit, minus 100%
of such deficit), PLUS (ii) 100% of the aggregate net cash proceeds and the
fair market value, as determined in good faith by the Board of Directors, of
marketable securities and Qualified Proceeds received by the Company since
immediately after the closing of the Recapitalization from the issue or sale
of Equity Interests of the Company (including Retired Capital Stock (as
defined below), but excluding cash proceeds, marketable securities and
Qualified Proceeds received from the sale of (A) Equity Interests to members
of management, directors or consultants of the Company and its Subsidiaries
after the Issuance Date to the extent such amounts have been applied to
Restricted Payments in accordance with clause (iv) of the next succeeding
paragraph and (B) Designated Preferred Stock) or debt securities of the
Company that have been converted into such Equity Interests of the Company
(other than Refunding Capital Stock (as defined below) or Equity Interests
or convertible debt securities of the Company sold to a Restricted
Subsidiary of the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock),
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PLUS (iii) 100% of the aggregate amount of cash, marketable securities and
Qualified Proceeds contributed to the capital of the Company following the
Issuance Date, PLUS (iv) 100% of the aggregate amount received in cash, the
fair market value of marketable securities and Qualified Proceeds (other
than Restricted Investments) received by means of (A) the sale or other
disposition (other than to the Company or a Restricted Subsidiary) of
Restricted Investments made by the Company and its Restricted Subsidiaries
and repurchases and redemptions of such Restricted Investments from the
Company and its Restricted Subsidiaries by such Person and repayments of
loans or advances which constitute Restricted Investments by the Company and
its Restricted Subsidiaries or (B) the sale (other than to the Company or a
Restricted Subsidiary) of the stock of an Unrestricted Subsidiary or a
distribution from an Unrestricted Subsidiary (other than in each case an
Unrestricted Subsidiary to the extent the Investment in such Unrestricted
Subsidiary was made by the Company or a Restricted Subsidiary pursuant to
clauses (vi) or (x) below or to the extent such Investment constituted a
Permitted Investment) or a dividend from an Unrestricted Subsidiary plus (v)
in the case of the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value, as determined by the Board of
Directors in good faith or if such fair market value may exceed $25 million,
in writing by an independent investment banking firm of nationally
recognized standing, at the time of the redesignation of such Unrestricted
Subsidiary as a Restricted Subsidiary (other than an Unrestricted Subsidiary
to the extent the Investment in such Unrestricted Subsidiary was made by the
Company or a Restricted Subsidiary pursuant to clauses (vi) or (x) below or
to the extent such Investment constituted a Permitted Investment).
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) (a) the redemption, repurchase, retirement or other acquisition of
any Equity Interests ("RETIRED CAPITAL STOCK") or Subordinated Indebtedness
of the Company in exchange for, or out of the proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary) of, Equity Interests
of the Company (other than any Disqualified Stock) ("REFUNDING CAPITAL
STOCK") and (b) the declaration and payment of dividends on the Refunding
Capital Stock in an aggregate amount per year no greater than the aggregate
amount of dividends per annum that was declarable and payable on such
Retired Capital Stock immediately prior to such retirement; PROVIDED,
HOWEVER, that at the time of the declaration of any such dividends, no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof;
(iii) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, new Indebtedness of the
Company so long as (A) the principal amount of such new Indebtedness does
not exceed the principal amount of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired for value (PLUS the amount of any
premium required to be paid under the terms of the instrument governing the
Subordinated Indebtedness being so redeemed, repurchased, acquired or
retired), (B) such Indebtedness is subordinated to the Senior Indebtedness
and the Notes at least to the same extent as such Subordinated Indebtedness
so purchased, exchanged, redeemed, repurchased, acquired or retired for
value, (C) such Indebtedness has a final scheduled maturity date equal to or
later than the final scheduled maturity date of the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired and (D)
such Indebtedness has a Weighted Average Life to Maturity equal to or
greater than the remaining Weighted Average Life to Maturity of the
Subordinated Indebtedness being so redeemed, repurchased, acquired or
retired;
(iv) a Restricted Payment to pay for the repurchase, retirement or other
acquisition or retirement for value of common Equity Interests of the
Company held by any future, present or former employee, director or
consultant of the Company or any Subsidiary pursuant to any management
equity plan or stock option plan or any other management or employee benefit
plan or agreement;
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PROVIDED, HOWEVER, that the aggregate Restricted Payments made under this
clause (iv) does not exceed in any calendar year $10.0 million (with unused
amounts in any calendar year being carried over to succeeding calendar years
subject to a maximum (without giving effect to the following proviso) of
$20.0 million in any calendar year); PROVIDED FURTHER that such amount in
any calendar year may be increased by an amount not to exceed (A) the cash
proceeds from the sale of Equity Interests of the Company to members of
management, directors or consultants of the Company and its Subsidiaries
that occurs after the Issuance Date (to the extent the cash proceeds from
the sale of such Equity Interest have not otherwise been applied to the
payment of Restricted Payments by virtue of the preceding paragraph (c))
plus (B) the cash proceeds of key man life insurance policies received by
the Company and its Restricted Subsidiaries after the Issuance Date less (C)
the amount of any Restricted Payments previously made pursuant to clauses
(A) and (B) of this subparagraph (iv); and PROVIDED FURTHER that
cancellation of Indebtedness owing to the Company from members of management
of the Company or any of its Restricted Subsidiaries in connection with a
repurchase of Equity Interests of the Company will not be deemed to
constitute a Restricted Payment for purposes of this covenant or any other
provision of the Indenture;
(v) (A) the declaration and payment of dividends to holders of any class
or series of Designated Preferred Stock (other than Disqualified Stock)
issued after the Issuance Date or (B) the declaration and payment of
dividends on Refunding Capital Stock in excess of the dividends declarable
and payable thereon pursuant to clause (ii); PROVIDED, HOWEVER, in either
case, that for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date
of issuance of such Designated Preferred Stock or the declaration of such
dividends on Refunding Capital Stock, after giving effect to such issuance
or declaration on a pro forma basis, the Company and its Restricted
Subsidiaries would have had a Fixed Charge Coverage Ratio of at least 1.75
to 1.00;
(vi) Investments in Unrestricted Subsidiaries having an aggregate fair
market value, taken together with all other Investments made pursuant to
this clause (vi) that are at that time outstanding (without giving effect to
the sale of an Unrestricted Subsidiary to the extent the proceeds of such
sale do not consist of cash, marketable securities and/or Qualified Proceeds
or distributions made pursuant to clause (xiii) below), not to exceed $25.0
million at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value);
(vii) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
(viii) the payment of dividends on the Company's Common Stock, following
the first public offering of the Company's Common Stock after the Issuance
Date, of up to 6% per annum of the net proceeds received by the Company in
such public offering, other than public offerings with respect to the
Company's Common Stock registered on Form S-8;
(ix) commencing on the six month anniversary of the Recapitalization, a
Restricted Payment to pay for the repurchase, retirement or other
acquisition or retirement for value of Equity Interests of the Company in
existence on the Issuance Date and which are not held by KKR or any of their
Affiliates on the Issuance Date (including any Equity Interests issued in
respect of such Equity Interests as a result of a stock split,
recapitalization, merger, combination, consolidation or otherwise, but
excluding any management equity plan or stock option plan or similar
agreement), PROVIDED that notwithstanding the foregoing proviso, the Company
and its Restricted Subsidiaries shall be permitted to make Restricted
Payments under this clause (ix) only if after giving effect thereto, the
Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first sentence of the covenant described under "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock";
(x) Investments that are made with Excluded Contributions;
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(xi) other Restricted Payments in an aggregate amount not to exceed
$20.0 million;
(xii) distributions or payments of Receivables Fees; and
(xiii) the distribution, as a dividend or otherwise, of shares of Capital
Stock, or Indebtedness, of Unrestricted Subsidiaries (with the exception of
Investments in Unrestricted Subsidiaries acquired pursuant to clause (j) of
the definition of Permitted Investments).
PROVIDED HOWEVER, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iii) through (ix) and clause (xi),
no Default or Event or Default shall have occurred and be continuing or would
occur as a consequence thereof.
To the extent the issuance of Equity Interests and the receipt of capital
contributions are applied to permit the issuance of Indebtedness pursuant to
clause (l) of "--Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock," the issuance of such Equity Interests and the receipt of
such capital contributions shall not be applied to permit payments under this
covenant or Permitted Investments (other than clauses (a) and (c) thereof).
As of the Issuance Date, all of the Company's Subsidiaries were Restricted
Subsidiaries. The Company will not permit any Unrestricted Subsidiary to become
a Restricted Subsidiary except pursuant to the second to last sentence of the
definition of "Unrestricted Subsidiary." For purposes of designating any
Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments
by the Company and its Restricted Subsidiaries (except to the extent repaid) in
the Subsidiary so designated will be deemed to be Restricted Payments in an
amount determined as set forth in the last sentence of the definition of
"Investments." Such designation will be permitted only if a Restricted Payment
in such amount would be permitted at such time (whether pursuant to the first
paragraph of this covenant or under clauses (vi) and (x) and (xi)) and if such
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Unrestricted Subsidiaries will not be subject to any of the restrictive
covenants set forth in the Indenture.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED
STOCK. The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "INCUR" and
collectively, an "INCURRENCE") any Indebtedness (including Acquired
Indebtedness) and that the Company will not issue any shares of Disqualified
Stock and will not permit any of its Restricted Subsidiaries to issue any shares
of preferred stock; PROVIDED, HOWEVER, that the Company may incur Indebtedness
(including Acquired Indebtedness) or issue shares of Disqualified Stock if the
Fixed Charge Coverage Ratio for the Company's and its Restricted Subsidiaries'
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 1.75 to 1.00, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, and the application of proceeds therefrom had occurred at the beginning of
such four-quarter period.
The foregoing limitations will not apply to:
(a) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness under Credit Facilities and the issuance and creation of
letters of credit and bankers' acceptances thereunder (with letters of
credit and bankers' acceptances being deemed to have a principal amount
equal to the face amount thereof) up to an aggregate principal amount of
$325.0 million outstanding at any one time; PROVIDED that Indebtedness
incurred by Restricted Subsidiaries pursuant to this clause (a) does not
exceed $80.0 million at any one time outstanding unless incurred under a
Receivables Facility.
(b) the incurrence by the Company of Indebtedness represented by the
Notes issued on the Issuance Date;
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(c) (x) the Existing Indebtedness (other than Indebtedness described in
clauses (a) and (b)) and (y) the incurrence by ADM of additional
Indebtedness that, together with the Existing Indebtedness of ADM, does not
exceed $30.0 million;
(d) Indebtedness (including Capitalized Lease Obligations) incurred by
the Company or any of its Restricted Subsidiaries, to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when aggregated
with the principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (d) and including all Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (d), does not exceed 20% of Total Assets;
(e) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; PROVIDED, HOWEVER, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(f) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; PROVIDED, HOWEVER, that (i) such Indebtedness is
not reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this clause
(i)) and (ii) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including noncash
proceeds (the fair market value of such noncash proceeds being measured at
the time received and without giving effect to any subsequent changes in
value) actually received by the Company and its Restricted Subsidiaries in
connection with such disposition;
(g) Indebtedness of the Company to a Restricted Subsidiary; PROVIDED
that any such Indebtedness is made pursuant to an intercompany note and is
subordinated in right of payment to the Notes; PROVIDED further that any
subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any other subsequent transfer of any such Indebtedness (except
to the Company or another Restricted Subsidiary) shall be deemed, in each
case to be an incurrence of such Indebtedness;
(h) Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary; PROVIDED that (i) any such Indebtedness is made
pursuant to an intercompany note and (ii) if a Guarantor incurs such
Indebtedness from a Restricted Subsidiary that is not a Guarantor such
Indebtedness is subordinated in right of payment to the Guarantee of such
Guarantor; PROVIDED further that any subsequent transfer of any such
Indebtedness (except to the Company or another Restricted Subsidiary) shall
be deemed, in each case to be an incurrence of such Indebtedness;
(i) Hedging Obligations that are incurred in the ordinary course of
business (but in any event excluding Hedging Obligations entered into for
speculative purposes);
(j) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(k) Indebtedness of any Guarantor in respect of such Guarantor's
Guarantee;
(l) Indebtedness of the Company and any of its Restricted Subsidiaries
not otherwise permitted hereunder in an aggregate principal amount, which
when aggregated with the principal amount of all
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other Indebtedness then outstanding and incurred pursuant to this clause
(l), does not at any one time outstanding exceed the sum of (x) $150.0
million and (y) 100% of the net cash proceeds received by the Company since
immediately after the Recapitalization from the issue or sale of Equity
Interests of the Company or net cash proceeds contributed to the capital of
the Company (in each case other than Disqualified Stock) as determined in
accordance with clauses (c)(ii) and (c)(iii) of the first paragraph of
"--Limitation on Restricted Payments" to the extent such net cash proceeds
have not been applied pursuant to such clauses to make Restricted Payments
or to make other payments or exchanges pursuant to the second paragraph of
"--Limitation on Restricted Payments" or to make Permitted Investments
(other than clauses (a) and (c) thereof) (it being understood that any
Indebtedness incurred under this clause (l) shall cease to be deemed
incurred or outstanding for purposes of this clause (l) but shall be deemed
to be incurred for purposes of the first paragraph of this covenant from and
after the first date on which the Company could have incurred such
Indebtedness under the first paragraph of this covenant without reliance
upon this clause (l));
(m) (i) any guarantee by the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the incurrence
of such Indebtedness incurred by such Restricted Subsidiary is permitted
under the terms of the Indenture and (ii) any guarantee by a Restricted
Subsidiary of Indebtedness of the Company, PROVIDED that such Guarantee is
incurred in accordance with the convenant described below under
"--Limitation on Guarantees of Indebtedness by Restricted Subsidiaries;"
(n) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness which serves to refund, refinance or restructure any
Indebtedness incurred as permitted under the first paragraph of this
covenant and clauses (b) and (c)(x) above, or any Indebtedness issued to so
refund, refinance or restructure such Indebtedness including additional
Indebtedness incurred to pay premiums and fees in connection therewith (the
"REFINANCING INDEBTEDNESS") prior to its respective maturity; PROVIDED,
HOWEVER, that such Refinancing Indebtedness (i) has a Weighted Average Life
to Maturity at the time such Refinancing Indebtedness is incurred which is
not less than the remaining Weighted Average Life to Maturity of
Indebtedness being refunded or refinanced, (ii) to the extent such
Refinancing Indebtedness refinances Indebtedness subordinated or PARI PASSU
to the Notes, such Refinancing Indebtedness is subordinated or PARI PASSU to
the Notes at least to the same extent as the Indebtedness being refinanced
or refunded and (iii) shall not include (x) Indebtedness of a Subsidiary
that refinances Indebtedness of the Company or (y) Indebtedness of the
Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary; and PROVIDED FURTHER that subclauses (i) and (ii)
of this clause (n) will not apply to any refunding or refinancing of any
Senior Indebtedness; and
(o) Indebtedness or Disqualified Stock of Persons that are acquired by
the Company or any of its Restricted Subsidiaries or merged into a
Restricted Subsidiary in accordance with the terms of the Indenture;
PROVIDED that such Indebtedness or Disqualified Stock is not incurred in
contemplation of such acquisition or merger; and PROVIDED FURTHER that after
giving effect to such acquisition or merger, either (i) the Company would be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first sentence of this
covenant or (ii) the Fixed Charge Coverage Ratio is greater than immediately
prior to such acquisition or merger.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
permitted Indebtedness described in clauses (a) through (o) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness in any manner
that complies with this covenant and such item of Indebtedness will be treated
as having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof except as otherwise set forth in clause (l). Accrual of
interest, the accretion of accreted value and the payment of interest in the
form of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of indebtedness denominated in a
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foreign currency shall be calculated based on the relevant currency exchange
rate in effect on the date such Indebtedness was incurred, in the case of term
debt, or first committed, in the case of revolving credit debt; PROVIDED that
(x) the U.S. dollar-equivalent principal amount of any such Indebtedness
outstanding or committed on the Issuance Date shall be calculated based on the
relevant currency exchange rate in effect on December 31, 1997, and (y) if such
Indebtedness is incurred to refinance other Indebtedness denominated in a
foreign currency, and such refinancing would cause the applicable U.S.
dollar-denominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such U.S.
dollar-denominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced. The principal amount of
any Indebtedness incurred to refinance other Indebtedness, if incurred in a
different currency from the Indebtedness being refinanced, shall be calculated
based on the currency exchange rate applicable to the currencies in which such
respective Indebtedness is denominated that is in effect on the date of such
refinancing.
LIENS. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly create,
incur, assume or suffer to exist any Lien that secures obligations under any
Pari Passu Indebtedness or Subordinated Indebtedness on any asset or property of
the Company or such Restricted Subsidiary, or any income or profits therefrom,
or assign or convey any right to receive income therefrom, unless the Notes are
equally and ratably secured (or senior to, in the event the Lien relates to
Subordinated Indebtedness) with the obligations so secured or until such time as
such obligations are no longer secured by a Lien.
The Indenture provides that no Guarantor will directly or indirectly create,
incur, assume or suffer to exist any Lien that secures obligations under any
Pari Passu Indebtedness or Subordinated Indebtedness of such Guarantor on any
asset or property of such Guarantor or any income or profits therefrom, or
assign or convey any right to receive income therefrom, unless the Guarantee of
such Guarantor is equally and ratably secured (or senior to, in the event the
Lien relates to Subordinated Indebtedness) with the obligations so secured or
until such time as such obligations are no longer secured by a Lien.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS. The
Indenture provides that the Company may not consolidate or merge with or into or
wind up into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to any Person
unless (i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made is a corporation organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any territory
thereof (the Company or such Person, as the case may be, being herein called the
"SUCCESSOR COMPANY"); (ii) the Successor Company (if other than the Company)
expressly assumes all the obligations of the Company under the Indenture and the
Notes pursuant to a supplemental indenture or other documents or instruments in
form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; (iv) immediately after giving
pro forma effect to such transaction, as if such transaction had occurred at the
beginning of the applicable four-quarter period, (A) the Successor Company would
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first sentence of the covenant
described under "--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" or (B) the Fixed Charge Coverage Ratio for the Successor
Company and its Restricted Subsidiaries would be greater than such Ratio for the
Company and its Restricted Subsidiaries immediately prior to such transaction;
(v) each Guarantor, if any, unless it is the other party to the transactions
described above, in which case clause (ii) shall apply, shall have by
supplemental indenture confirmed that its Guarantee shall apply to such Person's
obligations under the Indenture and the Notes; and (vi) the Company shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture. The Successor Company will succeed
to, and be substituted for, the Company under the Indenture and the
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Notes. Notwithstanding the foregoing clause (iv), (a) any Restricted Subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (b) the Company may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
State of the United States so long as the amount of Indebtedness of the Company
and its Restricted Subsidiaries is not increased thereby.
Each Guarantor, if any, shall not, and the Company will not permit a
Guarantor to, consolidate or merge with or into or wind up into (whether or not
such Guarantor is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, any Person unless (i) such
Guarantor is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) or to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made is a corporation organized or existing under the laws of the United
States, any state thereof, the District of Columbia, or any territory thereof
(such Guarantor or such Person, as the case may be, being herein called the
"SUCCESSOR GUARANTOR"); (ii) the Successor Guarantor (if other than such
Guarantor) expressly assumes all the obligations of such Guarantor under the
Indenture and such Guarantor's Guarantee pursuant to a supplemental indenture or
other documents or instruments in form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of Default exists;
and (iv) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture. The Successor Guarantor will succeed to, and be substituted for, such
Guarantor under the Indenture and such Guarantor's Guarantee.
TRANSACTIONS WITH AFFILIATES. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, make any payment
to, or sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make or
amend any transaction, contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"AFFILIATE TRANSACTION") involving aggregate payments or consideration in excess
of $5.0 million, unless (a) such Affiliate Transaction is on terms that are not
materially less favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person and (b) the
Company delivers to the Trustee with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $10.0 million, a resolution adopted by the majority of the Board of
Directors approving such Affiliate Transaction and set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (a)
above.
The foregoing provisions will not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments permitted by the provisions of the Indenture described above
under the covenant "--Limitation on Restricted Payments"; (iii) the payment of
customary annual management, consulting and advisory fees and related expenses
to KKR and its Affiliates; (iv) the payment of reasonable and customary fees
paid to, and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Restricted Subsidiary; (v) payments by the
Company or any of its Restricted Subsidiaries to KKR and its Affiliates made for
any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures which payments are approved by a
majority of the Board of Directors of the Company in good faith; (vi)
transactions in which the Company or any of its Restricted Subsidiaries, as the
case may be, delivers to the Trustee a letter from an Independent Financial
Advisor stating that such transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view or meets the requirements of clause
(a) of the preceding paragraph; (vii) payments or loans to employees or
consultants which are approved by a majority of the Board of Directors of the
Company in good faith; (viii) any agreement as in effect as of the Issuance Date
or any amendment thereto (so long as any such amendment is not disadvantageous
to the Holders in any material respect) or any transaction contemplated thereby;
(ix) the existence of, or the performance by the Company or any of its
Restricted Subsidiaries of its obligations under the terms of, any stockholders
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agreement (including any registration rights agreement or purchase agreement
related thereto) to which it is a party as of the Issuance Date and any similar
agreements which it may enter into thereafter; PROVIDED, HOWEVER, that the
existence of, or the performance by the Company or any of its Restricted
Subsidiaries of obligations under any future amendment to any such existing
agreement or under any similar agreement entered into after the Issuance Date
shall only be permitted by this clause (ix) to the extent that the terms of any
such amendment or new agreement are not otherwise disadvantageous to the Holders
in any material respect; (x) the Recapitalization and the payment of all fees
and expenses related to the Recapitalization; (xi) transactions with customers,
clients, suppliers, or purchasers or sellers of goods or services, in each case
in the ordinary course of business and otherwise in compliance with the terms of
the Indenture which are fair to the Company or its Restricted Subsidiaries, in
the reasonable determination of the Board of Directors of the Company or the
senior management thereof, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party; and (xii)
sales of accounts receivable, or participations therein, in connection with any
Receivables Facility.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary to:
(a) (i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with
respect to any other interest or participation in, or measured by, its
profits, or (ii) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries, except (in each case) for
such encumbrances or restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the
Issuance Date, including, without limitation, pursuant to Existing
Indebtedness or the Senior Credit Facilities and their related
documentation;
(2) the Indenture and the Notes;
(3) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;
(4) applicable law or any applicable rule, regulation or order;
(5) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance
or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of
the Person, so acquired;
(6) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock or assets of such Subsidiary;
(7) secured Indebtedness otherwise permitted to be incurred pursuant
to the covenants described under "--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" and "--Liens" that limit
the right of the debtor to dispose of the assets securing such
Indebtedness;
(8) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(9) other Indebtedness of Restricted Subsidiaries permitted to be
incurred subsequent to the Issuance Date pursuant to the provisions of
the covenant described under "--Limitations on Incurrence of Indebtedness
and Issuance of Disqualified Stock";
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(10) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business;
(11) customary provisions contained in leases and other agreements
entered into in the ordinary course of business;
(12) any encumbrances or restrictions of the type referred to in
clauses (a), (b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings of the contracts, instruments or obligations referred to
in clauses (1) through (11) above, PROVIDED that such amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment
of the Company's Board of Directors, no more restrictive with respect to
such dividend and other payment restrictions than those contained in the
dividend or other payment restrictions prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing; or
(13) restrictions created in connection with any Receivables Facility
that, in the good faith determination of the Board of Directors of the
Company, are necessary or advisable to effect such Receivables Facility.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES. (a)
The Indenture provides that the Company will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of the Company unless
(i) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee of payment of
the Notes by such Restricted Subsidiary except that with respect to a guarantee
of Indebtedness of the Company (A) if the Notes are subordinated in right of
payment to such Indebtedness, the Guarantee under the supplemental indenture
shall be subordinated to such Restricted Subsidiary's guarantee with respect to
such Indebtedness substantially to the same extent as the Notes are subordinated
to such Indebtedness under the Indenture and (B) if such Indebtedness is by its
express terms subordinated in right of payment to the Notes, any such guarantee
of such Restricted Subsidiary with respect to such Indebtedness shall be
subordinated in right of payment to such Restricted Subsidiary's Guarantee with
respect to the Notes substantially to the same extent as such Indebtedness is
subordinated to the Notes; (ii) such Restricted Subsidiary waives and will not
in any manner whatsoever claim or take the benefit or advantage of, any rights
of reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Guarantee; and (iii) such Restricted Subsidiary
shall deliver to the Trustee an opinion of counsel to the effect that (A) such
Guarantee of the Notes has been duly executed and authorized and (B) such
Guarantee of the Notes constitutes a valid, binding and enforceable obligation
of such Restricted Subsidiary, except insofar as enforcement thereof may be
limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; PROVIDED that
this paragraph (a) shall not be applicable to any guarantee of any Restricted
Subsidiary (x) that (A) existed at the time such Person became a Restricted
Subsidiary of the Company and (B) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company or
(y) that guarantees the payment of Obligations of the Company or any Restricted
Subsidiary under the Senior Credit Facilities or any other Senior Indebtedness
and any refunding, refinancing or replacement thereof, in whole or in part,
PROVIDED that such refunding, refinancing or replacement thereof constitutes
Senior Indebtedness and PROVIDED FURTHER that any such Senior Indebtedness and
any refunding, refinancing or replacement thereof is not incurred pursuant to a
registered offering of securities under the Securities Act or a private
placement of securities (including under Rule 144A) pursuant to an exemption
from the registration requirements of the Securities Act, which private
placement provides for registration rights under the Securities Act.
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(b) Notwithstanding the foregoing and the other provisions of the Indenture,
any Guarantee by a Restricted Subsidiary of the Notes shall provide by its terms
that it shall be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer, to any Person not an Affiliate of the
Company, of all of the Company's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by the Indenture) or (ii) the release or discharge of the
guarantee which resulted in the creation of such Guarantee, except a discharge
or release by or as a result of payment under such guarantee.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Indenture
provides that the Company will not, and will not permit any Guarantor to,
directly or indirectly, incur any Indebtedness (including Acquired Indebtedness)
that is subordinate in right of payment to any Indebtedness of the Company or
any Indebtedness of any Guarantor, as the case may be, unless such Indebtedness
is either (a) PARI PASSU in right of payment with the Notes or such Guarantor's
Guarantee, as the case may be or (b) subordinate in right of payment to the
Notes, or such Guarantor's Guarantee, as the case may be.
REPORTS AND OTHER INFORMATION. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
or otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations promulgated by
the Securities and Exchange Commission (the "COMMISSION"), the Indenture
requires the Company to file with the Commission (and provide the Trustee and
Holders with copies thereof (without exhibits), without cost to each Holder,
within 15 days after it files them with the Commission), (a) within 90 days
after the end of each fiscal year, annual reports on Form 10-K (or any successor
or comparable form) containing the information required to be contained therein
(or required in such successor or comparable form); (b) within 45 days after the
end of each of the first three fiscal quarters of each fiscal year, reports on
Form 10-Q (or any successor or comparable form); (c) promptly from time to time
after the occurrence of an event required to be therein reported, such other
reports on Form 8-K (or any successor or comparable form); and (d) any other
information, documents and other reports which the Company would be required to
file with the Commission if it were subject to Section 13 or 15(d) of the
Exchange Act; PROVIDED, HOWEVER, the Company shall not be so obligated to file
such reports with the Commission if the Commission does not permit such filing,
in which event the Company will make available such information to prospective
purchasers of Notes, in addition to providing such information to the Trustee
and the Holders, in each case within 15 days after the time the Company would be
required to file such information with the Commission, if it were subject to
Sections 13 or 15(d) of the Exchange Act.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute Events of Default under the Indenture:
(i) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium on, if any, the Notes
whether or not such payment shall be prohibited by the subordination
provisions relating to the Notes;
(ii) default for 30 days or more in the payment when due of interest on
or with respect to the Notes whether or not such payment shall be prohibited
by the subordination provisions relating to the Notes;
(iii) failure by the Company or any Guarantor for 30 days after receipt
of written notice given by the Trustee or the holders of at least 30% in
principal amount of the Notes then outstanding to comply with any of its
other agreements in the Indenture or the Notes;
(iv) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Restricted Subsidiaries or
the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries (other than Indebtedness owed to the Company or a Restricted
Subsidiary), whether such
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Indebtedness or guarantee now exists or is created after the Issuance Date,
if both (A) such default either (1) results from the failure to pay any such
Indebtedness at its stated final maturity (after giving effect to any
applicable grace periods) or (2) relates to an obligation other than the
obligation to pay principal of any such Indebtedness at its stated final
maturity and results in the holder or holders of such Indebtedness causing
such Indebtedness to become due prior to its stated maturity and (B) the
principal amount of such Indebtedness, together with the principal amount of
any other such Indebtedness in default for failure to pay principal at
stated final maturity (after giving effect to any applicable grace periods),
or the maturity of which has been so accelerated, aggregate $20.0 million or
more at any one time outstanding;
(v) failure by the Company or any of its Significant Subsidiaries to pay
final judgments aggregating in excess of $20.0 million, which final
judgments remain unpaid, undischarged and unstayed for a period of more than
60 days after such judgment becomes final, and in the event such judgment is
covered by insurance, an enforcement proceeding has been commenced by any
creditor upon such judgment or decree which is not promptly stayed;
(vi) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries; or
(vii) the Guarantee of any Significant Subsidiary shall for any reason
cease to be in full force and effect or be declared null and void or any
responsible officer of the Company or any Guarantor that is a Significant
Subsidiary denies that it has any further liability under its Guarantee or
gives notice to such effect (other than by reason of the termination of the
Indenture or the release of any such Guarantee in accordance with the
Indenture).
If any Event of Default (other than of a type specified in clause (vi)
above) occurs and is continuing under the Indenture, the Trustee or the Holders
of at least 30% in principal amount of the then outstanding Notes may declare
the principal, premium, if any, interest and any other monetary obligations on
all the then outstanding Notes to be due and payable immediately; PROVIDED,
HOWEVER, that, so long as any Indebtedness permitted to be incurred under the
Indenture as part of the Senior Credit Facilities shall be outstanding, no such
acceleration shall be effective until the earlier of (i) acceleration of any
such Indebtedness under the Senior Credit Facilities or (ii) five business days
after the giving of written notice to the Company and the administrative agent
under the Senior Credit Facilities of such acceleration. Upon the effectiveness
of such declaration, such principal and interest will be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising under clause (vi) of the first paragraph of this section, all
outstanding Notes will become due and payable without further action or notice.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Indenture provides that the Trustee may withhold from
Holders notice of any continuing Default or Event of Default (except a Default
or Event of Default relating to the payment of principal, premium, if any, or
interest) if it determines that withholding notice is in their interest. In
addition, the Trustee shall have no obligation to accelerate the Notes if in the
best judgment of the Trustee acceleration is not in the best interest of the
Holders of such Notes.
The Indenture provides that the Holders of a majority in aggregate principal
amount of the then outstanding Notes issued thereunder by notice to the Trustee
may on behalf of the Holders of all of such Notes waive any existing Default or
Event of Default and its consequences under the Indenture except a continuing
Default or Event of Default in the payment of interest on, premium, if any, or
the principal of any such Note held by a non-consenting Holder. In the event of
any Event of Default specified in clause (iv) above, such Event of Default and
all consequences thereof (including without limitation any acceleration or
resulting payment default) shall be annulled, waived and rescinded,
automatically and without any action by the Trustee or the Holders, if within 20
days after such Event of Default arose (x) the Indebtedness or guarantee that is
the basis for such Event of Default has been discharged, or (y) the
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holders thereof have rescinded or waived the acceleration, notice or action (as
the case may be) giving rise to such Event of Default, or (z) if the default
that is the basis for such Event of Default has been cured.
The Indenture provides that the Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required, within five Business Days, upon becoming aware of any
Default or Event of Default or any default under any document, instrument or
agreement representing Indebtedness of the Company or any Guarantor, to deliver
to the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, shall have any liability for any obligations of the Company or
the Guarantors under the Notes, the Guarantees or the Indenture or for any claim
based on, in respect of, or by reason of such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of the Company and the Guarantors, if any, under the
Indenture will terminate (other than certain obligations) and will be released
upon payment in full of all of the Notes. The Company may, at its option and at
any time, elect to have all of its obligations discharged with respect to the
outstanding Notes and have each Guarantor's obligation discharged with respect
to its Guarantee ("LEGAL DEFEASANCE") and cure all then existing Events of
Default except for (i) the rights of Holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due solely out of the trust created pursuant to the
Indenture, (ii) the Company's obligations with respect to Notes concerning
issuing temporary Notes, registration of such Notes, mutilated, destroyed, lost
or stolen Notes and the maintenance of an office or agency for payment and money
for security payments held in trust, (iii) the rights, powers, trusts, duties
and immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and each Guarantor released with respect to certain
covenants that are described in the Indenture ("COVENANT DEFEASANCE") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment on other
indebtedness, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the Notes:
(i) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest due on
the outstanding Notes on the stated maturity date or on the applicable
redemption date, as the case may be, of such principal, premium, if any, or
interest on the outstanding Notes;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions
and exclusions, (A) the Company has received from, or there has been
published by, the United States Internal Revenue Service a ruling or (B)
since the Issuance Date, there has been a change in the applicable U.S.
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel in the United States shall confirm that, subject to
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customary assumptions and exclusions, the Holders will not recognize income,
gain or loss for U.S. federal income tax purposes as a result of such Legal
Defeasance and will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders will not recognize income, gain or
loss for U.S. federal income tax purposes as a result of such Covenant
Defeasance and will be subject to such tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing with on the date of such deposit or, with respect to certain
bankruptcy or insolvency Events of Default, on the 91st day after such date
of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, the Senior Credit
Facilities or any other material agreement or instrument (other than the
Indenture) to which, the Company or any Guarantor is a party or by which the
Company or any Guarantor is bound;
(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable U.S. federal or state law, and that the Trustee has a
perfected security interest in such trust funds for the ratable benefit of
the Holders;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of defeating, hindering, delaying or defrauding any creditors of the
Company or any Guarantor or others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in the United States (which opinion of
counsel may be subject to customary assumptions and exclusions) each stating
that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust) have been delivered to the Trustee for cancellation; or (b)
(i) all such Notes not theretofore delivered to such Trustee for cancellation
have become due and payable by reason of the making of a notice of redemption or
otherwise or will become due and payable within one year and the Company or any
Guarantor has irrevocably deposited or caused to be deposited with such Trustee
as trust funds in trust solely for the benefit of the Holders, cash in U.S.
dollars, non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient without consideration of any reinvestment of
interest to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation for principal, premium, if
any, and accrued interest to the date of maturity or redemption; (ii) no Default
or Event of Default with respect to the Indenture or the Notes shall have
occurred and be continuing on the date of such deposit or shall occur as a
result of such deposit and such deposit will not result in a breach or violation
of, or constitute a default under, any other instrument to which the Company or
any Guarantor is a party or by which the Company or any Guarantor
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is bound; (iii) the Company or any Guarantor has paid or caused to be paid all
sums payable by it under such Indenture; and (iv) the Company has delivered
irrevocable instructions to the Trustee under such Indenture to apply the
deposited money toward the payment of such Notes at maturity or the redemption
date, as the case may be. In addition, the Company must deliver an Officers'
Certificate and an opinion of counsel to the Trustee stating that all conditions
precedent to satisfaction and discharge have been satisfied.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder will be treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, any
Guarantee and the Notes issued thereunder may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
and any existing default or compliance with any provision of the Indenture or
the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes (including consents obtained in
connection with a purchase of or tender offer or exchange offer for Notes).
The Indenture provides that without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Notes held by a non-consenting
Holder): (i) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any such Note or alter or waive the provisions with respect to
the redemption of the Notes (other than provisions relating to the covenants
described above under the caption "-- Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of interest on any Note,
(iv) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes (except a rescission of acceleration
of the Notes by the Holders of at least a majority in aggregate principal amount
of such Notes and a waiver of the payment default that resulted from such
acceleration), or in respect of a covenant or provision contained in the
Indenture or any Guarantee which cannot be amended or modified without the
consent of all Holders, (v) make any Note payable in money other than that
stated in such Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders to receive
payments of principal of or premium, if any, or interest on the Notes, (vii)
make any change in the foregoing amendment and waiver provisions, (viii) impair
the right of any Holder to receive payment of principal of, or interest on such
Holder's Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such Holder's Notes or (ix)
make any change in the subordination provisions of the Indenture that would
adversely affect the Holders.
The Indenture provides that, notwithstanding the foregoing, without the
consent of any Holder, the Company, any Guarantor (with respect to a Guarantee
or the Indenture to which it is a party) and the Trustee may amend or supplement
the Indenture, any Guarantee or the Notes (i) to cure any ambiguity, defect or
inconsistency, (ii) to provide for uncertificated Notes in addition to or in
place of certificated Notes, (iii) to comply with the covenant relating to
mergers, consolidations and sales of assets, (iv) to provide for the assumption
of the Company's or any Guarantor's obligations to Holders, (v) to make any
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change that would provide any additional rights or benefits to the Holders or
that does not adversely affect the legal rights under the Indenture of any such
Holder, (vi) to add covenants for the benefit of the Holders or to surrender any
right or power conferred upon the Company, (vii) to comply with requirements of
the Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act, (viii) to evidence and provide for the acceptance
and appointment under the Indenture of a successor Trustee pursuant to the
requirements thereof, or (ix) to add a Guarantor under the Indenture.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Indenture provides that the Holders of a majority in principal amount of
the outstanding Notes issued thereunder will have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee, subject to certain exceptions. The Indenture provides
that in case an Event of Default shall occur (which shall not be cured), the
Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent person in the conduct of his own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of such Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
GOVERNING LAW
The Indenture, the Notes and the Guarantees, if any, will be, subject to
certain exceptions, governed by and construed in accordance with the internal
laws of the State of New York, without regard to the choice of law rules
thereof.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided. For
purposes of the Indenture, unless otherwise specifically indicated, the term
"consolidated" with respect to any Person refers to such Person consolidated
with its Restricted Subsidiaries, and excludes from such consolidation any
Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate
of such Person.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"ADM" means Accuride de Mexico, S.A. de C.V., a corporation organized and
existing under the laws of the United Mexican States.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and
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"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED, HOWEVER,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"ASSET SALE" means (i) the sale, conveyance, transfer or other disposition
(whether in a single transaction or a series of related transactions) of
property or assets (including by way of a sale and leaseback) of the Company or
any Restricted Subsidiary (each referred to in this definition as a
"DISPOSITION") or (ii) the issuance or sale of Equity Interests of any
Restricted Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than:
(a) a disposition of Cash Equivalents or Investment Grade Securities or
obsolete equipment in the ordinary course of business or inventory or goods
held for sale in the ordinary course of business;
(b) the disposition of all or substantially all of the assets of the
Company in a manner permitted pursuant to the provisions described above
under "--Merger, Consolidation or Sale of All or Substantially All Assets"
or any disposition that constitutes a Change of Control pursuant to the
Indenture;
(c) the making of any Restricted Payment or Permitted Investment that is
permitted to be made, and is made, under the covenant described above under
"--Limitation on Restricted Payments";
(d) any disposition of assets with an aggregate fair market value of
less than $1.0 million;
(e) any disposition of property or assets or issuance of securities by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Restricted Subsidiary or any sale, disposition
or transfer of equipment from a Restricted Subsidiary to another Restricted
Subsidiary;
(f) any exchange of like property pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended, for use in a Similar Business;
(g) the lease, assignment or a lease or sub-lease of any real or
personal property in the ordinary course of business;
(h) any financing transaction with respect to property built or acquired
by the Company or any Restricted Subsidiary after the Issuance Date,
including, without limitation, sale-leasebacks and asset securitizations;
(i) foreclosures on assets;
(j) any sale of Equity Interests in, or Indebtedness or other securities
of, an Unrestricted Subsidiary (with the exception of Investments in
Unrestricted Subsidiaries acquired pursuant to clause (j) of the definition
of Permitted Investments); and
(k) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"CAPITALIZED LEASE OBLIGATION" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet (excluding the footnotes thereto) in accordance with GAAP.
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"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500.0 million, (iv) repurchase obligations for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's or S&P and (viii) Indebtedness or preferred stock issued by
Persons with a rating of "A" or higher from S&P or "A2" or higher from Moody's.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole; or
(ii) the Company becomes aware of (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holders and
their Related Parties, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business combination
or purchase of beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act, or any successor provision) of 50% or more of the total
Voting Stock of the Company.
The definition of Change of Control includes a phrase relating to the sale,
lease or transfer of "all or substantially all" of the assets of the Company and
its Subsidiaries taken as a whole. Although there is a developing body of case
law interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Notes to require the Company to repurchase such Notes as a result of a
sale, lease or transfer of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
"CONSOLIDATED DEPRECIATION AND AMORTIZATION EXPENSE" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense and other noncash charges (excluding any noncash item that represents an
accrual, reserve or amortization of a cash expenditure for a future period) of
such Person and its Restricted Subsidiaries for such period on a consolidated
basis and otherwise determined in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any period, the sum,
without duplication, of: (a) consolidated interest expense of such Person and
its Restricted Subsidiaries for such period (including amortization of original
issue discount, non-cash interest payments, the interest component of
Capitalized Lease Obligations, and net payments (if any) pursuant to Hedging
Obligations, excluding amortization of deferred financing fees) and (b)
consolidated capitalized interest of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued; PROVIDED, HOWEVER, that Receivables
Fees shall be deemed not to constitute Consolidated Interest Expense; and
PROVIDED FURTHER that the consolidated interest expense of any Restricted
Subsidiary that is party to any agreement that has not been legally waived that
restricts the declaration or payment of dividends or similiar distributions
shall be included only to the extent (and in the same proportion) that the Net
Income of such Restricted Subsidiary was included in calculating Consolidated
Net Income (without giving effect to clause (vii) of the definition thereof) for
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so long as such Restricted Subsidiary is party to any agreement that has not
been legally waived that restricts the declaration or payment of dividends or
similar distributions.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income, of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, and otherwise determined in accordance
with GAAP; PROVIDED, HOWEVER, that (i) any net after-tax extraordinary gains or
losses (less all fees and expenses relating thereto) shall be excluded, (ii) the
Net Income for such period shall not include the cumulative effect of a change
in accounting principles during such period, (iii) any net after-tax income
(loss) from discontinued operations and any net after-tax gains or losses on
disposal of discontinued operations shall be excluded, (iv) any net after-tax
gains or losses (less all fees and expenses relating thereto) attributable to
asset dispositions other than in the ordinary course of business (as determined
in good faith by the Board of Directors of the Company) shall be excluded, (v)
the Net Income for such period of any Person that is not a Subsidiary, or is an
Unrestricted Subsidiary, or that is accounted for by the equity method of
accounting, shall be excluded; PROVIDED that Consolidated Net Income of the
Company shall be increased by the amount of dividends or distributions or other
payments paid in cash (or to the extent converted into cash) (without
duplication in the case of calculating Restricted Payments or Permitted
Investments) to the referent Person or a Restricted Subsidiary thereof in
respect of such period, (vi) the Net Income of any Person acquired in a pooling
of interests transaction shall not be included for any period prior to the date
of such acquisition and (vii) the Net Income for such period of any Restricted
Subsidiary shall be excluded if the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of its Net Income is not at
the date of determination wholly permitted without any prior governmental
approval (which has not been obtained) or, directly or indirectly, by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule, or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, unless such restriction with respect
to the payment of dividends or in similar distributions has been legally waived
(other than restrictions contained in the ADM Credit Facility); PROVIDED that
Consolidated Net Income of the Company shall be increased by the amount of
dividends or other distributions or other payments paid in cash (or to the
extent converted into cash) (without duplication in the case of calculating
Restricted Payments or Permitted Investments) to the referent Person or a
Restricted Subsidiary thereof in respect of such period.
"CONTINGENT OBLIGATIONS" means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ("PRIMARY OBLIGATIONS") of any other Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
"CREDIT FACILITIES" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Senior Credit Facilities) or
commercial paper facilities with banks or other institutional lenders or
indentures providing for revolving credit loans, term loans, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against
receivables), letters of credit or other long-term indebtedness, in each case,
as amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
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"DESIGNATED NONCASH CONSIDERATION" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of the Company, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"DESIGNATED PREFERRED STOCK" means preferred stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Restricted
Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an
Officers' Certificate executed by the principal executive officer and the
principal financial officer of the Company, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth in paragraph
(c) of the "--Limitation on Restricted Payments" covenant.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock of
such Person which, by its terms (or by the terms of any security into which it
is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable (other than as a
result of a Change of Control or Asset Sale), pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof
(other than as a result of a Change of Control or Asset Sale), in whole or in
part, in each case prior to the date 91 days after the maturity date of the
Notes; PROVIDED, HOWEVER, that if such Capital Stock is issued to any plan for
the benefit of employees of the Company or its Subsidiaries or by any such plan
to such employees, such Capital Stock shall not constitute Disqualified Stock
solely because it may be required to be repurchased by the Company in order to
satisfy applicable statutory or regulatory obligations.
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income (without giving effect to clause (vii) of the definition thereof) of
such Person for such period plus (a) provision for taxes based on income or
profits of such Person for such period deducted in computing Consolidated Net
Income, plus (b) Consolidated Interest Expense of such Person for such period
and any Receivables Fees paid by such Person or any of its Restricted
Subsidiaries during such period, in each case to the extent the same was
deducted in calculating such Consolidated Net Income, plus (c) Consolidated
Depreciation and Amortization Expense of such Person for such period to the
extent such depreciation and amortization were deducted in computing
Consolidated Net Income, plus (d) any expenses or charges related to any Equity
Offering, Permitted Investment or Indebtedness permitted to be incurred by the
Indenture (including such expenses or charges related to the Recapitalization)
and deducted in such period in computing Consolidated Net Income, plus (e) the
amount of any restructuring charge deducted in such period in computing
Consolidated Net Income, plus (f) without duplication, any other non-cash
charges reducing Consolidated Net Income for such period (excluding any such
charge which requires an accrual of a cash reserve for anticipated cash charges
for any future period), plus (g) the amount of any minority interest expense
deducted in calculating Consolidated Net Income (other than minority interest
expense relating to any Restricted Subsidiary that is party to any agreement
that has not been legally waived that restricts the declaration or payment of
dividends or similar distributions), less, without duplication (h) non-cash
items increasing Consolidated Net Income of such Person for such period
(excluding any items which represent the reversal of any accrual of, or cash
reserve for, anticipated cash charges in any prior period). Notwithstanding the
foregoing, the amounts described in clause (a), clauses (c) through (f) and
clause (h) relating to any Restricted Subsidiary that is party to any agreement
that has not been legally waived that restricts the declaration or payment of
dividends or similar distributions shall be included in EBITDA only to the
extent (and in the same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating Consolidated Net Income (without giving
effect to clause (vii) of the definition thereof) for so long as such Restricted
Subsidiary is party to any agreement that has not been legally waived that
restricts the declaration or payment of dividends or similar distributions.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
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"EQUITY OFFERING" means any public or private sale of common stock or
preferred stock of the Company (excluding Disqualified Stock), other than (i)
public offerings with respect to the Company's Common Stock registered on Form
S-8 and (ii) any such public or private sale that constitutes an Excluded
Contribution.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"EXCLUDED CONTRIBUTION" means net cash proceeds, marketable securities or
Qualified Proceeds, in each case, received by the Company from (a) contributions
to its common equity capital and (b) the sale (other than to a Subsidiary or to
any Company or Subsidiary management equity plan or stock option plan or any
other management or employee benefit plan or agreement) of Capital Stock (other
than Disqualified Stock) of the Company, in each case designated as Excluded
Contributions pursuant to an Officers' Certificate executed by the principal
executive officer and the principal financial officer of the Company on the date
such capital contributions are made or the date such Equity Interests are sold,
as the case may be, which are excluded from the calculation set forth in
paragraph (c) under "--Limitation on Restricted Payments."
"EXISTING INDEBTEDNESS" means Indebtedness of the Company or its Restricted
Subsidiaries in existence on the Issuance Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Notes as described in
this Prospectus.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for any
period, the ratio of EBITDA of such Person for such period to the Fixed Charges
of such Person for such period. In the event that the Company or any of its
Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness
or issues or redeems Disqualified Stock or preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of Disqualified Stock or preferred stock, as if the same had occurred
at the beginning of the applicable four-quarter period. For purposes of making
the computation referred to above, Investments, acquisitions, dispositions,
mergers, consolidations and discontinued operations (as determined in accordance
with GAAP) that have been made by the Company or any of its Restricted
Subsidiaries during the four-quarter reference period or subsequent to such
reference period and on or prior to or simultaneously with the Calculation Date
shall be calculated on a pro forma basis assuming that all such Investments,
acquisitions, dispositions, mergers, consolidations and discontinued operations
(and the reduction of any associated fixed charge obligations and the change in
EBITDA resulting therefrom) had occurred on the first day of the four-quarter
reference period. If since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Investment, acquisition, disposition, merger, consolidation or
discontinued operation that would have required adjustment pursuant to this
definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect thereto for such period as if such Investment, acquisition,
disposition, merger, consolidation or discontinued operation had occurred at the
beginning of the applicable four-quarter period. For purposes of this
definition, whenever pro forma effect is to be given to a transaction, the pro
forma calculations shall be made in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on such Indebtedness
shall be calculated as if the rate in effect on the Calculation Date had been
the applicable rate for the entire period (taking into account any Hedging
Obligations applicable to such Indebtedness). Interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by a responsible financial or accounting officer of the Company to be the rate
of interest implicit in such Capitalized Lease Obligation in accordance with
GAAP. For purposes of making the computation referred to above, interest on any
Indebtedness under a revolving credit facility computed
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on a pro forma basis shall be computed based upon the average daily balance of
such Indebtedness during the applicable period. Interest on Indebtedness that
may optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a eurocurrency interbank offered rate, or other rate, shall be
deemed to have been based upon the rate actually chosen, or, if none, then based
upon such optional rate chosen as the Company may designate.
"FIXED CHARGES" means, with respect to any Person for any period, the sum of
(a) Consolidated Interest Expense of such Person for such period and (b) all
cash dividend payments (excluding items eliminated in consolidation) on any
series of preferred stock of such Person.
"FOREIGN SUBSIDIARY" means a Restricted Subsidiary not organized or existing
under the laws of the United States, any State thereof, the District of
Columbia, or any territory thereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issuance Date. For the purposes of the
Indenture, the term "consolidated" with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary.
"GOVERNMENT SECURITIES" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Securities
or a specific payment of principal of or interest on any such Government
Securities held by such custodian for the account of the holder of such
depository receipt; PROVIDED that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Securities or the specific payment of principal of or interest on
the Government Securities evidenced by such depository receipt.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"GUARANTEE" means any guarantee of the obligations of the Company under the
Indenture and the Notes by any Person in accordance with the provisions of the
Indenture. When used as a verb, "Guarantee" shall have a corresponding meaning.
No Guarantees were issued in connection with the initial offering and sale of
the Private Notes.
"GUARANTOR" means any Person that incurs a Guarantee; PROVIDED that upon the
release and discharge of such Person from its Guarantee in accordance with the
Indenture, such Person shall cease to be a Guarantor. No Guarantees were issued
in connection with the initial offering and sale of the Private Notes.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) currency exchange, interest rate or commodity swap
agreements, currency exchange, interest rate or commodity cap agreements and
currency exchange, interest rate or commodity collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in currency exchange, interest rates or commodity prices.
"HOLDER" means a holder of the Notes.
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"INDEBTEDNESS" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or bankers' acceptances (or, without double counting, reimbursement
agreements in respect thereof), (iii) representing the balance deferred and
unpaid of the purchase price of any property (including Capitalized Lease
Obligations), except any such balance that constitutes a trade payable or
similar obligation to a trade creditor, in each case accrued in the ordinary
course of business or (iv) representing any Hedging Obligations, if and to the
extent of any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) that would appear as a liability upon a balance sheet
(excluding the footnotes thereto) of such Person prepared in accordance with
GAAP, (b) to the extent not otherwise included, any obligation by such Person to
be liable for, or to pay, as obligor, guarantor or otherwise, on the
Indebtedness of another Person (other than by endorsement of negotiable
instruments for collection in the ordinary course of business) and (c) to the
extent not otherwise included, Indebtedness of another Person secured by a Lien
on any asset owned by such Person (whether or not such Indebtedness is assumed
by such Person); PROVIDED, HOWEVER, that Contingent Obligations incurred in the
ordinary course of business shall be deemed not to constitute Indebtedness, and
obligations under or in respect of Receivables Facilities shall not be deemed to
constitute Indebtedness of a Person.
In addition, "Indebtedness" of any Person shall include Indebtedness
described in the foregoing paragraph that would not appear as a liability on the
balance sheet of such Person if (1) such Indebtedness is the obligation of a
partnership or joint venture that is not a Restricted Subsidiary (a "Joint
Venture"), (2) such Person or a Restricted Subsidiary is a general partner of
the Joint Venture (a "General Partner") and (3) there is recourse, by contract
or operation of law, with respect to the payment of such Indebtedness to
property or assets of such Person or a Restricted Subsidiary; and such
Indebtedness shall be included in an amount not to exceed (x) the greater of (A)
the net assets of the General Partner and (B) the amount of such obligations to
the extent that there is recourse, by contract or operation of law, to the
property or assets of such Person or a Restricted Subsidiary (other than the
General Partner) or (y) if less than the amount determined pursuant to clause
(x) immediately above, the actual amount of such Indebtedness that is recourse
to such Person, if the Indebtedness is evidenced by a writing and is for a
determinable amount and the related interest expense shall be included in
Consolidated Interest Expense to the extent paid by the Company or its
Restricted Subsidiaries.
"INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal, investment
banking firm or consultant to Persons engaged in Similar Businesses of
nationally recognized standing that is, in the judgment of the Company's Board
of Directors, qualified to perform the task for which it has been engaged.
"INVESTMENT GRADE SECURITIES" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding advances to customers,
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities issued by any other Person
and investments that are required by GAAP to be classified on the balance sheet
of the Company in the same manner as the other investments included in this
definition to the extent such transactions involve the transfer of cash or other
property. For purposes of the definition of "Unrestricted Subsidiary" and the
covenant described under "--Certain
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Covenants--Limitation on Restricted Payments," (i) "Investments" shall include
the portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of a Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"ISSUANCE DATE" means the closing date for the sale and original issuance of
the Private Notes under the Indenture.
"LETTER OF CREDIT OBLIGATIONS" means all Obligations in respect of
Indebtedness of the Company with respect to letters of credit issued pursuant to
the Senior Credit Facilities which Indebtedness shall be deemed to consist of
(a) the aggregate maximum amount available to be drawn under all such letters of
credit (the determination of such aggregate maximum amount to assume compliance
with all conditions for drawing) and (b) the aggregate amount that has been paid
by, and not reimbursed to, the issuers under such letters of credit.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction); PROVIDED that in
no event shall an operating lease be deemed to constitute a Lien.
"MOODY'S" means Moody's Investors Service, Inc.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
Designated Noncash Consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and brokerage and sales commissions),
any relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of principal, premium (if any) and interest on Indebtedness
required (other than required by clause (i) of the second paragraph of "--
Repurchase at the Option of Holders--Asset Sales") to be paid as a result of
such transaction and any deduction of appropriate amounts to be provided by the
Company as a reserve in accordance with GAAP against any liabilities associated
with the asset disposed of in such transaction and retained by the Company after
such sale or other disposition thereof, including, without limitation, pension
and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such transaction.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities, and guarantees of payment of such principal, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities, payable under the documentation governing any Indebtedness.
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"OFFICER" means the Chairman of the Board, the President, any Executive Vice
President, Senior Vice President or Vice President, the Treasurer or the
Secretary of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company that meets the requirements set forth in the
Indenture.
"PARI PASSU INDEBTEDNESS" means (a) with respect to the Notes, Indebtedness
which ranks PARI PASSU in right of payment to the Notes and (b) with respect to
any Guarantee, Indebtedness which ranks PARI PASSU in right of payment to such
Guarantee.
"PERMITTED HOLDERS" means KKR and any of its Affiliates.
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or any
Restricted Subsidiary; (b) any Investment in cash and Cash Equivalents or
Investment Grade Securities; (c) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person that is engaged in a Similar Business if
as a result of such Investment (i) such Person becomes a Restricted Subsidiary
or (ii) such Person, in one transaction or a series of related transactions, is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary; (d) any Investment in securities or other assets not
constituting cash or Cash Equivalents and received in connection with an Asset
Sale made pursuant to the provisions of "--Repurchase at the Option of
Holders--Asset Sales" or any other disposition of assets not constituting an
Asset Sale; (e) any Investment existing on the Issuance Date; (f) advances to
employees not in excess of $10.0 million outstanding at any one time, in the
aggregate; (g) any Investment acquired by the Company or any of its Restricted
Subsidiaries (i) in exchange for any other Investment or accounts receivable
held by the Company or any such Restricted Subsidiary in connection with or as a
result of a bankruptcy, workout, reorganization or recapitalization of the
issuer of such other Investment or accounts receivable or (ii) as a result of a
foreclosure by the Company or any of its Restricted Subsidiaries with respect to
any secured Investment or other transfer of title with respect to any secured
Investment in default; (h) Hedging Obligations permitted under clause (i) of the
"Limitation of Incurrence of Indebtedness and Issuance of Disqualified Stock"
covenant; (i) loans and advances to officers, directors and employees for
business-related travel expenses, moving expenses and other similar expenses, in
each case incurred in the ordinary course of business; (j) any Investment in a
Similar Business having an aggregate fair market value, taken together with all
other Investments made pursuant to this clause (j) that are at that time
outstanding (without giving effect to the sale of an Unrestricted Subsidiary to
the extent the proceeds of such sale do not consist of cash, marketable
securities and/or Qualified Proceeds), not to exceed the greater of (x) $75.0
million or (y) 15% of Total Assets at the time of such Investment (with the fair
market value of each Investment being measured at the time made and without
giving effect to subsequent changes in value); (k) Investments the payment for
which consists of Equity Interests of the Company (exclusive of Disqualified
Stock); PROVIDED, HOWEVER, that such Equity Interests will not increase the
amount available for Restricted Payments under clause (c) of the "Limitation on
Restricted Payments" covenant; (l) additional Investments having an aggregate
fair market value, taken together with all other Investments made pursuant to
this clause (l) that are at that time outstanding (without giving effect to the
sale of an Unrestricted Subsidiary to the extent the proceeds of such sale do
not consist of cash, marketable securities and/or Qualified Proceeds or
distributions made pursuant to clause (xiii) of the second paragraph of "--
Limitation on Restricted Payments"), not to exceed the greater of (x) $30.0
million or (y) 5% of Total Assets at the time of such Investment (with the fair
market value of each Investment being measured at the time made and without
giving effect to subsequent changes in value); (m) Investments in a Similar
Business having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (m) that are at that time outstanding
(without giving effect to the sale of an Unrestricted Subsidiary to the extent
the proceeds of such sale do not consist of cash, marketable securities and/or
Qualified Proceeds or distributions made pursuant to clause (xiii) of the second
paragraph of "-- Limitation on Restricted Payments"), not to exceed $75.0
million at the time of such Investment (with the
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fair market value of each Investment being measured at the time made and without
giving effect to subsequent changes in value); PROVIDED that at the time of such
Investment the Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first sentence of the covenant described under "--Limitation on Incurrence of
Indebtedness and Issuance of Disqualified Stock;" (n) Investments relating to
any special purpose Wholly-Owned Subsidiary of the Company organized in
connection with a Receivables Facility that, in the good faith determination of
the Board of Directors of the Company, are necessary or advisable to effect such
Receivables Facility; (o) guarantees (including Guarantees) of Indebtedness
permitted under the covenant "--Limitation on Incurrence of Indebtedness and
Issuance of Disqualified Stock;" and (p) any transaction to the extent it
constitutes an investment that is permitted and made in accordance with the
provisions of the second paragraph of the covenant described under "Certain
Covenants--Transactions with Affiliates" (except transactions described in
clauses (ii), (vi), (vii) and (xi) of such paragraph).
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"preferred stock" means any Equity Interest with preferential rights of
payment of dividends or upon liquidation, dissolution, or winding up.
"RECEIVABLES FACILITY" means one or more receivables financing facilities,
as amended from time to time, pursuant to which the Company and/or any of its
Restricted Subsidiaries sells its accounts receivable to a Person that is not a
Restricted Subsidiary.
"RECEIVABLES FEES" means distributions or payments made directly or by means
of discounts with respect to any participation interest issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"QUALIFIED PROCEEDS" means assets that are used or useful in, or Capital
Stock of any Person engaged in, a Similar Business; PROVIDED that the fair
market value of any such assets or Capital Stock shall be determined by the
Board of Directors in good faith, except that in the event the value of any such
assets or Capital Stock may exceed $25.0 million or more, the fair value shall
be determined in writing by an independent investment banking firm of nationally
recognized standing.
"RELATED PARTIES" means any Person controlled by a Permitted Holder,
including any partnership or limited liability company of which a Permitted
Holder or its Affiliates is the general partner or managing member, as the case
may be.
"REPURCHASE OFFER" means an offer made by the Company to purchase all or any
portion of a Holder's Notes pursuant to the provisions described under the
covenants entitled "--Repurchase at the Option of Holders-Change of Control" or
"--Repurchase at the Option of Holders--Asset Sales."
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon the occurrence of an Unrestricted Subsidiary ceasing to be an
Unrestricted Subsidiary, such Subsidiary shall be included in the definition of
"Restricted Subsidiary."
"S&P" means Standard and Poor's Ratings Group.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
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"SENIOR CREDIT FACILITIES" means that certain Credit Agreement dated as of
January 21, 1998 among the Company, Accuride Canada, Inc., the Lenders, Issuing
Bank and Swing Line Bank (each as defined therein) from time to time party
thereto, the Bank Agent, Citicorp Securities, Inc. as Arranger, Bankers Trust
Company as Syndication Agent and Wells Fargo Bank N.A. as Documentation Agent,
including any collateral documents, instruments and agreements executed in
connection therewith, and any amendments, supplements, modifications,
extensions, renewals, restatements or refundings thereof and any indentures or
credit facilities or commercial paper facilities with banks or other
institutional lenders that replace, refund or refinance any part of the loans,
notes, other credit facilities or commitments thereunder, including any such
replacement, refunding or refinancing facility or indenture that increases the
amount borrowable thereunder or alters the maturity thereof, PROVIDED, HOWEVER,
that in connection with any facilities which refund, replace or refinance such
Credit Agreement there shall not be more than one facility at any one time that
is identified as the Senior Credit Facilities and, if at any time there is more
than one facility which would constitute the Senior Credit Facilities, the
Company will designate to the Trustee which one of such facilities will be the
Senior Credit Facilities for purposes of the Indenture.
"SIMILAR BUSINESS" means the vehicular wheel and rim business and any
activity or business incidental, directly related or similar thereto, or any
line of business engaged in by the Company or its Subsidiaries on the Issuance
Date or any business activity that is a reasonable extension, development or
expansion thereof or ancillary thereto.
"SUBORDINATED INDEBTEDNESS" means (a) with respect to the Notes, any
Indebtedness of the Company which is by its terms subordinated in right of
payment to the Notes and (b) with respect to any Guarantee, any Indebtedness of
the applicable Guarantor which is by its terms subordinated in right of payment
to such Guarantee.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership, joint venture
or limited liability company) of which more than 50% of the total voting power
of shares of Capital 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 of determination owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person or a
combination thereof and (ii) any partnership, joint venture, limited liability
company or similar entity of which (x) more than 50% of the capital accounts,
distribution rights, total equity and voting interests or general or limited
partnership interests, as applicable, are owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person or a combination thereof whether in the form of membership, general,
special or limited partnership or otherwise and (y) such Person or any Wholly
Owned Restricted Subsidiary of such Person is a controlling general partner or
otherwise controls such entity.
"TOTAL ASSETS" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company which at
the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any existing Subsidiary and any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Equity Interests of, or
owns, or holds any Lien on, any property of, the Company or any Subsidiary of
the Company (other than any Subsidiary of the Subsidiary to be so designated),
PROVIDED that (a) any Unrestricted Subsidiary must be an entity of which shares
of the capital stock or other equity interests (including partnership interests)
entitled to cast at least a majority of the votes that may be cast by all shares
or equity interests having ordinary voting power for the election of directors
or other governing body are owned, directly or indirectly, by the Company, (b)
the Company certifies that such designation complies with the covenants
described under "--Certain Covenants--Limitation on Restricted Payments"
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and (c) each of (I) the Subsidiary to be so designated and (II) its Subsidiaries
has not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to any Indebtedness pursuant to which the lender has recourse to any of
the assets of the Company or any of its Restricted Subsidiaries. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that, immediately after giving effect to such designation,
(i) the Company could incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test described under "--Certain
Covenants--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" or (ii) the Fixed Charge Coverage Ratio for the Company and
its Restricted Subsidiaries would be greater than such ratio for the Company and
its Restricted Subsidiaries immediately prior to such designation, in each case
on a pro forma basis taking into account such designation. Any such designation
by the Board of Directors shall be notified by the Company to the Trustee by
promptly filing with the Trustee a copy of the board resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (ii) the sum of all such
payments.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is the opinion of Latham & Watkins, counsel to the
Company, as to the material federal income tax consequences expected to result
to Holders whose Private Notes are exchanged for Exchange Notes in the Exchange
Offer. Such opinion is based upon current provisions of the Internal Revenue
Code of 1986, as amended, applicable Treasury regulations, judicial authority
and administrative rulings and practice. There can be no assurance that the
Internal Revenue Service (the "Service") will not take a contrary view, and no
ruling from the Service has been or will be sought with respect to the Exchange
Offer. Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to Holders. Certain Holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations, and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
The exchange of Private Notes for Exchange Notes will be treated as a
"non-event" for federal income tax purposes (that is, the exchange will not be
treated as an exchange for federal income tax purposes because the Exchange
Notes will not be considered to differ materially in kind or extent from the
Private Notes). As a result, no material federal income tax consequences will
result to Holders exchanging Private Notes for Exchange Notes.
BOOK ENTRY; DELIVERY AND FORM
Except as set forth below, the Notes will be issued in registered, global
form in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof. The Notes initially will be represented by one or more Notes in
registered, global form without interest coupons (collectively, the "Global
Notes"). The Global Notes will be deposited upon issuance with the Trustee as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for Notes
in certificated form except in the limited circumstances described below. See
"--Exchange of Book-Entry Notes for Certificated Notes." In addition, transfers
of beneficial interests in the Global Notes will be subject to the applicable
rules and procedures of DTC and its direct or indirect participants (including,
if applicable, those of Euroclear and Cedel), which may change from time to
time.
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear
and Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them from time to time. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants though electronic book-entry changes in
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accounts of its Participants. The Participants include securities brokers and
dealers (including the Initial Purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global Notes and (ii) ownership of such interest in the Global
Notes will be shown on, and the transfer of ownership thereof will be effected
only though, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations (including Euroclear and Cedel) which are Participants in such
system. Euroclear and Cedel will hold interest in the Global Notes on behalf of
their participants through customers' securities accounts in their respective
names on the books of their respective depositories, which are Morgan Guaranty
Trust Company of New York, Brussels office, as operator and depositary of
Euroclear and Citibank, N.A. as the operator and depositary of Cedel. All
interests in a Global Note, including those held through Euroclear or Cedel, may
be subject to the procedures and requirements of DTC. Those interests held
through Euroclear or Cedel may also be subject to the procedures and
requirements of such systems. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interest in a Global Note to
such persons will be limited to that extent. Because DTC can act only on behalf
of Participants, which in turn act on behalf of Indirect Participants, the
ability of a person having beneficial interests in a Global Note to pledge such
interests to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the lack
of a physical certificate evidencing such interests. For certain other
restrictions on the transferability of the Notes, see "--Exchange of Book-Entry
Notes for Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and premium, if any, interest and
additional interest in a Global Note registered in the name of DTC or its
nominee will be payable to DTC in its capacity as the registered Holder under
the Indenture. Under the terms of the Indenture, the Company and the Trustee
will treat the persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company,
the Trustee nor any agent of the Company or the Trustee has or will have any
responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Notes or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Company that its current practice upon receipt of any payment in
respect of securities such as the Notes (including principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security as shown on the
records of DTC unless DTC has reason to believe it will not receive payment on
such payment date. Payments by the
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Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the Notes, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interest
in the Global Notes are expected to be eligible to trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants. See "--Same Day Settlement and
Payment."
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same day funds, and transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or Cedel participants, on the other hand, will be effected through DTC
in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case may
be, by its respective depositary; however, such cross-market transactions will
require delivery of instructions to Euroclear or Cedel, as the case may be, by
the counterparty in such system in accordance with the rules and procedures and
within the established deadlines (Brussels time for Euroclear and United Kingdom
time for Cedel) of such system. Euroclear or Cedel, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositories for Euroclear or Cedel.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the right
to exchange the Global Notes for legended Notes in certificated form, and to
distribute such Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interest in the Global Notes among Participants in DTC,
Euroclear and Cedel, they are under no obligation to perform or to continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the Company nor the Trustee nor any of their respective agents will have
any responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if (i) DTC (x) notifies the Company
that it is unwilling or unable to continue as depositary for the Global Notes
and the Company thereupon fails to appoint a successor depositary or (y) has
ceased to be a clearing agency registered under the Exchange Act, (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of the Certificated Notes or (iii) there shall have occurred and be
continuing a Default or Event of Default with respect to the Notes. In addition,
beneficial interests in a Global Note may be exchanged for Certificated Notes
upon request but only upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the Indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests therein will
be registered in the names, and issued in any approved denominations, requested
by or on behalf of the depositary (in
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accordance with its customary procedures) and will bear the applicable
restrictive legend referred to in "Notice to Investors," unless the Company
determines otherwise in compliance with applicable law.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Notes in
certificated form, the Company will make all payments of principal, premium, if
any, interest and additional interest, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address. The Notes represented by the Global Notes are expected to trade in the
PORTAL market and to trade in the Depositary's Same-Day Funds Settlement System
and any permitted secondary market trading activity in such Notes will,
therefore, be required by the Depositary to be settled in immediately available
funds. The Company expects that secondary trading in any certificated Notes will
also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. DTC has advised the Company that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with a value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with the resale of Exchange Notes received in exchange for Private
Notes where such Private Notes were acquired as a result of market-making
activities or other trading activities. A broker-dealer may not participate in
the Exchange Offer with respect to the Private Notes acquired other than as a
result of market-making activities or other trading activities. The Company has
indicated that for a period of 90 after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer that
requests such document in the Letter of Transmittal for use in connection with
any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus meeting the requirements of Section
10 of the Securities Act, a
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broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the Holders of Private Notes (including any broker-dealers), and
certain parties related to such Holders, against certain liabilities, including
liabilities under the Securities Act.
By its acceptance of the Exchange Offer, any broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the Prospectus in connection with the sale or transfer of
Exchange Notes, and acknowledges and agrees that, upon receipt of notice from
the Company of the happening of any event which makes any statement in the
Prospectus untrue in any material respect or which requires the making of any
changes in the Prospectus in order to make the statements therein not misleading
or which may impose upon the Company disclosure obligations that may have a
material adverse effect on the Company (which notice the Company agrees to
deliver promptly to such broker-dealer), such broker-dealer will suspend use of
the Prospectus until the Company has notified such broker-dealer that delivery
of the Prospectus may resume and has furnished copies of any amendment or
supplement to the Prospectus to such broker-dealer.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Latham &
Watkins, New York, New York. Certain partners of Latham & Watkins, members of
their families, related persons and others, have an indirect interest, through
limited partnerships, through KKR 1996 Fund L.P., in less than 1% of the Common
Stock.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997 included in
this Prospectus and in the Registration Statement have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report appearing herein,
and has been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is not currently subject to the periodic reporting and other
information requirements of the Exchange Act. The Company will become subject to
such requirements upon the effectiveness of the Registration Statement. Pursuant
to the Indenture, the Company has agreed that, for so long as any of the Notes
remain outstanding, it will furnish to the Holders, (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including for each such Form, (ii) all reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports and (iii) any other information, documents and other reports that
the Company would be required to file with the Commission if it were subject to
Section 13 or 15(d) of the Exchange Act. In addition, whether or not required by
the rules and regulations of the Commission, the Company will also agree to file
a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
This Prospectus constitutes part of a registration statement on Form S-4
(the "Registration Statement") filed with the under the Securities Act with
respect to the Exchange Notes offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. For further
information with respect to the Company and the Exchange Notes offered hereby,
reference is made to the Registration Statement,
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including the exhibits thereto and the financial statements, notes and schedules
filed as a part thereof. The Registration Statement (and the exhibits and
schedules thereto), as well as the periodic reports and other information filed
by the Company with the Commission, may be inspected and copied at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Room 1400, 75 Park Place, New York, New York 10007 and
Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in New
York, New York and Chicago, Illinois at the prescribed rates. Additionally, the
Commission maintains a Web site that contains reports, proxy and information
statements regarding registrants that file electronically with the Commission
and the address of this site is http://www.sec.gov. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.
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GLOSSARY
The following is a description of certain terms used in this Prospectus.
ADM--Accuride de Mexico S.A. de C.V., the Company's 51%-owned venture with
IaSa that manufactures and supplies steel Wheels. ADM was formed to enable the
Company to serve more effectively its customers in Mexico and other Latin
American countries.
AKW--AKW, L.P., the Company's 50%-owned joint venture with Kaiser that
manufactures and supplies aluminum Wheels. AKW was established in May 1997 and
replaced the Company's twenty-five-year buy-and-resell relationship with Kaiser.
AOT--AOT, Inc., a 50%-owned joint venture with Goodyear to provide Navistar
with Wheel/tire assembly services.
CAW--Canadian Auto Workers Union.
CHROMETEC-REGISTERED TRADEMARK- WHEELS--A chrome-plated plastic, cladded
single steel Wheel marketed under the name CHROMETEC-Registered Trademark-.
CONTROLLABLE COSTS--Costs that are considered to be within the direct and
immediate control of a facility's management, consisting generally of
manufacturing costs less the cost of raw materials (which includes steel, paint
and weldwire), depreciation, taxes and insurance.
DUAL WHEELS--Heavy/Medium Wheels or Light Truck Wheels that are designed to
be mounted in tandem (i.e., side-by-side such that there are two wheels on each
end of an axle) or individually. Heavy/ Medium Wheels includes Wheels made for
Heavy/Medium Trucks and Wheels made for Trailers.
HEAVY/MEDIUM TRUCKS--Heavy and medium over-the-road vehicles designed to
carry over 10,000 pounds such as large multi-axle rigs, buses and moving trucks.
HEAVY/MEDIUM WHEELS--Steel and aluminum Wheels for Heavy/Medium Trucks and
Trailers.
HENDERSON FACILITY--The Company's headquarters and one of its manufacturing
facilities in North America. The Company manufactures steel Heavy/Medium Wheels
at this facility.
IASA--Industria Automotriz S.A. de C.V., Mexico's only commercial vehicle
Wheel manufacturer and a minority owner of the ADM venture.
KAISER--Kaiser Aluminum and Chemical Corporation, a 50% owner of the AKW
joint venture.
LIGHT TRUCKS--Commercial trucks, pick-up trucks, sports utility vehicles and
vans and other vehicles (excluding passenger cars) with gross weights below
10,000 pounds.
LIGHT TRUCK WHEELS--Steel and aluminum Wheels for Light Trucks.
MONTERREY FACILITY--ADM's greenfield facility in Monterrey, Mexico that is
scheduled to begin producing steel Wheels in mid-1999.
OEMS--Original equipment manufacturers.
ONTARIO FACILITY--The Company's facility in London, Ontario, Canada that
manufactures steel Heavy/ Medium Wheels and Light Truck Wheels.
PRODUCTIVITY--Pounds of finished goods produced per employee work hour.
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TENNESSEE FACILITY--The Company's new Light Truck Wheel facility that is
being developed in Columbia, Tennessee and will begin producing Chrome Tech
Wheels for Ford's Expedition, Navigator and F-series trucks in mid-1998.
TIER I SUPPLIER--A supplier that designs, engineers, manufactures and
conducts quality control testing is generally referred to as a "Tier I"
supplier.
TRAILERS--Trailers such as trailers and semitrailers used by
tractor-trailers and other large trucks.
UAW--United Auto Workers Union.
WHEELS--Wheels and rims.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Independent Auditors' Report.......................................................... F-2
<S> <C>
Consolidated Balance Sheets as of December 31, 1996 and 1997 and Unaudited
Consolidated Balance Sheet as of March 31, 1998...................................... F-3
Consolidated Statements of Income for each of the three years in the period ended
December 31, 1997 and Unaudited Consolidated Statements of Income for the three
months ended March 31, 1997 and 1998................................................. F-4
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 31, 1997 and Unaudited Consolidated Statements of Stockholders'
Equity
(Deficiency) for the three months ended March 31, 1998............................... F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1997 and Unaudited Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1998................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of Accuride Corporation:
We have audited the accompanying consolidated balance sheets of Accuride
Corporation and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of income, stockholder's equity, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Accuride Corporation and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
January 28, 1998
(March 31, 1998 as to the last paragraph of Note 14)
F-2
<PAGE>
ACCURIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- -----------
ASSETS 1996 1997 1998
- ----------------------------------------------------------------------------- ---------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 6,311 $ 7,418 $ 12,505
Customer receivables, net of allowance for doubtful accounts of $1,595,
$967 and $1,118........................................................ 29,677 37,077 46,224
Other receivables.......................................................... 1,720 11,768 11,050
Inventories, net........................................................... 27,379 29,107 28,282
Supplies................................................................... 6,240 6,458 6,758
Deferred income taxes...................................................... 2,509
Prepaid expenses........................................................... 686 143 2,518
---------- --------- -----------
Total current assets................................................... 74,522 91,971 107,337
PROPERTY, PLANT AND EQUIPMENT, NET........................................... 113,780 133,997 136,674
OTHER ASSETS:
Goodwill, net of accumulated amortization of $25,232, $28,089 and $28,803.. 89,027 86,171 85,457
Investment in affiliates................................................... 2,013 24,765 22,414
Deferred financing costs................................................... 13,437
Deferred income taxes...................................................... 3,118
Other...................................................................... 9,361 10,543 10,522
---------- --------- -----------
TOTAL........................................................................ $ 288,703 $ 347,447 $ 378,959
---------- --------- -----------
---------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable........................................................... $ 17,557 $ 19,237 $ 18,991
Current portion of long-term debt.......................................... 1,350
Short-term notes payable................................................... 16,040 17,700
Accrued payroll and compensation........................................... 6,651 8,015 7,384
Accrued interest payable................................................... 5,970
Deferred income taxes...................................................... 1,481
Tooling deposit............................................................ 5,261 5,236
Accrued and other liabilities.............................................. 5,395 7,103 12,191
---------- --------- -----------
Total current liabilities.............................................. 29,603 57,137 68,822
LONG-TERM DEBT, less current portion......................................... 362,318
DEFERRED INCOME TAXES........................................................ 16,231 16,123
OTHER LIABILITIES............................................................ 14,418 13,253 11,032
MINORITY INTEREST............................................................ 4,879 4,793
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $.01 par value; 5,000 shares authorized and unissued
Common stock and additional paid-in capital, $.01 par value; 45,000 shares
authorized, 24,000, 24,000 and 24,636 shares issued and outstanding in
1996, 1997 and 1998........................................................ 180,168 178,931 23,990
Stock subscriptions receivable............................................. (2,275)
Minimum pension liability.................................................. (1,004)
Retained earnings.......................................................... 49,287 77,124 (89,721)
---------- --------- -----------
Total stockholders' equity (deficiency)................................ 228,451 256,055 (68,006)
---------- --------- -----------
TOTAL........................................................................ $ 288,703 $ 347,447 $ 378,959
---------- --------- -----------
---------- --------- -----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
NET SALES............................................ $ 357,802 $ 307,830 $ 332,966 $ 81,528 $ 93,908
COST OF GOODS SOLD................................... 293,253 246,107 266,972 72,414 73,752
---------- ---------- ---------- ---------- ----------
GROSS PROFIT......................................... 64,549 61,723 65,994 9,114 20,156
OPERATING EXPENSES:
Selling, general and administrative................ 16,869 17,941 21,316 4,766 5,354
Start-up costs..................................... 1,146
Management retention bonuses....................... 810
Recapitalization professional fees................. 2,240
---------- ---------- ---------- ---------- ----------
INCOME FROM OPERATIONS............................... 47,680 43,782 44,678 4,348 10,606
OTHER INCOME (EXPENSE):
Interest income.................................... 752 433 530 199 140
Interest (expense)................................. (35) (33) (145) (7) (6,703)
Equity in earnings (losses) of affiliates.......... 300 115 4,384 48 (2,700)
Other income (expense), net........................ (1,375) (381) 548 (515)
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES........................... 47,322 43,916 49,995 4,588 828
---------- ---------- ---------- ---------- ----------
INCOME TAX PROVISION................................. 20,730 17,450 22,158 1,835 347
---------- ---------- ---------- ---------- ----------
NET INCOME........................................... $ 26,592 $ 26,466 $ 27,837 $ 2,753 $ 481
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
AND TOTAL
ADDITIONAL STOCK MINIMUM STOCKHOLDERS'
PAID-IN SUBSCRIPTIONS PENSION RETAINED EQUITY
CAPITAL RECEIVABLE LIABILITY EARNINGS (DEFICIENCY)
-------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995................................ $ 222,349 $ (316) $ 49,229 $ 271,262
Net income................................................ 26,592 26,592
Net cash (to) from parent................................. (57,718) (57,718)
Minimum pension liability................................. (1,055) (1,055)
-------------- ------------- ----------- ----------- -------------
BALANCE AT DECEMBER 31, 1995.............................. 164,631 (1,371) 75,821 239,081
Net income................................................ 26,466 26,466
Net cash (to) from parent................................. 15,537 15,537
Minimum pension liability................................. 367 367
Dividends to parent....................................... (53,000) (53,000)
-------------- ------------- ----------- ----------- -------------
BALANCE AT DECEMBER 31, 1996.............................. 180,168 (1,004) 49,287 228,451
Net income................................................ 27,837 27,837
Net cash (to) from parent................................. (1,237) (1,237)
Minimum pension liability................................. 1,004 1,004
-------------- ------------- ----------- ----------- -------------
BALANCE AT DECEMBER 31, 1997.............................. $ 178,931 $ -- $ 77,124 $ 256,055
-------------- ------------- ----------- ----------- -------------
-------------- ------------- ----------- ----------- -------------
Net income (unaudited).................................... 481 481
Issuance of shares (unaudited)............................ 108,000 108,000
Redemption and retirement of shares (unaudited)........... (286,931) (167,326) (454,257)
Issuance of shares (unaudited)............................ 3,180 $ (2,275) 905
Increase in net deferred tax asset attributable to tax
basis of assets (unaudited)............................. 20,000 20,000
Bonuses payable by a principal stockholder (unaudited).... 810 810
-------------- ------------- ----------- ----------- -------------
BALANCE AT MARCH 31, 1998 (unaudited)..................... $ 23,990 $ (2,275) $ -- $ (89,721) $ (68,006)
-------------- ------------- ----------- ----------- -------------
-------------- ------------- ----------- ----------- -------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
---------------------------------- ------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 26,592 $ 26,466 $ 27,837 $ 2,753 $ 481
Adjustments to reconcile net income to net cash provided in
operating activities:
Depreciation................................................ 18,265 17,270 17,870 4,389 4,504
Amortization................................................ 2,856 2,856 2,856 713 1,012
Bonuses payable by a principal stockholder.................. 810
Losses on asset dispositions................................ 2,828 1,242 801
Deferred income taxes....................................... (4,622) (1,538) 3,212 (295) (722)
Equity in (earnings) losses of affiliated companies......... (300) (115) (4,384) (49) 2,700
Minority interest........................................... 171 86
Changes in certain assets and liabilities:
Receivables............................................... 8,781 4,723 (17,448) (6,244) (8,429)
Inventories and supplies.................................. 4,252 (5,749) (646) 4,309 525
Prepaid expenses and other assets......................... (2,254) (1,581) (1,670) (3,461) (2,354)
Accounts payable.......................................... (1,727) 2,592 680 (3,114) (246)
Tooling deposit........................................... 5,261 (25)
Accrued and other liabilities............................. (4,659) (2,488) 3,679 (346) 8,206
---------- ---------- ---------- ----------- -----------
Net cash provided by (used in) operating activities..... 50,012 43,678 38,219 (1,345) 6,548
---------- ---------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment.................... (6,960) (9,584) (24,032) (1,735) (7,323)
Capitalized interest.......................................... (30)
Investment in ADM............................................. (4,899)
Investment in AKW L.P......................................... (20,849)
Net cash distribution from (to) AKW L.P....................... 2,482 (349)
Other......................................................... 194 214 233
---------- ---------- ---------- ----------- -----------
Net cash used in investing activities................... (6,766) (9,370) (47,065) (1,735) (7,702)
---------- ---------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term notes payable............ 16,040 3,000
Principal payments on short-term notes payable................ (4,850) (1,340)
Net increase in revolving line of credit...................... 29,750
Proceeds from issuance of long-term debt...................... 333,918
Deferred financing fees....................................... (13,735)
Issuance of shares............................................ 108,905
Redemption and retirement of shares........................... (454,257)
Net cash (to) from Phelps Dodge Corporation................... (57,718) (37,463) (1,237) 5,432
---------- ---------- ---------- ----------- -----------
Net cash provided by (used in) financing activities..... (57,718) (37,463) 9,953 5,432 6,241
---------- ---------- ---------- ----------- -----------
Increase (decrease) in cash and cash equivalents................ (14,472) (3,155) 1,107 2,352 5,087
Cash and cash equivalents, beginning of year.................... 23,938 9,466 6,311 6,311 7,418
---------- ---------- ---------- ----------- -----------
Cash and cash equivalents, end of year.......................... $ 9,466 $ 6,311 $ 7,418 $ 8,663 $ 12,505
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
Interim financial information as of March 31, 1998 and for the three month
periods ended March 31, 1998 and 1997 is unaudited. The unaudited interim
consolidated financial statements reflect all adjustments consisting of normal
recurring accruals which are, in the opinion of management, necessary for a fair
presentation of the Company's financial position and results of operations. The
results of operations for the unaudited three month period ended March 31, 1998
are not necessarily indicative of the results which may be expected for the year
ending December 31, 1998.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION--The accompanying consolidated financial statements
include the accounts of Accuride Corporation (the "Company") and its majority
owned subsidiaries, including Accuride Canada, Inc. ("Accuride Canada"), a
wholly-owned subsidiary, and Accuride de Mexico, S.A. de C.V. ("ADM"), a 51%
owned joint venture with Industria Automotriz, S.A. de C.V. ("IaSa"), a Mexican
corporation formed November 5, 1997. The consolidated balance sheet at December
31, 1997 includes 100 percent of the assets and liabilities of ADM and the
ownership interest of IaSa is recorded as "Minority interest". The consolidated
statement of income for the year ended December 31, 1997 includes 100% of the
revenues and expenses of ADM from the date of formation. The minority interest
in net earnings of ADM was not material in 1997 and is included in "Other income
(expense), net." All significant intercompany transactions have been eliminated.
Investments in affiliated companies in which the Company does not have a
controlling interest are accounted for using the equity method.
The Company is a wholly-owned subsidiary of Phelps Dodge Corporation
("PDC"). As a wholly-owned subsidiary of PDC, certain administrative functions
are performed by PDC on behalf of the Company. Such functions include, but are
not limited to, accounting, legal, treasury, tax, risk management, and certain
employee benefit related functions. Applicable common expenses, incurred by PDC,
have been allocated to the Company based on a time allocation methodology and
reflected in the accompanying financial statements. Management believes the
allocation methodology was reasonable. As a result of the Recapitalization (and
subject to a six month transition period), the Company will perform all of its
own administrative functions. The Company has estimated that the performance of
these functions will cost the Company an additional $500 annually.
BUSINESS OF THE COMPANY--The Company is engaged primarily in the design,
manufacture and distribution of steel wheels and rims for trucks, trailers and
certain military and construction vehicles. The Company sells its products
primarily within North America, Mexico, and Latin America to original equipment
manufacturers and to the aftermarket. Prior to the formation of AKW L.P. ("AKW")
on May 1, 1997 (see Note 5), the Company also participated in similar segments
of the aluminum wheel market whereby the Company designed and distributed
aluminum wheels through a buy and resell agreement with Kaiser Aluminum &
Chemical Corporation ("Kaiser"). On November 5, 1997, the Company entered into
an agreement with IaSa for the formation of ADM. ADM participates in the steel
wheel market throughout Mexico and Latin America. The cost associated with the
Company's initial investment in ADM totaled $4,899. The Company's primary
manufacturing facilities are located in Henderson, Kentucky, London, Ontario and
Monterrey, Mexico. AKW's aluminum wheel facilities are located in Erie,
Pennsylvania and Cuyahoga Falls, Ohio. During 1997, the Company purchased land
located in Columbia, Tennessee and is currently in the process of building a
facility for the production of light truck wheels. The facility is expected to
cost approximately $19,000 and production is expected to begin in mid-1998.
F-7
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS--The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION--The Company records sales upon shipment and provides an
allowance for estimated discounts associated with customer rebates. Prior to the
formation of AKW, the Company reported sales and the associated cost of sales of
aluminum wheels at their respective gross amounts pursuant to the buy and resell
agreement with Kaiser. Subsequent to the formation of AKW, the Company's
proportional share of income associated with AKW is reported as "Equity in
earnings of affiliates" under the equity method.
INVENTORIES--Inventories are stated at the lower of cost or market. Cost for
substantially all inventories is determined by the last-in, first-out method
(LIFO).
SUPPLIES--Supplies are stated at the lower of cost or market. Cost for
substantially all supplies is determined by a moving-average method. The Company
performs periodic evaluations of supplies and provides an allowance for obsolete
items.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are carried at
cost. Cost of significant assets includes capitalized interest incurred during
the construction and development period. Expenditures for replacements and
betterments are capitalized; maintenance and repair expenditures are charged to
operations as incurred.
Buildings, machinery and equipment are depreciated using the straight-line
method over estimated lives of 5 to 40 years. Tooling is generally depreciated
over a 3 year life.
GOODWILL--Goodwill consists of costs in excess of the net assets acquired in
connection with the PDC acquisition of the Company in March, 1988. Goodwill is
being amortized on the straight-line method over 40 years.
LONG-LIVED ASSETS--Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, among other things, requires entities to evaluate
long-lived assets for impairment whenever events or changes in circumstances
indicate that their carrying value may not be recoverable. Long-lived assets to
be disposed of are carried at the lower of cost or fair value less the costs of
disposal. Adoption of this standard in 1996 had no effect on the Company's
financial position, results of operations or cash flows.
PENSION PLANS--The Company has trusteed, non-contributory pension plans
covering substantially all U.S. and Canadian employees. For certain plans, the
benefits are based on career average salary and years of service and, for other
plans, a fixed amount for each year of service. The Company's funding policy
provides that payments to the pension trusts shall be at least equal to the
minimum funding requirements of the Employee Retirement Income Security Act of
1974, as amended, for U.S. plans or, in the case of Accuride Canada or ADM, the
minimum legal requirements in each particular country. Additional payments may
also be provided by the Company from time to time.
F-8
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS--The Company has postretirement
health care and life insurance benefit plans covering substantially all U.S.
non-bargained and Canadian employees. The Company accounts for these benefits on
the accrual basis pursuant to SFAS No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. One of the principal requirements
of this method is that the expected cost of providing such postretirement
benefits be accrued during the years employees render the necessary service. The
Company's funding policy provides that payments shall be at least equal to its
cash basis obligation, plus additional amounts that may be approved by the
Company from time to time.
POSTEMPLOYMENT BENEFITS--The Company has certain postemployment benefit
plans covering certain of its U.S. and Canadian employees. The benefit plans may
provide severance, disability, supplemental health care, life insurance or other
welfare benefits. The Company accounts for these benefits on the accrual basis.
The Company's funding policy provides that payments shall be at least equal to
its cash basis obligation, plus additional amounts that may be approved by the
Company from time to time. Liabilities associated with these benefits at the
date of the Company's recapitalization (see Note 14) will be retained by PDC.
ENVIRONMENTAL COSTS--Environmental costs are recorded when it is probable
that obligations have been incurred and the costs can be reasonably estimated
upon currently available facts, existing technology, and presently enacted laws
and regulations.
INCOME TAXES--Deferred tax assets and liabilities are computed based on
differences between financial statement and income tax bases of assets and
liabilities using enacted income tax rates. Deferred income tax expense or
benefit is based on the change in deferred tax assets and liabilities from
period to period, subject to an ongoing assessment of realization of deferred
tax assets.
STOCKHOLDER'S EQUITY--The Company accounts for amounts due to/from PDC as
adjustments to additional paid-in capital since the companies have a common
treasury function.
RESEARCH AND DEVELOPMENT COSTS--Expenditures relating to the development of
new products and processes, including significant improvements and refinements
to existing products, are expensed as incurred. The amounts charged against
income in 1995, 1996 and 1997 totaled $3,776, $3,689 and $3,732, respectively.
FOREIGN CURRENCY--The assets and liabilities of Accuride Canada and ADM that
are receivable or payable in cash are converted at current exchange rates, and
inventories and other non-monetary assets and liabilities are converted at
historical rates. Revenues and expenses are converted at average rates in effect
for the period. Accuride Canada's functional currency has been determined to be
the US dollar and the Mexican economy has been determined to be highly
inflationary. Accordingly, gains and losses resulting from conversion of such
amounts, as well as gains and losses on foreign currency transactions, are
included in operating results.
CONCENTRATIONS OF CREDIT RISK--Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash, cash equivalents and customer receivables. The Company
places its cash with high quality financial institutions and limits the amount
of credit exposure from any one institution. Generally, the Company does not
require collateral or other security to support customer receivables.
F-9
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS--The Company has only limited involvement
with derivative financial instruments and does not use them for trading
purposes. The Company does periodically enter into forward exchange and currency
option contracts to hedge foreign currency risks associated with certain
recorded transactions, firm commitments, and other anticipated transactions
denominated in foreign currencies. All such hedging strategies are coordinated
and managed by PDC. Gains and losses on option contracts that qualify as hedges
are recognized in income at the time of the underlying hedged transaction or
when a previously anticipated transaction is no longer expected to occur.
Changes in market value of forward exchange contracts and certain option
contracts protecting anticipated transactions are recognized in the period
incurred. The effects of such transactions have been allocated to the Company by
PDC and are included in the accompanying consolidated financial statements as
"other income or expense". The total notional amount of such derivative
instruments open at December 31, 1996 and 1997 was not significant.
NEW ACCOUNTING PRONOUNCEMENTS--In June, 1997, SFAS No. 130, Reporting
Comprehensive Income, was issued. SFAS No. 130 requires that changes in the
amounts of certain items, including foreign currency translation adjustments and
gains and losses on certain securities be shown in the financial statements.
SFAS No. 130 does not require a specific format for the financial statement in
which comprehensive income is reported, but does require that an amount
representing total comprehensive income be reported in that statement. SFAS No.
130 becomes effective for the fiscal year ended December 31, 1998 and requires
reclassification of earlier financial statements for comparative purposes.
Management has not yet determined the effect, if any, of SFAS No. 130 on the
Company's consolidated financial statements.
Also in June, 1997, SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, was issued and becomes effective for the
fiscal year ended December 31, 1998. This statement will change the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly financial reports. It also requires entity-wide disclosures
about the products and services an entity provides, countries in which it holds
material assets and reports material revenues, and its major customers.
Management has not yet determined the effect, if any, of SFAS No. 131 on the
Company's consolidated financial statements.
In February 1998, SFAS No. 132, EMPLOYERS DISCLOSURES ABOUT PENSIONS AND
OTHER POSTRETIREMENT BENEFITS was issued and becomes effective for the fiscal
year ended December 31, 1998. This statement revises employers disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis and eliminates certain disclosures. Management has not yet determined
the effect, if any, of SFAS No. 132 on the Company's consolidated financial
statements.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform with the current year presentation.
F-10
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
2. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the purpose of preparing the Consolidated Statements of Cash Flows, the
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. Net cash amounts due to/from PDC
are accounted for as capital distributions or contributions and current income
taxes are cleared through the PDC intercompany account. No significant interest
amounts were paid during 1995, 1996 or 1997. In 1995, the Company reclassified
$6,455 of assets from property, plant and equipment to supplies.
The following supplemental cash flow information is provided for non-cash
transactions that resulted in connection with the formation of ADM on November
5, 1997:
<TABLE>
<S> <C>
Inventory acquired.................................................. $ 1,300
Property acquired................................................... 14,856
Current liabilities assumed......................................... 1,700
Short-term notes payable assumed.................................... 4,850
</TABLE>
3. INVENTORIES
Inventories were as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Raw materials............................................... $ 1,586 $ 3,882 $ 2,930
Work in process............................................. 6,017 5,438 4,842
Finished manufactured goods................................. 18,652 18,992 19,807
LIFO adjustment............................................. 1,742 1,742 1,746
Other valuation reserves.................................... (618) (947) (1,043)
--------- --------- -----------
Inventories, net.......................................... $ 27,379 $ 29,107 $ 28,282
--------- --------- -----------
--------- --------- -----------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Land and land improvements............................................ $ 4,447 $ 6,052
Buildings............................................................. 30,212 45,920
Machinery and equipment............................................... 217,938 233,926
---------- ----------
252,597 285,898
Less accumulated depreciation......................................... 138,817 151,901
---------- ----------
Property, plant and equipment, net.................................. $ 113,780 $ 133,997
---------- ----------
---------- ----------
</TABLE>
F-11
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
5. INVESTMENTS IN AFFILIATES
Included in the Company's "Equity in earnings of affiliates" in 1995, 1996
and 1997 are a 50% equity interest in AOT, Inc. ("AOT") and beginning May 1,
1997 a 50% equity interest in AKW. The following summarizes the Company's
investments in affiliates.
AOT--AOT is a joint venture between the Company and The Goodyear Tire &
Rubber Company formed to provide sequenced wheel and tire assemblies for
Navistar International Transportation Corporation. The Company's investment in
AOT at December 31, 1996 and 1997 totaled $2,013 and $2,202, respectively.
At December 31, 1996 and 1997, the Company had two outstanding notes
receivable from AOT included in "Other assets" in the amount of $1,769 and
$1,535, respectively, with interest rates ranging from 8.25% to 9.25%. Interest
income earned on these notes receivable for 1995, 1996 and 1997 totaled $243,
$207 and $180, respectively.
The Company also performs certain administrative services for AOT pursuant
to a service agreement between the two companies. Services performed include
accounting and cash management, engineering and technical, environmental
consulting and compliance, health, safety and risk management, quality assurance
and other general and administrative services. Service fees associated with this
agreement totaled $400, $360, and $360 for 1995, 1996 and 1997, respectively,
and are reported as a reduction in "Selling, general and administrative
expenses".
AKW L.P.--On May 1, 1997, the Company entered into a limited partnership
joint venture with Kaiser for the formation of AKW pursuant to a contribution
agreement and other associated agreements (collectively, the "AKW formation
agreements"). AKW manufactures and distributes aluminum wheels. Under terms of
the AKW formation agreements, the Company owns a 50% interest in AKW, and
accordingly, accounts for the investment using the equity method. The Company's
investment in AKW at December 31, 1997 totaled $22,563.
Pursuant to the AKW formation agreements, the Company performs all billing
and collection functions for AKW as a means of providing customer convenience.
"Other receivables" at December 31, 1997 include $3,350 which represent amounts
due from AKW associated with such transactions.
F-12
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
5. INVESTMENTS IN AFFILIATES (CONTINUED)
Summarized financial information of AOT and AKW for the years ended December
31, is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Condensed Statements of Income:
Net sales..................................................... $ 6,478 $ 5,785 $ 59,261
Net earnings.................................................. 600 230 8,769
Condensed Balanced Sheets:
Current assets................................................ $ 1,689 $ 1,941 $ 21,678
Non-current assets............................................ 7,079 6,786 42,217
--------- --------- ---------
Total....................................................... $ 8,768 $ 8,727 $ 63,895
--------- --------- ---------
--------- --------- ---------
Current liabilities............................................. $ 805 $ 963 $ 7,734
Non-current liabilities......................................... 4,166 3,737 6,631
Shareholders' equity............................................ 3,797 4,027 49,530
--------- --------- ---------
Total....................................................... $ 8,768 $ 8,727 $ 63,895
--------- --------- ---------
--------- --------- ---------
</TABLE>
6. SHORT-TERM NOTES PAYABLE
ACCURIDE CANADA--The Company, through Accuride Canada, maintains a $25,000
revolving credit facility with a Canadian financial institution. The facility is
scheduled to terminate at the earlier of June 28, 1998 or a change in control.
Interest on any outstanding amounts is charged at LIBOR plus 0.5% per annum
(9.00% at December 31, 1997). No amounts were borrowed against the facility
during 1995 or 1996. At December 31, 1997 $1,340 was outstanding. Standby
commitment fees are charged on the available facility at 0.5% for 1995 and
0.125% for 1996 and 1997, respectively, and amounted to $131, $33 and $32,
during 1995, 1996 and 1997 respectively.
ADM--At December 31, 1997, the Company, through ADM, maintained a $30,000
revolving credit facility with a Mexican financial institution of which $14,700
was outstanding. Interest on any outstanding amounts is charged at LIBOR plus
125 basis points per annum, with rates ranging from 7.0% to 7.25% at December
31, 1997. The facility terminated on January 21, 1998, in connection with the
recapitalization of the Company (see Note 14), at which time the oustanding
borrowings were converted into a promissory note due May 4, 1998.
7. PENSION PLANS
The Company, either stand-alone or through PDC, sponsors non-contributory
employee defined benefit pension plans covering substantially all U.S. and
Canadian employees (the "plans"). Employees covered under the U.S. salaried plan
are eligible to participate upon the completion of one year of service and
benefits are based upon career average salary from 1985 and years of service.
Employees covered under the Canadian salaried plan are eligible to participate
upon the completion of two years of service and benefits are based upon career
average salary and years of service. Employees covered under the hourly plans
are generally eligible to participate at the time of employment and benefits are
generally
F-13
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
7. PENSION PLANS (CONTINUED)
based on a fixed amount for each year of service. U.S. hourly employees are
vested in the plans after five years of service; Canadian hourly employees are
vested after two years of service.
For certain of the plans, the plan assets exceed the accumulated benefit
obligations (overfunded plans) and in the remainder of the plans, the
accumulated benefit obligations exceed the plan assets (underfunded plans).
The status of employee pension benefit plans at December 31, is summarized
below:
<TABLE>
<CAPTION>
OVERFUNDED PLANS UNDERFUNDED PLANS
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
--------- --------- --------- ---------
Actuarial present value of projected benefit obligation, based on
employment service to date and current salary levels.
Vested employees..................................................... $ 16,588 $ 23,956 $ 9,850 $ 7,564
Non-vested employees................................................. 2,029 5,113 2,421 551
--------- --------- --------- ---------
Accumulated benefit obligation......................................... 18,617 29,069 12,271 8,115
Additional amounts related to projected salary increases............... 1,687 871 879 1,844
--------- --------- --------- ---------
Total projected benefit obligation..................................... 20,304 29,940 13,150 9,959
Plan assets at fair value.............................................. 19,753 29,516 11,866 8,048
--------- --------- --------- ---------
</TABLE>
F-14
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
7. PENSION PLANS (CONTINUED)
<TABLE>
<CAPTION>
OVERFUNDED PLANS UNDERFUNDED PLANS
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
--------- --------- --------- ---------
Projected pension benefit obligation in excess of (less than) plan
assets............................................................... $ 551 $ 424 $ 1,284 $ 1,911
Additional minimum liability........................................... 2,472
Unamortized net transition asset (obligation).......................... 321 (394) 57 645
Unrecognized prior service cost........................................ (1,642) (1,676) (797) (536)
Unrecognized net gain (loss) from actuarial experience................. (1,866) (5,452) (2,610) (623)
--------- --------- --------- ---------
Accrued (prepaid) pension cost, net................................ $ (2,636) $ (7,098) $ 406 $ 1,397
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The plans were valued between December 1 and December 31 for both 1996 and
1997. The obligations were projected to and the assets were valued as of the end
of 1996 and 1997. The majority of plan assets are invested in a diversified
portfolio of stocks, bonds and cash or cash equivalents. A small portion of the
plan assets is invested in pooled real estate and other private corporate
investment funds. Plan assets associated with the U.S. salaried pension plan are
included in the master trust of the PDC retirement plan and are allocated to the
Company's plan based on a proportional allocation method.
The components of net periodic pension cost for the years ended December 31,
were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Benefits earned during the year.................................. $ 1,060 $ 1,222 $ 1,336
Interest accrued on projected benefit obligation................. 2,003 2,300 2,489
Return on plan assets............................................ (2,164) (2,479) (3,054)
Net amortization................................................. 101 193 165
Other............................................................ (136) 197 0
--------- --------- ---------
Net periodic pension cost...................................... $ 864 $ 1,433 $ 936
--------- --------- ---------
--------- --------- ---------
</TABLE>
Assumptions used to develop the net periodic pension cost and to value
pension obligations for each of the three years in the period ended December 31,
1997 were as follows:
<TABLE>
<S> <C>
Discount rate......................................................... 7.25%
Rate of increase in future compensation levels........................ 4.00%
Expected long-term rate of return on assets........................... 9.50%
</TABLE>
The Company intends to fund at least the minimum amount required under the
Employee Retirement Income Security Act of 1974, as amended, for U.S. plans, or
in the case of Accuride Canada, the minimum legal requirements in Canada. The
Company recognizes an additional minimum liability in its consolidated financial
statements for its underfunded plans. "Other liabilities" at December 31, 1996
included $2,472 relating to the additional pension liability. This amount is
offset by intangible assets of $797, reductions of stockholder's equity of
$1,004 and deferred tax assets of $671 at December 31, 1996.
F-15
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
7. PENSION PLANS (CONTINUED)
The Company also sponsors certain defined contribution plans for
substantially all U.S. salaried employees. Expense associated with these plans
for 1995, 1996 and 1997 totaled $873, $841 and $1,062, respectively.
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Substantially all of the Company's U.S. non-bargained and Canadian employees
who retire from active service on or after normal retirement age of 65 are
eligible for life insurance benefits. The costs of such benefits are paid
through an insurance contract. Health care insurance benefits also are provided
for many employees retiring from active service. The coverage is provided on a
non-contributory basis for certain groups of employees and on a contributory
basis for other groups. The majority of these benefits are paid by the Company.
The status of employee postretirement benefit plans at December 31, is
summarized below:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.............................................................. $ 4,603 $ 4,699
Fully eligible active plan participants............................... 533 562
Other active plan participants........................................ 3,947 4,303
--------- ---------
Total accumulated postretirement benefit obligation..................... 9,083 9,564
Unrecognized prior service cost......................................... 2,356 2,153
Unrecognized net gain (loss) from actuarial experience.................. (744) (589)
--------- ---------
Accrued postretirement benefit cost................................... $ 10,695 $ 11,128
--------- ---------
--------- ---------
</TABLE>
The components of net periodic postretirement benefit cost for the years
ended December 31, were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Benefits attributed to service during the year........................ $ 281 $ 271 $ 283
Interest cost on accumulated postretirement benefits obligation....... 591 688 656
Net amortization...................................................... (225) (190) (200)
--------- --------- ---------
Net periodic postretirement benefit cost............................ $ 647 $ 769 $ 739
--------- --------- ---------
--------- --------- ---------
</TABLE>
For 1997 measurement purposes, annual rates of increase in the per capita
cost of covered health care benefits were assumed to average 7.0% for 1998
decreasing gradually to 5.3% by 2008 and remaining at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
1.0% in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1997, by approximately $670 and the aggregate of
the service and interest cost components of net periodic postretirement benefit
cost for the year then ended by approximately $45.
F-16
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
Assumptions used to develop net periodic postretirement benefit cost for
each of the three years in the period ended December 31, 1997 were as follows:
<TABLE>
<S> <C>
Discount rate......................................................... 7.25%
Rate of increase in future compensation levels........................ 4.00%
</TABLE>
9. INCOME TAXES
The Company is included in the PDC consolidated tax returns; PDC allocates
income taxes as if the Company filed on a separate company basis. The Company
clears income taxes with PDC through the intercompany account.
The provisions for income taxes for the years ended December 31, were as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................................... $ 13,161 $ 7,421 $ 7,760
State...................................................... 1,880 1,060 1,109
Foreign.................................................... 10,310 10,508 10,077
--------- --------- ---------
25,351 18,989 18,946
--------- --------- ---------
Deferred:
Federal.................................................... (2,430) (672) 3,319
State...................................................... (347) (96) 474
Foreign.................................................... (1,844) (771) (581)
--------- --------- ---------
(4,621) (1,539) 3,212
--------- --------- ---------
Total.................................................... $ 20,730 $ 17,450 $ 22,158
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of the U.S. statutory tax rate to the Company's effective
tax rate for the years ended December 31, is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate.................................................. 35.0% 35.0% 35.0%
Withholding tax on dividend of foreign subsidiary................... 6.0
State and local income taxes........................................ 1.5 1.5 1.4
Incremental international tax....................................... 5.4 1.2 0.2
Goodwill............................................................ 1.9 2.0 1.8
Other items, net.................................................... 0.1 (0.1)
--- --- ---
Effective tax rate.................................................. 43.8% 39.8% 44.3%
--- --- ---
--- --- ---
</TABLE>
F-17
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
9. INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities comprised the following at
December 31:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Postretirement and postemployment benefits............................ $ 4,566 $ 4,475
Accruals.............................................................. 320 320
Inventories........................................................... 319 310
Other................................................................. 3,383 2,302
Foreign tax credit.................................................... 920
Valuation allowance-foreign tax credit................................ (920)
--------- ---------
Total deferred tax assets........................................... 8,588 7,407
--------- ---------
Deferred tax liabilities:
Depreciation.......................................................... 20,104 18,025
Withholding tax on dividend of foreign subsidiary..................... 3,000
Pension costs......................................................... 1,828 2,106
Other................................................................. 378 1,880
--------- ---------
Total deferred tax liabilities...................................... 22,310 25,011
--------- ---------
Net deferred tax liabilities............................................ 13,722 17,604
Current deferred tax asset............................................ 2,509
Current deferred tax liability........................................ (1,481)
--------- ---------
Long-term deferred income tax liability-net............................. $ 16,231 $ 16,123
--------- ---------
--------- ---------
</TABLE>
During 1997 the Company determined that it would no longer reinvest the
undistributed earnings of Accuride Canada and accordingly, has recorded a
provision for the applicable income taxes for the year ended December 31, 1997.
10. COMMITMENTS
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
$1,209, $1,022 and $1,566, respectively. Future minimum lease payments for all
noncancelable operating leases having a remaining term in excess of one year at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 696
1999................................................................ 512
2000................................................................ 105
2001................................................................ 88
2002................................................................ 71
---------
Total............................................................... $ 1,472
---------
---------
</TABLE>
F-18
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
11. CONTINGENCIES
The Company is from time to time involved in various legal proceedings of a
character normally incident to its past and present businesses. Management does
not believe that the outcome of these proceedings will have a material adverse
effect on the consolidated financial condition or results of operations of the
Company.
The Company's operations are subject to federal, state and local
environmental laws, rules and regulations. Pursuant to the recapitalization of
the Company (see Note 14), the Company will be indemnified by PDC with respect
to environmental liabilities at its Henderson and London facilities, subject to
certain limitations. Pursuant to the AKW formation agreements (see Note 5), the
Company has been indemnified by Kaiser with respect to facilities owned by AKW
that were contributed by Kaiser. Management does not believe that the outcome of
any environmental proceedings will have a material adverse effect on the
consolidated financial condition or results of operations of the Company.
F-19
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
12. SEGMENT REPORTING
The Company operates in one business segment: the design, manufacture and
distribution of steel wheels and rims for trucks, trailers, and other vehicles.
GEOGRAPHIC SEGMENTS--The Company has foreign operations in Canada and Mexico
which are summarized below. Sales and revenues between geographic areas are made
at negotiated selling prices.
<TABLE>
<CAPTION>
UNITED
1995 STATES CANADA ELIMINATIONS COMBINED
- --------------------------------------------------------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales and revenues:
Sales to unaffiliated customers.............................. $ 203,382 $ 154,420 $ 357,802
Sales among geographic areas................................. 4,076 34,871 $ (38,947)
---------- ---------- ------------ ----------
Total...................................................... $ 207,458 $ 189,291 $ (38,947) $ 357,802
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
Income from operations......................................... $ 25,021 $ 25,209 $ (2,550) $ 47,680
Identifiable assets............................................ $ 176,424 $ 155,669 $ (33,193) $ 298,900
</TABLE>
<TABLE>
<CAPTION>
UNITED
1996 STATES CANADA ELIMINATIONS COMBINED
- --------------------------------------------------------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales and revenues:
Sales to unaffiliated customers.............................. $ 169,569 $ 138,261 $ 307,830
Sales among geographic areas................................. 4,444 30,693 $ (35,137)
---------- ---------- ------------ ----------
Total...................................................... $ 174,013 $ 168,954 $ (35,137) $ 307,830
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
Income from operations......................................... $ 20,802 $ 25,556 $ (2,576) $ 43,782
Identifiable assets............................................ $ 151,527 $ 152,386 $ (15,210) $ 288,703
</TABLE>
<TABLE>
<CAPTION>
UNITED
1997 STATES CANADA MEXICO ELIMINATIONS COMBINED
- ---------------------------------------------------- ---------- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net sales and revenues:
Sales to unaffiliated customers................... $ 176,723 $ 151,132 $ 5,111 $ 332,966
Sales among geographic areas...................... 6,157 31,309 $ (37,466)
---------- ---------- --------- ------------ ----------
Total........................................... $ 182,880 $ 182,441 $ 5,111 $ (37,466) $ 332,966
---------- ---------- --------- ------------ ----------
---------- ---------- --------- ------------ ----------
Income from operations.............................. $ 23,763 $ 23,152 $ 292 $ (2,529) $ 44,678
Identifiable assets................................. $ 193,572 $ 143,197 $ 29,406 $ (18,728) $ 347,447
</TABLE>
F-20
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
12. SEGMENT REPORTING (CONTINUED)
Sales to three customers exceed 10% of total net sales for the years ended
December 31, as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
% OF % OF % OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES
---------- ----- ---------- ----- ---------- -----
Customer one.................. $ 65,481 18.3% $ 55,887 18.2% $ 62,838 18.9%
Customer two.................. 54,968 15.4% 45,698 14.8% 55,231 16.6%
Customer three................ 45,428 12.7% 45,309 14.7% 50,699 15.2%
---------- --- ---------- --- ---------- ---
$ 165,877 46.4% $ 146,894 47.7% $ 168,768 50.7%
---------- --- ---------- --- ---------- ---
---------- --- ---------- --- ---------- ---
</TABLE>
13. FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents, customer receivables and accounts payable approximated fair value
as of December 31, 1996 and 1997, because of the relatively short maturity of
these instruments. The difference between the carrying amount and fair value is
insignificant for notes receivable from AOT. The carrying amount of short-term
notes payable approximate fair value because of at or near market interest rate
pricing provisions.
14. SUBSEQUENT EVENTS
RECAPITALIZATION OF ACCURIDE CORPORATION--The Company entered into a stock
subscription and redemption agreement dated November 17, 1997 (the "Agreement")
with PDC and Hubcap Acquisition L.L.C. ("Hubcap Acquisition"), which is a
Delaware limited liability company formed at the direction of KKR 1996 Fund
L.P., a Delaware limited partnership affiliated with Kohlberg Kravis Roberts &
Co., L. P.
Pursuant to the Agreement, effective January 21, 1998, Hubcap Acquisition
acquired 90% of the common stock of the Company for an aggregate redemption
price of $468,000 subject to adjustment for changes in working capital and the
difference between actual and projected capital expenditures. In connection with
the recapitalization, Hubcap Acquisition made an equity investment in the
Company of $108,000, and the Company issued $200,000 of 9.25% senior
subordinated notes at 99.48% due 2008 and obtained $164,750 in bank borrowings,
including $135,000 of borrowings under senior secured term loans due 2005 and
2006 with variable interest rates and $29,750 of borrowings under a $140,000
senior secured revolving line of credit expiring 2004 with a variable interest
rate.
STOCK SPLIT--Effective January 21, 1998, the Company declared a 240-for-1
stock split. All per share information has been restated to give effect to the
stock split.
AUTHORIZED SHARES--Effective January 21, 1998, the Company increased its
authorized shares of common stock to 45,000 shares and authorized 5,000 shares
of preferred stock each with a par value of one cent ($.01) per share. All per
share information has been restated to give effect to the increase in authorized
shares.
1998 STOCK PURCHASE AND OPTION PLAN--Effective January 21, 1998, the Company
adopted the 1998 Stock Purchase and Option Plan for key employees of Accuride
Corporation and subsidiaries (the "1998 Plan").
F-21
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
14. SUBSEQUENT EVENTS (CONTINUED)
The 1998 Plan provides for the issuance of shares of authorized but unissued
or reacquired shares of common stock subject to adjustment to reflect certain
events such as stock dividends, stock splits, recapitalizations, mergers or
reorganizations of or by the Company. The 1998 Plan is intended to assist the
Company in attracting and retaining employees of outstanding ability and to
promote the identification of their interests with those of the stockholders of
the Company. The 1998 Plan permits the issuance of common stock (the "1998 Plan
Purchase Stock") and the grant of non-qualified stock options (the "1998 Plan
Options") to purchase shares of common stock (the issuance of 1998 Plan Purchase
Stock and the grant of the 1998 Plan Options pursuant to the 1998 Plan being a
"1998 Plan Grant"). Unless sooner terminated by the Company's Board of
Directors, the 1998 Plan will expire ten years after adoption. Such termination
will not affect the validity of any 1998 Plan Grant outstanding on the date of
the termination.
Pursuant to the 1998 Plan, 2,598 shares of common stock of the Company are
reserved for issuance under such plan.
LABOR RELATIONS--The Company's current contract with the UAW covering
employees at the Henderson Facility expired in February 1998. The Company was
not able to negotiate a mutually acceptable agreement with the UAW. Therefore, a
strike occurred at the Henderson Facility on February 20, 1998. The Company is
continuing to operate with its salaried employees and contractors. On March 31,
1998, the members of the UAW rejected the Company's final offer for a new
contract. Effective as of March 31, 1998, the Company began an indefinite
lockout, which was prompted by continuing reports to management that some
individuals planned to re-enter the plant and harass employees and damage
equipment and machinery. Currently, there is, and the Company believes that
there will be, no supply disruption to the Company's customer base; however,
there can be no assurance to that effect. A supply disruption to the Company's
customer base could have a material adverse effect on the Company.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY INITIAL
PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 1
Risk Factors..................................... 14
The Exchange Offer............................... 24
The Recapitalization............................. 33
Use of Proceeds.................................. 34
Capitalization................................... 35
Pro Forma Consolidated Condensed Financial
Statements..................................... 36
Selected Historical Consolidated Financial and
Other Data..................................... 39
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 41
Business......................................... 50
Management....................................... 62
Certain Relationships and Related Transactions... 68
Principal Stockholders........................... 69
Description of the Credit Facility............... 70
Description of the Notes......................... 72
Material Federal Income Tax Considerations....... 107
Book-Entry; Delivery and Form.................... 107
Plan of Distribution............................. 110
Legal Matters.................................... 111
Experts.......................................... 111
Available Information............................ 111
Glossary......................................... G-1
Index to Financial Statements.................... F-1
</TABLE>
UNTIL OCTOBER 21, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE
NOTES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENT OR SUBSCRIPTIONS.
--------------
PROSPECTUS
--------------
[LOGO]
ACCURIDE CORPORATION
OFFER TO EXCHANGE ITS
9 1/4% SENIOR SUBORDINATED
NOTES DUE 2008
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF
1933, AS AMENDED, FOR ITS
OUTSTANDING 9 1/4%
SENIOR SUBORDINATED NOTES
DUE 2008
JULY 23, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
