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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
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COMMISSION FILE NUMBER 333-50239
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ACCURIDE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 61-1109077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2315 ADAMS LANE, HENDERSON, KENTUCKY 42420
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 826-5000
Securities registered pursuant to Section 12(b) of the Act:
"None"
Securities registered pursuant to Section 12(g) of the Act:
"None"
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
As of March 1, 1999, 24,768 shares of Accuride Corporation common
stock, par value $.01 per share (the "Common Stock") were outstanding. The
Common Stock is privately held and, to the knowledge of registrant, no shares
have been sold in the past 60 days.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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ACCURIDE CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Party Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures
FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity (Deficiency)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statement Schedules
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PART I
ITEM 1. BUSINESS
GENERAL
Accuride Corporation, a Delaware corporation ("Accuride" or the
"Company"), manufactures and supplies 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 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").
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"), Volvo Trucks North America ("Volvo") 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 a majority of North America's largest trucking fleets,
such as Ruan Transportation Management Systems, J.B. Hunt Transport Services,
Ryder Truck Rental, Inc. and Schneider Specialized Carriers, Inc.
The North American commercial vehicle industry may be divided into
three areas: (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 markets have grown to
733,000 units in 1998 from 455,000 units in 1992. Over that same period, new
builds in the North American Light Truck market have grown to 7.6 million
units from 4.2 million units. 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,
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 overall sustained economic growth.
CORPORATE HISTORY
Accuride 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 described below. See
"The Recapitalization."
THE RECAPITALIZATION
On November 17, 1997, the Company entered into a stock subscription
agreement with Hubcap Acquisition L.L.C. ("Hubcap Acquisition") pursuant to
which Hubcap Acquisition acquired control of the Company. Hubcap Acquisition
is a Delaware limited liability company whose members are KKR 1996 Fund L.P.
and KKR Partners II, L.P., which are affiliates of Kohlberg Kravis Roberts &
Co. L.P. ("KKR"). The acquisition consisted of an equity investment in the
Company (the "Equity Investment") together with approximately $363.7 million
of aggregate proceeds from certain financings described below (collectively,
the "Financings") which were collectively used to redeem shares of Common
Stock of the Company ("Common Stock") owned by Phelps Dodge (the
"Redemption") and obtain a noncompetition agreement. The Equity Investment,
Financings, and Redemption are collectively referred to as the
"Recapitalization." Immediately after the closing of the Recapitalization,
Hubcap Acquisition owned 90% of the Common Stock and Phelps
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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.
Phelps Dodge subsequently sold its remaining interest in the Company to RSTW
Partners III, L.P.
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 private
notes ("Private Notes"). The Revolver is available for the Company's working
capital requirements and the implementation of the Company's growth strategy.
The Private Notes were exchanged for public notes ("Exchange Notes") which
were registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a registration statement on Form S-4 declared effective by
the Securities and Exchange Commission (the "Commission") on July 23, 1998.
The Exchange Notes evidence the same debt as the Private Notes (which they
replace) and are entitled to the benefits of an indenture dated January 21,
1998 (the "Indenture"). The Private Notes and the Exchange Notes are
sometimes collectively referred to herein as the "Notes."
STRATEGIC ALLIANCES
The Company has implemented a number of strategic alliances to
strengthen its position in the worldwide Wheel industry. These include the
following: (i) a joint venture with Kaiser Aluminum and Chemical Corporation
("Kaiser") to produce aluminum Wheels, (ii) a joint venture with Industria
Automotriz S.A. de C.V. ("IaSa") to produce steel Wheels in Mexico, and (iii)
a joint venture with Goodyear Tire and Rubber Company ("Goodyear") to
assemble Wheels and tires for Navistar ("AOT").
ACCURIDE/KAISER WHEELS. In May, 1997, the Company and Kaiser
established AKW L.P. ("AKW") to produce aluminum Wheels. 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.
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. Since
its inception, AKW has increased its aluminum Heavy/Medium Wheel capacity by
over 40%. 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. On January 22, 1999, the Company announced that it had
executed a letter of intent to acquire Kaiser's 50% interest in AKW.
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, Kentucky facility and its
Ontario, Canada facility. On November 5, 1997, the Company invested $4.9
million for a 51% interest in Accuride de Mexico, S.A. de C.V. ("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. AdM has built 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.
ASSEMBLIES ON TIME. The Company and Goodyear formed AOT, Inc. ("AOT")
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. In April 1998 the Company and Goodyear formed
Assembly On Time Canada Inc. (which subsequently changed its name to AOT
Canada Ltd), as a wholly owned subsidiary of AOT to expand the AOT operations
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for Navistar to a new facility in Talbotville, Ontario, Canada.
INDUSTRY OVERVIEW
The size of the steel and aluminum commercial vehicle Wheel industry
in North America is approximately $1.9 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 commercial wheel industry may be categorized in three ways: (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.
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 Limited
Partnership ("Great Dane"), Utility Trailer Manufacturing Company ("Utility")
and Wabash National, 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
1998, industry sales of Heavy/Medium Wheels in North America were
approximately $679 million.
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 market is 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 1998, industry sales of Light
Truck Wheels in North America were approximately $1.2 billion.
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
The Company has the broadest product line in the North American
Heavy/Medium Wheel industry. The Company also competes in the Light Truck
Wheel market for larger (with diameters of 16" and over) steel Wheels for
Light Trucks. The Company offers steel and aluminum Wheels for Heavy/Medium
Trucks and Trailers, heavy-duty Wheels for the construction industry and
stylized steel 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 steel Wheels, from
smaller passenger car Wheels and motorcycle Wheels to large agricultural
vehicle Wheels with diameters in excess of 24.5".
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The following table shows the size of each market served in 1998 and
the Company's estimated market share of each such market.
<TABLE>
<CAPTION>
ACCURIDE'S SHARE OF THE
1998 NORTH AMERICAN HEAVY/MEDIUM WHEEL
AND LIGHT TRUCK WHEEL MARKETS
Dual Wheels Single Wheels Total
(dollars in millions) Size Share(1) Size Share(1) Size Share(1)
<S> <C> <C> <C> <C> <C> <C>
Heavy/Medium Wheels
Steel ........................... $ 347 77% -- -- $ 347 77%
Aluminum (2) .................... $ 332 24% -- -- $ 332 24%
Total Heavy/Medium Wheels...... $ 679 66% -- -- $ 679 66%
Light Truck Wheels
Steel ........................... $ 46 87% $ 357 7% $ 403 13%
Aluminum ........................ $ 12 0% $ 801 0% $ 813 0%
Total Light Wheels ............ $ 58 79% $1,158 4% $1,216 7%
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Total ........................... $ 737 $1,158 $1,895
</TABLE>
CUSTOMERS
The Company's customers fall into four general categories: (i)
Heavy/Medium Truck OEMs (which represented approximately 53% of the Company's
1998 net sales); (ii) Trailer OEMs (which represented approximately 19% of
the Company's 1998 net sales); (iii) Light Truck OEMs (which represented
approximately 19% of the Company's 1998 net sales); and (iv) aftermarket
distributors and others (which represented approximately 9% of the Company's
1998 net sales). Major customers include Freightliner, Volvo, 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. A large portion of the Company's business, not including sales of
aluminum Wheels by AKW, consists of sales to Ford, Navistar and Freightliner,
representing approximately 17%, 12% and 11% of 1998 net sales, respectively
(including sales of aluminum Wheels by AKW, total sales to Ford, Navistar,
and Freightliner were approximately 16%, 17%, and 15% of 1998 net 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. The
Company serves the aftermarket through a broad network of distributors.
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 industry, 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 Steel Wheel manufacturer at all North American
Heavy/Medium Truck OEMs, each
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(1) Share percentages have been calculated using a unit sold basis.
(2) Aluminum sales are made through AKW, the Company's joint venture with
Kaiser.
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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.
MANUFACTURING
CONTINUOUS PRODUCTIVITY IMPROVEMENT. 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
facilities. Since 1991, the Company has invested over $86 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 majority of
recent expenditures targeted the Tubeless Heavy/Medium Wheel production
processes at both the Henderson, Kentucky facility and the Ontario, Canada
facility, and the Light Truck Dual Wheel production process at the Ontario,
Canada facility. The Company has budgeted approximately $7.7 million in 1999
(in addition to normal maintenance) for continued implementation of these
productivity enhancement programs. See "Item 7-Management's Discussion and
Analysis of Financial Condition and Results of Operations -Liquidity and
Capital Resources." Management believes that its emphasis on low-cost
manufacturing will continue to yield significant operational improvements.
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, 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.
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.
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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.
ALUMINUM SUPPLIERS. The Company participates in the aluminum Wheel
market through AKW, which obtains aluminum through various third-party
suppliers. The Company believes that aluminum is readily available from a
variety of sources.
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.
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. The Company's competitive advantages
include long standing customer relationships, broad product lines, high
quality products and low manufacturing costs. Due to the breadth of the
Company's product line, the Company competes with different companies in
different markets. The Company's principal competitor in the dual steel
Heavy/Medium Wheel and single steel Light Truck Wheel markets 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 market. In addition, Hayes Wheels has established a
significant global presence through its acquisition of European wheel
producer Lemmerz Holding GmbH. Hayes Wheels is the market leader in the
single Light Truck Wheel market and in the passenger car Wheel industry,
which are more diversified markets than the other markets in which the
Company competes. In the dual steel Light Truck Wheel industry, the Company's
principal competitor is Meritor Automotive, Inc. ("Meritor"), which has a 12%
share. Meritor and the Company are the only suppliers
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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 market, AKW's principal competitor is Alcoa Aluminum
Corporation of America ("Alcoa"), which has the leading share in that market.
Alcoa does not produce steel Wheels.
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 currently 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 for 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 "Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Subsequent Events" regarding the Company's execution of a letter of intent to
acquire Kaiser's 50% interest in AKW.
EMPLOYEES
As of December 31, 1998, the Company had 1,209 employees. Both the
Ontario, Canada facility and the Henderson, Kentucky facility are currently
unionized. Bargaining unit employees in the Ontario, Canada facility are
represented by National Automobile, Aerospace, Transportation and General
Workers Union of Canada ("CAW") Local #27. The existing contract was
implemented in March 1997, following a 53-day strike in which there was no
disruption to the customer base. The contract expires on March 13, 2000.
Hourly employees at the Henderson, Kentucky Facility are represented
by the International Union, Automobile, Aerospace, and Agriculture Implement
Workers of America ("UAW") Local #2036. The Company's contract with the UAW
expired in February 1998. The Company was not able to negotiate a mutually
acceptable agreement with the UAW, and a strike occurred at the Henderson,
Kentucky Facility on February 20, 1998. Effective as of March 31, 1998, the
Company began an indefinite lockout in order to provide security for plant
personnel and equipment. The UAW has rejected all of the Company offers, and
the parties continue to be unable to reach an agreement. The Company is
continuing to operate with its salaried employees and outside contractors.
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. Management estimates that the
strike at the Henderson facility affected pre-tax earnings in 1998 by $3.9
million. See "Item 7 -Management's Discussion and Analysis of Financial
Condition and Results of Operations - Overview."
The Company's AdM, AKW and AOT ventures have 58, 170, and 71
employees, respectively. The AKW employees at the Erie, Pennsylvania facility
are represented by UAW Local #1186 pursuant to a collective bargaining
agreement that expires in August 2003.
RESEARCH DEVELOPMENT
The Research and Development department is composed of 28 employees,
18 of whom are degreed engineers (seven with advanced degrees). The
objectives of the R&D department are to design and develop new products,
provide technical support and service to customers, and to investigate and
develop new process
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technology. Over the last few years, the Company has completed significant
new development programs in the areas of full-contoured styled steel Wheels,
new designs in forged aluminum Wheels, cast aluminum Wheels for Heavy/Medium
Truck applications in North America, and cladded wheels for Light Truck
applications. Research and Development costs for fiscal years 1998, 1997, and
1996 were approximately $2.9 million, $3.7 million, and $3.7 million,
respectively. These costs were expensed and included in general and
administration expenses during the period incurred.
PATENTS AND TRADEMARKS
Accuride maintains a significant intellectual property estate,
including patents and extensive proprietary knowledge of products and
systems. The Company currently holds 7 patents and 5 patents pending relating
to Wheel technology. The Company has applied for federal and international
trademark protection for numerous marks. Although management believes that
the patents and trademarks associated with the Company's various product
lines are valuable to the Company, it does not consider any of them to be
essential to its business.
SEASONALITY
The Company's operations are typically seasonal as a result of
regular customer maintenance and model changeover shutdowns, which normally
occur in the third quarter of each calendar year. At times, this may result
in decreased net sales and profitability during the Company's third fiscal
quarter.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and
local requirements, including, 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 storage 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. There can be no assurance that future regulations will not require
the Company to modify its facilities to meet revised requirements of
environmental laws.
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, Kentucky facility and the Ontario, Canada
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 Recapitalization
or any failure after the Recapitalization of the Company 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
8
<PAGE>
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.
ITEM 2. PROPERTIES
The Company operates six facilities in North America. The Company
owns manufacturing facilities in Henderson, Kentucky; Columbia, Tennessee;
and London, Ontario, Canada. The Company also leases a distribution warehouse
in Michigan, has a sales office in the greater Detroit area, and recently
signed a lease for a new office building in Evansville, Indiana, which should
be available in November 1999. The Company operates facilities in
Springfield, Ohio and Talbotville, Ontario, Canada through its joint ventures
with Goodyear and operates facilities in Erie, Pennsylvania and Cuyahoga
Falls, Ohio and leases office space in Akron, Ohio through its joint venture
with Kaiser. 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, which the Company believes will,
together with its existing facilities, provide production capacity to meet
expected demand for its products.
The Company's manufacturing and research facilities are as follows:
<TABLE>
<CAPTION>
LOCATION SQUARE USE OWNED/
------- FEET --- LEASED
------ ------
<S> <C> <C> <C>
London, Ontario, Canada 462,993 Heavy/Medium Steel Wheels; steel Light Truck Owned
Wheels
Henderson, Kentucky (a) 364,365 Headquarters; R&D; Heavy/Medium Steel Wheels Owned/Leased
Taylor, Michigan 7,500 Warehouse Leased
Springfield, Ohio (b) 136,000 Wheel and tire assemblies for Navistar Owned
Talbotville, Ontario, Canada (c) 159,140 Wheel and tire assemblies for Navistar Owned
Erie, Pennsylvania (d) 126,000 Aluminum Wheels forging Owned/Leased
Cuyahoga Falls, Ohio (e) 131,700 Aluminum Wheels machining Owned/Leased
Columbia, Tennessee (f) 340,000 Steel Light Truck Wheels Owned
Monterrey, Mexico (g) 262,000 Steel Wheels Owned
Evansville, Indiana (h) 34,000 Future headquarters of the Company Leased
</TABLE>
- -----------
(a) The land on which this facility is located is leased pursuant to an
industrial revenue financing arrangement. In February 1999, the initial
25-year term expired and the lease was renewed for an additional
25-year period with monthly lease payments of $1,333.00. At anytime
during the renewal period, the Company has the right to repurchase the
land for $1.00.
(b) Owned by AOT, the joint venture with Goodyear. See "Item 1-Business-
Products and Services-Heavy/Medium Wheels" and "-Strategic Alliances-
Assemblies on Time."
(c) Owned by AOT Canada Ltd. (the subsidiary of AOT) as part of the joint
venture with Goodyear. See "Item 1-Business-Products" and "-Strategic
Alliances-Assemblies on Time."
(d) The equipment is owned by AKW and the building is leased by AKW under a
ten-year lease from Kaiser at the rate of $1.00 per year. The initial term
of the lease expires in 2007. See "Item 1-Business -Strategic
Alliances-Accuride/Kaiser Wheels."
9
<PAGE>
(e) The equipment is owned by AKW and the building is leased by AKW from
The Bell Company on a month-to-month basis. This lease expired in
November 1998 and AKW is currently finalizing terms of the renewal and
anticipates yearly lease payments totaling $373,765. See "Item
1-Business -Strategic Alliances-Accuride/Kaiser Wheels."
(f) This facility began production in mid-1998.
(g) This facility is currently under construction and is scheduled to begin
production by mid-1999. The facility is owned by AdM. See
"Item 1-Business-Strategic Alliances-Accuride de Mexico."
(h) This facility, currently under construction, will be the new worldwide
headquarters of the Company. It is scheduled to be completed in
November, 1999.
The address of the Company's principal executive office is 2315
Adams Lane, P.O. Box 40, Henderson, Kentucky 42419 and the Company's phone
number is (502) 826-5000.
ITEM 3. LEGAL PROCEEDINGS
The Company does not believe that there are any material pending or
threatened legal proceedings other than ordinary litigation incidental to the
Company's business, that, if adversely determined, could have a material
adverse effect on the Company.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is privately held and not listed on any
public market. As of March 1, 1999, there were approximately 51 holders of
the Company's Common Stock.
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its Common
Stock. The Company currently intends to retain any future earnings to finance
the growth and development of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future. Any future determination
to pay cash dividends will be made by the Board of Directors in light of the
Company's earnings, financial position, capital requirements and such other
factors as the Board of Directors deems relevant. The payment of dividends is
restricted under the terms of the Revolver and the Indenture. See
"Item 7-Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
RECENT SALES OF UNREGISTERED SECURITIES
During the 1998 fiscal year, the Company issued approximately 768
shares of the Company's Common Stock to certain members of management for
aggregate consideration in cash and secured promissory notes of approximately
$3.8 million. During such period, the Company also issued options to purchase
approximately 1,458 shares of Common Stock to such members of management. The
exercise price of such options was $5,000 per share. None of these securities
were registered under the Securities Act. Such issuances of Common Stock and
options to purchase Common Stock were made pursuant to the 1998 Stock
Purchase and Option Plan for Employees of Accuride Corporation and
Subsidiaries. In each of the above instances, exemption from registration
under the Securities Act was based upon the grounds that the issuance of such
securities either (i) did not involve a public offering within the meaning of
Section 4(2) of the Securities Act or (ii) was offered and sold pursuant to a
compensatory benefit plan within the meaning of Rule 701 of the Securities
Act. See "Item 11-Executive Compensation -Employee Equity Arrangements."
11
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following financial data is an integral part of, and should be
read in conjunction with the "Consolidated Financial Statements" and notes
thereto. Information concerning significant trends in the financial condition
and results of operations is contained in "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations."
SELECTED HISTORICAL OPERATIONS DATA (In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
FISCAL YEAR ENDED DECEMBER 31,
------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales (a)......................... $383,583 $332,966 $307,830 $357,802 $333,556
Gross profit (b)...................... 82,554 65,994 61,723 64,549 59,020
Operating expenses (c)................ 34,034 21,316 17,941 16,869 16,938
Income from operations(b)............. 48,520 44,678 43,782 47,680 42,082
Interest income (expense), net........ (32,311) 385 400 717 701
Equity in earnings of affiliates...... 3,929 4,384 115 300 308
Other income (expense), net (d)....... (2,904) 719 (381) (1,375) (1,684)
Net income............................ 7,951 27,837 26,466 26,592 24,301
OTHER DATA:
Adjusted EBITDA (e)................... $ 88,160 $76,888 $64,023 $70,101 $62,928
Adjusted EBITDA Margin (f)............ 21.1% 21.8% 20.8% 19.5% 18.8%
Net cash provided by (used in):
Operating activities............ 22,662 38,219 43,678 50,012 44,600
Investing activities............ (44,669) (47,065) (9,370) (6,766) (6,342)
Financing activities............ 18,060 9,953 (37,463) (57,718) (14,900)
Cash interest expense (g)............. 31,450 145 33 35 90
Depreciation and amortization......... 24,926 20,726 20,126 21,121 20,538
Capital expenditures.................. 46,579 24,032 9,584 6,960 6,535
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents............. $ 3,471 $7,418 $6,311 $9,466 $23,938
Working capital....................... 49,203 27,416 38,608 34,785 33,385
Total assets.......................... 404,925 347,447 288,703 298,900 341,014
Total debt............................ 393,200 16,040 -- -- --
Stockholders' equity (deficiency)..... (58,096) 256,055 228,451 239,081 271,262
</TABLE>
- -------------------
(a) Results of operations for the year ended December 31, 1997 (subsequent
to May 1997) 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 $19.1 million and $1.1 million,
respectively, for the period beginning on January 1, 1997 and ending on
April 30, 1997. See "Item 7-Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(b) 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 Company's facility in Ontario, Canada.
Gross profit and income from operations for 1998 reflect $3.9 million
of costs incurred in connection with the strike in 1998 at the
Company's facility in Henderson, Kentucky and $1.1 million of
restructuring charges related to Accuride Canada, Inc.
12
<PAGE>
(c) Operating expenses include selling, general and administrative plus (i)
$3.3 million of start-up costs related to the Columbia, Tennessee
facility incurred during 1998, (ii) $1.9 million of management
retention bonuses reimbursed by Phelps Dodge in 1998, and (iii) $2.2
million of Recapitalization professional fees recorded in 1998.
(d) Other income (expense), net consists of currency hedging and foreign
exchange gains and losses related to the Company's Canadian and Mexican
operations.
(e) Adjusted EBITDA represents income from operations plus depreciation
and amortization, net of $1.7 million in amortization of deferred
financing costs in 1998 plus equity in earnings of affiliates, plus
(i) $7.1 million representing the impact of the strike at the
Ontario, Canada facility incurred during the first quarter of 1997,
(ii) $1.1 million of restructuring charges incurred in 1998, (iii)
$3.4 million representing the impact of the AKW wheel recall
campaign implemented in 1998, (iv) $1.9 million of management
retention bonuses reimbursed by Phelps Dodge in 1998, (v) $2.2
million of Recapitalization professional fees recorded in 1998 and
(vi) $3.9 million of costs incurred in connection with the strike
in 1998 at the Henderson, Kentucky facility. 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 Annual Report 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 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
$1.7 million amortization of deferred financing costs for the year
ended December 31, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
"Item 6 -- Selected Consolidated Financial Data" and the Company's
Consolidated Financial Statements and the notes thereto, all included
elsewhere herein. The information set forth in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" includes
forward-looking statements that involve risks and uncertainties. Many factors
could cause actual results to differ materially from those contained in the
forward-looking statements below. See "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations -Factors Affecting
Future Results."
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
market through a twenty-five year 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
13
<PAGE>
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 40%. 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 November, 1997, the Company 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, Kentucky facility and
its Ontario, Canada 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. 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.
In order to expand its presence in the growing Light Wheel market,
the Company developed the Columbia, Tennessee facility, which began
production in August 1998.
Sales to customers outside of the United States are considered
international sales by the Company. International sales in 1998 were $60.2
million, or 15.7% of the Company's 1998 sales volume. For additional
information, see footnote 14 to the "Notes to Consolidated Financial
Statements" included herein.
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. Steel Wheel
sales volume for the fiscal year ended 1998 exceeded 1997 levels by 22%. On a
quarter to quarter basis, 1998 sales volume was relatively stable and did not
vary in a significant manner.
GROSS PROFIT. The Company continuously strives to improve
productivity, increase quality and lower costs. Management has budgeted
approximately $7.7 million in 1999 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 $7.7 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.
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. 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.
14
<PAGE>
The Company believes that the experience of its labor force is a
significant element in maintaining low-cost production. However, the Company
has experienced two significant labor problems in the past two years. In the
first quarter of 1997, the Company experienced a 53-day strike at the
Ontario, Canada facility. The Company estimates that the strike at the
Ontario, Canada facility negatively impacted 1997 gross profit by $7.1
million. The Company's contract with the UAW covering employees at the
Henderson, Kentucky facility expired in February 1998. The Company was not
able to negotiate a mutually acceptable agreement with the UAW, and a strike
occurred at the Henderson, Kentucky facility on February 20, 1998. Effective
March 31, 1998, the Company began an indefinite lockout in order to provide
security for plant personnel and equipment. The UAW has rejected all of the
Company's offers and the parties continue to be unable to reach an agreement.
The Company is continuing to operate with its salaried employees and outside
contractors. 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 estimates
that the strike at the Henderson, Kentucky Facility negatively impacted 1998
gross profit by $3.9 million.
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, and administrative as well as related professional
consulting fees. In an effort to support its growth initiatives, and its new
stand-alone status, the Company has invested in additional professional and
administrative resources, primarily in sales and marketing. These resource
additions resulted in increased SG&A for 1996, 1997 and 1998.
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, which provides 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. AKW total
sales were $86.5 million and $52.5 million for 1998 and 1997, respectively.
AOT total sales were $7.8 million and $6.9 million for 1998 and 1997,
respectively.
ADJUSTED EBITDA. Adjusted EBITDA represents income from operations
plus depreciation and amortization, net of $1.7 million in amortization of
deferred financing costs in 1998 plus equity in earnings of affiliates, plus
(i) $7.1 million representing the impact of the strike at the Ontario, Canada
facility incurred during the first quarter of 1997, (ii) $1.1 million of
restructuring charges incurred in 1998, (iii) $3.4 million representing the
impact of the AKW wheel recall campaign implemented in 1998, (iv) $1.9
million of management retention bonuses reimbursed by Phelps Dodge in 1998,
(v) $2.2 million of Recapitalization professional fees recorded in 1998 and
(vi) $3.9 million of costs incurred in connection with the strike in 1998 at
the Henderson, Kentucky facility. 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 the
Annual Report 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.
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 approximately 47,800
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%
15
<PAGE>
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 for 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 "Item 1-Business-AKW
Product Recall," and "--Subsequent Events."
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS 1998 AND 1997
The following table sets forth certain income statement information of the
Company for the fiscal years ended December 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................... $383,583 100.0% $332,966 100.0%
Gross profit................................ 82,554 21.5% 65,994 19.8%
Operating expenses.......................... 34,034 8.9% 21,316 6.4%
Income from operations...................... 48,520 12.6% 44,678 13.4%
Equity in earnings of affiliates............ 3,929 1.0% 4,384 1.3%
Other Income (expense)...................... (35,215) (9.2%) 1,104 0.3%
Net income.................................. 7,951 2.1% 27,837 8.4%
OTHER DATA:
Adjusted EBITDA............................. 88,160 21.1%(a) $76,888 21.8%(a)
</TABLE>
- -------------------
(a) Represents Adjusted EBITDA Margin.
NET SALES. Net sales increased by $50.6 million, or 15.2%, in 1998
to $383.6 million, compared to $333.0 million for 1997. The increase in net
sales is primarily due to increased industry volume and sales of AdM, which
was formed in November, 1997. Sales of aluminum wheels 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 Aluminum & Chemical Corporation. Earnings from
the AKW joint venture are currently reflected in other income as equity in
earnings of affiliates. Excluding $19.1 million in net sales of aluminum
products through the buy and resell agreement for the four month period ended
April 30, 1997, net sales increased by $69.7 million, or 22.2%, to $383.6
million for 1998 compared to $313.9 million for 1997.
GROSS PROFIT. Gross profit increased by $16.6 million, or 25.1%, to
$82.6 million for 1998 from $66.0 million for 1997. Gross profit as a
percentage of net sales increased to 21.5% for 1998 from 19.8% for 1997.
Production costs were higher for 1997 due to estimated incremental strike
costs of $7.1 million at the London, Ontario facility, partially offset by
estimated incremental strike costs of $3.9 million at the Henderson, Kentucky
facility in 1998. Additionally, 1997 included aluminum sales under the buy
and resell agreement, which had significantly lower margins than steel wheel
sales. Excluding strike costs in 1997 and 1998 and $1.1 million in gross
profit relating to sales of aluminum products through the buy and resell
agreement for the first four months of 1997, gross profit increased by $14.5
million, or 20.1 %, to $86.5 million for 1998 from $72.0 million for 1997.
OPERATING EXPENSES. Operating expenses increased by $12.7 million,
or 59.7% to $34.0 million for 1998 from $21.3 million for 1997. This increase
was primarily due to start-up costs of $3.3 million relating to the new
Tennessee light truck wheels facility, management retention bonuses of $1.9
million reimbursed by Phelps Dodge in conjunction with the Recapitalization,
professional fees related to the Recapitalization of $2.2 million and
selling, general and administrative expenses of AdM of $2.7 million.
Excluding the expenses recorded for start-up costs, management retention
bonuses and Recapitalization
16
<PAGE>
professional fees for 1998, operating expenses as a percentage of net sales
increased to 6.9% for 1998 from 6.4% for 1997 primarily due to stand alone
costs associated with operating as a separate company since the
Recapitalization.
EQUITY IN EARNINGS OF AFFILIATES. Equity in earnings of affiliates
decreased by approximately $0.5 million to $3.9 million for 1998 from $4.4
million for 1997. The decrease was primarily due to the effect of a product
recall campaign implemented at AKW. Excluding the $3.4 million related to the
recall, equity in earnings of affiliates increased $2.9 million for 1998 to
$7.3 million from $4.4 million for 1997 due to increased equity earnings
related to the AKW joint venture. The AKW joint venture contributed $6.9
million (excluding the $3.4 million recall) of earnings for 1998 compared to
earnings of $4.2 million for 1997.
OTHER INCOME (EXPENSE). Interest expense increased to $33.1 million
for 1998 compared to $145 thousand for 1997 due to the debt incurred related
to the Recapitalization on January 21, 1998. Other expenses increased by $3.6
million due to a $2.6 million loss on forward exchange contracts and $1.5
million of currency losses incurred at AdM, partially offset by $0.5 million
currency gains incurred at Accuride Canada, Inc.
ADJUSTED EBITDA. Adjusted EBITDA increased by $11.3 million, or
14.7%, to $88.2 million for 1998 from $76.9 million for 1997 due to higher
steel product sales volume. In determining Adjusted EBITDA for 1998, income
from operations has been increased by depreciation and amortization (except
for amortization of deferred financing costs), equity in earnings of
affiliates and (i) an estimated $3.9 million of costs incurred in connection
with the strike in 1998 at the Company's facility in Henderson, Kentucky,
(ii) $1.9 million of management retention bonuses reimbursed by Phelps Dodge,
a previous principal stockholder, in 1998, (iii) $2.2 million of
Recapitalization professional fees, (iv) $3.4 million representing the impact
of the AKW wheel recall campaign implemented in 1998 and (v) $1.1 million of
estimated restructuring costs at the London, Ontario facility. In determining
Adjusted EBITDA for 1997, income from operations has been increased by
depreciation and amortization, equity in earnings of affiliates and
$7.1million representing the estimated impact of the strike at the London,
Ontario facility in the first quarter of 1997.
NET INCOME. Net income decreased by $19.9 million, or 71.6 %, to
$8.0 million for 1998 from $27.8 million for 1997, due to lower pretax
earnings, as described above, and a higher effective tax rate.
COMPARISON OF FISCAL YEARS 1997 AND 1996
The following table sets forth certain income statement information
of the Company for the fiscal years ended December 31, 1997 and December 31,
1996:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.............................................. $332,966 100.0% $307,830 100.0%
Gross profit........................................... 65,994 19.8% 61,723 20.1%
Operating expenses..................................... 21,316 6.4% 17,941 5.8%
Income from operations................................. 44,678 13.4% 43,782 14.2%
Equity in earnings of affiliates....................... 4,384 1.3% 115 0.0%
Other Income (expense)................................. 1,104 0.33% 19 0.0%
Net income............................................. 27,837 8.4% 26,466 8.6%
OTHER DATA:
Adjusted EBITDA........................................ $76,888 21.8%(a) $64,023 20.8%(a)
</TABLE>
(a) Represents Adjusted EBITDA Margin.
17
<PAGE>
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 of 1997.
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, Canada 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, Canada 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.
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, Canada 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.
EFFECTS OF INFLATION.
The effects of inflation were not considered material during fiscal
years 1998, 1997, or 1996.
18
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
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 relating to the
Company's expansion plans and to service debt.
At the end of 1998, the Company had cash and short-term investments
of $3.5 million compared to $7.4 million at the beginning of the year. The
Company's operating activities provided $22.7 million and the financing
activities provided $18.1 million which was used to fund its investing
activities of $44.7 million.
Cash flows from operating activities in 1998 were $22.7 million
compared to $38.2 million in 1997. The $15.5 million decrease was primarily
due to the interest expense associated with the Recapitalization of $33.0
million and was partially offset by the tax effect of the interest deduction
of $15.2 million.
Investing activities during 1998 was $44.7 million compared to $47.1
million in 1997. Included in the 1998 investing were capital expenditures for
the new facilities at AdM of $16.7 million and Columbia, Tennessee of $15.8
million as well as capital spending for the base business of $14.1 million.
In 1997, investing activities included the Company's investment in AKW of
$20.8 million and the investment in AdM of $4.9 million and capital spending
for the base business of $22.2 million and $1.8 million in capital
expenditures for AdM.
Cash flow from financing activity of $18.1 million was primarily
driven by the Recapitalization, a $11.5 million increase in the borrowings at
AdM to fund its new facility, and a $3.2 million increase in the Company's
revolving credit facility since the Recapitalization.
The Company incurred capital expenditures in 1998 (excluding capital
expenditures by AdM) of $29.9 million. The Company expects its capital
expenditures (excluding capital expenditures by AdM) to decrease to
approximately $26.2 in 1999. It is anticipated that these expenditures will
fund (i) approximately $6.0 million of technology advancement projects; (ii)
investments in productivity improvements in 1999 to the Company's steel Wheel
business of approximately $7.7 million and (iii) maintenance of business
expenditures of approximately $10.5 million. Future investments in
productivity improvements are expected to be focused on additional
automation, shop floor and engineering systems, and improved coating
capabilities.
The Company anticipates that AdM will require capital expenditures
of approximately $11.9 million in 1999 to finalize construction and equip the
Monterrey, Mexico facility. The Monterrey, Mexico facility is expected to be
operational in mid-1999 at an approximate cost for land and building of $9.2
million. Total project cost through 1999 is expected to be approximately
$29.4 million, of which approximately $18.5 million was spent as of December
31, 1998. The Company finalized a $32.5 million credit facility for AdM on
July 9, 1998. This is comprised of a term loan of $25.0 million and a working
capital facility of $7.5 million.
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 (the "Term Loans") and a $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,
same-day 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
19
<PAGE>
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, at the option of the Company, is either the Eurodollar Rate (as defined
in the Credit Facility) plus 1.25% to 2.50% or Base Rate (as defined in the
Credit Facility) plus 0.25% to 1.50%. The interest rate under the Revolver
fluctuates based on leverage and, at the option of the Company, is either the
Eurodollar Rate plus 0.875% to 2.25% or the Base Rate plus 0.0% to 1.25%. 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). At December 31, 1998, the interest rate for the Term Loan,
Tranche A was the Eurodollar Rate plus 1.75%, for the Term Loan, Tranche B
the interest rate was the Eurodollar Rate plus 2.0% and for the Revolver the
interest rate was the Eurodollar Rate plus 1.625%. The Company has entered
into an interest rate cap agreement and an interest rate swap agreement to
manage its interest rate exposure on a portion of its floating-rate debt
obligation. (See Item 7A "Quantitative and Qualitative Disclosure About
Market Risk").
DESCRIPTION OF THE NOTES. The Notes were issued pursuant to the Indenture
(the "Indenture") between the Company and U.S. Trust Company, N. A., 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 and subsequently exchanged for Exchange Notes, which exchange has been
registered under the Securities Act. Additional notes may be issued in one or
more series from time to time, subject to the limitations set forth under the
Indenture. The Indenture provides certain restrictions on the payment of
dividends by the Company. The Indenture is subject to and governed by the
Trust Indenture Act of 1939, as amended. The Notes are general unsecured
obligations of the Company and are subordinated in right of payment to all
existing and future Senior Indebtedness of the Company. As of December 31,
1998, the aggregate amount of the Company's outstanding Senior Indebtedness
was approximately $194.2 million. The Notes mature on February 1, 2008.
Interest on the Notes accrues at the rate of 9 1/4% per annum and is due and
payable semi-annually in arrears on February 1 and August 1, commencing on
August 1, 1998, to holders of record of the Notes on the immediately
preceding January 15 and July 15.
Management believes that cash flow from operations and availability
under the Revolver will provide adequate funds for the Company's foreseeable
working capital needs for 1999, planned capital expenditures 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 December 31, 1998, the Company's stockholders' equity
(deficiency) amounted to $(58.1) million, compared to $256.1 million at
December 31, 1997. The decrease in stockholders' equity (deficiency) was
primarily due to the cost of the Redemption of $452.6 million, which was
partially offset by $110.2 million increase in common stock and additional
paid-in capital, net of the related stock subscriptions receivable.
YEAR 2000 COMPLIANCE
In 1997, a comprehensive project plan to address the Year 2000 issue
as it relates to the Company's operation was developed and implemented. The
scope of the plan includes seven phases including Awareness, Identification,
Impact Analysis, Risk Evaluation, Remediation, Testing and
20
<PAGE>
Contingency Planning. A project team that consists of key members of the
technology staff, representatives of functional business units and senior
management was developed.
An assessment of the impact of the Year 2000 issue on the Company's
computer systems was completed in the fourth quarter of 1997. From the
assessment, the Company identified and prioritized those systems deemed to be
mission critical or those that have a significant impact on normal operations.
The Company relies on third party vendors and service providers for
certain data processing capabilities. Formal communications with these
providers were initiated in 1997 to assess the Year 2000 readiness of their
products and services. Responses indicate that the significant providers
currently have compliant versions available or are well into the renovation
and testing phases. However, the Company can give no guarantee that the
systems of these service providers and vendors on which the Company's systems
rely will be timely Year 2000 compliant.
Additionally, the Company has implemented a plan to manage the
potential risk posed by the impact of the Year 2000 issue on its major
customers and suppliers. Formal communications have been initiated, and the
assessment is moving forward on schedule.
CURRENT STATUS. The project team estimates that the Company's Year
2000 readiness project is approximately 75% complete. The following table
provides a summary of the current status of the seven phases involved and a
projected timetable for completion.
<TABLE>
<CAPTION>
Project Phase % Completed Completion Comments
------------- ----------- ---------- --------
<S> <C> <C> <C>
Awareness 100% Completed
Identification 100% Completed
Impact Analysis 100% Completed
Risk Evaluation 95% April 30, 1999 Suppliers & service providers are being
evaluated.
Remediation 95% Aug. 31, 1999 All critical systems are completed.
Testing 85% June 30, 1999 Involves ongoing testing of critical systems
Contingency Plan 10% Sept. 30, 1999
Overall Completion Estimate 75%
</TABLE>
COSTS. The Company has thus far primarily used and expects to
continue to use internal resources to implement its readiness plan and to
upgrade or replace and test systems affected by the Year 2000 issue. During
1998, the Company incurred approximately $1.3 million of direct and indirect
costs for company-owned systems and applications related to Year 2000
remediation. A majority of these costs are currently believed to be
incremental expenses that will not recur in the Year 2000 or thereafter. Year
2000 remediation costs were approximately $1.4 million in 1997. The Company
estimates that its additional costs for Year 2000 remediation and testing of
its computer systems through the end of 1999 will not exceed $1.1 million.
The costs and the timetable in which the Company plans to complete
the Year 2000 readiness activities are based on management's estimates, which
were derived using numerous assumptions of future events including the
continued availability of certain resources, third party readiness plans and
other factors. The Company can make no guarantee that these estimates will be
achieved, and actual results could differ from such plans.
RISK ASSESSMENT. 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 a
material adverse impact on the Company. Although the Company believes that
internal Year 2000 compliance will be achieved by December 31, 1999, there
can be no assurance that the Year 2000 problem affecting the Company, its
customers and suppliers will not have a material adverse effect on the
Company's business,
21
<PAGE>
financial condition and results of operations. In light of the many adverse
conditions that could happen to the Company associated with Year 2000
compliance, along with the speculation that some or many of them may not
happen, it is difficult to hypothesize a most reasonably likely worst case
Year 2000 scenario with any degree of certainty. With that in mind, the
Company currently believes the most reasonably likely worst case scenario
would be the failure of certain key production capabilities or similar
failures occurring within the Company's supply chain. These types of
catastrophic failures, although unlikely, would result in the inability of
the Company to supply products to customers for a period of time.
CONTINGENCY PLAN. Realizing that some disruption may occur despite
its efforts, the Company is in the process of developing contingency plans
for each critical system in the event that one or more of those systems fail.
Although not yet complete, the Company is considering the following items,
among others, as key pieces of the contingency plans: the creation of special
"rapid response" technology teams; scheduling availability of key personnel,
additional testing and simulation activities, establishment of rapid decision
processes, development of support critical customer functions in the event
information systems or mechanized processes experience Year 2000 disruptions,
determination of alternative suppliers and implementation of data retention
and recovery procedures for customers and critical business data with on-site
(primary) as well as off-site (secondary) data copies. While this is an
ongoing process, the Company expects to have the contingency plan
substantially completed by September 30, 1999.
INDUSTRY OUTLOOK
The Company's primary market is Wheels for the North American
commercial vehicle industry. This industry and the global vehicle industry in
general are in a period of transition, marked by strengthening competition,
geographic expansion of manufacturing, and consolidation at both vehicle
manufacturer and supplier levels. These trends are expected to continue into
the near future. Major OEM customers are consolidating and continue to extend
their globalization efforts and emphasize their desire for global support
through local production. These customers also continue to reduce the number
of suppliers in their supply base. As a result of these developments and
recognizing the importance of the customer to its business, the Company
expects in the future to increasingly serve other global commercial and
consumer wheel markets. The Company aims to be a full line, global wheel
supplier. In a further effort to reduce their number of suppliers, OEMs are
also moving toward systems sourcing. This provides opportunity for wheel
makers to expand into related components such as hubs and drums, suspension
systems and brake systems.
Current industry forecasts by America's Commercial Transportation
Publications, the Automotive Market Research Council, and Martin Labbe
Associates (collectively referred to as "Analysts"), predict that the North
American commercial vehicle industry will remain strong in 1999, and should
equal or exceed its 1998 levels. The industry has historically been cyclical
however, and the Analysts predict that the industry will enter the downward
portion of this cycle in late 1999 or early 2000. The industry cycle has
typically had a 5 to 7 year period and a 25% upside/downside, although this
volatility could be diminishing. On a global basis, the Company believes that
the demand for commercial and other on-highway vehicles will continue to
grow. The North American and European markets are expected to remain
relatively stable and experience modest growth rates, while South America and
Asia are expected to experience higher growth rates and be more volatile.
In the light vehicle Wheel market in North America, Wheels are now
considered to be more integral to styling, and the Company believes that
styling and design innovation will continue to play a key role for both steel
and aluminum wheel suppliers in this market.
Wheels for on-road vehicles, both consumer and commercial, are
generally made of steel or aluminum, which offer vehicle OEMs a range of
design options. Steel wheels, which are heavier than aluminum wheels, are
generally low cost, high volume production products. Aluminum wheels are
lighter in weight, more readily stylized and more expensive than steel
wheels. The share of aluminum wheels on commercial vehicles in North America
is approximately 30%, and the Company believes that this share will continue
to grow modestly due to the value placed on reduced weight and more
attractive aesthetics. On light vehicles, aluminum wheels have an approximate
45% share of the wheel market, and this share
22
<PAGE>
has apparently reached a plateau as more highly styled and lighter weight
steel wheels have been developed. The Company believes the current share of
aluminum light wheels will decline modestly in the near future due to
continued steel wheel developments. Market and general economic conditions
can also significantly impact the relative share of the two materials in both
consumer and commercial wheel markets, due to their large difference in cost
and the elasticity of price and demand.
SUBSEQUENT EVENTS
On January 22, 1999, the Company announced that it had executed a
letter of intent to acquire Kaiser's 50% interest in AKW. The transaction is
subject to completion of due diligence, government approvals, and the
preparation and execution of definitive documents.
FACTORS THAT MAY AFFECT FUTURE RESULTS
In this report, the Company has made various statements regarding
current expectations or forecasts of future events. These statements are
referred to as "forward-looking statements." Forward-looking statements are
also made from time-to-time in the Company's press releases and in oral
statements made by Company officers. Forward-looking statements can be
identified by the words "estimate," "project," "anticipate," "will continue,"
"will likely result," "expect," "intend," "believe," "plan," "predict," and
similar expressions. All of these forward-looking statements are based on
estimates and assumptions made by management of the Company, which, although
believed to be reasonable, may turn out to be incorrect. Therefore, undue
reliance should not be placed upon such estimates and statements. No
assurance can be given that any such statements or estimates will be realized
and actual results may differ from those contemplated by such forward-looking
statements. The Company undertakes no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events, or otherwise. You are advised, however, to consult further
disclosures the Company may make on related subjects in its filings with the
SEC. There can be no assurance that management's expectations, beliefs, or
projections will result or be achieved or accomplished. In addition to other
factors discussed in the report, some of the important factors that could
cause actual results to differ materially from those discussed in the
forward-looking statements include the following:
DEPENDENCE ON MAJOR CUSTOMERS. The Company derived (not including
sales of aluminum Wheels by AKW) approximately 17%, 12% and 11% of its 1998
net sales from Ford, Navistar and Freightliner, respectively (including sales
of aluminum wheels by AKW, total sales to Ford, Navistar, and Freightliner
were 16%, 17%, and 15% of 1998 net sales, 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
Freightliner, Ford, and/or Navistar could have a material adverse effect on
the Company's business. In addition, the delay or cancellation of material
orders from, or problems at, Freightliner, Ford, and Navistar or any of the
Company's major customers could have a material adverse effect on the
Company. See "Item 1-Business-Customers."
SIGNIFICANT INDEBTEDNESS. At December 31, 1998, the Company's total
indebtedness was $393.2 million and its total stockholders' deficit was $58.1
million. The Company may incur additional indebtedness in the future.
The Company's ability to make debt payments or to refinance its
indebtedness depends on its future performance, which, to a certain extent,
is subject to general economic, financial, competitive and other factors,
some of which are beyond its control. Based upon the current level of
operations and anticipated growth, the Company believes that available cash
flow, together with available credit, will be adequate to meet the Company's
financial needs. There can be no assurance, however, 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
pay its debts or to make necessary capital expenditures, or that any
23
<PAGE>
refinancing of debt would be available on commercially reasonable terms or at
all. See "Item 7-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 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 may be impaired or unavailable; (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; and (vi) the Indenture, the Credit
Facility and the AdM Credit Facility 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 and pay cash
dividends.
A significant portion of the Company's outstanding debt bears
interest at variable rates. While the Company has entered into interest rate
protection agreements to limit its exposure to increases in such interest
rates, such agreements will not eliminate the exposure to variable rates.
Therefore, any future 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.
DEPENDENCE ON THE COMPANY'S SUBSIDIARIES AND VENTURES. Since a
substantial portion of the Company's operations is conducted through its
subsidiaries and ventures with third parties, the Company's operating cash
flow and its ability to service its indebtedness is dependent upon the cash
flow of such 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 December 31, 1998, the subsidiaries of the Company had total
liabilities of $60.6 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.
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 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 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 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 have historically
experienced significant fluctuations in demand based on such factors as
general economic conditions, interest rates, government regulations and
consumer confidence. It is likely that the Heavy/Medium Truck, Trailer and
Light Truck industries supplied by the Company will experience downturns at
some time 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
typically seasonal as a result of regular customer maintenance and model
changeover shutdowns, which typically occur in the third quarter of each
calendar year. This may result in decreased net sales and profitability
during the Company's third fiscal quarter.
24
<PAGE>
LABOR RELATIONS. At December 31, 1998, approximately 78% of the
Company's employees at its Henderson, Kentucky facility were represented by
the UAW and approximately 83% of the Company's employees at the Ontario,
Canada facility were represented by the CAW. The Company had a 53-day strike
at the Ontario, Canada facility in 1997 and currently has a strike at the
Henderson, Kentucky facility (See "Item 1-Business-Employees"). Throughout
the strike periods the Company's operations has continued with salaried
personnel and outside contractors. There has not been, 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. Management estimates that the strike at the Henderson, Kentucky
Facility affected pre-tax earnings in 1998 by $3.9 million. See "Item
7-Management's Discussion and Analysis of Financial Condition and Results of
Operations".
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 obtains
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 "Item
1-Business-Supplier Relationships."
COMPETITION. Due to the breadth of the Company's product line, the
Company competes with different companies in different markets. Several of
these competitors have substantially greater financial resources than the
Company. In addition, 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 or that the Company's expansion in its
markets and planned entry into additional markets will not expose the Company
to an increasing number of well-capitalized competitors. See "Item
1-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. 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.
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. See "Item 1-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
25
<PAGE>
through its AdM venture, (ii) expand its aluminum Wheel production facilities
in the United States and (iii) expand its presence in the Light Wheel market.
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 these growth strategies and may adopt alternative or additional
strategies. The Company may not have the financial resources available to
take advantage of opportunities to pursue these growth strategies. In
addition, there can be no assurance that any such strategies, if implemented,
will be successful or will improve operating results. Some 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 and
industry markets or attempts to increase its shares of existing markets, it
may encounter significant competition, 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 "Item 1-Business-Competition."
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 "Item
10-Directors and Executive Officers of the Company."
CONTROL BY KKR AFFILIATES. As of December 31, 1998, approximately
87% of the Company's Common Stock was 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 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 other holders of the company's securities.
See "Item 10-Directors and Executive Officers of the Company" "Item
12-Security Ownership of Certain Beneficial Owners and Management" and "Item
13-Certain Relationships and Related Transactions."
RESTRICTIVE DEBT COVENANTS. The Company's credit documents 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 debt, to create liens, to make certain
payments and investments and to sell or otherwise dispose of assets and merge
or consolidate with other entities. The Company is also required to meet
certain financial ratios and tests. A failure to comply with the obligations
contained in the credit documents could result in an event of default, and
possibly 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.
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 has identified its applications that are not "Year 2000"
compliant and is working to modify or replace such applications, as
necessary. 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 is in the process of identifying
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
26
<PAGE>
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.
See "Item 7-Management's Discussion and Analysis of Financial Condition and
Results of Operations-Year 2000 Compliance."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company, in the normal course of doing business, is exposed to
the risks associated with foreign currency exchange rates and changes in
interest rates. The Company uses foreign exchange contracts to hedge both
balance sheet and off-balance sheet foreign currency commitments.
Specifically, these foreign exchange contracts offset foreign currency
denominated purchase commitments from suppliers, accounts receivable from and
future committed sales to customers, and operating expenses in Canada.
Management believes the use of foreign currency financial instruments reduces
the risks that arise from doing business in international markets. Contracts
are generally one year or less. At December 31, 1998, the Company had open
foreign exchange forward contracts with a notional amount of $79.6 million.
For additional information, see footnotes 1 and 8 to the notes to the
Consolidated Financial Statements included herein.
The Company's hedging activities provide only limited protection
against currency exchange risks. Factors that could impact the effectiveness
of the Company's hedging programs include accuracy of sales estimates,
volatility of currency markets and the cost and availability of hedging
instruments. The counterparties to the forward contracts are financial
institutions with investment grade credit ratings. The Company monitors its
foreign currency cash flow transactions and executes forward contracts to
reduce its foreign exchange exposures. The use of forward contracts protects
the Company's cash flows against unfavorable movements in exchange rates, to
the extent of the amount under contract. A 10% adverse change in currency
exchange rates for the Company's foreign currency derivatives held at
December 31, 1998, would have an impact of approximately $7.9 million on the
fair value of such instruments. This quantification of exposure to the market
risk associated with foreign exchange financial instruments does not take
into account the offsetting impact of changes in the fair value of the
Company's foreign denominated assets, liabilities and firm commitments.
Accuride uses long-term debt as a primary source of capital in its
business. The following table presents the principal cash repayments and
related weighted average interest rates by maturity date for Accuride
long-term fixed-rate debt and its other types of long-term debt at
December 31, 1998:
<TABLE>
<CAPTION>
(Dollars in Fair
thousands) 1999 2000 2001 2002 2003 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt:
Fixed $200,000 $200,000 $200,000
Avg. Rate 9.25% 9.25%
Variable $1,350 $1,350 $9,708 $12,494 $4,137 $161,250 $190,289 $190,289
Avg. Rate 6.83% 6.83% 8.65% 8.71% 8.25% 6.77% 7.03%
</TABLE>
The Company has used an interest rate swap to alter interest rate
exposures between fixed and floating rates on a portion of the Company's
long-term debt. As of December 31, 1998, $100.0 million notional amount of
interest rate swap was outstanding. On average during 1998, the Company paid
5.75% as a fixed rate and received 5.5685% on the swap. Under the terms of
the interest rate swap, the Company agrees with the counterparty to exchange,
at specified intervals, the difference between the fixed rate and floating
rate interest amounts calculated by reference to the agreed notional
principal amount. The swap matures in January, 2001. The Company also used an
interest rate cap to set a ceiling on the maximum floating interest rate the
Company would incur on a portion of the Company's long term debt. As of
27
<PAGE>
December 31, 1998, $35.0 million notional amount of interest rate cap was
outstanding. Under the terms of the interest rate cap, the Company is
entitled to receive from the counterparty on a quarterly basis the amount, if
any, by which the three-month Eurodollar interest rate exceeds 7.5%. The cap
matures in January, 2001. For additional information, see footnotes 1 and 8
to the notes to the Consolidated Financial Statements included herein. The
Company is exposed to credit related losses in the event of nonperformance by
the counterparties to the swap and cap, although no such losses are expected
as the counterparties are financial institutions having an investment grade
credit rating.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached, beginning at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
[THIS SPACE INTENTIONALLY LEFT BLANK]
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, and their ages as
of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William P. Greubel........ 47 Director, President and Chief Executive Officer
David K. Armstrong........ 42 Vice President-General Counsel
Birum G. Campbell......... 51 Vice President-Light Wheel Unit
Robert J. Fagerlin........ 52 Vice President and General Manager, AdM
Elizabeth I. Hamme........ 48 Vice President-Human Resources and Continuous Improvement
Terrence J. Keating....... 49 Vice President-Operations
John R. Murphy............ 48 Vice President-Finance and Chief Financial Officer
William D. Noll........... 51 Vice President-Product Development & Technology
Bradford C. Schultz....... 56 Senior Vice President-Sales
Henry L. Taylor........... 44 Vice President-Marketing and International Sales
Henry R. Kravis........... 54 Director
George R. Roberts......... 55 Director
James H. Greene, Jr....... 48 Director
Todd A. Fisher............ 33 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.
DAVID K. ARMSTRONG. Mr. Armstrong joined the Company as Vice President
and General Counsel in October 1998. Prior to joining the Company, Mr.
Armstrong was a partner at the law firm of Snell & Wilmer L.L.P. Mr.
Armstrong holds a B.S. and MAcc in Accounting and a Juris Doctorate, all from
Brigham Young 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 Vice President-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
since 1991. From 1989 to 1991, Ms. Hamme held the positions of Division Human
Resources Manager and Group Manager of Human Resources Development and
Compensation with FMC Corporation (Chemical Products Group). Ms. Hamme holds
a B.A. in Political Science and an M.A. in Adult Education from the George
Washington University.
29
<PAGE>
TERRENCE J. KEATING. Mr. Keating joined the Company in December, 1996.
From 1995 to November, 1996, Mr. Keating was the manager of Indianapolis
Diesel Engine Plant of Navistar International Transportation Company. From
1990 to 1995, Mr. Keating was Vice President of Operations of Peerless Pump,
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.
JOHN R. MURPHY. Mr. Murphy joined the Company in March, 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
and has worked with the company since that time. 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., The Boyds Collection,
Ltd., BRW Acquisition, Inc., Evenflo Company, Inc. The Gillette Company, IDEX
Corporation, KinderCare Learning Centers, Inc., KSL Land Corporation, KSL
Recreation Corporation, MedCath Incorporated, Newsquest Capital plc, Neway
Anchorlok International, Inc., 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., Spalding Holdings
Corporation, and U.S. National Resources, Inc. Mr. Kravis is a first cousin
of Mr. Roberts.
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 Amphenol
Corporation, Borden, Inc., The Boyds Collection, Ltd., BRW Acquisition, Inc.,
Evenflo Company, Inc., IDEX Corporation, KinderCare Learning Center, Inc., KSL
Land Corporation, KSL Recreation Corporation, MedCath Incorporated, Neway
Anchorlok International, Inc., Owens-Illinois Group, Inc., Ownens-Illinois,
Inc., PRIMEDIA, INC., Randalls Food Markets, Inc., Regal Cinemas, Inc.,
RELTEC
30
<PAGE>
Corporation, Safeway, Inc., Spalding Holdings Corporation, Trinity
Acquisition, plc and U.S. National Resources, Inc. Mr. Roberts is a first
cousin of Mr. Kravis.
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, BRW Acquisition, Inc. and Trinity Acquisition, plc.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS. Members of the Board of Directors
employed by the Company do not receive any separate compensation for services
performed as a director. Those members of the Board of Directors not
otherwise employed by the Company receive a $30,000 annual retainer. There is
no separate compensation for service on the compensation or audit committees.
See also "Item 13-Certain Relationships and Related Transactions."
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the
compensation paid by the Company for services rendered during the year ended
December 31, 1998 to the Chief Executive Officer and to each of the four
other most highly compensated executive officers of the Company (the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- ----------------------- --------
Restricted Securities
Name and Principal Other Annual Stock Underlying LTIP All Other
Position Year Salary Bonus Compensation (a) Award(s) Options/SARs Payouts Compensation (b)
- ------------------ ---- ------ ----- ---------------- ---------- ----------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William P. Greubel 1998 $240,000 $117,700 $13,226 -- -- -- $772,468
(President and Chief 1997 $200,000 $78,900 $38,222 -- -- -- $24,474
Executive Officer) 1996 $185,520 $105,000 $22,896 $358,125 $12,000 -- $8,857
Bradford C. Schultz 1998 $152,200 $70,100 $11,603 -- -- -- $237,308
(Senior Vice 1997 $144,900 $41,900 $7,899 -- -- -- $16,194
President - Sales) 1996 $138,000 $53,793 $3,300 -- $4,000 -- $15,624
Terrence Keating 1998 $143,100 $61,800 $11,115 -- -- -- $226,599
(Vice President - 1997 $135,000 $12,701 $1,338 -- -- -- $22,793
Operations) (c) 1996 $11,250 -- $323 -- $3,500 -- --
William D. Noll 1998 $123,200 $55,100 $11,115 -- -- -- $136,170
(Vice President - 1997 $117,300 $35,300 $815 -- -- -- $13,907
Product Development 1996 $112,320 $46,100 $1,223 -- $3,500 -- $11,783
and Technology)
Elizabeth I. Hamme 1998 $120,000 $40,700 $11,115 -- -- -- $150,538
(Vice President - 1997 $108,000 $33,300 $1,415 -- -- -- $1,293
Human Resources and 1996 $102,000 $33,100 $575 -- -- -- $1,752
Continuous Improvement)
</TABLE>
31
<PAGE>
(a) Compensation includes imputed income, medical reimbursements, financial
planning service fees, and gross-ups on financial planning, vested
liabilities, Phelps Dodge restricted dividends (for years prior to the
acquisition by KKR), safety awards and spouse travel as follows:
<TABLE>
<CAPTION>
PHELPS
DODGE
FINANCIAL FINANCIAL RESTRICTED
IMPUTED MEDICAL PLANNING PLANNING VESTED STOCK SAFETY SPOUSE
YEAR INCOME REIMBURSEMENT SERVICE FEES GROSS-UP LIABILITIES DIVIDENDS AWARDS TRAVEL
---- ------- ------------- ------------ --------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Greubel... 1998 -- -- $5,088 $4,138 $4,000 -- -- --
1997 -- -- -- -- $12,608 $10,000 $401 --
1996 -- -- -- -- -- -- -- --
Mr. Schultz... 1998 -- $156 $6,130 $5,317 $6,430 -- -- $1,058
1997 -- -- -- -- -- -- $411 --
1996 -- -- -- -- -- -- -- --
Mr. Keating... 1998 -- -- $6,130 $4,985 -- -- -- --
1997 $574 $349 -- -- -- -- -- --
1996 -- -- -- -- -- -- -- --
Mr. Noll...... 1998 -- $312 $6,130 $4,985 -- -- -- --
1997 $26 $242 -- -- $132 -- $415 --
1996 -- -- -- -- -- -- -- --
Ms. Hamme..... 1998 -- -- $6,130 $4,985 -- -- -- --
1997 -- -- -- -- -- $1,000 $415 --
1996 -- -- -- -- -- -- $575 --
</TABLE>
(b) Compensation includes retention bonuses, restricted stock payments, and
distributions from the Phelps Dodge non-qualified savings plan paid in
connection with the Recapitalization, vacation sold, contributions made
by the Company to the employees' qualified or non-qualified savings
plan (company match and/or profit sharing), the 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),
and moving relocation expenses, as set forth below:
<TABLE>
<CAPTION>
DISTRIBUTION RESTRICTED COMPANY
FROM PHELPS STOCK RETENTION VACATION MATCH & ELIP
YEAR DODGE NQ PLAN PAYMENT BONUS SOLD PROFIT SHARING PREMIUMS RELOCATION
---- ------------- ---------- --------- -------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Greubel. 1998 $59,061 $312,368 $400,000 $0 $17,500 $3,539 --
1997 -- -- -- $3,077 $18,996 $2,361 --
1996 -- -- -- -- -- -- --
Mr. Schultz. 1998 -- -- $214,500 $5,855 $14,038 $2,915 --
1997 -- -- -- -- $13,794 $2,400 --
1996 -- -- -- -- -- -- --
Mr. Keating. 1998 -- -- $202,500 $11,284 $11,323 $1,492 --
1997 -- -- -- -- -- $1,229 $21,564
1996 -- -- -- -- -- -- --
Mr. Noll.... 1998 -- -- $117,300 $6,161 $11,359 $1,350 --
1997 -- -- -- $1,523 $11,266 $1,118 --
1996 -- -- -- -- -- -- --
Ms. Hamme... 1998 -- $30,813 $108,000 $0 $10,600 $1,125 --
1997 -- -- -- $415 -- $878 --
1996 -- $975 -- -- -- $777 --
</TABLE>
(c) Mr. Keating began employment on December 1, 1996.
32
<PAGE>
The following table gives information concerning individual grants
of stock options made during 1998 to each of the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
- -------------------------------------------------------------------------------- --------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (1) FISCAL YEAR ($/SH) DATE 5 (%) (2) 10 (%) (2)
---- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mr. Greubel 450 30.9% $5,000 Jan 21, 2008 $1,415,013 $3,585,921
Mr. Schultz 80 5.5% $5,000 Jan 21, 2008 $251,558 $637,497
Mr. Keating 80 5.5% $5,000 Jan 21, 2008 $251,558 $637,497
Mr. Noll 80 5.5% $5,000 Jan 21, 2008 $251,558 $637,497
Ms. Hamme 80 5.5% $5,000 Jan 21, 2008 $251,558 $637,497
</TABLE>
(1) One-half of the options granted become exercisable and vest over time
at the rate of 20% per year. The other half of the options granted
become exercisable and vest at the rate of 20% per year upon the
achievement of certain financial targets.
(2) The amounts shown under the columns are the result of calculations at
5% and 10% rates as required by the SEC and are not intended to
forecast future appreciation of the stock price of the Common Stock.
The following table gives information for options exercised by each of the Named
Executive Officers in 1998 and the value (stock price less exercise price) of
the remaining options held by those executive officers at year end, using
management's estimate of the Common Stock value on December 31, 1998.
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
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
YEAR-END YEAR-END (2)
---------------------------- -----------------------------
SHARES
ACQUIRED ON
NAME EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William P. Greubel(1)...... 0 $0 90 360 -- --
Bradford C. Schultz(1)..... 0 $0 16 64 -- --
Terrence Keating........... 0 $0 16 64 -- --
William D. Noll(1)......... 0 $0 16 64 -- --
Elizabeth I. Hamme......... 0 $0 16 64 -- --
</TABLE>
(1) In addition to the information contained in this table, the following
named officers exercised stock options issued by Phelps Dodge, the
previous owner of the Company: William P. Greubel 4,467 shares with a
value realized of $37,969; Bradford C. Schultz 14,800 shares with a
value realized of $224,883; and William D. Noll 9,034 shares with a
value realized of $89,782.
33
<PAGE>
(2) The value of the shares underlying the options as of December 31, 1998
is not in excess of the base price. There is no established trading
market for the Company's Common Stock.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------
REMUNERATION 15 20 25 30 35 40
------------ -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$125,000................... $31,415 $41,887 $52,359 $62,831 $73,303 $81,428
150,000................... 38,165 50,887 63,609 76,331 89,053 98,803
175,000................... 44,915 59,887 74,859 89,831 104,803 116,178
200,000................... 51,665 68,887 86,109 103,331 120,553 133,553
225,000................... 58,415 77,887 97,359 116,831 136,303 150,928
250,000................... 65,165 86,887 108,609 130,331 152,053 168,303
275,000................... 71,915 95,887 119,859 143,831 167,803 185,678
300,000................... 78,665 104,887 131,109 157,331 183,553 203,053
400,000................... 105,665 140,887 176,109 211,331 246,553 272,553
500,000................... 132,665 176,887 221,109 265,331 309,553 342,053
600,000................... 159,665 212,887 266,109 319,331 372,553 411,553
</TABLE>
The above table details estimated annual benefits for Accuride
salaried employees retiring December 31, 1998 at age 65. Benefits include
benefits payable from predecessor plans.
The Accuride 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 Accuride.
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 Accuride 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 1998.
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, 1998 are as follows: Mr. Greubel, 22
years; Mr. Schultz, 36 years; Mr. Keating, 18 years, Mr. Noll, 41 years, and
Ms. Hamme, 20 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
In early 1998, 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
34
<PAGE>
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 of the Recapitalization, 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 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 of the Recapitalization 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, 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. In
order to finance the stock purchases, certain employees also entered into
secured Promissory Notes and Pledge Agreements. 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 a
registration rights agreement between Hubcap Acquisition and the Company. 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 INTERLOCKS AND INSIDER PARTICIPATION
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 "Item 13-Certain Relationships and Related Transactions."
35
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the ownership of the Common Stock as
of March 1, 1999 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>
NAME AND ADDRESS COMMON STOCK BENEFICIALLY OWNED (a)
- ---------------- -----------------------------------
SHARES PERCENT
------ -------
<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 87.21%
Henry R. Kravis (b)...................................... -- --
George R. Roberts (b).................................... -- --
James H. Greene, Jr. (b)................................. -- --
Todd A. Fisher (b)...................................... -- --
RSTW Partners III, L.P. (c)
5847 San Felipe
Houston, TX 77057........................................... 2,400 9.69%
William P. Greubel.......................................... 240 *
Elizabeth I. Hamme.......................................... 56 *
Terrence J. Keating......................................... 56 *
William D. Noll............................................. 56 *
Bradford C. Schultz......................................... 56 *
All executive officers and directors as a group....... 744 2.98%
</TABLE>
- -------------------
* Less than one percent.
(a) The amounts and percentage of Common Stock beneficially owned are
reported on the basis of regulations of the SEC governing the
determination of beneficial ownership of securities. Under the rules
of the SEC, 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 24,768 shares of Common Stock
outstanding as of March 1, 1999.
(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. Gilhuly, 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
36
<PAGE>
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.
(c) RSTW Management, L.P. is the sole general partner of RSTW Partners III,
L.P.; Rice Mezzanine Corporation ("RMC") is the general partner of RSTW
Management, L.P. RMC is a subchapter S-Corporation, the shareholders of
which are Messrs. Don K. Rice, Jeffrey P. Sangalis, Jeffrey A. Toole,
and James P. Wilson. Each of such individuals may be deemed to share
beneficial ownership of any shares beneficially owned by RSTW Partners
III, L.P. Each of such individuals disclaims beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of March 1, 1999, KKR 1996 GP L.L.C. beneficially owned
approximately 87% of the Company's outstanding shares of Common Stock. See
"Item 12-Security Ownership of Certain Beneficial Owners and Management." 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. Gilhuly, 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 "Item 10-Directors and
Executive Officers of the Company" and "Item 12-Security Ownership of Certain
Beneficial Owners and Management."
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 registration
rights agreement between Hubcap Acquisition and the Company and the
stockholders agreement among Hubcap Acquisitions, the Company, and Phelps
Dodge. 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 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 a 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 registration
rights agreement is subject to the tag along and the drag along rights of
certain other stockholders provided for in the stockholders agreement.
During the 1998 fiscal year, the Company issued approximately 768
shares of the Company's common stock to certain members of management for
aggregate consideration in cash and secured promissory notes of approximately
$3.8 million.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following constitutes a list of Financial Statements, Financial
Statement Schedules, and Exhibits required to be included in this report:
1. FINANCIAL STATEMENTS
The following financial statements of the Registrant are filed herewith
as part of this report:
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1998 and December 31, 1997.
Consolidated Statements of Income- Years ended December 31, 1998,
December 31, 1997, and December 31, 1996.
Consolidated Statements of Stockholders' Equity (Deficiency) - Years
ended December 31, 1998, December 31, 1997, and December 31, 1996.
Consolidated Statements of Cash Flows - Years ended December 31, 1998,
December 31, 1997, and December 31, 1996.
Notes to Consolidated Financial Statements - Years ended December 31,
1998, December 31, 1997, and December 31, 1996.
2. FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because of the
absence of conditions under which they are required or because the
required information is presented in the Financial Statements or notes
thereto.
3. EXHIBITS
(b) Reports on Form 8-K. The Company did not file any Form 8-K during the
last quarter of the 1998 fiscal year.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- ------------
<S> <C>
*2.1 Stock Subscription and Redemption Agreement, dated as of November 17, 1997,
among the Company, Hubcap Acquisition L.L.C. and Phelps Dodge Corporation
*3.1 Certificate of Incorporation, as amended, of Accuride Corporation.
*3.2 By-Laws of Accuride Corporation.
*4.1 Indenture, dated as of January 21, 1998, between Accuride Corporation and
U.S. Trust Company of California, N.A., as trustee, relating to $200,000,000
aggregate principal amount of 9 1/4% Senior Subordinated Notes due 2008.
*4.2 Registration Rights Agreement, dated as of January 21, 1998, between Accuride
Corporation, and BT Alex. Brown Incorporation, Citicorp Securities, Inc., and
J.P. Morgan Securities Inc.
*4.3 Specimen Certificate of 9 1/4% Senior Subordinated Notes due 2008, Series A
(the "Private Notes") .
*4.4 Specimen Certificate of 9 1/4% Senior Subordinated Notes due 2008, Series B
(the "Exchange Notes").
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
*10.1 Stockholders' Agreement by and among Accuride Corporation, Phelps Dodge
Corporation and Hubcap Acquisition L.L.C.
*10.2 Registration Rights Agreement by and between Accuride Corporation and
Hubcap Acquisition L.L.C.
*10.3 1998 Stock Purchase and Option Plan for Employees of Accuride Corporation
and Subsidiaries.
*10.4 Form of Non-qualified Stock Option Agreement by and between Accuride
Corporation and certain employees.
*10.5 Form of Repayment and Stock Pledge Agreement by and between Accuride
and certain employees.
*10.6 Form of Secured Promissory Note in favor of Accuride Corporation.
*10.7 Form of Stockholders' Agreement by and among Accuride Corporation, certain
employees and Hubcap Acquisition L.L.C.
*10.8 Form of Severance Agreement by and between Accuride Corporation and certain executives.
*10.9 Contribution Agreement, dated as of May 1, 1997, among Accuride Corporation,
Kaiser Aluminum & Chemical Corporation ("Kaiser"), AKW General Partner L.L.C.
and AKW L.P.
*10.10 Limited Partnership Agreement of AKW L.P., dated as of May 1, 1997, among AKW
General Partner L.L.C., Accuride Ventures, Inc., Accuride Corporation and Kaiser.
*10.11 Limited Liability Company Agreement of AKW General Partner L.L.C., dated as of
May 1, 1997, among Accuride Ventures, Inc., Accuride Corporation and Kaiser.
*10.12 Lease Agreement, dated as of May 1, 1997, between Kaiser and AKW L.P.
*10.13 Lease Agreement dated November 1, 1988, by and between Kaiser and The Bell
Company regarding the property in Cuyahoga Falls, Ohio, as amended and extended.
*10.14 Lease Agreement, dated as of February 1, 1974, by and between Henderson County
and The Firestone Tire & Rubber Company ("Firestone").
*10.15 Lease Amendment, dated as of December 19, 1986, by and between Henderson
County and Firestone.
*10.16 Joint Venture Agreement, dated November 5, 1997, by and among the Company,
Industria Automotriz, S.A. de C.V., Grupo Industrial Ramirez, S.A. and Accuride
de Mexico, S.A. de C.V. ("AdM").
*10.17 By-laws of AdM.
*10.18 Purchase and Sale Agreement, dated as of October 21, 1997, by and between
Accuride Corporation and General Electric Company regarding property located in
Columbia, Tennessee.
*10.19 Purchase Supply and Assembly Agreement, dated as of January 15, 1998, between
Accuride Corporation and Lacks Industries, Inc.
*10.20 Credit Agreement, dated as of January 21, 1998, between Accuride Corporation and
Citicorp USA, Inc., Citicorp Securities, Inc., Bankers Trust Company and Wells Fargo Bank.
*10.21 Purchase Agreement, dated as of January 15, 1998, between Accuride Corporation
and BT Alex. Brown Incorporation, Citicorp Securities, Inc., and J.P. Morgan Securities Inc.
10.22 Credit Agreement dated July 9, 1998, by and between Accuride de Mexico, S.A. de C.V.
and Citibank Mexico, S.A. and Grupo Financiero Citibank
10.23 Completion Guaranty dated July 9, 1998, by and between Accuride Corporation, Accuride
de Mexico, S.A. de C.V., Industria Automotriz, S.A. de C.V., and Citibank Mexico, S.A.
and Grupo Financiero Citibank
10.24 Lease Agreement dated October 26, 1998, by and between Accuride Corporation and
Woodward, LLC. regarding the Evansville, Indiana office space.
*21.1 Subsidiaries of Accuride Corporation.
23.1 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney of Accuride Corporation.
27.1 Financial Data Schedule.
</TABLE>
- -----------------------
* Previously filed as an exhibit to the Form S-4 effective July 23, 1998
(Reg. No. 333-50239) and incorporated herein by reference.
39
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Accuride Corporation:
We have audited the accompanying consolidated balance sheets of Accuride
Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity (deficiency)
and of cash flows for each of the three years in the period ended December 31,
1998. Our audit also included the financial statement schedule listed in
the Index at Item 14. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic 1998 consolidated financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
February 12, 1999
F-1
<PAGE>
ACCURIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
-----------------------
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,471 $ 7,418
Customer receivables, net of allowance
for doubtful accounts of $1,008 and $967 52,287 37,077
Other receivables 8,372 11,768
Inventories, net 36,980 29,107
Supplies 7,187 6,458
Deferred income taxes 611
Income taxes receivable 458
Prepaid expenses 139 143
--------- ---------
Total current assets 109,505 91,971
PROPERTY, PLANT AND EQUIPMENT, NET 159,826 133,997
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $30,942 and $28,089 83,317 86,171
Investment in affiliates 25,855 24,765
Deferred financing costs, net of
accumulated amortization of $1,634 12,609
Deferred income taxes 3,287
Other 10,526 10,543
--------- ---------
TOTAL $ 404,925 $ 347,447
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 27,008 $ 19,237
Current portion of long-term debt 1,350
Short term notes payable 3,911 16,040
Accrued payroll and compensation 8,149 8,015
Accrued interest payable 9,807
Deferred income taxes 1,481
Tooling deposit 5,261
Accrued and other liabilities 6,606 7,103
--------- ---------
Total current liabilities 56,831 57,137
LONG-TERM DEBT, less current portion 387,939
DEFERRED INCOME TAXES 16,123
OTHER LIABILITIES 12,021 13,250
MINORITY INTEREST 6,230 4,882
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
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, 24,768 and 24,000 shares
issued and outstanding in 1998 and 1997 24,158 178,931
Stock subscriptions receivable (1,644)
Retained earnings (deficit) (80,610) 77,124
--------- ---------
Total stockholders' equity (deficiency) (58,096) 256,055
--------- ---------
TOTAL $ 404,925 $ 347,447
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1998 1997 1996
<S> <C> <C> <C>
NET SALES $ 383,583 $ 332,966 $ 307,830
COST OF GOODS SOLD 301,029 266,972 246,107
--------- --------- ---------
GROSS PROFIT 82,554 65,994 61,723
OPERATING EXPENSES:
Selling, general and administrative 26,607 21,316 17,971
Start-up costs 3,260
Management retention bonuses 1,927
Recapitalization professional fees 2,240
--------- --------- ---------
INCOME FROM OPERATIONS 48,520 44,678 43,782
OTHER INCOME (EXPENSE):
Interest income 773 530 433
Interest (expense) (33,084) (145) (33)
Equity in earnings of affiliates 3,929 4,384 115
Other income (expense), net (2,904) 719 (381)
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST 17,234 50,166 43,916
INCOME TAX PROVISION 7,935 22,158 17,450
MINORITY INTEREST 1,348 171
--------- --------- ---------
NET INCOME $ 7,951 $ 27,837 $ 26,466
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Common
Stock and Accumulated Total
Additional Stock Other Retained Stockholders'
Comprehensive Paid in Subscriptions Comprehensive Earnings Equity
Income Capital Receivable Income (Loss) (Deficit) (Deficiency)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 $ 164,631 $ (1,371) $ 75,821 $ 239,081
Net income $ 26,466 26,466 26,466
Net cash from parent 15,537 15,537
Other comprehensive income
Minimum pension adjustment 367 367 367
--------
Comprehensive income $ 26,833
--------
--------
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 27,837
Net cash to parent (1,237) (1,237)
Other comprehensive income
Minimum pension adjustment 1,004 1,004 1,004
Comprehensive income $ 28,841
-------- --------- --------- --------- ---------
--------
BALANCE AT DECEMBER 31, 1997 178,931 -- 77,124 256,055
Net income 7,951 7,951
Issuance of shares 108,000 108,000
Redemption of shares (286,931) (165,685) (452,616)
Issuance of shares 3,840 $ (1,644) 2,196
Increase in net deferred tax asset
attributable to tax basis of assets 18,480 18,480
Bonuses paid by a previous principal
stockholder 1,838 1,838
--------- -------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1998 $ 24,158 $ (1,644) $ -- $ (80,610) $ (58,096)
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,951 $ 27,837 $ 26,466
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 20,094 17,870 17,270
Amortization 4,832 2,856 2,856
Losses on disposal of assets 1,585 801 1,242
Bonuses payable by a previous principal stockholder 1,838
Deferred income taxes 1,232 3,212 (1,538)
Equity in earnings of affiliated companies (3,929) (4,384) (115)
Minority interest 1,348 171
Changes in certain assets and liabilities:
Receivables (11,814) (17,448) 4,723
Inventories and supplies (8,602) (646) (5,749)
Prepaid expenses and other assets (4,534) (1,670) (1,581)
Accounts payable 7,771 680 2,592
Tooling deposit 5,261
Accrued and other liabilities 4,890 3,679 (2,488)
--------- --------- ---------
Net cash provided by operating activities 22,662 38,219 43,678
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (46,579) (24,032) (9,584)
Capitalized interest (929)
Investment in ADM (4,899)
Investment in AKW L.P. (20,849)
Net cash distribution from AKW L.P. 2,839 2,482
Other 233 214
--------- --------- ---------
Net cash used in investing activities (44,669) (47,065) (9,370)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short term notes payable 3,000 16,040
Principal payments on short term notes payable (15,129) (4,850)
Net increase in revolving line of credit 33,000
Proceeds from issuance of long-term debt 356,185
Deferred financing fees (14,243)
Proceeds from issuance of shares 110,196
Redemption of shares (454,949)
Net cash (to) from Phelps Dodge Corporation (1,237) (37,463)
--------- --------- ---------
Net cash provided by (used in) financing activities 18,060 9,953 (37,463)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (3,947) 1,107 (3,155)
Cash and cash equivalents, beginning of year 7,418 6,311 9,466
--------- --------- ---------
Cash and cash equivalents, end of year $ 3,471 $ 7,418 $ 6,311
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ACCURIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
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 formed November 5, 1997
with Industria Automotriz, S.A. de C.V. ("IaSa"), a Mexican corporation.
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.
Prior to the Recapitalization of the Company on January 21, 1998 (see
Note 2), the Company was a wholly-owned subsidiary of Phelps Dodge
Corporation ("PDC"). As a wholly-owned subsidiary of PDC, certain
administrative functions were performed by PDC on behalf of the Company.
Such functions included, but were 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 are
reflected in the accompanying financial statements for the years ended
December 31, 1997 and 1996. Management believes the allocation
methodology was reasonable.
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 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 6), the Company
also participated in the aluminum wheel market whereby the Company
designed and distributed aluminum wheels through a buy and resell
agreement with Kaiser Aluminum & Chemical Corporation ("Kaiser"). 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; Columbia, Tennessee; 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 constructed a facility for the
production of light truck wheels. The facility was completed in August,
1998 at a cost of approximately $23,600.
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).
F-6
<PAGE>
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.
DEFERRED FINANCING COSTS - Direct costs incurred in connection with the
Recapitalization (see Note 2) have been deferred and are being amortized
over the life of the related debt using the interest method.
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. The Company
evaluates for impairment its long-lived assets to be held and used and
its identifiable intangible assets when events or changes in economic
circumstances indicate the carrying amount of such assets 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.
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 legal funding requirements.
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 an 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.
POSTEMPLOYMENT BENEFITS - The Company has certain postemployment benefit
plans covering certain U.S. and Canadian employees which provide
severance, disability, supplemental health care, life insurance or other
welfare benefits. The Company accounts for these benefits on an accrual
basis. The Company's funding policy provides that payments shall be at
least equal to its cash basis obligation. Liabilities associated with
these benefits at the date of the Company's Recapitalization (see Note 2)
were 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.
F-7
<PAGE>
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.
STOCKHOLDERS' EQUITY (DEFICIENCY) - The Company accounted for amounts due
to/from PDC as adjustments to additional paid in capital since the
companies had a common treasury function prior to the Recapitalization of
the Company.
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 1998, 1997 and 1996 totaled $2,855, $3,732 and
$3,689, 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 as "Other income (expense), net". The Company had aggregate
foreign currency gains and losses of $(966), $773, and $(381), for the
years ended December 31, 1998, 1997 and 1996, respectively.
START-UP COSTS - Costs associated with start-up activities are charged to
expense as incurred. During the year ended December 31, 1998 the Company
incurred $3,260 related to preparation of the new light truck wheels
facility in Columbia, Tennessee which commenced operations in August
1998.
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.
DERIVATIVE FINANCIAL INSTRUMENTS - The Company has only limited
involvement with derivative financial instruments and does not use them
for trading purposes. They are used to manage well-defined interest rate
and foreign exchange risks.
INTEREST RATE INSTRUMENTS - The Company entered into an interest rate
swap agreement as a means of fixing the floating interest rate exposure
on a portion of the Company's floating rate debt. The Company also
entered into a interest rate cap agreement to set a ceiling on the
maximum floating interest the Company would incur on a portion of the
Company's floating-rate debt. The premiums paid to enter into the
interest rate cap agreement are payable monthly and are recorded as
interest expense as incurred. These interest rate agreements are
accounted for under the settlement method. Under this method, the
differential to be paid or received on these agreements is recognized
over the lives of the agreements in interest expense. Changes in market
value of the interest rate swap and the interest rate cap accounted for
under the settlement method are not reflected in the accompanying
financial statements. To qualify for such accounting, the interest rate
swap and interest rate cap are designated to the long-term debt
obligation which alter the designated instruments' interest rate
characteristics.
FOREIGN EXCHANGE INSTRUMENTS - The Company entered into foreign currency
forward contracts to limit foreign exchange risk on anticipated but not
yet committed transactions expected to be denominated in Canadian
dollars. The forward contracts do not qualify as hedges for financial
reporting purposes under SFAS No. 52 FOREIGN CURRENCY TRANSLATION and,
accordingly, are carried in the financial statements at the current
forward exchange rate, with changes in forward rates and gains or losses
upon settlement
F-8
<PAGE>
reflected directly in income as "Other income (expense), net". The
Company had aggregate realized losses and unrealized gains of $(2,598)
and $150, respectively, for the year ended December 31, 1998. The
total notional amount of outstanding forward contracts at December 31,
1998 was $79,561.
AUTHORIZED SHARES AND STOCK SPLIT - Effective January 21, 1998, the
Company increased its authorized shares of common stock to 45,000 shares
and authorized 5,000 shares of preferred stock with a par value of one
cent ($.01) per share and declared a 240-for-1 stock split. All per share
information has been restated to give effect to the increase in
authorized shares and the stock split.
COMPREHENSIVE INCOME - Effective January 1, 1998 the Company adopted
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
REPORTING COMPREHENSIVE INCOME. This statement establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains, losses) in a full set of general purpose
financial statements. The adoption of this statement required the
reclassification of prior periods.
In accordance with SFAS No. 130, reclassification adjustments have been
documented for all components of other comprehensive income reported in
the statements of changes in stockholders' equity. Amounts presented
within those statements for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Other comprehensive income:
Minimum pension adjustment $ 1,673 $ 612
Tax effect (669) (245)
------- -------
Other comprehensive income $ 1,004 $ 367
------- -------
------- -------
</TABLE>
There were no components of other comprehensive income for the year ended
December 31, 1998.
NEW ACCOUNTING PRONOUNCEMENT - In June 1998, SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES was issued and is effective
for all fiscal quarters of all fiscal years beginning after June 15,
1999. This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair
value. If certain conditions are met, a derivative may be specifically
designated as a fair value hedge, a cash flow hedge, or a hedge of
foreign currency exposure. The accounting for changes in the fair value
of a derivative (that is, gains and losses) depends on the intended use
of the derivative and the resulting designation. Management has not yet
fully evaluated the effect of the new standard on the financial
statements.
RECLASSIFICATIONS - Certain amounts from prior years' financial
statements have been reclassified to conform to the current year
presentation.
2. RECAPITALIZATION OF ACCURIDE CORPORATION
The Company entered into a stock subscription and redemption agreement
dated November 17, 1997 (the "Agreement" or "Redemption"), 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. ("KKR").
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 (the "Recapitalization"). In connection with the
Recapitalization, Hubcap Acquisition made an equity
F-9
<PAGE>
investment in the Company of $108,000, and the Company issued $200,000
of 9.25% senior subordinated notes at 99.48% of principal value due
2008 and obtained $164,800 in bank borrowings, including $135,000 of
borrowings under senior secured term loans due 2005 and 2006 with
variable interest rates and $29,800 of borrowings under a $140,000
senior secured revolving line of credit expiring 2004 with a variable
interest rate.
Costs of $21,742 incurred in connection with the Recapitalization have
been reflected (i) $14,243 as deferred financing costs, (ii) $5,259 as a
component of the cost of the Redemption and (iii) $2,240 as a current
year expense.
Pursuant to the Agreement, $2,333 of certain pension, postretirement
benefit liabilities and other liabilities were assumed by PDC and offset
against the cost of the Redemption.
Concurrent with the Redemption, the Company recorded a $55,440 deferred
tax asset less a $36,960 valuation allowance related to the increase in
the tax basis of assets with a corresponding credit to "Additional paid
in capital".
Subsequent to the Recapitalization, effective September 30, 1998, PDC
sold its remaining interest in the Company to RSTW Partners III, L.P.
3. 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. Interest paid
(net of amount capitalized of $929) for the year ended December 31, 1998
was $23,277. No significant interest amounts were paid during 1996 and
1997. Income taxes paid for the year ended December 31, 1998 were $7,238.
Non-cash transactions that resulted from the Redemption in 1998 included
the issuance of common stock and the related stock subscriptions
receivable of $1,644, the assumption of $2,333 in liabilities offset
against stockholders' equity and the increase in stockholders' equity and
the net deferred tax asset in the amount of $18,480 from the increase in
the tax basis of assets. Net cash amounts due to/from PDC were accounted
for as capital distributions or contributions and current income taxes
were cleared through the PDC intercompany account for the years ended
December 31, 1997 and 1996.
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>
F-10
<PAGE>
4. INVENTORIES
Inventories at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Raw materials $ 8,920 $ 3,882
Work in process 7,757 5,438
Finished manufactured goods 20,060 18,992
LIFO adjustment 1,122 1,742
Other valuation reserves (879) (947)
-------- --------
Inventories, net $ 36,980 $ 29,107
-------- --------
-------- --------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land and land improvements $ 6,768 $ 6,055
Buildings 37,225 30,998
Machinery and equipment 273,345 248,845
-------- --------
317,338 285,898
Less accumulated depreciation 157,512 151,901
-------- --------
Property, plant and equipment, net $159,826 $133,997
-------- --------
-------- --------
</TABLE>
6. INVESTMENTS IN AFFILIATES
Included in the Company's "Equity in earning of affiliates" is 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, 1998 and 1997 totaled $2,644 and
$2,202, respectively.
At December 31, 1998, the Company had a note receivable from AOT included
in "Other assets" in the amount of $1,092, with an interest rate of
9.25%. At December 31, 1997, the Company had two outstanding notes
receivable from AOT totaling $1,535 with interest rates ranging from
8.25% to 9.25%. Interest income earned on these notes receivable for
1998, 1997 and 1996 totaled $161, $180 and $207, respectively.
The Company also performs certain administrative services for AOT
pursuant to a service agreement. 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 $360 for each of the three years in the period
ended December 31, 1998, 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,
F-11
<PAGE>
and accordingly, accounts for the investment using the equity method.
The Company's investment in AKW at December 31, 1998 and 1997 totaled
$23,211 and $22,563, respectively.
Pursuant to the AKW formation agreements, the Company performs all
billing and collection functions, as well as calculation and notification
of rebates, for AKW as a means of providing customer convenience. "Other
receivables" at December 31, 1998 and 1997 include $2,378 and $3,350
which represent amounts due from AKW associated with such transactions.
Fees associated with those agreements totaled $250 and $167 for the years
ended December 31, 1998 and 1997, and are reported as a reduction in
"Selling, general and administrative expenses".
On April 17, 1998, AKW determined that it would replace approximately
47,800 wheels due to a potential safety hazard and submitted notice to
the National Highway Safety Administration ("NHSA"). These wheels were
produced during the period April 23, 1997 through February 28, 1998.
Subsequent to submitting notice to the NHSA, AKW management estimated its
total liability to replace all wheels was approximately $6,800. The
Company has reflected its portion of the expense ($3,400) as a reduction
in "Equity in earnings of affiliates" in the statement of income for the
year ended December 31, 1998.
Summarized financial information of AOT and AKW for the years ended
December 31, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Condensed Statements of Income:
Net sales $94,342 $59,261 $ 5,785
Net earnings 7,858 8,769 230
Condensed Balanced Sheets:
Current assets $30,721 $21,678 $ 1,941
Non-current assets 44,074 42,217 6,786
------- ------- -------
Total $74,795 $63,895 $ 8,727
------- ------- -------
------- ------- -------
Current liabilities $16,900 $ 7,734 $ 963
Non-current liabilities 6,185 6,631 3,737
Shareholders' equity 51,710 49,530 4,027
------- ------- -------
Total $74,795 $63,895 $ 8,727
------- ------- -------
------- ------- -------
</TABLE>
Excluding the $6,800 expense, net earnings for the year ended
December 31, 1998 were $14,658.
7. SHORT-TERM NOTES PAYABLE
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. The facility terminated on January 21,
1998, at which time the outstanding borrowings were converted to a
promissory note. In July 1998, ADM entered into a $32,500 credit
agreement consisting of a $7,500 revolving credit facility and a $25,000
term facility (see Note 8) and repaid the promissory note. At December
31, 1998 the Company had $3,911 in borrowings under the revolving credit
facility. Interest is computed monthly based on the Eurodollar rate
(4.94% at December 31, 1998) plus 4.00%.
ACCURIDE CANADA - The Company, through Accuride Canada, maintained a
$25,000 revolving credit facility with a Canadian financial institution
which terminated during 1998. At December 31, 1997, $1,340 was
outstanding.
F-12
<PAGE>
8. LONG-TERM DEBT
Long-term debt at December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Revolving credit facility $ 33,000
Term A Advance 60,000
Term B Advance 75,000
Senior subordinated notes,
net of $1,000 unamortized
discount 199,000
ADM term facility 22,289
--------
389,289
Less current maturities (1,350)
--------
Total $387,939
--------
--------
</TABLE>
BANK BORROWINGS - The revolving credit facility and the term A and B
Advances were issued pursuant to a credit agreement ("Agreement") dated
January 21, 1998. The revolving credit facility and the term B Advance
were borrowed by Accuride Corporation ("U.S. Borrower") and the term A
Advance was borrowed by Accuride Canada ("Canadian Borrower").
The Agreement consists of: (i) a $60,000 term A Advance; (ii) a $75,000
term B Advance; and (iii) up to $140,000 under the revolving credit
facility as revolving credit advances, and trade letters of credit and
standby letters of credit up to an aggregate sub-limit of $20,000. No
letters of credit were outstanding at December 31, 1998. Revolving credit
advances are limited to the aggregate unused revolving credit commitment
from time to time. Swing line advances may be made up to the lesser of:
(1) $10,000; or (2) the aggregate unused revolving credit commitment from
time to time. The borrowings under the term A Advance and term B Advance
and under the revolving credit facility are collectively referred to as
the "Bank Borrowings."
The Company has the option to borrow under the Agreement at either the
Base Rate or Eurodollar Rate plus an Applicable Margin, as defined in the
Agreement. The Applicable Margin shall be adjusted upon the Company
achieving certain leverage ratios and varies by type of borrowing. The
Company's Bank Borrowings at December 31, 1998 were all borrowed under
the Eurodollar Rate option. The Eurodollar Rate ranged from 4.9375% -
5.6875% and the Applicable Margin ranged from 1.625% - 2.00% at December
31, 1998.
Bank Borrowings and any unpaid interest thereon under; (i) the term A
Advance shall be repayable in six (6) consecutive annual installments of
$600 each, commencing on January 21, 1999 and continuing annually up to
and including January 21, 2004, and the seventh installment shall be
repayable on January 21, 2005 in the amount equal to the then outstanding
principal balance of the term A Advance; (ii) the term B Advance shall be
repayable in seven (7) consecutive annual installments of $750 each,
commencing on January 21, 1999 and continuing annually up to and
including January 21, 2005, and the eighth installment shall be repayable
on January 21, 2006 in the amount of the then outstanding principal
balance of the term B Advance; and (iii) the revolving credit facility
shall be reduced to a maximum of $100,000 on January 21, 2003 and be
payable in full on January 21, 2004.
The Bank Borrowings are guaranteed by all domestic subsidiaries of the
U.S. Borrower. The term A Advance is guaranteed by the U.S. Borrower. The
Bank Borrowings are collateralized by a valid and perfected first
priority interest in 100% of the common stock of each first tier domestic
subsidiary of the U.S. Borrower and of the Canadian Borrower, and 66% of
all of the U.S. Borrower's current and future first tier foreign
subsidiaries other than the Canadian Borrower. A negative pledge
restricts the imposition of liens or other encumbrances on all of the
assets of the Borrowers and their subsidiaries, subject to certain
exceptions.
SENIOR SUBORDINATED NOTES - Interest at 9.25% on the senior subordinated
notes (the "Notes") is payable on February 1 and August 1 of each year,
commencing on August 1, 1998. The Notes mature in full on
F-13
<PAGE>
February 1, 2008 and may be redeemed, at the option of the Company, in
whole or in part, at any time on or after February 1, 2003 in cash at
the redemption prices set forth in the indenture, plus interest. In
addition, at any time 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, as defined. The
Notes are a general unsecured obligation of the Company ranking senior
in right of payment to all existing and future subordinated
indebtedness of the Company. The Notes will be effectively
subordinated to all existing and future senior indebtedness of the
Company including indebtedness incurred under the Agreement.
ADM TERM FACILITY - At December 31, 1998, ADM had term notes outstanding
of $22,289 under its $25,000 term facility (see Note 7). Principal is
payable quarterly from June 2001 until March 25, 2003; interest is
computed monthly based on the Eurodollar rate (4.94% at December 31,
1998) plus 4.00%. ADM's total assets have been assigned as collateral
under the terms of the credit agreement.
Under the terms of the Company's Agreement and ADM's credit agreement
there are certain restrictive covenants that restrict the payment of cash
dividends and establish minimum financial ratios.
INTEREST RATE INSTRUMENTS - Effective January 1998, the Company entered
into an interest rate cap agreement to reduce the potential impact of
increases in interest rates on a portion of its floating-rate long-term
debt. At December 31, 1998, the Company was a party to a 7.5% interest
rate cap agreement expiring in January 2001. The agreement entitles the
Company to receive from the counterparty on a quarterly basis the amount,
if any, by which the Company's interest payments on its $35,000
floating-rate long-term debt exceed 7.5% plus applicable margin. As of
December 31, 1998 the interest rate cap had a notional amount of $35,000.
Effective January 1998, the Company also entered into an interest rate
swap agreement to manage its interest rate exposure on a portion of its
floating-rate debt obligation. Under the interest rate swap agreement,
the Company makes fixed rate payments at 5.75% and receives variable rate
payments at the 3 month LIBOR rate (5.25% at December 31, 1998) on a
notional amount of $100,000 with annual amortization of $1,000. The
maturity date of the interest rate swap agreement is January 2001.
The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its interest rate cap and interest rate swap. The
Company anticipates, however, that counterparties will be able to fully
satisfy their obligations under the contracts. The Company does not
obtain collateral or other security to support financial instruments
subject to credit risk but monitors the credit standing of
counterparties.
Maturities of long-term debt based on minimum scheduled payments as of
December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999 $ 1,350
2000 1,350
2001 9,708
2002 12,494
2003 4,137
Thereafter 360,250
--------
$389,289
--------
--------
</TABLE>
F-14
<PAGE>
9. PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company, either stand-alone or through PDC (prior to 1998), 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 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.
The Company also sponsors postretirement benefit plans. 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 pension benefit plans and other postretirement
benefit plans at December 31 are summarized below:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 39,899 $ 33,454 $ 9,564 $ 9,083
Benefit obligation assumed by PDC (9,951) (883)
Service cost 1,759 1,336 313 283
Interest cost 1,990 2,487 592 656
Actuarial loss (gain) 1,343 4,606 468 (152)
Benefits paid (1,083) (1,984) (303) (306)
-------- -------- -------- --------
Benefit obligation at end of year 33,957 39,899 9,751 9,564
-------- -------- -------- --------
Change in plan assets:
Fair value of assets at beginning of year 37,564 31,619
Fair value of assets assumed by PDC (7,768)
Actual return on plan assets 2,385 6,516
Employer contribution 1,287 1,413
Benefits paid (1,083) (1,984)
-------- -------- -------- --------
Fair value of assets at end of year 32,385 37,564
-------- -------- -------- --------
Funded status (end of year) 1,572 2,335 9,751 9,564
Unrecognized actuarial loss (gain) (6,223) (6,074) (1,473) (589)
Unrecognized prior service cost (1,501) (2,212) 1,953 2,153
Unrecognized net (asset) obligation (349) 251
-------- -------- -------- --------
Accrued benefit cost (asset) $ (6,501) $ (5,700) $ 10,231 $ 11,128
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The pension plans were valued between December 1 and December 31 for both
1998 and 1997. The obligations were projected to and the assets were
valued as of the end of 1998 and 1997. Effective November 30, 1996, the
U.S. salaried and non-bargained hourly pension plans, which are sponsored
by
F-15
<PAGE>
PDC were consolidated into one plan. 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 prior to 1998 were
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 projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $9,519, $9,390 and $8,513,
respectively, as of December 31, 1998 and $9,959, $8,115 and $8,048,
respectively, as of December 31, 1997.
The components of net periodic pension cost and other postretirement
benefit cost for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------------- -----------------------------
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Benefits earned during the year $ 1,759 $ 1,336 $ 1,222 $ 313 $ 283 $ 271
Interest accrued on projected benefit obligation 1,990 2,489 2,300 592 656 688
Return on plan assets (2,871) (3,054) (2,479)
Net amortization 128 165 193 (203) (200) (190)
Other 167 197 27
------- ------- ------- ------- ------- -------
Net periodic pension cost $ 1,173 $ 936 $ 1,433 $ 729 $ 739 $ 769
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
For 1998 measurement purposes, annual rates of increase in the per capita
cost of covered health care benefits were assumed to average 7.4% for
1999 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. A one percentage point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost components $ 74 $ (63)
Effect on postretirement benefit obligation 802 (677)
</TABLE>
Assumptions used to develop the net periodic pension cost and other
postretirement benefit cost and to value pension obligations as of
December 31 were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------- --------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Discount rate 7.00 % 7.25 % 7.00 % 7.25 %
Rate of increase in future compensation levels 4.00 % 4.00 % 4.00 % 4.00 %
Expected long-term rate of return on assets 9.50 % 9.50 % N/A N/A
</TABLE>
F-16
<PAGE>
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 recognized an additional minimum liability in its
consolidated financial statements for its underfunded plans during the
year ended December 31, 1996.
The Company also sponsors certain defined contribution plans for
substantially all U.S. salaried employees. Expense associated with these
plans for the years ended December 31, 1998, 1997 and 1996 totaled
$1,045, $1,062 and $841, respectively.
10. INCOME TAXES
For the years ended December 31, 1997 and 1996, the Company was included
in the PDC consolidated income tax returns and PDC allocated income taxes
as if the Company filed on a separate company basis. The Company cleared
income taxes with PDC through the intercompany account.
The income tax provision (benefit) for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ 222 $ 7,760 $ 7,421
State 597 1,109 1,060
Foreign 6,067 10,077 10,508
-------- -------- --------
6,886 18,946 18,989
-------- -------- --------
Deferred:
Federal 2,420 3,319 (672)
State (1,651) 474 (96)
Foreign 280 (581) (771)
-------- -------- --------
1,049 3,212 (1,539)
-------- -------- --------
Total $ 7,935 $ 22,158 $ 17,450
-------- -------- --------
-------- -------- --------
</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>
1998 1997 1996
<S> <C> <C> <C>
Statutory tax rate 35.0 % 35.0% 35.0%
Withholding tax on dividend of foreign subsidiary 0.6 6.0
State and local income taxes (4.6) 1.4 1.5
Incremental international tax 4.7 0.2 1.2
Goodwill 5.2 1.8 2.0
Other items, net 5.1 (0.1) 0.1
---- ---- ----
Effective tax rate 46.0 % 44.3 % 39.8 %
---- ---- ----
---- ---- ----
</TABLE>
F-17
<PAGE>
Deferred income tax assets and liabilities comprised the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Depreciation $ 38,002
Postretirement and postemployment benefits 3,850 $ 4,475
Accruals 320
Inventories 310
Other 3,012 2,302
Foreign tax credit 3,420 920
Valuation allowance-foreign tax credit (3,420) (920)
Alternative minimum tax credit 158
State net operating loss carryforward 1,861
Valuation allowance - tax basis of assets (36,960)
-------- --------
Total deferred tax assets 9,923 7,407
-------- --------
Deferred tax liabilities:
Accruals 1,237
Depreciation 18,025
Withholding tax on dividend of foreign subsidiary 22 3,000
Pension costs 2,410 2,106
Inventories 318
Other 2,038 1,880
-------- --------
Total deferred tax liabilities 6,025 25,011
-------- --------
Net deferred tax assets (liabilities) 3,898 (17,604)
Current deferred tax asset 611
Current deferred tax liability (1,481)
-------- --------
Long-term deferred income tax asset (liability)-net $ 3,287 $(16,123)
-------- --------
-------- --------
</TABLE>
The Company's state net operating loss and tax credit carryforwards
available in various tax jurisdictions at December 31, 1998 expire in
periods ranging from five to twenty years, except that the alternative
minimum tax credit does not have a future expiration date. Realization of
deferred tax assets is dependent upon taxable income within the
carryforward periods available under the tax laws. Although realization
of deferred tax assets in excess of deferred tax liabilities is not
certain, management has concluded that it is more likely than not the
Company will realize the full benefit of deferred tax assets, except for
a $36,960 valuation allowance recorded related to the $55,440 increase in
the tax basis of assets which occurred pursuant to the redemption and the
total amount of foreign tax credit carryforwards.
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 years ended December
31, 1998 and 1997.
At December 31, 1998 and 1997, consolidated retained earnings included
undistributed earnings of ADM totaling approximately $1,581 and $178,
respectively. These earnings are permanently invested and are not
considered available for distribution to the Company. Accordingly, no
provision has been made for U.S. income taxes that may be payable upon
remittance of such earnings for the years ended December 31, 1998 and
1997, respectively.
F-18
<PAGE>
11. 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").
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, 2,667 shares of common stock of the Company
are reserved for issuance under such plan.
At December 31, 1998, the Company had issued 768 shares of common stock
under the 1998 Plan Purchase Stock totaling $3,840 under the terms of
stock subscription agreements with various management personnel of the
Company. The unpaid principal balance of $1,644 under the stock
subscription agreements has been recorded as a reduction of stockholders'
equity. In addition, 1,458 shares were granted during 1998 as
non-qualified stock options pursuant to the 1998 Plan at an exercise
price of $5,000 per share. At December 31, 1998, all 1998 Plan options
were unexercised. Time options vest in equal installments over a five
year period from the date of the grant. Performance options vest after
approximately eight years or vest at an accelerated rate if the Company
meets certain performance objectives.
As of December 31, 1998, options outstanding have an exercise price of
$5,000 per share and a weighted average remaining contractual life of 9.5
years.
The Company applies APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations in accounting for the plans;
accordingly, since the grant price of the stock options was at least 100%
of the fair value at the date of the grant, no compensation expense has
been recognized by the Company in connection with the option grants. Had
compensation cost for the plans been determined based on the fair value
at the grant dates for awards under the plan consistent with the fair
value method of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
the Company's net income would have decreased from $7,951 to the pro
forma amount of $7,703 for the year ended December 31, 1998.
The weighted average fair value of options granted was $3,423 in 1998.
The fair value of the option grants is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions: dividend yield equaling 0%, risk-free interest rates ranging
from 5.00% - 5.75%, expected volatilities assumed to be 0% and expected
lives of approximately 7 years. The pro forma amounts are not
representative of the effects on reported net income for future years.
F-19
<PAGE>
12. COMMITMENTS
Rent expense for the years ended December 31, 1998, 1997 and 1996 was
$1,556, $1,566 and $1,022, respectively. Future minimum lease payments
for all noncancelable operating leases having a remaining term in excess
of one year at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 873
2000 832
2001 749
2002 652
2003 493
------
Total $3,599
------
------
</TABLE>
13. 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 2), the Company has been
indemnified by PDC with respect to environmental liabilities at its
Henderson and London facilities, subject to certain limitations. Pursuant
to the AKW limited partnership joint venture agreements (see Note 6), 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.
14. 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 the United
States, Canada, and Mexico which are summarized below. Sales between
geographic areas are made at negotiated selling prices.
<TABLE>
<CAPTION>
United
1998 States Canada Mexico Eliminations Combined
<S> <C> <C> <C> <C> <C>
Net sales:
Sales to unaffiliated customers - domestic $ 319,579 $ 27,982 $ 27,804 $ 375,365
Sales to unaffiliated customers - export 1,799 791 5,628 8,218
Sales among geographic segments 11,031 126,799 4,471 $(142,301)
--------- --------- --------- --------- ---------
Total $ 332,409 $ 155,572 $ 37,903 $(142,301) $ 383,583
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income from operations $ 28,380 $ 14,032 $ 6,178 $ (70) $ 48,520
Assets:
Identifiable assets $ 236,915 $ 115,206 $ 40,986 $ (14,037) $ 379,070
Investments in affiliates 25,855 -- -- -- 25,855
--------- --------- --------- --------- ---------
Total $ 262,770 $ 115,206 $ 40,986 $ (14,037) $ 404,925
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
United
1997 States Canada Mexico Eliminations Combined
<S> <C> <C> <C> <C> <C>
Net sales:
Sales to unaffiliated customers - domestic $ 175,805 $ 28,565 $ 4,242 $ 208,612
Sales to unaffiliated customers - export 918 122,567 869 124,354
Sales among geographic segments 6,157 31,309 $ (37,466)
--------- --------- --------- --------- ---------
Total $ 182,880 $ 182,441 $ 5,111 $ (37,466) $ 332,966
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income from operations $ 22,357 $ 22,002 $ 292 $ 27 $ 44,678
Assets:
Identifiable assets $ 168,807 $ 143,197 $ 29,406 $ (18,728) $ 322,682
Investments in affiliates 24,765 -- -- -- 24,765
--------- --------- --------- --------- ---------
Total $ 193,572 $ 143,197 $ 29,406 $ (18,728) $ 347,447
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
United
1996 States Canada Mexico Eliminations Combined
<S> <C> <C> <C> <C> <C>
Net sales:
Sales to unaffiliated customers - domestic $ 165,100 $ 24,164 $ 189,264
Sales to unaffiliated customers - export $ 4,469 $ 114,097 $ 118,566
Sales among geographic segments 4,444 30,693 $ (35,137)
--------- --------- --------- ---------
Total $ 174,013 $ 168,954 $ (35,137) $ 307,830
--------- --------- --------- ---------
--------- --------- --------- ---------
Income from operations $ 19,396 $ 24,406 $ (20) $ 43,782
Assets:
Identifiable assets $ 149,514 $ 152,386 $ (15,210) $ 286,060
Investments in affiliates 2,013 2,013
--------- --------- --------- ---------
Total $ 151,527 $ 152,386 $ (15,210) $ 288,073
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-21
<PAGE>
Sales to three customers exceed 10% of total net sales for the years
ended December 31, as follows:
<TABLE>
<CAPTION>
1998 1997 1996
% of % of % of
Amount Sales Amount Sales Amount Sales
<S> <C> <C> <C> <C> <C> <C>
Customer one $ 66,220 17.3 % $ 62,838 18.9 % $ 55,887 18.2 %
Customer two 46,086 12.0 % 55,231 16.6 % 45,698 14.8 %
Customer three 41,116 10.7 % 50,699 15.2 % 45,309 14.7 %
-------- --- -------- ---- -------- ----
$153,422 40.0 % $168,768 50.7 % $146,894 47.7 %
-------- --- -------- ---- -------- ----
-------- --- -------- ---- -------- ----
</TABLE>
Each geographic segment made sales to all three major customers in 1998.
Included in the sales reported for 1997 and 1996, respectively, are
aluminum sales of $6 and $178 for customer one, $4,067 and $14,218 for
customer two, and $8,523 and $18,360 for customer three. These sales were
recorded pursuant to a buy and resell agreement with Kaiser that was in
effect until the formation of AKW on May 1, 1997.
15. FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instruments have been
determined by the Company using available market information and
appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have an effect on the estimated fair value
amounts.
CASH AND CASH EQUIVALENTS, CUSTOMER RECEIVABLES, ACCOUNTS PAYABLE AND
SHORT-TERM NOTES PAYABLE: The carrying amounts approximate fair value
because of the relatively short maturity of these instruments.
AOT NOTES RECEIVABLE: The carrying amount of the notes receivable from
AOT approximates fair value because of the at or near market interest
rate pricing provisions.
LONG-TERM DEBT: The fair value of the Company's long-term debt has been
determined on the basis of the specific securities issued and
outstanding. All of the Company's long-term debt is at variable rates at
December 31, 1998 except for the $200,000 senior subordinated notes which
have a fixed interest rate of 9.25% (see Note 8). The carrying value of
the variable rate debt approximates fair value. The fair value of the
senior subordinated notes has been estimated to be $200,000 at December
31, 1998 as the notes are estimated to be at par based upon a quoted
market price.
OFF BALANCE SHEET HEDGING INSTRUMENTS: The fair value of the interest
rate swap and interest rate cap agreements have been estimated to be
$(1,536) and $11 at December 31, 1998, respectively. The fair value of
these instruments are based on quoted market prices or dealer quotes.
16. LABOR RELATIONS
The Company's prior contract with the UAW covering employees at the
Henderson Facility expired in February 1998 and 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 Company began an indefinite lock-out.
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.
F-22
<PAGE>
17. RELATED PARTY TRANSACTIONS
PDC, a previous principal stockholder of the Company, entered into
retention agreements with certain executive management personnel to
compensate individuals for service over a six month period from the date
of the Redemption. Such costs which have been paid by PDC are being
charged to expense by the Company over the terms of the retention
agreements with a corresponding credit to "Additional Paid in Capital"
for the year ended December 31, 1998.
18. SUBSEQUENT EVENT
On January 22, 1999, the Company announced it had executed a letter of
intent to acquire Kaiser's 50% interest in AKW. The transaction is
subject to completion of due diligence, government approvals, and the
preparation and execution of definitive documents.
* * * * * *
F-23
<PAGE>
Accuride Corporation Schedule II
Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
Balance at Charges to Balance
beginning costs and Write- at end
of period expenses Recoveries offs of period
----------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Reserves deducted in balance sheet
from the asset to which applicable:
Accounts Receivable:
December 31, 1996 1,153 652 124 (334) 1,595
December 31, 1997 1,595 (110) 92 (610) 967
December 31, 1998 967 (4) 150 (105) 1,008
</TABLE>
F-24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 1999
ACCURIDE CORPORATION
BY: /s/ William P. Greubel
---------------------------
William P. Greubel
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ William P. Greubel President and Chief Executive
- ------------------------ Officer (Principal Executive
William P. Greubel Officer, Director) March 30, 1999
/s/ John R. Murphy Chief Financial Officer,
- ------------------------ Secretary and Treasurer
John R. Murphy (Principal Financial and
Accounting Officer) March 30, 1999
/s/ Henry R. Kravis
- ------------------------
Henry R. Kravis Director March 30, 1999
/s/ George R. Roberts
- ------------------------
George R. Roberts Director March 30, 1999
/s/ James H. Greene, Jr.
- ------------------------
James H. Greene, Jr. Director March 30, 1999
/s/ Todd A. Fisher
- ------------------------
Todd A. Fisher Director March 30, 1999
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- ------------
<S> <C>
*2.1 Stock Subscription and Redemption Agreement, dated as of November 17, 1997,
among the Company, Hubcap Acquisition L.L.C. and Phelps Dodge Corporation
*3.1 Certificate of Incorporation, as amended, of Accuride Corporation.
*3.2 By-Laws of Accuride Corporation.
*4.1 Indenture, dated as of January 21, 1998, between Accuride Corporation and
U.S. Trust Company of California, N.A., as trustee, relating to $200,000,000
aggregate principal amount of 9 1/4% Senior Subordinated Notes due 2008.
*4.2 Registration Rights Agreement, dated as of January 21, 1998, between
Accuride Corporation, and BT Alex. Brown Incorporation, Citicorp Securities,
Inc., and J.P. Morgan Securities Inc.
*4.3 Specimen Certificate of 9 1/4% Senior Subordinated Notes due 2008, Series A
(the "Private Notes") .
*4.4 Specimen Certificate of 9 1/4% Senior Subordinated Notes due 2008, Series B
(the "Exchange Notes").
*10.1 Stockholders' Agreement by and among Accuride Corporation, Phelps Dodge
Corporation and Hubcap Acquisition L.L.C.
*10.2 Registration Rights Agreement by and between Accuride Corporation and
Hubcap Acquisition L.L.C.
*10.3 1998 Stock Purchase and Option Plan for Employees of Accuride Corporation
and Subsidiaries.
*10.4 Form of Non-qualified Stock Option Agreement by and between Accuride
Corporation and certain employees.
*10.5 Form of Repayment and Stock Pledge Agreement by and between Accuride and
certain employees.
*10.6 Form of Secured Promissory Note in favor of Accuride Corporation.
*10.7 Form of Stockholders' Agreement by and among Accuride Corporation, certain
employees and Hubcap Acquisition L.L.C.
*10.8 Form of Severance Agreement by and between Accuride Corporation and
certain executives.
*10.9 Contribution Agreement, dated as of May 1, 1997, among Accuride
Corporation, Kaiser Aluminum & Chemical Corporation ("Kaiser"),
AKW General Partner L.L.C. and AKW L.P.
*10.10 Limited Partnership Agreement of AKW L.P., dated as of May 1, 1997,
among AKW General Partner L.L.C., Accuride Ventures, Inc., Accuride
Corporation and Kaiser.
*10.11 Limited Liability Company Agreement of AKW General Partner L.L.C.,
dated as of May 1, 1997, among Accuride Ventures, Inc., Accuride
Corporation and Kaiser.
*10.12 Lease Agreement, dated as of May 1, 1997, between Kaiser and AKW L.P.
*10.13 Lease Agreement dated November 1, 1988, by and between Kaiser and The Bell
Company regarding the property in Cuyahoga Falls, Ohio, as amended and extended.
*10.14 Lease Agreement, dated as of February 1, 1974, by and between Henderson
County and The Firestone Tire & Rubber Company ("Firestone").
*10.15 Lease Amendment, dated as of December 19, 1986, by and between Henderson
County and Firestone.
*10.16 Joint Venture Agreement, dated November 5, 1997, by and among the Company,
Industria Automotriz, S.A. de C.V., Grupo Industrial Ramirez, S.A. and
Accuride de Mexico, S.A. de C.V. ("AdM").
*10.17 By-laws of AdM.
*10.18 Purchase and Sale Agreement, dated as of October 21, 1997, by and between
Accuride Corporation and General Electric Company regarding property
located in Columbia, Tennessee.
*10.19 Purchase Supply and Assembly Agreement, dated as of January 15, 1998,
between Accuride Corporation and Lacks Industries, Inc.
*10.20 Credit Agreement, dated as of January 21, 1998, between Accuride Corporation
and Citicorp USA, Inc., Citicorp Securities, Inc., Bankers Trust Company
and Wells Fargo Bank.
*10.21 Purchase Agreement, dated as of January 15, 1998, between Accuride
Corporation and BT Alex. Brown Incorporation, Citicorp Securities, Inc.,
and J.P. Morgan Securities Inc.
10.22 Credit Agreement dated July 9, 1998, by and between Accuride de Mexico, S.A.
de C.V. and Citibank Mexico, S.A. and Grupo Financiero Citibank
10.23 Completion Guaranty dated July 9, 1998, by and between Accuride Corporation,
Accuride de Mexico, S.A. de C.V., Industria Automotriz, S.A. de C.V., and
Citibank Mexico, S.A. and Grupo Financiero Citibank
10.24 Lease Agreement dated October 26, 1998, by and between Accuride Corporation
and Woodward, LLC. regarding the Evansville, Indiana office space.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
*21.1 Subsidiaries of Accuride Corporation.
23.1 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney of Accuride Corporation.
27.1 Financial Data Schedule.
</TABLE>
- -----------------------
* Previously filed as an exhibit to Form S-4 effective July 23, 1998
(Reg. No. 333-50239) and incorporated herein by reference.
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of July 9, 1998 between ACCURIDE DE
MEXICO, S.A. DE C.V., a corporation organized and existing under the laws of
the United Mexican States (the "BORROWER"), and CITIBANK MEXICO, S.A., GRUPO
FINANCIERO CITIBANK, a multiple banking institution organized and existing
under the laws of the United Mexican States ("CITIBANK MEXICO"), as lender
(the "LENDER").
PRELIMINARY STATEMENTS:
(1) The Borrower has requested that the Lender make available to
the Borrower the Facilities (as hereinafter defined) to finance the
construction of the Plant (as hereinafter defined), to pay transaction fees
and expenses, to refinance certain Existing Debt and to provide working
capital for general corporate purposes for the Borrower.
(2) The Lender is willing to provide the Facilities upon terms and
conditions provided herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement,
the following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"ACCURIDE" means Accuride Corporation, a Delaware corporation.
"ADVANCE" means a Term Advance or a Working Capital Advance.
"AFFILIATE" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the terms
"controlling," "controlled by" and "under common control with") of a
Person means the possession, direct or indirect, of the power to vote
10% or more of the Voting Stock of such Person or to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of Voting Stock, by contract or otherwise.
<PAGE>
"ANNUAL OPERATING BUDGET" means for any fiscal year of the
Borrower, the operating budget for such fiscal year prepared by the
Borrower.
"APPLICABLE LAWS" means any applicable federal, state, local or
municipal laws, rules, orders, judgments, regulations, ordinances,
codes, injunctions, writs or decrees of any Governmental Authority
(including any binding determination of an arbitrator or a court or
other Governmental Authority) of Mexico.
"APPLICABLE MARGIN" means
(a) through December 31, 1998, (i) 4.00% per annum for each
Term Advance and (ii) 2.75% per annum for each Working Capital Advance,
and
(b) thereafter, a percentage per annum for each Term Advance
and each Working Capital Advance, respectively, determined with
reference to the Leverage Ratio as set forth below:
<TABLE>
<CAPTION>
WORKING
LEVERAGE RATIO TERM ADVANCE CAPITAL ADVANCE
-------------- ------------ ---------------
<S> <C> <C>
greater than or equal to 5.0 to 1 4.25% 3.00%
less that 5.0 to 1 and greater than 4.00% 2.75%
or equal to 4.0 to 1
less than 4.0 to 1 and greater than 3.50% 2.50%
or equal to 3.5 to 1
less than 3.5 to 1 and greater than 3.25% 2.25%
or equal to 3.0 to 1
less than 3.0 to 1 and greater than 3.00% 2.00%
or equal to 2.5 to 1
less than 2.5 to 1 and greater than 2.70% 1.75%
or equal to 2.0 to 1
less than 2.0 to 1 2.50% 1.50%
</TABLE>
The Applicable Margin for each Advance shall be determined under
and for purposes of clause (b) above by reference to the Leverage Ratio
in effect on the first day of each Interest Period for such Advance.
Changes in the Applicable Margin resulting from changes in the Leverage
Ratio shall become effective (for purposes of this definition only, the
date of such effectiveness being the "EFFECTIVE DATE") as of the first
day following the last day of the most recent Fiscal Quarter or Fiscal
Year for which (A) financial statements are delivered to the Lender
pursuant to Section 5.03(b) or (c) and (B) a certificate of the chief
financial officer of the Borrower is delivered by the Borrower to the
Lender setting forth, with respect to such financial statements, the
then-applicable Leverage Ratio and the basis of the calculations
therefor, and shall remain in effect until
<PAGE>
the next change to be effected pursuant to this definition; PROVIDED
that (i) if the Borrower shall have made any payments in respect of
interest during the period (for purposes of this definition only, the
"INTERIM PERIOD") from and including the Effective Date to the day on
which any change in the Leverage Ratio is determined as provided above,
then the amount of the next such payment of interest due by the Borrower
on or after such day shall be increased or decreased by an amount equal
to any underpayment or overpayment so made by the Borrower during such
Interim Period and (ii) each determination of the Leverage Ratio
pursuant to this definition shall be made with respect to the
Measurement Period ending at the end of the fiscal period covered by the
relevant financial statements.
"BANKRUPTCY" means, as to any Person: (a) entry by any
Governmental Authority of any jurisdiction or a court having
jurisdiction in the premises of (i) a decree or order for relief in
respect of such Person in an involuntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization, SUSPENSION DE PAGOS
or other similar law or (ii) an involuntary or contested decree or order
adjudging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, SUSPENSION DE PAGOS,
arrangement, adjustment or composition of or in respect of such Person
under any Applicable Law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
such Person or of any substantial part of the property of such Person,
or ordering the winding up or liquidation of the affairs of such Person;
or (b) commencement by a Person of a voluntary case or proceeding under
any applicable bankruptcy, insolvency, reorganization, SUSPENSION DE
PAGOS or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by such Person to
the entry of a decree or order for relief in respect of such Person in a
involuntary case or proceeding under any applicable bankruptcy,
insolvency, reorganization, SUSPENSION DE PAGOS or other similar law or
to the commencement of any bankruptcy or insolvency case or proceeding
against such Person, or the filing by such Person of a petition or
answer or consent seeking reorganization or relief under any applicable
law; or consent by such Person to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of such
Person or of any substantial part of the property of such Person, or the
making by such Person of an assignment for the benefit of creditors, or
the admission by such Person in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action by
such Person in furtherance of any such action.
"BASE CASE PROJECTIONS" means the financial projections for the
Borrower delivered by the Borrower to the Lender on the date of the
Initial Extension of Credit.
"BLUEPRINTS" means the drawings and specifications for the
development and construction of the manufacturing and assembly portions
of the Plant, prepared by Docsa and approved by the Lender, the
Independent Engineer and, when necessary, each appropriate Governmental
Authority, all of which are more particularly described in Schedule
1.01(a) hereto, and all additions thereto and amendments and
modifications therefor approved by the Lender as required by Section
5.02(h) or (l).
<PAGE>
"BORROWER" has the meaning specified in the recital of parties to
this Agreement.
"BORROWER'S ACCOUNT" means the account of the Borrower maintained
by the Borrower with Citibank at its office at 399 Park Avenue, New
York, New York 10043, Account No. 36178871.
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized to close in New York, New York or Mexico, D.F.,
Mexico, or, with respect to any Eurodollar Rate Advance, a day of the
year on which dealings in deposits denominated in Dollars are carried on
in the London interbank market.
"CAPITAL BUDGET" means, for any fiscal year of the Borrower, the
budget prepared by the Borrower for Capital Expenditures identified as
such for such fiscal year.
"CAPITAL EXPENDITURES" means, for any Person for any period, the
sum, without duplication, of all expenditures made, directly or
indirectly (whether paid in cash or accrued as liabilities and including
in all events all amounts expended or capitalized under Capitalized
Leases, but excluding any amounts representing capitalized interest), by
such Person or any of its Subsidiaries during such period for equipment,
fixed assets, real property or improvements, or for replacements or
substitutions therefor or additions thereto, that have been or should
be, in accordance with GAAP, reflected as additions to property, plant
or equipment on a Consolidated balance sheet of such Person, provided
that Capital Expenditures shall not include (without duplication) (a)
any expenditures made in connection with the replacement, substitution,
repair or restoration of any assets to the extent financed (i) with
insurance proceeds received by the Borrower or any of its Subsidiaries
on account of the loss of, or any damage to, the assets being replaced,
substituted for, repaired or restored, or (ii) with the proceeds of any
compensation awarded to the Borrower or any of its Subsidiaries as a
result of the taking, by eminent domain or condemnation, of the assets
being replaced or substituted for, (b) any expenditures for the purchase
price of any equipment that is purchased simultaneously with the
trade-in of any existing equipment by the Borrower or any of its
Subsidiaries to the extent that the gross amount of such purchase price
is reduced by any credit granted by the seller of such equipment for the
equipment being traded in, (c) any expenditures for the purchase price
of any property, plant or equipment purchased within one year of the
consummation of any sale, lease, transfer or other disposition of any
asset of the Borrower or any of its Subsidiaries in accordance with the
provisions of Section 5.02(d) to the extent purchased with the proceeds
of such sale, lease, transfer or other disposition, (d) Investments made
pursuant to Section 5.02(e) or (e) any acquisition by the Borrower or
any of it Subsidiaries (by purchase or otherwise) of all or
substantially all of the business, property or fixed assets of, or the
stock or other evidence of beneficial ownership of, any Subsidiary or
any division, business unit or line of business of any Subsidiary in
accordance with Section 5.02(c).
<PAGE>
"CAPITALIZED LEASES" means all leases that have been or should be,
in accordance with GAAP, recorded as capitalized or financial leases.
"CITIBANK" means Citibank, N.A., a national banking association
organized and existing under the laws of the United States of America.
"CITIBANK MEXICO" has the meaning specified in the recital of
parties to this Agreement.
"COLLATERAL" means all "Collateral" referred to in the Collateral
Documents and all other property that is or is intended to be subject to
any Lien in favor of the Lender.
"COLLATERAL DOCUMENTS" means the Industrial Mortgage, the Pledge
Agreement and any other agreement that creates or purports to create a
Lien in favor of the Lender to secure the Obligations of the Borrower
hereunder and under the Notes.
"COLLATERAL GRANTOR" means each of the Borrower, Accuride and IASA.
"COMMITMENT" means a Term Commitment or a Working Capital
Commitment.
"COMPLETION" has the meaning specified in Section 1.01 of the
Completion Guaranty.
"COMPLETION DATE" has the meaning specified in Section 1.01 of the
Completion Guaranty.
"COMPLETION DEFAULT" has the meaning specified in Section 6.01 of
the Completion Guaranty.
"COMPLETION GUARANTY" has the meaning specified in Section
3.01(f)(vi).
"CONFIDENTIAL INFORMATION" means information that the Borrower
furnishes to the Lender in a writing designated as confidential, but
does not include any such information that is or becomes generally
available to the public or that is or becomes available to the Lender
from a source other than the Borrower, except with regards to such
information from a source actually known by the Lender to have an
obligation not to disclose such information.
"CONSOLIDATED" refers to the consolidation of accounts in
accordance with GAAP.
"CONSTRUCTION BUDGET" means the budget of Construction Costs
delivered by the Borrower to the Lender on the date of the Initial
Extension of Credit.
"CONSTRUCTION COSTS" means the following costs and expenses
incurred by or on behalf of the Borrower in connection with the
construction, development, design,
<PAGE>
engineering, acquisition, financing, outfitting, testing, start-up and
completion of the Plant, including the cost of Plant equipment and each
of the following: (a) all amounts payable by the Borrower to its
contractors, suppliers and subcontractors pursuant to the Construction
Documents; (b) the costs and expenses of all engineering, legal,
accounting and other professional advisers properly incurred by the
Borrower in connection with and attributable to the Plant; (c) costs of
Required Insurance; (d) Operating Costs incurred during the construction
period; (e) working capital in an amount not to exceed $7,500,000; and
(f) value-added tax, other taxes and customs charges payable in respect
of any of the above.
"CONSTRUCTION DOCUMENTS" means the Blueprints, the Timetable,
building and environmental permits, contracts with Docsa and any other
builders or contractors for the construction of the Plant, and copies of
all payments made to Docsa.
"COST CERTIFICATE" means, with respect to a Term Advance made, a
certificate of the President or another Senior Officer of the Borrower,
substantially in the form of Exhibit D hereto.
"DEBT" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all Obligations of
such Person for the deferred purchase price of property or services, (c)
all Obligations of such Person evidenced by notes, bonds, debentures or
other similar instruments, (d) all Obligations of such Person created or
arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights
and remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property), (e)
all Obligations of such Person as lessee under Capitalized Leases, (f)
all Obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities, (g) all Obligations
of such Person to purchase, redeem, retire, defease or otherwise make
any payment in respect of any capital stock of or other ownership or
profit interest in such Person or any other Person or any warrants,
rights or options to acquire such capital stock, (h) all Debt of others
referred to in clauses (a) through (g) above or clause (i) below
guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an
agreement (A) to pay or purchase such Debt or to advance or supply funds
for the payment or purchase of such Debt, (B) to purchase, sell or lease
(as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Debt or to assure the holder of such Debt against loss, (C) to supply
funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such
property is received or such services are rendered) or (D) otherwise to
assure a creditor against loss, and (i) all Debt referred to in clauses
(a) through (g) above of another Person secured by (or for which the
holder of such Debt has an existing right, contingent or otherwise, to
be secured by) any Lien on property (including, without limitation,
accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Debt.
<PAGE>
"DEFAULT" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"DOCSA" means Constructora Docsa, S.A. de C.V.
"DOLLARS" and "$" each means lawful money of the United States.
"DOLLAR FUNDING RATE" means, for any Interest Period for any Dollar
Funding Rate Advance, an interest rate per annum (rounded upward to the
nearest 1/8 of 1% per annum, if such rate is not such a multiple) equal
to the cost of funds rate for Dollar-denominated passive operations,
commonly referred to as the CCP-Dollars rate, as published in the DIARIO
OFFICIAL DE LA FEDERACION by the Banco de Mexico, in effect on the first
date of such Interest Period, or, if such rate is not available, any
replacement therefor promulgated by the Banco de Mexico (PROVIDED that
such replacement accurately reflects the Lender's cost of making,
funding or maintaining such Advance for such Interest Period for such
Advance), in effect on the first day of such Interest Period.
"DOLLAR FUNDING RATE ADVANCE" means any Advance that is either (i)
converted from a Eurodollar Rate Advance into a Dollar Funding Rate
Advance pursuant to Section 2.08(c) or (ii) made in Dollars at any time
after the obligation of the Lender to make Eurodollar Rate Advances is
suspended pursuant to Section 2.08(c).
"EBITDA" means, for any period, the sum, determined on a
Consolidated basis, of the amounts for such period of (a) Net Income
plus (b) to the extent included in computing Net Income, the sum
(without duplication) of (i) Interest Expense, (ii) taxes computed on
the basis of income, (iii) depreciation expense, (iv) amortization
expense (including amortization of deferred financing fees), (v) any
expenses or charges incurred in connection with any issuance of debt or
equity securities (including upfront fees payable in respect of bank
facilities), (vi) any fees and expenses related to Investments permitted
pursuant to Section 5.02(e) of this Agreement, (vii) losses on asset
sales, (viii) any deduction for minority interest expense, (ix) fees or
expenses incurred or paid by the Borrower or any of its Susbsidiaries in
connection with the transactions contemplated hereby, (x) any other
non-cash charges, (xi) any other non-recurring charges, (xii) currency
losses and (xiii) additional expenses in connection with labor
disruptions or the potential therefor, minus (c) to the extent included
in computing Net Income the sum, without duplication, of the amounts for
such period of (i) any non-recurring gains, (ii) all non-cash gains,
(iii) gains on asset sales, and (iv) currency gains, in each case of the
Borrower and its Subsidiaries, determined in accordance with GAAP for
such period, provided that, for purposes of such calculation, in the
case of any Subsidiary acquired by the Borrower or any of its
Subsidiaries following the commencement of any such period, amounts
attributable to such Subsidiary shall be calculated as though such
Subsidiary had been acquired on the first day of such period.
<PAGE>
"ENVIRONMENTAL ACTION" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to any Environmental Law,
any Environmental Permit or Hazardous Material or arising from alleged
injury or threat to health, safety or the environment, including,
without limitation, (a) by any Governmental Authority having
jurisdiction over enforcement, cleanup, removal, response, remedial or
other actions or damages and (b) by any such Governmental Authority or
by any third party for damages, contribution, indemnification, cost
recovery, compensation or injunctive relief.
"ENVIRONMENTAL LAW" means any Applicable Law relating to any
Environmental Matter.
"ENVIRONMENTAL MATTER" means any (a) release, emission, entry or
introduction into the air, including the air within buildings and other
natural or man-made structures above ground; (b) discharge, release or
entry into water, including into any river, watercourse, lake or pond
(whether natural or artificial or above ground or which joins or flows
into any such water outlet above ground) or reservoir, or the surface of
the riverbed or of other land supporting such waters, ground waters,
sewer or the sea; (c) deposit, storage, treatment, importation,
exportation, production, transportation, handling, processing, carrying,
manufacture, collection, sorting or presence of any Hazardous Materials
(including, in the case of waste, any material which constitutes a scrap
material or an effluent or other unwanted surplus substance arising from
the application of any process or activity (including making it
re-usable or reclaiming substances from it) and any material or article
which is required to be disposed of as being broken, worn out,
contaminated or otherwise spoiled); (d) nuisance, noise, health and
safety at work, industrial illness, industrial injury due to
environmental factors, environmental health problems (including
asbestosis or any other illness or injury caused by exposure to
asbestos) or genetically modified organisms; (e) conservation,
preservation or protection of the natural or man-made environment or any
living organisms supported by the natural or man-made environment; or
(f) other matter whatsoever directly affecting the environment or any
part of it.
"ENVIRONMENTAL PERMIT" means any permit, approval, identification
number, license or other authorization required under any Environmental
Law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"EUROCURRENCY LIABILITIES" has the meaning specified in Regulation
D of the Board of Governors of the Federal Reserve System of the United
States of America, as in effect from time to time.
"EURODOLLAR RATE" means, for any Interest Period for any Eurodollar
Rate Advance, an interest rate per annum (rounded upward to the nearest
whole multiple of
<PAGE>
1/8 of 1% per annum, if such rate is not such a multiple) equal to the
rate per annum at which deposits in Dollars are offered by the principal
office of Citibank in London, England to prime banks in the London
interbank market at 11:00 A.M. (London time) two Business Days before
the first day of such Interest Period in an amount substantially equal
to such Eurodollar Rate Advance to be outstanding during such Interest
Period and for a period equal to such Interest Period.
"EURODOLLAR RATE ADVANCE" means any Advance other than a Dollar
Funding Rate Advance.
"EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest Period for
any Eurodollar Rate Advance means the reserve percentage applicable two
Business Days before the first day of such Interest Period under
regulations issued from time to time by the Board of Governors of the
Federal Reserve System of the United States (or any successor) for
determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in New York
City with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest
rate on Eurodollar Rate Advances is determined) having a term equal to
such Interest Period.
"EVENTS OF DEFAULT" has the meaning specified in Section 6.02.
"EXISTING DEBT" has the meaning specified in Section 4.01(aa)
hereof.
"FACILITIES" means the Term Facility or the Working Capital
Facility.
"FISCAL QUARTER" means any fiscal quarter of the Borrower and its
Subsidiaries that occurs within any Fiscal Year.
"FISCAL YEAR" means a fiscal year of the Borrower and its
Subsidiaries ending on December 31 in any calendar year.
"GAAP" has the meaning specified in Section 1.03.
"GOVERNMENTAL APPROVALS" means all approvals, authorizations,
claims, consents, exceptions, exemptions, variances, licenses, permits,
publications, filings, registrations, notices to and declarations of or
with any Governmental Authority having jurisdiction over the matter,
including all siting, environmental and operating permits and licenses
that are required for (a) the ownership, development, construction,
financing, use, operation and maintenance of the Plant and all such
other matters as may be necessary in connection with the Plant and (b)
(i) the making by the Borrower of the payments at the times and in the
currencies contemplated by the Transaction Documents, (ii) the
enforceability of any of the Transaction Documents and (iii) all
<PAGE>
such other matters as may be necessary in connection with the
performance of any Loan Party's obligations under any Transaction
Document.
"GOVERNMENTAL AUTHORITY" means the government of Mexico or of any
state or other political subdivision thereof and includes any entity
within Mexico exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"GUARANTORS" means Accuride and IASA, as regards their respective
Obligations under the Completion Guaranty.
"HAZARDOUS MATERIALS" means (a) petroleum or petroleum products,
by-products or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"HEDGE AGREEMENTS" means interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts, commodities future or
option contracts for materials used in the ordinary course of business
and other similar agreements.
"IASA" means Industria Automotriz, S.A. de C.V., a corporation
organized and existing under the laws of Mexico.
"INDEMNIFIED PARTY" has the meaning specified in Section 7.04(b).
"INDEPENDENT ENGINEER" means the independent engineer selected from
time to time by the Lender and approved by the Borrower, which
independent engineer shall initially be Rockford Consulting.
"INDUSTRIAL MORTGAGE" has the meaning specified in Section
3.01(f)(v).
"INITIAL EXTENSION OF CREDIT" means the earlier to occur of the
initial Term Advance or the initial Working Capital Advance.
"INTEREST EXPENSE" means, for any Person for any period, cash
interest expense (including that attributable to Capital Leases in
accordance with GAAP), net of cash interest income, of such Person with
respect to all outstanding Debt of such Person, including, without
limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing and
net costs under Hedge Agreements (other than currency swap agreements,
currency future or option contracts and other similar agreements), but
excluding, however, amortization of deferred financing costs and any
other amounts of non-cash interest, all as calculated in accordance with
GAAP.
<PAGE>
"INTEREST PERIOD" means:
(a) for each Eurodollar Rate Advance, the period commencing
on the date of such Eurodollar Rate Advance and ending on the last
day of the period selected by the Borrower pursuant to the
provisions below and, thereafter, each subsequent period commencing
on the last day of the immediately preceding Interest Period
therefor and ending on the last day of the period selected by the
Borrower pursuant to the provisions below. The duration of each
such Interest Period shall be one, two, three or six months, as the
Borrower may, in the applicable Notice of Term Borrowing or Notice
of Working Capital Borrowing, or as the case may be, select; and
(b) for each Dollar Funding Rate Advance, the period
commencing on the date of such Dollar Funding Rate Advance and
ending on the day that occurs one calendar month after such date
and, thereafter, each subsequent one-month period commencing on the
last day of the immediately preceding Interest Period therefor and
ending on the last day of such one-month period;
PROVIDED, HOWEVER, in the case of clauses (a) and (b) above that:
(i) with respect to any Interest Period for any Advance that
begins before, and would otherwise end after, any principal
repayment installment date or maturity date for such Advance, such
Interest Period shall end on such principal repayment installment
date or maturity date;
(ii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next
succeeding Business Day, PROVIDED, HOWEVER, that, if such extension
would cause the last day of such Interest Period to occur in the
next following calendar month, the last day of such Interest Period
shall occur on the next preceding Business Day; and
(iii) subject to subclause (ii) above, if the last day of the
initial Interest Period would otherwise occur on a date during any
calendar month that is after the 25th day of such calendar month,
the last day of such initial Interest Period shall occur on the
25th day of such calendar month.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"INVESTMENT" in any Person means any loan or advance to such
Person, any purchase or other acquisition of any capital stock or other
ownership or profit interest, warrants, rights, options, obligations or
other securities of such Person, any capital contribution to such Person
or any other investment in such Person, including, without
<PAGE>
limitation, any arrangement pursuant to which the investor incurs Debt
of the types referred to in clause (h) or (i) of the definition of
"Debt" in respect of such Person.
"JOINT VENTURE AGREEMENT" means that certain Joint Venture
Agreement dated as of November 5, 1997 by and among Accuride, IASA,
Grupo Industrial Ramirez, S.A., a corporation organized and existing
under the laws of Mexico, and the Borrower, as such Joint Venture
Agreement may be amended, supplemented or otherwise modified from time
to time in compliance with the provisions of this Agreement.
"LENDER" has the meaning specified in the recital of parties to
this Agreement.
"LENDER PARTIES" means the Lender, the Participants, and any
sub-participant approved by the Borrower pursuant to Section 11 of any
Participation Agreement.
"LENDER'S ACCOUNT" means the account of Citibank at its office at
399 Park Avenue, New York, New York 10043, ABA No. 021000089, Account
No. 36852248, NAIB Agency Medium Term Finance, Ref: Accuride de Mexico,
S.A. de C.V. Attention: Carlos Lopez, tel: (302) 894-6007, fax: (302)
894-6120.
"LENDING OFFICE" means, with respect to the Lender, the office of
the Lender specified as its "Lending Office" under its name on the
signature pages hereto and, with respect to any Participant, the office
of such Participant specified as its "Lending Office" in the
Participation Agreement to which such Participant is a party.
"LETTER OF COMFORT" has the meaning specified in Section
3.01(f)(vii).
"LEVERAGE RATIO" means, as of any date of determination, the ratio
of (a) the aggregate amount of Consolidated Debt of the Borrower and its
Subsidiaries at the end of the most recently completed Measurement
Period prior to such date, to (b) Consolidated EBITDA of the Borrower
and its Subsidiaries for such Measurement Period.
"LIEN" means with respect to any property or assets, any mortgage
or deed of trust (including "FIDEICOMISOS"), pledge, hypothecation,
assignment, deposit arrangement, security interest, lien, charge,
easement (other than any easement not materially impairing usefulness or
marketability), encumbrance, preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including any conditional
sale or other title retention agreement having substantially the same
economic or legal effect as any of the foregoing).
"LOAN DOCUMENTS" means (i) this Agreement, (ii) the Notes, (iii)
the Completion Guaranty, (iv) the Letter of Comfort, and (v) the
Collateral Documents, in each case as amended, supplemented or otherwise
modified from time to time.
<PAGE>
"LOAN PARTIES" means the Borrower and the Guarantors.
"MATERIAL ADVERSE CHANGE" means (a) any material adverse change in
the business, financial condition, operations, assets or liabilities of
the Borrower and its Subsidiaries, taken as a whole, or (b) any change
in the business, financial condition, operations, assets or liabilities
of any Guarantor and its Subsidiaries, taken as a whole, which change
would have a material adverse effect on the ability of such Guarantor to
perform its obligations under the Completion Guaranty.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect on
(i) the business, financial condition, operations, assets or liabilities
of the Borrower and its Subsidiaries, taken as a whole, or (ii) the
rights and remedies of the Lender under any Loan Document or (b) an
effect on the business, financial condition, operations, assets or
liabilities of a Guarantor and its Subsidiaries, taken as a whole, which
change would have a material adverse effect on the ability of such
Guarantor to perform its obligations under the Completion Guaranty.
"MEASUREMENT PERIOD" means, as of any date of determination, the
most recently completed four consecutive Fiscal Quarters ending on or
immediately prior to such date, EXCEPT that during the first year after
the date hereof the "Measurement Period" means, as of any date of
determination, the period from the date hereof to the end of the Fiscal
Quarter ending on or immediately prior to such date.
"MEXICAN GAAP" means generally accepted accounting principles in
Mexico as in effect from time to time.
"MEXICAN TAXING AUTHORITY" has the meaning specified in Section
2.10(a).
"MEXICO" means the United Mexican States.
"MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined
in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of
the Borrower or any of its Subsidiaries and at least one Person other
than the Borrower and its Subsidiaries or (b) was so maintained and in
respect of which the Borrower or any of its Subsidiaries could have
liability under Section 4064 or 4069 or ERISA in the event such plan has
been or were to be terminated.
"NET INCOME" means, with respect to any Person for any period, the net
income (or loss) of such Person; PROVIDED that, for purposes of
determining Net Income for any Person, there shall be excluded from such
determination (i) any after-tax gains or losses, and any related fees
and expenses, in each case to the extent attributable to the sale of
assets, and (ii) any net extraordinary gains (or losses).
"NON-EXCLUDED TAXES" has the meaning specified in Section 2.l0(a).
<PAGE>
"NOTE" means a Term Note or a Working Capital Note.
"NOTICE OF BORROWING" means a Notice of Term Borrowing or a Notice
of Working Capital Borrowing.
"NOTICE OF TERM BORROWING" has the meaning specified in Section
2.02(a).
"NOTICE OF WORKING CAPITAL BORROWING" has the meaning specified in
Section 2.02(b).
"OBLIGATION" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether
or not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured or unsecured,
and whether or not such claim is discharged, stayed or otherwise
affected by any proceeding referred to in Section 6.02(f).
"OFFICERS' CERTIFICATE" means a certificate signed by (i) the
Director General of the Borrower and (ii) another Senior Officer of the
Borrower.
"OPERATING COSTS" means, for any period, all cash expenditures
incurred by the Borrower in administering, operating or maintaining the
Plant during such period.
"OTHER TAXES" has the meaning specified in Section 2.10(b).
"PARTICIPANT" means a bank or other financial institution that the
Borrower has approved in writing as a Participant and that becomes a
party to a Participation Agreement.
"PARTICIPATION AGREEMENT" means any Participation Agreement between
the Lender and any Participant, under which such Participant shall agree
to purchase participations in the Advances made and to be made under
this Agreement in substantially the form attached as Exhibit L hereto,
or in any other form agreed to by the Lender and the Borrower, as the
same may be amended, supplemented or otherwise modified from time to
time.
"PERMITTED INVESTMENTS" means (a) securities issued or directly and
fully guaranteed or insured by the United States government or the
government of Mexico, or any agency or instrumentality of any such
government having maturities of not more than 12 months from the date of
acquisition; (b) certificates of deposit and eurodollar time deposits
with maturities of 12 months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding 12 months and
overnight bank deposits, in each case, with any U.S. or Mexican
commercial bank of recognized stature having capital and surplus in
excess of $500,000,000 and having a commercial paper rating (or
<PAGE>
the holding company thereof having a commercial paper rating) of A-1 (or
the equivalent thereof) or better by Standard & Poor's Ratings Services
or any Mexican Affiliate thereof ("S&P") or P-1 (or the equivalent
thereof) or better by Moody's Investors Service, Inc. or any Mexican
Affiliate thereof ("MOODY'S") or D-1 (or the equivalent thereof) or
better by Duff and Phelps Credit Rating Co. or any Mexican Affiliate
thereof ("DUFF"), and which is a member of the Federal Reserve System of
the United States of America or a duly licensed Mexican banking
institution; (c) commercial paper rated at least A-1, P-1 or D-1 or the
equivalent thereof, by S&P, Moody's or Duff, respectively, and maturing
within 270 days after the date of acquisition; (d) guaranteed investment
contracts maturing within 12 months of the date of acquisition thereof
and entered into with (or fully guaranteed by) financial institutions
whose long-term unsecured non-credit enhanced indebtedness is rated A-
or better by S&P or Duff or A3 or better by Moody's; and (e) investments
in money market funds having a rating from each of S&P, Moody's and
Fitch Investors Service, Inc. in the highest investment category granted
thereby.
"PERMITTED LIENS" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced:
(a) Liens for taxes, assessments, governmental charges or
levies not delinquent or being contested in good faith by
appropriate proceedings and for which adequate cash reserves have
been set aside in accordance with Mexican GAAP, including Liens for
import taxes and value-added taxes;
(b) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in
connection with the importation of goods;
(c) Liens for deposits or pledges made in the ordinary
course of business to secure obligations under workmen's
compensation, social security or similar laws, or under
unemployment insurance, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases,
government contracts, performance and return-of-money bonds, and
other similar obligations incurred in the ordinary course of
business;
(d) statutory mechanics', workmen's, materialmen's,
carrier's, supplier's, vendor's, warehousemen's or other like Liens
arising in the ordinary course of business securing obligations
which are not due or which are being contested in good faith;
(e) easements, rights of way, reservations, restrictions,
covenants, agreements for joint or common use, landlord's rights of
distraint and other similar imperfections, charges or encumbrances
of title on real estate that do not render title to the property
encumbered thereby unmarketable or interfere in any
<PAGE>
material respect with the business of the Borrower and its
Subsidiaries taken as a whole;
(f) attachment, judgment and other similar Liens arising in
circumstances not constituting an Event of Default or in connection
with court proceedings that are being contested in good faith by
appropriate proceedings and for which adequate cash reserves have
been set aside;
(g) Liens on the assets and/or Voting Stock of the Borrower
in order to secure Replacement Debt, if any; PROVIDED that the
obligations of the Borrower hereunder are secured, equally and
ratably with such Liens, also by Lien on such assets and/or Voting
Stock under the Collateral Documents;
(h) ground leases in respect of real property on which
facilities owned or leased by the Borrower or any of its
Subsidiaries are located;
(i) any interest or title of a lessor or secured by a
lessor's interest under any lease permitted by this Agreement and
any Liens arising from any financing statement filed in connection
with such lease;
(j) Liens on goods, the purchase price of which is financed
by a documentary letter of credit issued for the account of the
Borrower or any of its Subsidiaries, provided that such Lien
secures only the obligations of the Borrower in respect of such
letter of credit to the extent permitted under Section 5.02(b); and
(k) leases or subleases granted to others and not
interfering in any material respect with the business of the
Borrower and its Subsidiaries taken as a whole.
"PERSON" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.
"PLAN" means any multiemployer or single-employer plan, as defined
in Section 4001 of ERISA and subject to Title IV of ERISA, that is or
was within any of the preceding five plan years maintained or
contributed to by (or to which there is or was an obligation to
contribute or to make payments of) the Borrower or any of its
Subsidiaries.
"PLANT" means the new, approximately 260,000 sq. ft. manufacturing
facility of the Borrower to be located in Cienega de Flores, Nuevo Leon,
Mexico.
"PLEDGE AGREEMENT" has the meaning specified in Section 6.02(k).
<PAGE>
"PRO FORMA EBITDA" has the meaning specified in Section
5.02(a)(vi)(V).
"PRUDENT INDUSTRY PRACTICES" has the meaning specified in Section
5.01(j).
"RELATED DOCUMENTS" means the Joint Venture Agreement and the
ESCRITURA CONSTITUTIVA and Bylaws of the Borrower.
"RELEASE" means disposing, discharging, injecting, spilling, leaking,
leaching, dumping, pumping, pouring, emitting, escaping, emptying, seeping,
placing and the like, into or upon any land or water or air, or otherwise
entering into the environment.
"REQUIRED GOVERNMENTAL APPROVAL" has the meaning specified in Section
4.01(d).
"REPLACEMENT DEBT" means Debt for borrowed money incurred by the
Borrower to replace and to refund the Working Capital Facility, subject to
the conditions set forth in Section 5.02(b)(iii).
"REQUIRED INSURANCE" has the meaning specified in Section 5.01(d).
"SENIOR OFFICER" means, with respect to any Person, the chief
executive officer, the president or any senior vice president of such
Person or, with respect to financial matters, the chief financial officer
or treasurer of such Person, or such other officers, comparable in
seniority and responsibility, as such Person may have.
"SOLVENT" and "SOLVENCY" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property of
such Person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person, (b) the present
fair salable value of the assets of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured, (c) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond
such Person's ability to pay such debts and liabilities as they mature and
(d) such Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such Person's
property would constitute an unreasonably small capital. The amount of
contingent liabilities at any time shall be computed as the amount that, in
the light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual
or matured liability.
"SUBORDINATED DEBT" means any Debt of the Borrower that is
subordinated to the Obligations of the Borrower under the Loan Documents
on, and that otherwise contains, terms and conditions satisfactory to the
Lender (including, without limitation, the term and condition that such
Debt may not be paid or prepaid until all the
<PAGE>
Obligations of the Borrower under this Agreement and the Notes shall be
paid in full in cash).
"SUBSIDIARY" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon
the occurrence of any contingency), (b) the interest in the capital or
profits of such partnership, joint venture or limited liability company or
(c) the beneficial interest in such trust or estate is at the time directly
or indirectly owned or controlled by such Person, by such Person and one or
more of its other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"SURVIVING DEBT" has the meaning specified in Section 3.01(b).
"TAXES" means any taxes, levies, imposts, duties, deductions,
withholdings, fees, liabilities and similar charges (and all interest,
penalties and other liabilities imposed with respect thereto) imposed by or
on behalf of any Governmental Authority or any political subdivision
thereof or taxing jurisdiction therein.
"TERM ADVANCE" has the meaning specified in Section 2.01(a).
"TERM COMMITMENT" means, with respect to the Lender at any time, the
obligation of the Lender, subject to the conditions set forth in this
Agreement, to make Term Advances to the Borrower up to an aggregate
principal amount equal to $25,000,000, as such amount may be reduced at or
prior to such time pursuant to Section 2.04.
"TERM FACILITY" means, at any time, the amount of the Lender's Term
Commitment at such time.
"TERM LOAN TERMINATION DATE" means the earlier of March 31, 2000 and
the date of termination in whole of the Term Commitment pursuant to Section
2.04 or 6.01.
"TERM NOTE" means a promissory note of the Borrower payable to the
order of the Lender, in substantially the form of Exhibit A hereto,
evidencing the indebtedness of the Borrower to the Lender resulting from a
Term Advance made by the Lender.
"TERMINATION DATE" means, as applicable, either the Term Loan
Termination Date or the Working Capital Termination Date.
"TIMETABLE" means the timetable attached as Schedule 1.01(b) hereto.
<PAGE>
"TRANSACTION DOCUMENTS" means, collectively, the Loan Documents, the
Related Documents and the Construction Documents.
"U.S. GAAP" means generally accepted accounting principles in the
United States as in effect from time to time.
"UNITED STATES" and "U.S." each means the United States of America.
"UNUSED WORKING CAPITAL COMMITMENT" means, with respect to the Lender
at any time, (a) the Lender's Working Capital Commitment at such time MINUS
(b) the aggregate principal amount of the Lender's Working Capital Advances
outstanding at such time.
"VOTING STOCK" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the happening of
such a contingency.
"WORKING CAPITAL ADVANCE" has the meaning specified in
Section 2.01(b).
"WORKING CAPITAL COMMITMENT" means, with respect to the Lender at any
time, the obligation of the Lender, subject to the conditions set forth in
this Agreement, to make Working Capital Advances to the Borrower from time
to time up to an aggregate principal amount equal to $7,500,000, as such
amount may be reduced at or prior to such time pursuant to Section 2.04.
"WORKING CAPITAL FACILITY" means, at any time, the amount of the
Lender's Working Capital Commitment at such time.
"WORKING CAPITAL NOTE" means a promissory note of the Borrower payable
to the order of the Lender, in substantially the form of Exhibit B hereto,
evidencing the indebtedness of the Borrower to the Lender resulting from a
Working Capital Advance made by the Lender.
"WORKING CAPITAL TERMINATION DATE" means the earlier of (x) the date
that occurs one year from the date hereof, or such later date as provided
for pursuant to Section 2.12, and (y) the date of termination in whole of
the Working Capital Commitments pursuant to Section 2.04 or 6.01.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding."
SECTION 1.03. ACCOUNTING TERMS. Except as otherwise provided in this
Agreement, all computations and determinations as to financial matters, and all
financial statements to be
<PAGE>
delivered under this Agreement, shall be made or prepared in accordance with
Mexican GAAP reconciled to U.S. GAAP (including principles of consolidation
where appropriate) ("GAAP") and applied on a consistent basis.
SECTION 1.04. OTHER DEFINITIONAL PROVISIONS. (a) The words
"hereof," "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Article, Section, Schedule and Exhibit
references are to this Agreement unless otherwise specified.
(b) Except as otherwise specified herein, each reference in this
Agreement to a Transaction Document shall be deemed (i) to include all exhibits,
annexes, schedules or other attachments thereto and (ii) to refer to such
Transaction Document as the same may be amended, supplemented or otherwise
modified from time to time in accordance with its terms and, to the extent
applicable, Sections 5.02(k) and 5.02(l).
(c) Except as otherwise specified herein, each reference in this
Agreement to an Applicable Law or a Governmental Approval shall be deemed to
refer to such Applicable Law or Governmental Approval as the same may be
amended, supplemented or otherwise modified from time to time.
(d) Each reference in this Agreement to a Person shall be deemed to
include such Person's permitted successors and assigns.
(e) The use of the word "including" in this Agreement means
"including, without limitation."
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. THE ADVANCES. (a) THE TERM ADVANCES. The Lender
agrees, on the terms and conditions hereinafter set forth, to make advances
(each a "TERM ADVANCE" and, collectively, the "TERM ADVANCES") to the Borrower
in Dollars from time to time on any Business Day during the period from the date
hereof until the Term Loan Termination Date in an aggregate amount not to exceed
the Lender's Term Commitment at such time. Amounts borrowed under this
Section 2.01(a) and repaid or prepaid may not be reborrowed.
(b) THE WORKING CAPITAL ADVANCES. The Lender agrees, on the terms
and conditions hereinafter set forth, to make advances (each a "WORKING CAPITAL
ADVANCE") to the Borrower in Dollars from time to time on any Business Day
during the period from the date hereof until the Working Capital Termination
Date in an amount for each such Advance not to exceed the Lender's Unused
Working Capital Commitment at such time. Within the limits of the Lender's
Unused Working Capital Commitment in effect from time to time, the Borrower
<PAGE>
may borrow under this Section 2.01(b), prepay pursuant to Section 2.05(b) and
reborrow under this Section 2.01(b).
SECTION 2.02. MAKING THE ADVANCES. (a) Each Term Advance shall be
made upon notice given by the Borrower to the Lender not fewer than three
Business days prior to the date of the proposed Term Advance. Each such notice
of a Term Advance (a "NOTICE OF TERM BORROWING") shall be by telephone,
confirmed immediately in writing, or telex or telecopier, in substantially the
form of Exhibit C hereto, specifying therein the requested (i) date of such Term
Advance, (ii) aggregate amount of such Term Advance and (iii) initial Interest
Period for such Term Advance. The Lender shall, before 11:00 A.M. (New York
City time) on the date of such Term Advance, make such funds available to the
Borrower, as such funds may be reduced in accordance with Section 2.02(f) below,
upon fulfillment of the applicable conditions set forth in Article III by
crediting the Borrower's Account.
(b) Each Working Capital Advance shall be made upon notice given by
the Borrower to the Lender not later than 11:00 A.M. (New York City time) on the
third Business Day prior to the date of the proposed Working Capital Advance.
Each such notice of a Working Capital Advance (a "NOTICE OF WORKING CAPITAL
BORROWING") shall be by telephone, confirmed immediately in writing, or telex or
telecopier, in substantially the form of Exhibit E hereto, specifying therein
the requested (i) date of such Working Capital Advance, (ii) aggregate amount of
such Working Capital Advance, (iii) initial Interest Period for such Working
Capital Advance and (iv) the maturity of such Working Capital Advance, which
maturity shall occur on the last day of any Interest Period for such Working
Capital Advance but no later than the then existing Working Capital Termination
Date. The Lender shall, before 11:00 A.M. (New York City time) on the date of
such Working Capital Advance, make such funds available to the Borrower, as such
funds may be reduced in accordance with Section 2.02(f) below, upon fulfillment
of the applicable conditions set forth in Article III by crediting the
Borrower's Account.
(c) No more than six separate Term Advances and no more than six
separate Working Capital Advances may be outstanding on any one day.
(d) Each Notice of Term Borrowing and Notice of Working Capital
Borrowing shall be irrevocable and binding on the Borrower. The Borrower shall
indemnify the Lender or any Participant against any loss, cost or expense
incurred by the Lender or such Participant as a result of any failure to fulfill
on or before the date specified in a Notice of Borrowing for an Advance, the
applicable conditions set forth in Article III, including, without limitation,
any loss (including loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
the Lender or such Participant to fund such Advance to be made by the Lender
when such Advance, as a result of such failure, is not made on such date.
(e) Unless the Lender shall have received notice from any Participant
prior to the date of any Advance that such Participant will not make available
to the Lender such Participant's ratable portion of such Advance, the Lender may
assume that such Participant has
<PAGE>
made such portion available to the Lender on the date of such Advance in
accordance with subsection (a) or (b) of this Section 2.02 and the Lender
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Participant
shall not have so made such ratable portion available to the Lender, the
Borrower agrees upon notice from the Lender to repay to the Lender forthwith
on demand such corresponding amount together with interest thereon, for each
day from the date such amount is made available to the Borrower until the
date such amount is repaid to the Lender, at the interest rate applicable at
the time to such Advance. If such Participant shall repay to the Lender such
corresponding amount, such amount so repaid shall constitute such
Participant's portion of such Advance for purposes of this Agreement.
(f) The Lender shall not be responsible for the failure of any
Participant to fund its ratable portion of any Advance to be funded by such
Participant on the date of such Advance, and such Advance made to the Borrower
shall be reduced by the amount of any such ratable portion that is not funded by
any Participant.
SECTION 2.03. REPAYMENT OF ADVANCES. (a) TERM ADVANCES. The
Borrower shall repay to the Lender the principal amount of each Term Advance in
eight substantially equal quarterly installments on the 25th day of each March,
June, September and December, commencing June 25, 2001 and ending March 25,
2003; PROVIDED, HOWEVER, that the final principal installment shall in any event
be in an amount equal to the principal amount of such Term Advance then
outstanding.
(b) WORKING CAPITAL ADVANCES. The Borrower shall repay to the Lender
the principal amount of each Working Capital Advance on the maturity thereof
stated in the Working Capital Note that evidences such Working Capital Advance
in accordance with clause (iv) of the second sentence of Section 2.02(b).
SECTION 2.04. OPTIONAL TERMINATION OR REDUCTION OF THE COMMITMENTS.
The Borrower may, upon at least three Business Days' notice to the Lender,
terminate in whole or reduce in part the unused portions of its Term Commitment
and its Unused Working Capital Commitment; PROVIDED, HOWEVER, that each partial
reduction of any Facility shall be in an aggregate amount of $500,000 or an
integral multiple of $500,000 in excess thereof.
SECTION 2.05. PREPAYMENTS. (a) TERM ADVANCES. The Borrower may,
upon at least three Business Days' notice to the Lender stating the proposed
date and aggregate principal amount of the prepayment, and if such notice is
given the Borrower shall, prepay the outstanding aggregate principal amount of
any Term Advance in whole or in part, together with (i) accrued interest to the
date of such prepayment on the aggregate principal amount prepaid and (ii) a
premium, if such prepayment occurs on a date that is less than two years from
the date hereof, of 0.85% of the aggregate principal amount so prepaid, and if
such prepayment occurs on a date that is two years from the date hereof or
later, but less than three years from the date hereof, of 0.55% of the aggregate
principal amount so prepaid, and if such prepayment occurs three years from the
date hereof or later, of 0.25% of the aggregate principal amount so prepaid;
PROVIDED, HOWEVER, that (x) each partial prepayment shall be in an
<PAGE>
aggregate principal amount of $1,000,000 or an integral multiple of
$1,000,000 in excess thereof and (y) in the event of any such prepayment of
such Advance during any Interest Period thereof, the Borrower shall reimburse
the Lender in respect thereof pursuant to Section 7.04(c). Each prepayment
of Term Advances shall be applied to the installments thereof as indicated by
the Borrower in its sole discretion.
(b) WORKING CAPITAL ADVANCES. The Borrower may, upon at least three
Business Days' notice to the Lender stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given the Borrower
shall, prepay without premium or penalty the aggregate principal amount of any
Working Capital Advances in whole or in part, together with accrued interest to
the date of such prepayment on the aggregate principal amount prepaid; PROVIDED,
HOWEVER, that (x) each partial prepayment shall be in an aggregate principal
amount of $100,000 or an integral multiple of $100,000 in excess thereof and (y)
in the event of any such prepayment of any Advance during any Interest Period
thereof, the Borrower shall reimburse the Lender in respect thereof pursuant to
Section 7.04(c).
SECTION 2.06. INTEREST. (a) SCHEDULED INTEREST. The Borrower shall
pay interest on the unpaid principal amount of each Advance owing to the Lender
from the date of such Advance until such principal amount shall be paid in full,
at a rate per annum equal at all times (i) during each Interest Period for such
Advance, if such Advance is a Eurodollar Rate Advance, to the sum of (A) the
Eurodollar Rate for such Interest Period for such Advance PLUS (B) the
Applicable Margin in effect from time to time for such Advance, payable in
arrears on the last day of such Interest Period and, if such Interest Period has
a duration of more than three months, on each day that occurs during such
Interest Period every three months from the first day of such Interest Period
and on the date such Advance shall be paid in full and (ii) during each Interest
Period for such Advance, if such Advance is a Dollar Funding Rate Advance, to
the sum of (A) the Dollar Funding Rate for such Interest Period for such Advance
PLUS (B) the Applicable Margin in effect from time to time for such Advance, in
each case payable in arrears on the last day of each Interest Period therefor.
(b) DEFAULT INTEREST. Anything herein to the contrary
notwithstanding, the Borrower shall pay interest on (i) that principal amount of
each Advance which is not paid when due, payable in arrears on the dates
referred to in subsection (a) above and on demand, at a rate per annum equal at
all times to 4% per annum above the rate per annum required to be paid on such
Advance pursuant to subsection (a) above and (ii) to the fullest extent
permitted by law, the amount of any interest, fee or other amount payable
hereunder which is not paid when due, from the date such amount shall be due
until such amount shall be paid in full, payable in arrears on the date such
amount shall be paid in full and on demand, at a rate per annum equal at all
times to 4% per annum above the rate per annum required to be paid, in the case
of interest, on the Advance on which such interest has accrued pursuant to
subsection (a) above, and, in all other cases, on the Advance which bears the
highest rate per annum from time to time.
<PAGE>
(c) NOTICE OF INTEREST RATE. Promptly after receipt of a Notice of
Borrowing pursuant to Section 2.02(a) or 2.02(b), the Lender shall give notice
to the Borrower of the applicable interest rate determined by the Lender for
purposes of clause (a).
SECTION 2.07. FEES. (a) COMMITMENT FEE. The Borrower shall pay to
the Lender a commitment fee, from the date hereof until the applicable
Termination Date, payable in arrears on the date of the initial Term Advance or
Working Capital Advance hereunder and thereafter quarterly on the last Business
Day of each March, June, September and December commencing September 30, 1998,
and on each Termination Date, at the rate of 0.50 of 1% per annum on the average
daily unused portion of the Lender's Term Commitment and on the average daily
Unused Working Capital Commitment of the Lender.
(b) UPFRONT FEE. The Borrower shall pay to the Lender on the date
hereof a one time upfront fee equal to 1.00% of the Lender's Commitments
hereunder.
(c) OTHER FEES. The Borrower shall pay to the Lender such other fees
as may from time to time be agreed upon by and between the Borrower and the
Lender.
SECTION 2.08. INCREASED COSTS, ETC. (a) In the event that, due to
either (i) the introduction of or any change (other than any change by way of
imposition or increase of reserve requirements included in the Eurodollar Rate
Reserve Percentage) in or in the interpretation or administration of any
applicable law or regulation after the date hereof, (ii) the compliance with any
applicable guideline or request from any central bank or other governmental
authority (whether or not having the force of law) or (iii) any other
circumstance affecting the interbank Eurodollar market or the position of any
Lender Party in such market which leads such Lender Party to reasonably
determine that the Eurodollar Rate for any Interest Period for any Eurodollar
Rate Advance will not adequately reflect the cost to such Lender Party of
making, funding or maintaining such Eurodollar Rate Advance or its participation
therein or any portion thereof for such Interest Period, there shall be any
increase in the cost to or reduction in the amount received or receivable by
such Lender Party as a result of agreeing to make or of making, funding or
maintaining Eurodollar Rate Advances or its participation therein or any portion
thereof (excluding for purposes of this Section 2.08 any such increased costs
resulting from Taxes or Other Taxes, as to which Section 2.10 shall govern, then
the Borrower shall from time to time, upon demand by such Lender Party and, in
the case of any Participant, with a copy of such demand to the Lender, pay to
such Lender Party additional amounts sufficient to compensate such Lender Party
for such increased cost; PROVIDED, HOWEVER, such Lender Party before claiming
any additional amounts under this Section 2.08(a) will use reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
designate a different Lending Office for any Eurodollar Rate Advances affected
by such event if the making of such a designation would avoid the need for, or
reduce the amount of, such increased cost that may thereafter accrue; PROVIDED
that such designation is made on terms that such Lender Party and its Lending
Office suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of this
subsection (a). A certificate as to the amount of such increased cost and
showing in reasonable detail the basis for the calculation thereof, submitted
<PAGE>
to the Borrower by any Lender Party at the time of demand, shall be
conclusive and binding for all purposes, absent manifest error.
(b) If, due to either (i) the introduction of or any change in or in
the interpretation or administration of any applicable law or regulation after
the date hereof or (ii) the compliance with any applicable guideline or request
from any central bank or other governmental authority (whether or not having the
force of law), there shall be any increase in the amount of capital required or
expected to be maintained by any Lender Party or any corporation controlling any
Lender Party which has or would have the effect of reducing the rate of return
on such Lender Party's capital or assets as a result of or based upon the
existence of such Lender Party's commitments and obligations under this
Agreement or a Participation Agreement to a level below that which such Lender
Party could have achieved but for such change or compliance (taking into
consideration such Lender Party's or such corporation's policies with respect to
capital adequacy), then, upon demand by such Lender Party and, in the case of
any Participant, with a copy of such demand to the Lender, the Borrower shall
pay to such Lender Party, from time to time as specified by such Lender Party,
additional amounts sufficient to compensate such Lender Party in light of such
circumstances, it being understood and agreed that such Lender Party shall not
be entitled to such compensation as a result of such Lender Party's compliance
with, or pursuant to any request or directive to comply with, any such law,
regulation, guideline or request in effect on the date hereof. Any amount
payable pursuant to this Section 2.08(b) shall be payable only to the extent
that such Lender Party reasonably determines such increase in capital to be
allocable to the existence of such Lender Party's commitment to lend hereunder
or under a Participation Agreement. A certificate as to such amounts and
showing in reasonable detail the basis for the calculation thereof submitted to
the Borrower by any Lender Party at the time of demand shall be conclusive and
binding for all purposes, absent manifest error.
(c) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or the central bank or other governmental
authority shall assert that it is unlawful, for any Lender Party or its Lending
Office to perform its obligations hereunder or under a Participation Agreement
to make or participate in Eurodollar Rate Advances or to continue to fund or
maintain Eurodollar Rate Advances or its participation in Eurodollar Rate
Advances, then, on notice thereof by such Lender Party to the Borrower and, in
the case of any Participant, with a copy of such demand to the Lender, the
Borrower will either (i) on the last day of the then existing Interest Period
therefor, convert each Eurodollar Rate Advance affected by such circumstances
into a Dollar Funding Rate Advance, or (ii) if such Advance shall not have been
made, cancel such Advance by giving the Lender telephonic notice (confirmed
promptly in writing) thereof on the same date that the Borrower was notified by
such Lender Party pursuant to this subsection (c). In the event of an
illegality as described in this subsection (c) the obligation of the Lender to
make Eurodollar Advances shall be suspended until the Lender shall notify the
Borrower that the Lender has determined that the circumstances causing such
suspension no longer exist; PROVIDED, HOWEVER, that, before the Lender shall
make any such demand, the Lender agrees to use, or in the case of any
Participant, shall have received from such Participant confirmation that it has
used, reasonable efforts (consistent with its
<PAGE>
internal policy and legal and regulatory restrictions) to designate a
different Lending Office for any Advances affected by such event if the
making of such a designation would allow such Lender Party or its Lending
Office to continue to perform its obligations to make or participate in
Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate
Advances or its participation in Eurodollar Rate Advances; PROVIDED that such
designation is made on terms that such Lender Party and its Lending Office
suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of this
subsection.
(d) The Borrower shall pay to the Lender a fee on the unpaid
principal amount of each Eurodollar Rate Advance from the date of such
Eurodollar Rate Advance until such principal amount is paid in full, at a rate
per annum equal at all times to the remainder obtained by subtracting (i) the
Eurodollar Rate for the then current Interest Period from time to time for such
Eurodollar Rate Advance from (ii) the rate obtained by dividing such Eurodollar
Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage
for such Interest Period, payable on each date on which interest is payable on
such Eurodollar Rate Advance. Such fee shall be determined by the Lender and
notified to the Borrower by the Lender.
SECTION 2.09. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall
make each payment hereunder and under the Notes, irrespective of any right of
counterclaim or set-off, not later than 11:00 A.M. (New York City time) on the
day when due to the Lender at the Lender's Account in New York, New York for the
account of the Lender in same day funds in Dollars.
(b) The Borrower hereby authorizes the Lender, if and to the extent
payment owed to the Lender is not made when due hereunder or under the Notes, to
charge from time to time against any or all of the Borrower's accounts with the
Lender any amount so due.
(c) All computations of interest and fees shall be made by the Lender
on the basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest or fees are payable. Each determination by the Lender of an
interest rate or fee hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fee, as the case may be;
PROVIDED, HOWEVER, that, if such extension would cause payment of interest on or
principal of Advances to be made in the next following calendar month, such
payment shall be made on the next preceding Business Day.
SECTION 2.10. TAXES. (a) Any and all payments made by the Borrower
under this Agreement and any Note shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties,
<PAGE>
charges, fees, deductions, or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by Mexico (or by any political subdivision or
taxing authority thereof or therein or any organization or federation of
which Mexico is at any time a member) or of any other jurisdiction or
subdivision (including, without limitation, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees, deductions, or
withholdings arising with respect to any Participant) excluding net income
taxes and franchise taxes (imposed in lieu of net income taxes) imposed on
the Lender or any of the Participants as a result of a present or former
connection between the Lender or such Participant and Mexico or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising solely from the Lender's or such Participant's having
executed, delivered or performed its obligations or received a payment under,
or enforced this Agreement or the Notes). If any such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions or withholdings
("NON-EXCLUDED TAXES") are required to be withheld or deducted from any
amounts payable to the Lender hereunder or under any Note, the amounts so
payable to the Lender shall be increased to the extent necessary to yield to
the Lender (after payment of all taxes), interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this Agreement
so that such net sum is equal to what the Lender would have received and so
retained had no such deduction or withholding been required or made. Within
45 days after such Non-Excluded Taxes are due, the Borrower shall send to the
Lender the original official receipt, or a certified copy thereof, received
by the Borrower showing payment thereof. If the Borrower fails to pay any
such Non-Excluded Taxes when due to the appropriate taxing authority or fails
to remit to the Lender the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lender against any incremental
taxes, interest or penalties that may become payable by the Lender as a
result of any such failure.
(b) In addition, the Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Notes or any other Loan Document or
from the execution, delivery, notarization or registration of, performing under,
or otherwise with respect to, this Agreement, the Notes or any other Loan
Document ("OTHER TAXES").
(c) In the event that any Lender Party shall for any reason become
liable for any Non-Excluded Taxes or Other Taxes, then the Borrower shall
indemnify such Lender Party on demand and on an after-tax basis for the amount
of such liability.
SECTION 2.11. USE OF PROCEEDS. (a) The proceeds of each Term
Advance shall be available (and the Borrower agrees that it shall use such
proceeds) solely (x) to pay the Construction Costs and (y) to repay, as of the
date of the initial Term Advance, the Existing Debt, as more specifically set
forth in the Cost Certificate delivered by the Borrower in respect of such Term
Advance.
(b) The proceeds of the Working Capital Advances shall be available
(and the Borrower agrees that it shall use such proceeds) solely (x) to pay fees
and expenses in connection with the Loan Documents and (y) to provide working
capital and for general corporate purposes of the Borrower.
<PAGE>
SECTION 2.12. WORKING CAPITAL COMMITMENT EXTENSIONS. (a) If (i)
with respect to the Working Capital Termination Date that is scheduled to occur
one year from the date hereof, on the 91st day prior to such Working Capital
Termination Date the Borrower is in compliance with all of its covenants
contained in Section 5.04 and no Default shall have occurred and be continuing,
or (ii) with respect to any other Working Capital Termination Date in effect at
any other time, neither the Borrower nor the Lender shall provide the notice
referred to in subsection (b) below and no Default shall have occurred and be
continuing on the 91st day prior to such Working Capital Termination Date, then,
in the case of either (i) or (ii) above the term of the Working Capital Facility
shall, on the Working Capital Termination Date then in effect hereunder,
automatically extend for an additional one-year period and the Working Capital
Termination Date shall extend to a date that occurs one year after the Working
Capital Termination Date then in effect hereunder.
(b) If the Borrower provides a written notice to the Lender, or the
Lender provides a written notice to the Borrower, in either case at least 90
days prior to the then effective Working Capital Termination Date to the effect
that the Working Capital Facility shall not be extended, then no extension of
the Working Capital Facility shall occur.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL EXTENSION OF CREDIT.
The obligation of the Lender to make an Advance on the occasion of the Initial
Extension of Credit hereunder is subject to the satisfaction of the following
conditions precedent before or concurrently with the Initial Extension of
Credit:
(a) The Lender shall be reasonably satisfied with any changes made
after December 31, 1997 to the corporate and legal structure and
capitalization of the Borrower, including the terms and conditions of the
Borrower's ESCRITURA CONSTITUTIVA, its bylaws, each class of capital stock
of the Borrower, the Joint Venture Agreement and each other agreement or
instrument relating to such structure or capitalization, in each case to
the extent that the Lender determines such changes are adverse to the
Lender or the Borrower.
(b) The Lender shall be satisfied that (i) all Existing Debt
(including the Debt that the Borrower owes Citibank Mexico immediately
before the Initial Extension of Credit), other than the Debt identified on
Schedule 3.01(b) (the "SURVIVING DEBT"), has been, or will with the
proceeds of the Initial Extension of Credit be, prepaid or otherwise
satisfied and extinguished, and (ii) all such Surviving Debt shall be on
terms and conditions satisfactory to the Lender.
(c) Before giving effect to the transactions contemplated by the
Transaction Documents, there shall have occurred no Material Adverse Change
since December 31, 1997.
<PAGE>
(d) There shall exist no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of its Subsidiaries pending or
threatened before any court, governmental agency or arbitrator that
(i) could reasonably be expected to have a Material Adverse Effect or
(ii) purports to affect the legality, validity or enforceability of the
Transaction Documents or the consummation of the transactions contemplated
thereby.
(e) The Borrower shall have paid all documented accrued fees and
expenses of the Lender (including the accrued fees and expenses of counsel
to the Lender).
(f) The Lender shall have received on or before the day of the
Initial Extension of Credit the following loan documentation, each dated
such day (unless otherwise specified), in form and substance satisfactory
to the Lender and in the number of copies as requested by the Lender:
(i) Copies of the resolutions (or other authorizing actions or
instruments) of the Board of Directors or the Shareholders of the
Borrower and each other Loan Party approving this Agreement, the Notes
and each other Loan Document to which it is or is to be a party, and
of all documents evidencing other necessary corporate action and
governmental and other third party approvals and consents, if any,
with respect to this Agreement, the Notes and each other Loan
Document, in each case certified by an Officers' Certificate of such
Loan Party or by a notary public.
(ii) A copy of the charter and bylaws of the Borrower and each
amendment thereto, certified (as of a date reasonably near the date of
the Initial Extension of Credit) by the appropriate Governmental
Authority or by a notary public of the jurisdiction of its
incorporation as being a true and correct copy thereof.
(iii) An Officers' Certificate of the Borrower and each other
Loan Party, dated the date of the Initial Extension of Credit (the
statements made in which certificate shall be true on and as of the
date of the Initial Extension of Credit), certifying as to (A) the
absence of any amendments to the charter of the Borrower or such other
Loan Party since the date of the certificate referred to in
Section 3.01(f)(ii), (B) a true and correct copy of the bylaws of the
Borrower and such other Loan Party as in effect on the date of the
Initial Extension of Credit, (C) the due incorporation of the Borrower
and such other Loan Party as a corporation organized under the laws of
the state of its incorporation, and the absence of any proceeding for
the dissolution or liquidation of the Borrower or such other Loan
Party, (D) the truth in all material respects of the representations
and warranties contained in the Loan Documents as though made on and
as of the date of the Initial Extension of Credit, and (E) the absence
of any event occurring and continuing, or resulting from the Initial
Extension of Credit, that constitutes a Default.
<PAGE>
(iv) An Officers' Certificate of the Borrower and each other
Loan Party certifying the names and true signatures of the officers of
the Borrower and such other Loan Party authorized to sign this
Agreement, the Notes and each other Loan Document to which they are or
are to be parties and the other documents to be delivered hereunder
and thereunder.
(v) An industrial mortgage (HIPOTECA INDUSTRIAL) covering all
the properties and assets of the Borrower, including the properties
listed on Schedule 4.01(ii) (together with each supplement delivered
pursuant to Section 5.01(p), in each case as amended, supplemented or
otherwise modified from time to time in accordance with their terms,
the "INDUSTRIAL MORTGAGE"), duly executed by the Borrower, together
with:
(A) evidence that the first testimony of the public
deed that contains the Industrial Mortgage has been submitted for
filing or recording on or before the day of the Initial Extension
of Credit in all filing or recording offices that the Lender may
deem necessary or desirable in order to create a valid first and
subsisting Lien on the property described therein in favor of the
Lender and that all filing and recording taxes and duties have
been paid, and
(B) evidence that all other action that the Lender may
deem necessary or desirable in order to create valid first
and subsisting Liens on the property described in the Industrial
Mortgage has been taken.
(vi) A Completion Guaranty Agreement in substantially the form
of Exhibit F (as amended, supplemented or otherwise modified from time
to time in accordance with its terms, the "COMPLETION GUARANTY"), duly
executed by each Guarantor, or such insurance, guaranty or other
agreement in form and substance acceptable to the Lender, duly
executed by a party or parties acceptable to the Lender.
(vii) A Letter of Comfort in substantially the form of Exhibit G
(as amended, supplemented or otherwise modified from time to time in
accordance with its terms, the "LETTER OF COMFORT"), duly executed by
each Guarantor.
(viii) Participation Agreements duly executed by Participants
and funding at least $17,500,000 of the Facilities.
(ix) Certified copies of each of the Related Documents, duly
executed by the parties thereto and in form and substance satisfactory
to the Lender, together with all agreements, instruments and other
documents delivered in connection therewith.
<PAGE>
(x) Such financial, business and other information regarding
each Loan Party as the Lender shall have requested, including, without
limitation, information as to possible contingent liabilities, tax
matters, environmental matters, obligations under employee benefit
plans, collective bargaining agreements and other arrangements with
employees, audited annual financial statements dated December 31,
1997, interim financial statements dated the end of the most recent
fiscal quarter for which financial statements are available (or, in
the event the Lender's due diligence review reveals material changes
since such financial statements, as of a later date within 45 days of
the day of the Initial Extension of Credit), pro forma financial
statements as to the Borrower, in form and substance satisfactory to
the Lender, of balance sheets, income statements and cash flow
statements on a monthly basis for the first year following the day of
the Initial Extension of Credit and on an annual basis for each year
thereafter until the Termination Date.
(xi) Certificates, in form and substance satisfactory to the
Lender, attesting to the Solvency of each Loan Party together with
such Loan Party's Subsidiaries, taken as a whole, after giving effect
to the transactions contemplated by the Transaction Documents, from
its chief financial officer.
(xii) Evidence that the Lender, on behalf of the Lender Parties,
has been named as a loss payee under all insurance policies maintained
with respect to the property described in the Industrial Mortgage, for
purposes of Article 109 and 110 of the Mexican Insurance Contract Law
(LEY SOBRE EL CONTRATO DE SEGURO).
(g) The Lender shall have received on or before the day of the
Initial Extension of Credit the following project documentation, each dated
such day (unless otherwise specified), in form and substance satisfactory
to the Lender and in the number of copies as requested by the Lender:
(i) An original (or copy certified by the Borrower to be true
and complete) of each of the Construction Documents together with an
Officers' Certificate from the Borrower to the effect that (i) each
Construction Document is in full force and effect, (ii) there are no
agreements, side letters or other documents to which the Borrower (or
to its knowledge any other Person) is a party that are not included in
the definition of Construction Documents that have the effect of
modifying or supplementing in any respect any of the respective rights
or obligations of the Borrower or any other party under any of the
Construction Documents and (iii) neither the Borrower nor, to its
knowledge, any other party to any such Construction Document is in
breach or default thereunder.
(ii) An Officers' Certificate of the Borrower (A) attaching
copies of all Governmental Approvals required to be obtained for
constructing the Plant as of the date of the Initial Extension of
Credit and (B) stating that each such
<PAGE>
Governmental Approval has been duly obtained, is in full force and
effect, is final and is not subject to any unsatisfied condition
required to be satisfied as of such date that may allow
modification, cancellation or revocation thereof, and no event has
occurred that would result in such modification, cancellation or
revocation thereof, and that the Borrower has no reason to believe
that all Governmental Approvals required to be obtained subsequent
to the Initial Extension of Credit will not be obtained by the
dates by which they are required.
(iii) An Officers' Certificate of the Borrower dated as of the
date of the Initial Extension of Credit, stating that the Borrower as
of such date is in compliance with the requirements of Schedule
5.01(d).
(iv) Certified copies of all policies evidencing the insurance
required pursuant to Section 5.01(d) and pursuant to the Industrial
Mortgage, in form and substance satisfactory to the Lender.
(v) Evidence, in form and substance satisfactory to the
Lender, that (i) the Borrower and the other Loan Parties have each
irrevocably appointed as its agent for service of process CT
Corporation System (or another Person satisfactory to the Lender), and
that such agent has accepted the appointment and has agreed to forward
forthwith to such Person all legal process in New York, New York,
addressed to such Person, as applicable, received by such agent and
(ii) the Borrower and IASA have granted an irrevocable power of
attorney in favor of the agent for service of process in accordance
with Mexican law.
(vi) Evidence, in form and substance satisfactory to the
Lender, that the Joint Venture Agreement has been amended to permit a
grant by Accuride and IASA of the Collateral under the Pledge
Agreement.
(h) The Lender shall have received on or before the day of the
Initial Extension of Credit the following opinions, each dated such date:
(i) A favorable opinion of Santamarina y Steta, S.C., Mexican
counsel for the Borrower, in substantially the form of Exhibit H-1
hereto, and a favorable opinion of Latham & Watkins, New York counsel
for the Borrower, in substantially the form of Exhibit H-2 hereto,
and, in each case, as to such other matters as the Lender may
reasonably request.
(ii) A favorable opinion of Latham & Watkins, counsel for
Accuride, in substantially the form of Exhibit I hereto and as to such
other matters as the Lender may reasonably request.
<PAGE>
(iii) A favorable opinion of Andres Gonzalez Sandoval, counsel
for IASA, in substantially the form of Exhibit J hereto and as to such
other matters as the Lender may reasonably request.
(iv) A favorable opinion of Martinez, Algaba, Estrella, De Haro
y Galvan-Duque, S.C., Mexican counsel for the Lender, in substantially
the form of Exhibit K hereto and otherwise in form and substance
satisfactory to the Lender.
(v) A favorable opinion of Shearman & Sterling, New York
counsel for the Lender, in form and substance satisfactory to the
Lender.
SECTION 3.02. CONDITIONS PRECEDENT TO EACH TERM ADVANCE. The
obligation of the Lender to make a Term Advance (including the Initial
Extension of Credit consisting of a Term Advance) shall be subject to the
further conditions precedent that on the date of such Term Advance:
(a) The Lender shall have received on or before the day of such Term
Advance the following documentation:
(i) at least three Business Days prior to such Term Advance, a
Notice of Term Borrowing executed and delivered by a duly authorized
officer of the Borrower in respect of the Term Advance to be extended
in accordance with the terms of Section 2.02(a) hereof;
(ii) at least three Business Days prior to such Term Advance, a
Cost Certificate, a copy of which shall have been delivered to the
Lender and the Independent Engineer by the Borrower, with respect to
the requested Term Advance and a copy of any related application for
payment delivered by the contractors under the Construction Documents,
together with copies of all invoices (where available) and other
statements of charges (including reasonable estimates of charges) with
respect to the payment to be made to the contractors pursuant to the
Construction Documents on the date of such Term Advance and with
respect to all other items of Construction Costs to be paid on such
date; and
(iii) A Term Note duly executed by the Borrower, evidencing, and
reflecting the payment terms of, the indebtedness resulting from such
Term Advance.
(b) The following statements shall be true (and each of the delivery
to the Lender of the applicable Notice of Term Borrowing, and the
acceptance by the Borrower of the proceeds of such Term Advance shall
constitute a representation and warranty by the Borrower that both on the
date of such delivery and on the date of such Term Advance such statements
are true):
<PAGE>
(i) the representations and warranties contained in each Loan
Document are correct in all material respects on and as of such date,
before and after giving effect to such Term Advance and to the
application of the proceeds therefrom, as though made on and as of
such date other than any such representations or warranties that, by
their terms, refer to a specific date other than the date of such Term
Advance, in which case as of such specific date; and
(ii) no event has occurred and is continuing, or would result
from such Term Advance or from the application of the proceeds
therefrom, that constitutes a Default.
(c) The Lender shall have received from each Participant funds in
Dollars in an amount equal to such Participant's ratable share of such Term
Advance.
(d) The Lender shall have received such other approvals, opinions or
documents as the Lender may reasonably request.
SECTION 3.03. CONDITIONS PRECEDENT TO EACH WORKING CAPITAL
ADVANCE. The obligation of the Lender to make a Working Capital Advance
(including the Initial Extension of Credit consisting of a Working Capital
Advance) shall be subject to the further conditions precedent that on the
date of such Working Capital Advance:
(a) The Lender shall have received on or before the day of such
Working Capital Advance the following documentation:
(i) at least three Business Days prior to such Working Capital
Advance, a Notice of Working Capital Borrowing executed and delivered
by a duly authorized officer of the Borrower in respect of the Working
Capital Advance to be extended in accordance with the terms of Section
2.02(b) hereof; and
(ii) A Working Capital Note duly executed by the Borrower,
evidencing, and reflecting the payment terms of, the indebtedness
resulting from such Working Capital Advance.
(b) The following statements shall be true (and each of the giving of
the Notice of Working Capital Borrowing, and the acceptance by the Borrower
of the proceeds of such Working Capital Advance shall constitute a
representation and warranty by the Borrower that both on the date of such
notice and on the date of such Advance such statements are true):
(i) the representations and warranties contained in each Loan
Document are correct in all material respects on and as of such date,
before and after giving effect to such Working Capital Advance and to
the application of the proceeds therefrom, as though made on and as of
such date other than any
<PAGE>
such representations or warranties that, by their terms, refer to a
specific date other than the date of such Working Capital Advance,
in which case as of such specific date; and
(ii) no event has occurred and is continuing, or would result
from such Working Capital Advance or from the application of the
proceeds therefrom, that constitutes a Default.
(c) The Lender shall have received from each Participant funds in an
amount equal to such Participant's ratable share of such Working Capital
Advance.
(d) The Lender shall have received such other approvals, opinions or
documents as the Lender may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants as follows:
(a) The Borrower (i) is a corporation duly organized and validly
existing under the laws of Mexico, and (ii) has all requisite corporate
power and authority (including, without limitation, all governmental
licenses, permits and other approvals other than those the absence of which
would not have a Material Adverse Effect upon the business of the Borrower)
to own or lease and operate its properties and to carry on its business as
now conducted and as proposed to be conducted and to perform its
obligations under the Transaction Documents. All of the outstanding
capital stock of the Borrower has been validly issued, is fully paid and
non-assessable and is owned by Accuride and IASA free and clear of all
Liens, except those created under the Pledge Agreement, if any.
(b) Set forth on Schedule 4.01(b) hereto is a complete and accurate
list of all Subsidiaries of the Borrower, showing as of the date hereof (as
to each such Subsidiary) the jurisdiction of its incorporation, the number
of shares of each class of capital stock authorized, and the number
outstanding, on the date hereof and the percentage of the outstanding
shares of each such class owned (directly or indirectly) by the Borrower
and the number of shares covered by all outstanding options, warrants,
rights of conversion or purchase and similar rights at the date hereof.
All of the outstanding capital stock of all of such Subsidiaries has been
validly issued, is fully paid and non-assessable and is owned by the
Borrower or one or more of its Subsidiaries free and clear of all Liens,
except those created under the Collateral Documents. Each such Subsidiary
(i) is a corporation duly organized, validly existing and, if applicable,
in good standing under the laws of the jurisdiction of its incorporation,
and (ii) has all requisite corporate power and authority (including,
without limitation, all governmental
<PAGE>
licenses, permits and other approvals) to own or lease and operate its
properties and to carry on its business as now conducted and as
proposed to be conducted.
(c) The execution, delivery and performance by the Borrower of this
Agreement, the Notes, each other Loan Document, each Construction Document
and each Related Document to which it is or is to be a party, and the
consummation of the transactions contemplated thereby, are within the
Borrower's corporate powers, have been duly authorized by all necessary
corporate action, and do not (i) contravene the Borrower's charter or
by-laws, (ii) violate any Applicable Law or any rule, regulation, order,
writ, judgment, injunction, decree, determination or award rendered or
promulgated under or pursuant to such Applicable Law, (iii) result in the
breach of, or constitute a default under, any loan agreement, indenture,
mortgage, deed of trust, lease or other financial instrument, or any other
material contract or agreement, binding on or affecting the Borrower, any
of its Subsidiaries or any of their properties or (iv) except for the Liens
created under the Collateral Documents, result in or require the creation
or imposition of any Lien upon or with respect to any of the properties of
the Borrower or any of its Subsidiaries. None of the Borrower and its
Subsidiaries is in violation of any such law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or in breach of
any such contract, loan agreement, indenture, mortgage, deed of trust,
lease or other instrument, the violation or breach of which could have a
Material Adverse Effect. No Applicable Law or rule, regulation, order,
writ, judgment, injunction, decree, determination or award rendered or
promulgated under or pursuant to any Applicable Law exists that restrains,
prevents or imposes conditions upon the fulfillment of any obligation or
benefit of any party under this Agreement and the other Loan Documents in
such a way as to have a Material Adverse Effect.
(d) No authorization or approval (including exchange credit approval)
or other action by, and no notice to or filing with, any Governmental
Authority or regulatory body or any other third party is required for
(i) the due execution, delivery, recordation, filing or performance by the
Borrower of this Agreement, the Notes, any other Loan Document, any
Construction Document or any Related Document to which it is or is to be a
party, or for the consummation of the transactions contemplated thereby,
except, with respect to any Construction Document only, for those the
absence of which will not have a Material Adverse Effect, (ii) the
Blueprints, except for those the absence of which will not have a Material
Adverse Effect, (iii) the grant by the Borrower of the Liens granted by it
pursuant to the Collateral Documents, (iv) the perfection or maintenance of
the Liens created by the Collateral Documents (including the first priority
nature thereof) or (v) the exercise by the Lender of its rights under the
Loan Documents or the remedies in respect of the Collateral pursuant to the
Collateral Documents, except for the authorizations, approvals, actions,
notices and filings listed on Schedule 4.01(d)(i), all of which have been
duly obtained, taken, given or made and are in full force and effect,
EXCEPT for the Industrial Mortgage and (with regard to the pledge of shares
of stock of the Borrower contemplated by Section 6.02(k)) the Borrower's
by-laws, each of which has been filed for recordation at the proper Public
<PAGE>
Registries of Property and Commerce in Mexico. Each Governmental Approval
that is necessary for the performance by the Borrower of its Obligations
under the Construction Documents, the transactions contemplated thereby and
the siting, construction and operation of the Plant (each, a "REQUIRED
GOVERNMENTAL APPROVAL") is listed on Schedule 4.01(d)(ii). Each such
Required Governmental Approval has been duly obtained, is in full force and
effect, is final and is not subject to any unsatisfied condition required
to be satisfied as of such date that may allow modification, cancellation
or revocation thereof, and no event has occurred that would result in the
modification, cancellation or revocation thereof, EXCEPT for such Required
Governmental Approvals (for the construction and operation of the Plant)
which will be filed in the ordinary course of business during the
construction of the Plant or upon completion of the Plant and which the
Borrower expects to duly obtain as and when required and in the ordinary
course of business. The Borrower has no basis to believe that any such
Required Governmental Approvals referred to in the EXCEPT clause of the
immediately preceding sentence will not be so duly obtained.
(e) This Agreement has been, and each of the Notes and each of the
other Loan Documents, Related Documents and Construction Documents to which
the Borrower is a party when delivered hereunder will have been, duly
executed and delivered by the Borrower. This Agreement is, and each of the
Notes and each of the other Loan Documents, Related Documents and
Construction Documents to which the Borrower is a party when delivered
hereunder will be, the legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms.
(f) The Consolidated balance sheet of the Borrower and its
Subsidiaries as at December 31, 1997, and the related Consolidated
statements of income and cash flows of the Borrower and its Subsidiaries
for the fiscal year then ended, certified by the chief financial officer of
the Borrower, copies of which have been furnished to the Lender, fairly
present the Consolidated financial condition of the Borrower and its
Subsidiaries as at such date and the Consolidated pro forma results of
operations of the Borrower and its Subsidiaries for the fiscal year ended
on such date, in each case giving effect to the transactions contemplated
hereby, all in accordance with GAAP.
(g) The Consolidated forecasted balance sheets, income statements and
cash flows statements of the Borrower and its Subsidiaries delivered to the
Lender pursuant to Section 3.01(f)(x) or 5.03 (e) were prepared in good
faith on the basis of the assumptions stated therein, which assumptions
were believed by the Borrower to be fair in light of conditions existing at
the time of delivery of such forecasts, and represented, at the time of
delivery, the Borrower's best estimate of its future financial performance.
(h) No information, exhibit, financial statement, schedule or report
furnished by the Borrower to the Lender in connection with the negotiation
of the Loan Documents or pursuant to the terms of the Loan Documents
contained any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements made therein not misleading.
<PAGE>
(i) There is no action, suit, investigation, litigation or proceeding
affecting the Borrower or any of its Subsidiaries, including any
Environmental Action, pending or threatened before any court, governmental
agency or arbitrator that (i) could have a Material Adverse Effect or
(ii) purports to affect the legality, validity or enforceability of this
Agreement, any Note, any other Loan Document, any Construction Document or
any Related Document or the consummation of the transactions contemplated
hereby.
(j) (i) Neither the Borrower nor any of its Subsidiaries has or is
subject to any Plan or Multiple Employer Plan; and
(ii) With respect to each scheme or arrangement mandated by a
government other than the United States (a "FOREIGN GOVERNMENT SCHEME
OR ARRANGEMENT") and with respect to each employee benefit plan
maintained or contributed to by the Borrower or any Subsidiary of the
Borrower that is not subject to United States law (a "NON-U.S. PLAN"):
(A) Any employer and employee contributions required
by law or by the terms of any Foreign Government Scheme or
Arrangement or any Non-U.S. Plan have been made, or, if
applicable, accrued, in accordance with normal accounting
practices.
(B) The fair market value of the assets of each funded
Non-U.S. Plan, the liability of each insurer for any Non-U.S.
Plan funded through insurance or the book reserve established for
any Non-U.S. Plan, together with any accrued contributions, is
sufficient to procure or provide for the accrued benefit
obligations, as of the date hereof, with respect to all current
and former participants in such Non-U.S. Plan according to the
actuarial assumptions and valuations most recently used to
account for such obligations in accordance with applicable
generally accepted accounting principles.
(C) Each Non-U.S. Plan required to be registered has
been registered and has been maintained in good standing with
applicable regulatory authorities.
(k) Neither the business nor the properties of the Borrower or any of
its Subsidiaries are affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo,
act of God or of the public enemy or other casualty (whether or not covered
by insurance) or other event of FORCE MAJEURE that would excuse the
Borrower from its duty to perform its obligations under the Transaction
Documents or that could have a Material Adverse Effect.
(l) The operations and properties of the Borrower and each of its
Subsidiaries comply in all material respects with all applicable
Environmental Laws and
<PAGE>
Environmental Permits, all past non-compliance with such Environmental
Laws and Environmental Permits has been resolved without ongoing
obligations or costs, and no circumstances exist that could (i) form
the basis of an Environmental Action against the Borrower or any of
its Subsidiaries or any of their properties that could have a Material
Adverse Effect or (ii) cause any such property to be subject to any
restrictions on ownership, occupancy, use or transferability under any
Environmental Law. The Borrower has filed with the applicable Governmental
Authority, and such Governmental Authority has not rejected, the Manifiesto
de Impacto Ambiental related to the construction of the Plant dated June
15, 1998 by the Borrower.
(m) Neither the Borrower nor any of its Subsidiaries is undertaking,
and has not completed, either individually or together with other
potentially responsible parties, any investigation or assessment or
remedial or response action relating to any actual or threatened release,
discharge or disposal of Hazardous Materials at any site, location or
operation, either voluntarily or pursuant to the order of any governmental
or regulatory authority or the requirements of any Environmental Law; and
all Hazardous Materials generated, used, treated, handled or stored at, or
transported to or from, any property currently or formerly owned or
operated by the Borrower or any of its Subsidiaries have been disposed of
in a manner not reasonably expected to result in material liability to the
Borrower or any of its Subsidiaries.
(n) Neither the Borrower nor, to the knowledge of the Borrower, any
third party, has caused or permitted the Release of, or has used,
generated, manufactured, produced, stored or disposed of in, on, under or
about the Plant or transported thereto or therefrom, any Hazardous Material
that could reasonably be expected to subject the Borrower to any material
liability under any Environmental Law.
(o) There are no Hazardous Materials used, stored or present at, on
or, to the knowledge of the Borrower, near the Plant except as may be used,
stored or present in connection with the construction, operation or
ownership of the Plant in accordance with Prudent Industry Practices and
all Applicable Laws.
(p) To the knowledge of the Borrower, there is and has been no
condition, circumstances, action, activity or event that could reasonably
form the basis of any violation of, or any material liability to the
Borrower under, any Environmental Law.
(q) To the knowledge of the Borrower, there is no proceeding,
investigation or inquiry by any Governmental Authority with respect to the
presence or Release of Hazardous Materials in, on, from or to the Plant.
(r) The Borrower has no knowledge of any past or existing violations
of any Environmental Laws affecting the Plant. The Borrower has received
no written complaint, order, directive, citation or notice from any
Governmental Authority with respect to any Environmental Law.
<PAGE>
(s) Neither the Borrower nor any of its properties has any immunity
under the laws of Mexico from jurisdiction or suit of any court or from any
legal process or remedy (whether through service, notice, attachment prior
to judgment, attachment in aid of execution, execution or otherwise).
(t) The Borrower has filed or caused to be filed all tax returns
required to be filed by it, and has paid and discharged all taxes shown to
be due and payable on such returns, or on any assessments made against it
or any of its properties, and all other taxes, assessments and governmental
charges or levies lawfully imposed on it or its property following a formal
demand for payment from appropriate governmental officials except such as
are contested in good faith and by appropriate proceedings and with respect
to which adequate cash reserves have been set aside by the Borrower. As of
the date hereof, there are no disputes pending or, to its knowledge,
threatened, between the Borrower and any governmental taxing authority.
(u) As of the date hereof, no income, stamp or other taxes or levies,
imposts, deductions, charges, compulsory loans or withholdings whatsoever
are or will be, under applicable law in Mexico, imposed, assessed, levied
or collected by Mexico or any political subdivision or taxing authority
thereof or therein or on or in respect of principal, interest, premiums,
fees or other amounts payable hereunder to any Lender Party, except that a
Mexican withholding tax is payable in respect of interest, fees and other
amounts payable hereunder, other than principal, with respect to Advances
owed to Lender Parties that are not residents of Mexico.
(v) The obligations of the Borrower hereunder do and shall at all
times rank PARI PASSU with the Borrower's other Debt other than any such
Debt which is subordinated or which has any priority pursuant to Applicable
Law.
(w) The Borrower is in compliance with, and has no reason to believe
that the Plant will not comply fully with, all Applicable Laws, all
Required Governmental Approvals obtained on or prior to the date of
determination and all Construction Documents. Each license, permit,
authorization, consent and approval required by any Governmental Authority
for the construction of the Plant, and for the operation of the Borrower in
respect of the Plant, to the extent such construction has progressed and
operation has commenced, (i) has been obtained by the Borrower, (ii) is
without restriction or modification, (iii) does not require any
modification of the Blueprints, (iv) allows the Plant to be used as
contemplated by the Borrower and (v) remains in full force and effect.
(x) All Required Insurance has been obtained and is in full force and
effect, and such insurance complies with the requirements of Section
5.01(d).
(y) Neither the Borrower nor any of its Subsidiaries is an
"investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for,
<PAGE>
an "investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
(z) The Borrower is, individually and together with its Subsidiaries,
Solvent.
(aa) Set forth on Schedule 4.01(aa) hereto is a complete and accurate
list of all existing Debt (the "EXISTING DEBT") (other than Surviving
Debt), showing as of the date hereof the principal amount outstanding
thereunder.
(bb) Set forth on Schedule 3.01(b) hereto is a complete and accurate
list of all Surviving Debt, showing as of the date hereof the principal
amount outstanding thereunder, the maturity date thereof and the
amortization schedule therefor.
(cc) The property interests and other rights obtained, or, as
contemplated to be obtained, and the materials to be supplied, pursuant to
the Construction Documents:
(i) comprise all of the property interests necessary to secure
any right or privilege which is material to the
acquisition, development, construction, installation,
completion, operation and maintenance of the Plant in
accordance with the Construction Documents and all
Applicable Laws;
(ii) are sufficient to enable the Plant to be located,
constructed and operated as contemplated by the
Construction Documents; and
(iii) provide adequate ingress and egress from the Plant as may
be required in connection with the construction and
operation of the Plant.
(dd) There are no services, materials or rights required for the
construction or operation of the Plant in accordance with the Construction
Documents other than those that can reasonably be expected to be
commercially available on terms consistent with the Construction Budget and
the Base Case Projections.
(ee) The Lender has received a true and complete copy of each
Construction Document as in effect on the date of this representation
(including all exhibits, schedules and disclosure letters referred to
therein or delivered pursuant thereto) and of any amendments thereto. None
of the Construction Documents have been amended, supplemented, modified or
terminated and all of the Construction Documents are in full force and
effect.
(ff) All conditions precedent to the obligations of the respective
parties under the Construction Documents have been satisfied, except for
such conditions precedent which by their terms cannot be met until a later
stage in the construction or operation of the Plant, and the Borrower has
no reason to believe that any such condition precedent
<PAGE>
cannot be satisfied on or prior to the appropriate state in the
construction or operation of the Plant.
(gg) The Construction Budget accurately specifies in all material
respects all costs and expenses incurred and the Borrower's best estimate
of all costs and expenses anticipated by the Borrower to be incurred prior
to the latest date on which the Completion Date is scheduled at such time,
as confirmed by the Independent Engineer, to construct and finance the
construction of the Plant in the manner contemplated by the Construction
Documents.
(hh) All projections and budgets (including the Construction Budget
and the Base Case Projections) furnished or to be furnished to the Lender
by or on behalf of the Borrower (A) have been and will be prepared with due
care, (B) fairly represent, and will fairly represent, as of the date of
delivery, in all material respects, the Borrower's expectations as to the
matters covered thereby as of their date, (C) are based on, and will be
based on, as of the date of delivery, reasonable assumptions as to all
factual and legal matters material to the estimates therein (including
interest rates and costs), (D) are and will be, as of the date of delivery,
in all material respects consistent with the provisions of the Transaction
Documents and (E) are, and will be, as of the date of delivery, prepared on
a basis substantially consistent with the corresponding projections and
budgets, if any, previously furnished to the Lender.
(ii) Set forth on Schedule 4.01(ii) hereto is a complete and accurate
list of all real property owned by the Borrower, showing as of the date
hereof the street address, county or other relevant jurisdiction, state,
record owner and book and fair value thereof. The Borrower has good,
marketable and insurable legal title to such real property, free and clear
of all Liens, other than Liens created or permitted by the Loan Documents.
(jj) Set forth on Schedule 4.01(jj) hereto is a complete and accurate
list of all leases of real property under which the Borrower is the lessee,
showing as of the date hereof the street address, county or other relevant
jurisdiction, state, lessor, lessee, expiration date and annual rental cost
thereof. Each such lease is the legal, valid and binding obligation of the
lessor thereof, enforceable in accordance with its terms.
(kk) No Material Adverse Change has occurred since December 31, 1997.
(ll) The Borrower will (i) initiate a review and assessment of all
areas within its and each of its Subsidiaries' business and operations
(including those affected by suppliers, vendors and customers) that could
be adversely affected by the risk that computer applications used by the
Borrower or any of its Subsidiaries, suppliers, vendors or customers may
be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999
(such risk, the "YEAR 2000 PROBLEM") and (ii) develop a plan and timeline
for addressing the Year 2000 Problem on a timely basis. Based on the
foregoing, the Borrower believes that all computer applications (including
those of its suppliers, vendors and
<PAGE>
customers) that are material to its or any of its Subsidiaries' business
and operations are reasonably expected on a timely basis to be able to
perform properly date-sensitive functions for all dates before and after
January 1, 2000, except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any Advance shall
remain unpaid or the Lender shall have any Commitment hereunder, the Borrower
will:
(a) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all Applicable Laws
and all Governmental Approvals. The Borrower shall notify the Lender,
promptly following the occurrence thereof, of any disputes pending or to
its knowledge threatened between the Borrower or any Governmental
Authority.
(b) PAYMENT OF TAXES, ETC. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become delinquent,
all Taxes imposed upon it or upon its property or upon other assets of the
Plant; PROVIDED, HOWEVER, that neither the Borrower nor any of its
Subsidiaries shall be required to pay or discharge any such tax,
assessment, charge or claim that is being contested in good faith and by
proper proceedings and as to which appropriate reserves are being
maintained. The Borrower shall notify the Lender, promptly following the
occurrence thereof, of any disputes pending or to its knowledge threatened
between the Borrower and any Governmental Authority relating to claims for
Taxes due.
(c) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause each of
its Subsidiaries and all lessees and other Persons operating or occupying
its properties to comply, in all material respects, with all applicable
Environmental Laws and Environmental Permits; obtain and renew and cause
each of its Subsidiaries to obtain and renew all Environmental Permits
necessary for its operations and properties; construct and operate the
Plant in such a manner as to comply with substantially the same
environmental requirements with which Accuride's production facilities in
the State of Kentucky in the United States comply; and conduct, and cause
each of its Subsidiaries to conduct, any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other action
necessary to remove and clean up all Hazardous Materials from any of its
properties, in accordance with the requirements of all Environmental Laws;
PROVIDED, HOWEVER, that neither the Borrower nor any of its Subsidiaries
shall be required to undertake any such cleanup, removal, remedial or other
action to the extent that its obligation to do so is being contested in
good faith and by proper proceedings and appropriate reserves are being
maintained with respect to such circumstances.
<PAGE>
(d) MAINTENANCE OF INSURANCE. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks
as is usually carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower or such
Subsidiary operates; and maintain or cause to be maintained with respect to
construction and operation of the Plant the insurance set forth on
Schedule 5.01(d) required as of the date of determination (the "REQUIRED
INSURANCE").
(e) PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and maintain,
and cause each of its Subsidiaries to preserve and maintain, its existence,
legal structure and legal name. The Borrower shall have its principal
place of business and chief executive office in Cienega de Flores, N.L.,
Mexico, and shall maintain in such place originals or copies of the
principal books and records relating to its business.
(f) VISITATION RIGHTS. At any reasonable time and from time to time,
upon reasonable notice and during normal business hours, permit the Lender
or any authorized agents or representatives thereof, to examine and make
copies of and abstracts from the records and books of account of, and visit
the properties of, the Borrower and any of its Subsidiaries, and to discuss
the affairs, finances and accounts of the Borrower and any of its
Subsidiaries with any of their officers or directors and with their
independent certified public accountants; provided that the Borrower may,
if it so chooses, be present at or participate in any such discussion.
(g) PREPARATION OF ENVIRONMENTAL REPORTS. At the request of the
Lender, not more frequently than once per year, after receipt by the
Borrower of any notice of non-compliance with Environmental Laws or
knowledge by the Borrower of a Release, provide to the Lender within 60
days after such request, at the expense of the Borrower, an environmental
site assessment report for any of its or its Subsidiaries' properties
described in such request, prepared by an environmental consulting firm
acceptable to the Lender, indicating the presence or absence of Hazardous
Materials and the estimated cost of any compliance, removal or remedial
action in connection with any Hazardous Materials on such properties;
without limiting the generality of the foregoing, if the Lender determines
at any time that a material risk exists that any such report will not be
provided within the time referred to above, the Lender may retain an
environmental consulting firm to prepare such report at the expense of the
Borrower, and the Borrower hereby grants and agrees to cause any Subsidiary
that owns any property described in such request to grant at the time of
such request, to the Lender, such firm and any agents or representatives
thereof an irrevocable non-exclusive license, subject to the rights of
tenants, to enter onto their respective properties to undertake such an
assessment.
(h) KEEPING OF BOOKS. Keep, and cause each of its Subsidiaries to
keep, proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of
the Borrower and each such
<PAGE>
Subsidiary in accordance with generally accepted accounting principles in
effect from time to time in Mexico.
(i) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and cause
each of its Subsidiaries to maintain and preserve, all of its properties
that are used or useful in the conduct of its business in good working
order and condition, ordinary wear and tear excepted.
(j) CONSTRUCTION AND OPERATION OF PLANT. Construct the Plant and
complete all tasks with respect thereto (x) in accordance with good, sound
engineering practices, (y) in a good workmanlike manner and (z) in
accordance with generally accepted industry practices (each of such
standards referred to in (x), (y) and (z) are herein collectively referred
to as "PRUDENT INDUSTRY PRACTICES"); maintain the Plant in good repair and
from time to time make all repairs and replacements thereto in accordance
with Prudent Industry Practices; maintain all equipment and spare parts
necessary to maintain and repair the Plant as aforesaid; operate the Plant
or cause the Plant to be operated in accordance with Prudent Industry
Practices.
(k) PERFORMANCE OF RELATED DOCUMENTS AND CONSTRUCTION DOCUMENTS.
Perform and observe all of the terms and provisions of each Related
Document and Construction Document to be performed or observed by it,
maintain each such Related Document or Construction Document in full force
and effect, enforce such Related Document or Construction Document in
accordance with its terms, take all such action to such end as may be from
time to time requested by the Lender and, upon the reasonable request of
the Lender, make to each other party to each such Related Document or
Construction Document such demands and requests for information and reports
or for action as the Borrower is entitled to make under such Related
Document or Construction Document.
(l) SEEK AND MAINTAIN GOVERNMENTAL APPROVALS. Seek and maintain in
validity all Governmental Approvals without any modifications thereto that
could have a Material Adverse Effect.
(m) TRANSACTIONS WITH AFFILIATES. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under the
Loan Documents with any of their Affiliates on terms that are fair and
reasonable and no less favorable to the Borrower or such Subsidiary than it
would obtain in a comparable arm's-length transaction with a Person not an
Affiliate.
(n) NOTICE OF EXTRAORDINARY EVENTS. Notify the Lender promptly after
the discovery by any Senior Officer of the Borrower of the occurrence of:
(i) any casualty loss involving, or condemnation of property
of the Borrower or any of its Subsidiaries having a net book value of
at least $500,000 (or its equivalent in any other currency); and
<PAGE>
(ii) any material breach or material default by any party under
any Construction Document;
in each case describing the nature thereof and the action the Borrower
proposes to take with respect thereto.
(o) MAINTENANCE OF SECURITY INTERESTS. Preserve or cause to be
preserved the security interests granted under the Collateral Documents and
undertake all actions which are necessary or appropriate in the reasonable
judgment of the Lender to (A) maintain the Lender's security interest in
the Collateral under the Collateral Documents in full force and effect at
all times (including the priority thereof), and (B) preserve and protect
said Collateral and protect and enforce the Borrower's or its Subsidiaries'
rights and title and the rights of the Lender to said Collateral, including
the making or delivery of all filings and recordations, the payments of
fees and other charges and the issuance of supplemental information.
(p) SECURITY INTEREST IN NEWLY ACQUIRED PROPERTY. Upon the
acquisition of any material interest in property (including, without
limitation, shares of stock of any Subsidiary of the Borrower) not covered
by any Collateral Document, execute, deliver and record either a supplement
to an existing applicable Collateral Document, or a new applicable
Collateral Document, in either case satisfactory in form and substance to
the Lender, subjecting such interests to the Lien and security interests
created by such Collateral Document and take all steps to ensure that the
security interest in such interest will be a valid, effective and perfected
security interest on terms comparable to the security interest of the
Lender in the Collateral under the then existing Collateral Documents.
(q) GUARANTIES BY NEW SUBSIDIARIES. Cause each Subsidiary hereafter
acquired or formed by the Borrower, other than a Subsidiary of a Subsidiary
of the Borrower, to execute and deliver to the Lender, upon such
acquisition or formation, a guaranty of payment of all the Obligations of
the Borrower hereunder and under the Notes, such guaranty to be governed by
the law of the State of New York and to be in form and substance
satisfactory to the Lender, together with a favorable legal opinion
addressed to the Lender covering the authorization, execution and delivery
by such Subsidiary of such guaranty and the legality, binding effect and
enforceability against such Subsidiary of such guaranty.
SECTION 5.02. NEGATIVE COVENANTS. So long as any Advance shall
remain unpaid or the Lender shall have any Commitment hereunder, the Borrower
will not, at any time:
(a) LIENS, ETC. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien on or with respect to any of its properties of any character whether
now owned or hereafter acquired, or sign or suffer to exist, or permit any
of its Subsidiaries to sign or suffer to exist, any
<PAGE>
security agreement with respect to any of its properties of any character
whether now owned or hereafter acquired, or assign, or permit any of its
Subsidiaries to assign, any accounts or other right to receive income,
EXCLUDING, HOWEVER, from the operation of the foregoing restrictions
the following:
(i) Liens created under the Loan Documents,
(ii) Permitted Liens,
(iii) Liens existing on the date hereof and described on
Schedule 5.02(a)(iii) hereto,
(iv) (A) purchase money Liens upon or in real property or
equipment acquired or held by the Borrower or any of its Subsidiaries
in the ordinary course of business to secure the purchase price of
such property or equipment or to secure Debt incurred solely for the
purpose of financing the acquisition, construction or improvement of
any such property or equipment to be subject to such Liens, or Liens
existing on any such property or equipment at the time of acquisition
(other than any such Liens created in contemplation of such
acquisition that do not secure the purchase price), or extensions,
renewals or replacements of any of the foregoing for the same or a
lesser amount and (B) Liens to secure Debt incurred within 270 days of
the acquisition, construction or improvement of fixed or capital
assets to finance the acquisition, construction or improvement of such
fixed or capital assets or otherwise incurred during such 270 day
period in respect of Capital Expenditures permitted pursuant to
section 5.02(o); PROVIDED, HOWEVER, that no such Lien shall extend to
or cover any property other than the property or equipment being
acquired, constructed or improved, and no such extension, renewal or
replacement shall extend to or cover any property not theretofore
subject to the Lien being extended, renewed or replaced; and PROVIDED
FURTHER, HOWEVER, that the aggregate principal amount of the Debt
secured by Liens permitted by this clause (iv) shall not exceed the
aggregate amount permitted under Section 5.02(b)(iv) at any time
outstanding and that any such Debt shall not otherwise be prohibited
by the terms of this Agreement,
(v) Liens arising in connection with Capitalized Leases
permitted under Section 5.02(b)(iv); PROVIDED that no such Lien shall
extend to or cover any Collateral or assets other than the assets
subject to such Capitalized Leases,
(vi) (A) Liens upon or in fixed or capital assets acquired by
the Borrower to secure the purchase price of such assets or to secure
Debt incurred solely for the purpose of financing the acquisition of
such assets to be subject to such Liens, or Liens existing on any such
assets at the time of such acquisition (other than any such Liens
created in contemplation of such acquisition that do
<PAGE>
not secure the purchase price), or extensions, renewals or
replacements of any of the foregoing for the same or a lesser amount,
and (B) Liens upon or in any property acquired or held by any
Subsidiary of the Borrower to secure the purchase price of such
property acquired by such Subsidiary or the purchase price of such
Subsidiary acquired by the Borrower, or to secure Debt incurred
solely for the purpose of financing such acquisition by such
Subsidiary of any such property or such acquisition by the Borrower
of such Subsidiary, or Liens existing on any such property at the
time of such acquisition (other than any such Liens created in
contemplation of such acquisition that do not secure the purchase
price), or extensions, renewals or replacements of any of the
foregoing for the same or a lesser amount; PROVIDED, HOWEVER, that
any such Liens under subclause (A) or (B) above in connection with any
such acquisition will be permitted under this clause (vi) only if the
following conditions are satisfied:
(V) the ratio of (1) the Consolidated Debt of the
Borrower and its Subsidiaries as of such date after giving effect
to such acquisition and to the related Debt to be incurred
pursuant to Section 5.02(b)(v), to (2) the Consolidated EBITDA of
the Borrower and its Subsidiaries for the Measurement Period
ending with the end of the most recent Fiscal Quarter after
giving effect to such acquisition and including the EBITDA during
such Measurement Period relating to the assets and property so
being acquired as though such assets and property were owned by
the Borrower and/or its Subsidiaries, as appropriate, during such
Measurement Period, (the "PRO FORMA EBITDA"), is less than the
ratio of (I) the Consolidated Debt of the Borrower and its
Subsidiaries as of such date without giving effect to such
acquisition, to (II) the Consolidated EBITDA of the Borrower and
its Subsidiaries for such Measurement Period without giving
effect to such acquisition;
(W) the ratio of (1) the Pro Forma EBITDA to (2) the
sum of (a) cash interest payable on, and amortization of debt
discount in respect of, all Debt scheduled to be paid during the
period of 12 months next succeeding such date for the Borrower
and its Subsidiaries after giving effect to such acquisition and
to the related Debt to be incurred pursuant to Section
5.02(b)(v), PLUS (b) principal amounts of all Debt (other than
repayments of Working Capital borrowings as a result of a
non-extension of the Working Capital Commitment) scheduled to be
paid during the period of 12 months next succeeding such date
for the Borrower and its Subsidiaries after giving effect to such
acquisition and to the related Debt to be incurred pursuant to
Section 5.02(b)(v), is greater than the ratio of (I) the
Consolidated EBITDA of the Borrower and its Subsidiaries for such
Measurement Period without giving effect to such acquisition, to
(II) the sum of (a) cash interest payable on, and amortization of
debt discount in respect of, all Debt scheduled to be paid during
the period of 12 months next succeeding such date for the
Borrower and its Subsidiaries without giving effect to such
acquisition, PLUS (b) principal amounts of all Debt
<PAGE>
(other than repayments of Working Capital borrowings as a result
of a non-extension of the Working Capital Commitment) scheduled
to be paid during the period of 12 months next succeeding such
date for the Borrower and its Subsidiaries without giving effect
to such acquisition;
(X) the total amount of Debt incurred in connection
with such acquisition shall not exceed the greater of (1) 2.0
TIMES the EBITDA during such Measurement Period relating solely
to the assets and property so being acquired as though such
assets and property were owned by the Borrower and/or its
Subsidiaries, as appropriate, during such Measurement Period and
(2) an amount of Debt which when added to the Debt already
outstanding would not in the aggregate exceed 2.75 TIMES the Pro
Forma EBITDA;
(Y) no payment of principal of the Debt incurred in
connection with such acquisition shall, by the terms of such
Debt, be due and payable until after the final maturity date of
the Advances; and
(Z) the terms of the Debt incurred in connection with
such acquisition shall be in all other respects reasonably
acceptable to the Lender,
(vii) other Liens securing Obligations of the Borrower
and its Subsidiaries in an aggregate principal amount not to exceed
$1,000,000 at any time outstanding, and
(viii) Liens on any accounts receivable incurred in connection
with the disposition of such accounts receivable pursuant to Section
5.02(d)(v).
(b) DEBT. Create, incur, assume or suffer to exist, or permit any of
its Subsidiaries to create, incur, assume or suffer to exist, any Debt
other than, in the case of the Borrower and any of its Subsidiaries:
(i) Debt under the Loan Documents,
(ii) the Surviving Debt,
(iii) the Replacement Debt, provided that:
(A) such Debt is incurred only after the Working Capital
Termination Date as defined in clause (x) of the definition
thereof contained in Section 1.01;
(B) such Debt is incurred only after all outstanding
Working Capital Advances shall have been, or shall be
concurrently with the incurrence
<PAGE>
of such Debt, paid or prepaid in full, together with all
accrued and unpaid interest thereon and other fees and
amounts related to the Working Capital Advances and
Working Capital Commitments; and
(C) such Debt is for a maximum amount no greater than
$7,500,000 or the equivalent thereof at any time outstanding,
(iv) Debt secured by Liens permitted by Section 5.02(a)(iv) and
Capitalized Leases not to exceed an aggregate amount equal to $500,000
at any time outstanding,
(v) Debt secured by Liens permitted by Section 5.02(a)(vi),
(vi) Debt of any Person existing at the time such Person is
merged into or consolidated with, or acquired by, the Borrower or any
of its Subsidiaries or becomes a Subsidiary of the Borrower in
accordance with the provisions of Section 5.02(e)(vi); PROVIDED that
such Debt was not incurred in contemplation of such merger,
consolidation or investment; and PROVIDED FURTHER that the aggregate
amount of all Debt incurred hereunder shall in no event exceed
$1,000,000 in the aggregate at any time outstanding,
(vii) indorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business,
(viii) Debt consisting of guaranty Obligations in the ordinary
course of business of the obligations of suppliers, customers,
franchisees and licensees of the Borrower and its Subsidiaries,
(ix) Debt in respect of any bankers' acceptance, letter of
credit, warehouse receipt or similar facilities entered into in the
ordinary course of business,
(x) Debt in respect of Hedge Agreements incurred in the
ordinary course of business and consistent with prudent business
practice, and
(xi) Subordinated Debt of the Borrower not to exceed in the
aggregate $10,000,000 at any time outstanding, PROVIDED that such
Subordinated Debt may be incurred on any date only if the ratio of
Consolidated EBITDA of the Borrower and its Subsidiaries for the
Measurement Period ending with the end of the most recent Fiscal
Quarter to the sum of (1) cash interest payable on, and amortization
of debt discount in respect of, all Debt of the Borrower and its
Subsidiaries scheduled to be paid during the period of 12 months next
succeeding such date, PLUS (2) principal amounts of all Debt payable
(other than repayments of Working Capital borrowings as a result of a
non-extension of the Working Capital Commitment) by the Borrower and
its Subsidiaries scheduled to be paid
<PAGE>
during the period of 12 months next succeeding such date, PLUS
(3) interest on such Subordinated Debt to be incurred on such date,
scheduled to be paid during the period of 12 months next
succeeding such date, is not less than 2.75 to 1; PROVIDED,
FURTHER, that Subordinated Debt which does not require interest
to be paid in cash until such ratio has been satisfied may be
issued notwithstanding the failure to satisfy such ratio; and
PROVIDED, FURTHER, that no payment of principal of or deferred
interest on such Subordinated Debt shall by the terms of such Debt be
due and payable until after the Advances have all been paid in full in
cash; and such Subordinated Debt shall be in all other respects on
terms reasonably acceptable to the Lender,
(xii) Subordinated Debt of the Borrower resulting solely and
directly from the lending of Funds To Complete (as defined in the
Completion Guaranty) by the Shareholders pursuant to Section
2.01(b)(ii) of the Completion Guaranty, PROVIDED that on the date of
such lending no event shall have occurred and shall be continuing, or
would result from such lending, that constitutes a Default, and
(xiii) Subordinated Debt of the Borrower the proceeds of which
are used solely and directly to pay or prepay (pursuant to Section
2.05(a)) the Term Advances then outstanding.
(c) MERGERS, ETC. Merge into or consolidate with any Person or
permit any Person to merge into it, or permit any of its Subsidiaries to do
so, or effect or permit any of its Subsidiaries to effect an ESCISION,
except that (i) any Subsidiary of the Borrower may merge into or
consolidate with the Borrower or with any other Subsidiary of the Borrower
provided that, in the case of any such merger or consolidation, the Person
formed by such merger or consolidation shall be a wholly owned Subsidiary
of the Borrower (excluding qualifying shares) and (ii) any Subsidiary of
the Borrower may merge into any other Person or permit any other Person to
merge into it and (iii) any Subsidiary of the Borrower may split up,
provided that the resulting companies shall be Subsidiaries of the
Borrower; PROVIDED, HOWEVER, that in each case, immediately after giving
effect thereto, no event shall occur and be continuing as a result of said
merger or consolidation that constitutes a Default.
(d) SALES, ETC., OF ASSETS. Sell, lease, transfer or otherwise
dispose of, or permit any of its Subsidiaries to sell, lease, transfer or
otherwise dispose of, any assets or grant any option or other right to
purchase, lease or otherwise acquire any assets other than:
(i) assets transferred or disposed of in the ordinary course
of the Borrower's or its Subsidiaries' business,
(ii) assets that are replaced by other assets used in the
Borrower's or its Subsidiaries' business,
<PAGE>
(iii) assets transferred or disposed of as a result of an
expropriation of assets that does not create an Event of Default,
(iv) in any Fiscal Year, obsolete assets or assets not required
in connection with the operation of the Plant; PROVIDED that any
single disposition of such property in excess of $100,000 (or its
equivalent in any other currency) shall only be permitted with the
prior written consent of the Independent Engineer or the Lender, and
(v) accounts receivable, PROVIDED that all proceeds from any
such disposition of accounts receivable are applied forthwith to
prepay Term Advances pursuant to Section 2.05(a).
(e) INVESTMENTS IN OTHER PERSONS. Make or hold, or permit any of its
Subsidiaries to make or hold, any Investment in any Person other than:
(i) Permitted Investments;
(ii) Investments existing on the date hereof and described on
Schedule 5.02(e)(ii) hereto;
(iii) Investments in Hedge Agreements permitted under Section
5.02(b)(ix);
(iv) loans and advances to employees in the ordinary course of
business as presently conducted in an aggregate amount not to exceed
$250,000 at any time outstanding;
(v) Investments received in connection with the bankruptcy or
reorganization of suppliers or customers and in settlement of
delinquent obligations of, and other disputes with, customers arising
in the ordinary course of business; and
(vi) other Investments in an aggregate amount invested not to
exceed $5,000,000 (or its equivalent in any other currency) as of the
date on which the Investment was made); PROVIDED that, with respect to
Investments made under this clause (vi): (1) any newly acquired or
created Subsidiary of the Borrower or any of its Subsidiaries shall be
a wholly-owned Subsidiary thereof except as otherwise required under
Mexican law; (2) immediately before and after giving effect thereto,
no Default shall have occurred and be continuing as a result
therefrom; and (3) any business acquired or invested in pursuant to
this clause (vi) shall be in the same line of business as the business
of the Borrower or any of its Subsidiaries.
(f) DIVIDENDS, ETC. Declare or pay any dividends, purchase, redeem,
retire, defease or otherwise acquire for value any of its capital stock or
any warrants, rights or options to acquire such capital stock, now or
hereafter outstanding, return any capital to
<PAGE>
its stockholders as such, make any distribution of assets, capital stock,
warrants, rights, options, obligations or securities to its stockholders
as such or issue or sell any capital stock or any warrants, rights or
options to acquire such capital stock, or permit any of its Subsidiaries
to purchase, redeem, retire, defease or otherwise acquire for value any
capital stock of the Borrower or any warrants, rights or options to
acquire such capital stock or to issue or sell any capital stock or any
warrants, rights or options to acquire such capital stock.
(g) CHANGE IN NATURE OF BUSINESS. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business as
carried on at the date hereof.
(h) AMENDMENTS TO CHARTER DOCUMENTS, DEBT, MATERIAL AGREEMENTS, ETC.
Amend or otherwise modify, or permit any of its Subsidiaries to amend or
modify, (i) its ESCRITURA CONSTITUTIVA or bylaws in any manner that would
have a Material Adverse Effect, (ii) any Construction Document, (iii) any
Related Document, or (iv) any other material agreement, in each case in any
way that would have a Material Adverse Effect.
(i) ACCOUNTING CHANGES. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in (i) accounting policies or
reporting practices, except as required by generally accepted accounting
principles or (ii) its Fiscal Year.
(j) PREPAYMENTS, ETC., OF DEBT. Prepay, redeem, purchase, defease or
otherwise satisfy prior to the scheduled maturity thereof in any manner, or
make any payment in violation of any subordination terms of, any Debt,
other than (i) the prepayment of the Advances in accordance with the terms
of this Agreement and (ii) regularly scheduled or required repayments or
redemptions of Surviving Debt, or amend, modify or change in any manner any
term or condition of any Surviving Debt, or permit any of its Subsidiaries
to do any of the foregoing other than to prepay any Debt payable to the
Borrower.
(k) AMENDMENT, ETC., OF RELATED DOCUMENTS. Cancel or terminate any
Related Document or consent to or accept any cancellation or termination
thereof, amend, modify or change in any manner any term or condition of any
Related Document or give any consent, waiver or approval thereunder, waive
any default under or any breach of any term or condition of any Related
Document, agree in any manner to any other amendment, modification or
change of any term or condition of any Related Document or take any other
action in connection with any Related Document that would materially impair
the value of the interest or rights of the Borrower thereunder or that
would materially impair the rights or interests of the Lender, or permit
any of its Subsidiaries to do any of the foregoing.
(l) AMENDMENT, ETC., OF CONSTRUCTION DOCUMENTS. Cancel or terminate
any Construction Document or consent to or accept any cancellation or
termination thereof, amend or otherwise modify any Construction Document or
give any waiver thereunder,
<PAGE>
waive any default under or breach of any Construction Document, agree in
any manner to any other amendment, modification or change of any term or
condition of any Construction Document or take any other action in
connection with any Construction Document, which, as to any of the
foregoing, would materially impair the value of the interest or rights
of the Borrower thereunder or that would materially impair the interest
or rights of the Lender, or permit any of its Subsidiaries to do any
of the foregoing.
(m) NEGATIVE PLEDGE. Enter into or suffer to exist, or permit any of
its Subsidiaries to enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or assumption of any Lien upon any
of its property or assets other than (i) in favor of the Lender, (ii) in
connection with any Surviving Debt, (iii) in connection with any
Replacement Debt or (iv) in connection with any Liens permitted to be
incurred pursuant to Section 5.02(a) with respect to the property which is
the subject of such Liens, provided that any agreement in connection with a
Lien permitted by Section 5.02(a) will not prevent the creation, assumption
or existence of any future Lien on other property of the Borrower or any of
its Subsidiaries or restrict or have any effect on any existing Lien.
(n) PARTNERSHIPS, ETC. Become a general partner in any general or
limited partnership or joint venture, or permit any of its Subsidiaries to
do so, other than any Subsidiary the sole assets of which consist of its
interest in such partnership or joint venture.
(o) CAPITAL EXPENDITURES. Make, or permit any of its Subsidiaries to
make, any Capital Expenditures that would cause the aggregate amount of all
Capital Expenditures made by the Borrower and its Subsidiaries in any
Fiscal set forth below to exceed the amount set forth below for such Fiscal
Year:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1998 $23,000,000
1999 10,000,000
2000 5,000,000
2001 5,000,000
2002 5,000,000
</TABLE>
PROVIDED that (i) the unused portion of Capital Expenditures permitted in
any Fiscal Year and not used in such Fiscal Year may be carried over and
added to the amount otherwise permitted in the immediately succeeding
Fiscal Year, it being understood that for purposes of the foregoing, the
Borrower and its Subsidiaries shall be deemed to have used the amount
originally available during the succeeding Fiscal Year prior to using any
such carry-over amount, (ii) the aggregate amount carried over pursuant to
the preceding clause (i) may not exceed 50% of the total amount of Capital
Expenditures permitted during the Fiscal Year from which such Capital
Expenditures are carried over, and (iii) each Capital Expenditure shall be
made in accordance with the then applicable Capital Budget.
<PAGE>
(p) LEASE OBLIGATIONS. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist,
any obligations as lessee (i) for the rental or hire of real or personal
property in connection with any sale and leaseback transaction, or (ii) for
the rental or hire of real or personal property of any kind under leases or
agreements to lease including Capitalized Leases having an original term of
one year or more that would cause the direct and contingent liabilities of
the Borrower and its Subsidiaries, on a Consolidated basis, in respect of
all such obligations to exceed $75,000 (or its equivalent in any other
currency) payable in any period of 12 consecutive months.
SECTION 5.03. REPORTING REQUIREMENTS. So long as any Advance shall
remain unpaid or the Lender shall have any Commitment hereunder, the Borrower
will furnish to the Lender:
(a) DEFAULT NOTICE. As soon as possible and in any event within two
days after the occurrence of each Default or any event, development or
occurrence reasonably likely to have a Material Adverse Effect continuing
on the date of such statement, a statement of a Senior Officer of the
Borrower setting forth details of such Default and the action that the
Borrower has taken and proposes to take with respect thereto.
(b) QUARTERLY FINANCIALS. As soon as available and in any event
within 45 days after the end of each of the first three Fiscal Quarters,
Consolidated balance sheets of the Borrower and its Subsidiaries as of the
end of such Fiscal Quarter and Consolidated statements of income and
Consolidated statements of cash flows of the Borrower and its Subsidiaries
for the period commencing at the end of the previous Fiscal Quarter and
ending with the end of such Fiscal Quarter and Consolidated statements of
income and Consolidated statements of cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the previous Fiscal
Year and ending with the end of such Fiscal Quarter, setting forth in each
case in comparative form the corresponding figures for the corresponding
period of the preceding Fiscal Year, all in reasonable detail and duly
certified (subject to year-end audit adjustments) by a Senior Officer of
the Borrower as having been prepared in accordance with GAAP, together with
(i) a certificate of such Senior Officer stating that no Default has
occurred and is continuing or, if a Default has occurred and is continuing,
a statement as to the nature thereof and the action that the Borrower has
taken and proposes to take with respect thereto and (ii) a schedule in form
satisfactory to the Lender of the computations used by the Borrower in
determining compliance with the covenants contained in subsections 5.04(a)
through (e) and Section 5.02(o).
(c) ANNUAL FINANCIALS. As soon as available and in any event within
120 days after the end of each Fiscal Year, a copy of the annual audit
report for such year for the Borrower and its Subsidiaries, including
therein a Consolidated balance sheets of the Borrower and its Subsidiaries
as of the end of such Fiscal Year and a
<PAGE>
Consolidated statement of income and a Consolidated statement of cash
flows of the Borrower and its Subsidiaries for such Fiscal Year, in each
case accompanied by an opinion that shall be unqualified as to the scope
of the audit and as to the going concern status of the Borrower and its
Subsidiaries taken as a whole, of Deloitte & Touche or its affiliated
Mexican firm or of any other independent public accountants of
recognized standing acceptable to the Lender, together with (i) a
certificate of such accounting firm to the Lender stating that in the
course of the regular audit of the business of the Borrower and its
Subsidiaries, which audit was conducted by such accounting firm in
accordance with generally accepted auditing standards, such accounting
firm has obtained no knowledge that a Default has occurred and is
continuing, or if, in the opinion of such accounting firm, a Default
has occurred and is continuing, a statement as to the nature thereof,
(ii) a schedule in form satisfactory to the Lender of the computations used
by a Senior Officer in determining, as of the end of such Fiscal Year,
compliance with the covenants contained in subsections 5.04(a) through (e)
and Section 5.02(o) and (iii) a certificate of a Senior Officer of the
Borrower stating that no Default has occurred and is continuing or, if a
default has occurred and is continuing, a statement as to the nature
thereof and the action that the Borrower has taken and proposes to take
with respect thereto.
(d) ANNUAL FORECASTS. As soon as available and in any event no later
than 15 days before the end of each Fiscal Year, forecasts prepared by
management of the Borrower, in form satisfactory to the Lender, of balance
sheets, income statements and cash flow statements on a monthly basis for
the Fiscal Year following such Fiscal Year then ended and on an annual
basis for the four subsequent Fiscal Years thereafter.
(e) LITIGATION. Promptly after the commencement thereof, notice of
all actions, suits, investigations, litigation and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any of its
Subsidiaries of the type described in Section 4.01(i), that reasonably
could be expected to result in a Material Adverse Effect.
(f) SECURITIES REPORTS. Promptly after the filing thereof, copies of
all regular, periodic and special reports, and all registration statements,
that the Borrower or any of its Subsidiaries files with the United States
Securities and Exchange Commission or any similarly situated Governmental
Authority, or with any national securities exchange.
(g) CREDITOR REPORTS. Promptly after the furnishing thereof, copies
of any statement or report furnished to any other holder of the securities
of the Borrower or of any of its Subsidiaries pursuant to the terms of any
indenture, loan or credit or similar agreement and not otherwise required
to be furnished to the Lender pursuant to any other clause of this
Section 5.03.
<PAGE>
(h) AGREEMENT NOTICES. Promptly upon receipt thereof, copies of all
notices, requests and other documents received by the Borrower or any of
its Subsidiaries under or pursuant to any Related Document or Construction
Document regarding or related to any breach or default by any party thereto
or any other event that could materially impair the value of the interests
or the rights of the Borrower or otherwise have a Material Adverse Effect
and, from time to time upon request by the Lender, such information and
reports regarding the Related Documents and the Construction Documents as
the Lender may reasonably request.
(i) ENVIRONMENTAL CONDITIONS. Promptly after the assertion or
occurrence thereof, notice of any Environmental Action against or of any
noncompliance by the Borrower or any of its Subsidiaries with any
Environmental Law or Environmental Permit that (i) could reasonably be
expected to have a Material Adverse Effect or (ii) cause any property
described in the Industrial Mortgage to be subject to any restrictions on
ownership, occupancy, use or transferability under any Environmental Law.
(j) REAL PROPERTY. As soon as available and in any event within 30
days after the end of each Fiscal Year, a report supplementing
Schedules 4.01(ii) and 4.01(jj) hereto, including an identification of all
real and leased property disposed of by the Borrower or any of its
Subsidiaries during such Fiscal Year, a list and description (including the
street address, county or other relevant jurisdiction, state, record owner,
book value thereof, and in the case of leases of property, lessor, lessee,
expiration date and annual rental cost thereof) of all real property
acquired or leased during such Fiscal Year and a description of such other
changes in the information included in such Schedules as may be necessary
for such Schedules to be accurate and complete.
(k) INSURANCE. As soon as available and in any event within 30 days
after the end of each Fiscal Year, a report summarizing the insurance
coverage, including any Required Insurance (specifying type, amount and
carrier), in effect for the Borrower and its Subsidiaries and containing
such additional information as the Lender may reasonably specify.
(l) CONSTRUCTION REPORT. Not later than 30 days after the end of
each month prior to the Completion Date, a construction report prepared by
or at the request of the Borrower describing the construction of the Plant
conducted during such month and including physical progress to date.
(m) ANNUAL OPERATING BUDGET AND CAPITAL BUDGET. Not later than 15
days prior to the beginning of each Fiscal Year, the Annual Operating
Budget and Capital Budget prepared by the Borrower for such Fiscal Year.
The Borrower will furnish promptly to the Lender any material changes to
such Annual Operating Budget or Capital Budget or any forecasts made in
connection with any such budgets.
<PAGE>
(n) COMPARISONS TO BUDGETS. Concurrently with the delivery of the
financial statements referred to in subsections 5.03(c) and (d), a profit
and loss account and a statement of sources and application of funds
showing actual expenditures to date against the applicable Capital Budget
and Annual Operating Budget.
(o) NOTICE OF AMENDMENTS TO DOCUMENTS. (i) At least five Business
Days prior to the date of execution thereof, a copy of each amendment or
other modification to the charter, bylaws, Joint Venture Agreement or other
organizational documents of the Borrower or any of its Subsidiaries, and
(ii) within at least five Business Days after the execution thereof, or
copy of each amendment, waiver or other modification to any documents
evidencing or relating to any Debt, any Construction Document, or any
Related Document.
(p) NOTICE OF INSUFFICIENT RESOURCES. If at any time the Borrower
believes that the funds on deposit in the Borrower's Account together with
the funds available to be drawn under the remaining unused Commitments plus
the funds reasonably projected by the Borrower to be available from its
operating cash flow through March 31, 2000 will not be sufficient for
Completion of the Plant, prompt notice to such effect.
(q) OTHER INFORMATION. Such other information respecting the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower or any of its Subsidiaries as the
Lender or the Independent Engineer may from time to time reasonably
request.
SECTION 5.04. FINANCIAL COVENANTS. So long as any Advance shall
remain unpaid or the Lender shall have any Commitment hereunder, the Borrower
will:
(a) DEBT TO EBITDA. Maintain at the end of each Fiscal Quarter a
ratio of Consolidated Debt of the Borrower and its Subsidiaries as of the
end of such Fiscal Quarter to Consolidated EBITDA of the Borrower and its
Subsidiaries for each Measurement Period ending with the end of such Fiscal
Quarter set forth below, of not more than the ratio set forth below
opposite such Measurement Period:
<TABLE>
<CAPTION>
Measurement Period Ending Ratio (to 1)
------------------------- ------------
<S> <C>
3rd Quarter 1998 6.75
4th Quarter 1998 6.25
1st Quarter 1999 5.875
2nd Quarter 1999 5.5
3rd Quarter 1999 5.25
4th Quarter 1999 4.75
1st Quarter 2000 4.5
2nd Quarter 2000 4.0
3rd Quarter 2000 3.75
4th Quarter 2000 3.5
1st Quarter 2001 3.25
<PAGE>
<S> <C>
2nd Quarter 2001 3.0
3rd Quarter 2001 3.0
4th Quarter 2001 2.75
1st Quarter 2002 2.0
2nd Quarter 2002 2.0
3rd Quarter 2002 2.0
4th Quarter 2002 2.0
</TABLE>
(b) INTEREST COVERAGE RATIO. Maintain at all times a ratio of
(i) Consolidated EBITDA of the Borrower and its Subsidiaries to (ii) the
sum of cash interest payable on all Debt PLUS the portion of any payments
made in connection with Capitalized Leases allocable to interest expense,
in each case of the Borrower and its Subsidiaries for each Measurement
Period ending with the end of such Fiscal Quarter set forth below, of not
less than the ratio for such Measurement Period set forth below:
<TABLE>
<CAPTION>
Measurement Period Ending Ratio (to 1)
------------------------- ------------
<S> <C>
3rd Quarter 1998 1.75
4th Quarter 1998 1.75
1st Quarter 1999 1.875
2nd Quarter 1999 1.875
3rd Quarter 1999 2.0
4th Quarter 1999 2.25
1st Quarter 2000 2.25
2nd Quarter 2000 2.25
3rd Quarter 2000 2.5
4th Quarter 2000 2.75
1st Quarter 2001 2.75
2nd Quarter 2001 2.75
3rd Quarter 2001 3.0
4th Quarter 2001 3.0
1st Quarter 2002 3.0
2nd Quarter 2002 3.0
3rd Quarter 2002 3.0
4th Quarter 2002 3.0
</TABLE>
(c) FIXED CHARGE COVERAGE RATIO. Maintain at all times a ratio of
Consolidated EBITDA of the Borrower and its Subsidiaries to the sum of
(i) cash interest payable on, and amortization of debt discount in respect
of, all Debt PLUS (ii) principal amounts of all Debt payable (other than
repayments of Working Capital borrowings as a result of a non-extension of
the Working Capital Commitment), in each case, by the Borrower and its
Subsidiaries for each Measurement Period ending with the end of such Fiscal
Quarter set forth below, of not less than the ratio for such Measurement
Period set forth below:
<PAGE>
<TABLE>
<CAPTION>
Measurement Period Ending Ratio (to 1)
------------------------- ------------
<S> <C>
3rd Quarter 1998 1.75
4th Quarter 1998 1.75
1st Quarter 1999 1.875
2nd Quarter 1999 1.875
3rd Quarter 1999 2.0
4th Quarter 1999 2.25
1st Quarter 2000 2.25
2nd Quarter 2000 2.25
3rd Quarter 2000 2.5
4th Quarter 2000 2.75
1st Quarter 2001 2.75
2nd Quarter 2001 1.25
3rd Quarter 2001 1.25
4th Quarter 2001 1.25
1st Quarter 2002 1.15
2nd Quarter 2002 1.15
3rd Quarter 2002 1.15
4th Quarter 2002 1.15
</TABLE>
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. ACCELERATION AFTER DEFAULT. If any Event of Default
occurs and is continuing (whether it is voluntary or involuntary, or results
from operation of law or otherwise), then, and in any such event, the Lender
(i) may, in its sole discretion, by notice to the Borrower, declare the
obligation of the Lender to make either or both of the Term Advances and Working
Capital Advances to be terminated, whereupon the same shall forthwith terminate,
and (ii) may, in its sole discretion, by notice to the Borrower, with respect to
the Working Capital Advances, the Term Advances, or both, declare the relevant
Notes, all interest thereon and all other amounts payable under this Agreement
and the other Loan Documents to be forthwith due and payable, whereupon the
relevant Notes, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
PROVIDED, HOWEVER, that in the event of Bankruptcy with respect to any Loan
Party, (x) the obligation of the Lender to make Advances shall automatically be
terminated and (y) the Notes, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower.
<PAGE>
SECTION 6.02. EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) the Borrower shall (i) fail to pay any principal of any Advance
when the same shall become due and payable or (ii) fail to pay any interest
on any Advance, or any fees payable pursuant to Section 2.07, or any other
amounts owing by it under any Loan Document, in each case within two
Business Days after the same becomes due and payable; or
(b) any representation or warranty made by any Loan Party (or any of
its officers) under or in connection with any Loan Document shall prove to
have been incorrect in any material respect when made; or
(c) the Borrower shall fail to perform or observe any term, covenant
or agreement contained in Section 2.11, 5.01(e), 5.02, 5.03 or 5.04; or
(d) any Loan Party shall fail to perform any other term, covenant or
agreement contained in any Loan Document on its part to be performed or
observed if such failure shall remain unremedied for 10 days after the
earlier of the date on which (A) any Senior Officer of the Borrower becomes
aware of such failure or (B) written notice thereof shall have been given
to the Borrower by the Lender; or
(e) the Borrower or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any other amount payable in respect
of any Debt that is outstanding in a principal amount of at least $750,000
(or the equivalent in any other currency) either individually or in the
aggregate (but excluding Debt outstanding hereunder) of such Loan Party or
such Subsidiary (as the case may be), when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand
or otherwise); or any other event shall occur or condition shall exist
under any agreement or instrument relating to any such Debt, if the effect
of such event or condition is to accelerate, or to permit the acceleration
of, the maturity of such Debt or otherwise to cause, or to permit the
holder thereof to cause, such Debt to mature; or any such Debt shall be
declared to be due and payable or required to be prepaid or redeemed (other
than by a regularly scheduled required prepayment or redemption), purchased
or defeased, or an offer to prepay, redeem, purchase or defease such Debt
shall be required to be made, in each case prior to the stated maturity
thereof; or
(f) any Loan Party or any of its Subsidiaries shall make a general
assignment for the benefit of creditors; or any Bankruptcy proceeding shall
be instituted by or against any Loan Party or any of its Subsidiaries and,
in the case of any such proceeding instituted against it (but not
instituted by it) that is being diligently contested by it in good faith,
either such proceeding shall remain undismissed or unstayed for a period of
60 days or any of the actions sought in such proceeding shall occur; or any
<PAGE>
Loan Party or any of its Subsidiaries shall take any corporate action to
authorize any of the actions set forth above in this subsection (f); or
(g) any judgment or order for the payment of money in excess of
$750,000 (or the equivalent in any other currency) shall be rendered
against the Borrower or any of its Subsidiaries and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order or (ii) there shall be any period of 60 consecutive days during which
a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(h) any non-monetary judgment or order shall be rendered against any
Loan Party or any of its Subsidiaries that could have a Material Adverse
Effect, and there shall be any period of 60 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(i) any provision of any Loan Document after delivery thereof
pursuant to Section 3.01, 3.02, 3.03, 5.01(p) or 6.02(k) shall for any
reason cease to be valid and binding on or enforceable against any Loan
Party to it, or any such Loan Party shall so state in writing, EXCEPT, in
the case of the Completion Guaranty only, to the extent that the Lender
shall have been furnished such insurance, guaranty or other agreement in
form and substance acceptable to the Lender, duly executed by a party or
parties acceptable to the Lender, in substitution for the Completion
Guaranty; or
(j) any Collateral Document after delivery thereof pursuant to
Section 3.01, 5.01(p) or 6.02(k) shall for any reason (other than pursuant
to the terms thereof) cease to create a valid and perfected first priority
Lien on and security interest in the Collateral purported to be covered
thereby; or
(k) either Accuride or IASA shall, within 5 Business Days after the
cessation of contractual restrictions binding on IASA contained in the Acta
de Emision de Obligaciones de Industria Automotriz, S.A. de C.V.
con Garantia Fiduciaria y Solidaria (IASASA) 92 (Indenture for the
Issuance of Bonds of IASA with Fiduciary and Joint Guaranty) evidenced
in public deed 14956 granted on September 2, 1992 before Notary Public
No. 33 of Monterrey, N.L., Mexico, as amended, which prohibit the pledge
to the Lender of IASA's shares of stock of the Borrower, fail to deliver
to the Lender (i) a pledge agreement, in substantially the form of
Exhibit M hereto (as amended, supplemented or otherwise modified from time
to time, the "PLEDGE AGREEMENT"), by Accuride and IASA in favor of the
Lender, under which Accuride and IASA together shall pledge 100% of the
outstanding shares of Voting Stock of the Borrower in order to secure the
obligations of the Borrower under this Agreement, the Notes and the
other Loan Documents to which the Borrower is a party, together with
(ii) certificates representing such shares endorsed in pledge
(ENDOSO EN GARANTIA) in favor of the Lender, (iii) a certificate, issued
by the Secretary of the Borrower stating that such pledge has been duly
recorded in the share registry book of the Borrower,
<PAGE>
(iv) evidence that all other action that the Lender may deem necessary
or desirable in order to perfect the security interest created under
the Pledge Agreement has been taken and (v) a favorable opinion of
Santamarina y Steta, S.C., counsel for Accuride, and a favorable opinion
of Andres Gonzalez Sandoval, counsel for IASA, in each case confirming
the due authorization, execution and delivery of the Pledge Agreement
by Accuride and IASA, respectively, the validity, perfection and first
priority of the security interest created by the Pledge Agreement in
the shares of stock of the Borrower, and otherwise in form and substance
satisfactory to the Lender; or
(l) the termination of or default under any Construction Document,
the termination of or default under which has resulted in a Material
Adverse Effect; or
(m) failure of the Completion Date to occur by March 31, 2000; or
(n) the Borrower shall have voluntarily abandoned the development,
construction or operation of the Plant on a permanent basis; or
(o) all or a substantial part of the Plant is destroyed or suffers an
actual or constructive loss or damage or is condemned or expropriated, in
each case, to the extent that the Borrower is not fully insured for such
loss, damage, condemnation or expropriation or, if fully insured, is not
fully reimbursed in connection with such insurance within 120 days of the
occurrence of such loss, damage, condemnation or expropriation; or
(p) Accuride shall cease to own, directly or indirectly, at least 51%
of the Voting Stock of the Borrower; or
(q) Kohlberg Kravis Roberts & Co., L.P., a Delaware limited
partnership, ("KKR"), or any Affiliate of KKR shall cease to own, directly
or indirectly, at least 35% of the Voting Stock of Accuride, other than as
a result of one or more widely distributed public offerings of common stock
of Accuride; or
(r) a Completion Default shall have occurred and be continuing.
SECTION 6.03. REMEDIES. Upon acceleration of the Notes pursuant
to Section 6.01, the Lender may proceed to protect and enforce the rights,
privileges and remedies granted under this Agreement and the other Loan
Documents and under the Applicable Laws of any relevant jurisdiction by
instituting such judicial or other proceedings and by taking all such other
actions as the Lender may determine, at law, in equity, in bankruptcy or
otherwise, whether for specific enforcement of any covenant or agreement
contained in this Agreement or any other Loan Document, or in aid of the
exercise of any right, power, privilege or remedy granted hereunder,
thereunder or under the Applicable Laws of any relevant jurisdiction, or for
any foreclosure upon the Collateral and sale thereof under any judgment or
decree in any judicial proceeding, or to enforce any other legal or equitable
right or remedy granted or
<PAGE>
otherwise available to the Lender under this Agreement or any other Loan
Document or the Applicable Laws of any relevant jurisdiction.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Agreement or the Notes or any other Loan Document, nor consent
to any departure by the Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed (or, in the case of the
Collateral Documents, consented to) by the Lender and, in the case of any
amendment, by the Borrower, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 7.02. NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy or
telex communication) in the English language (or accompanied by an accurate
English language translation upon which any recipient shall have the right to
rely for all purposes) and mailed, telegraphed, telecopied, telexed or
delivered, if to the Borrower, at its address at Avenida Universidad 1011 Nte,
Planta Alta, San Nicolas de los Garza, N.L., Mexico 66400, Attention: Jaime
Martinez; and if to the Lender, at its address at Citibank Mexico, S.A., Grupo
Financiero Citibank, Reforma 390, Mexico, D.F. 06695, Attention: Victor
Elizondo; or, as to the Borrower or the Lender, at such other address as shall
be designated by such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by such party in
a written notice to the Borrower and the Lender. All such notices and
communications shall, when mailed, telegraphed, telecopied or telexed, be
effective when deposited in the mails, delivered to the telegraph company,
transmitted by telecopier or confirmed by telex answerback, respectively, except
that notices and communications to the Lender pursuant to Article II or III
shall not be effective until received by the Lender. Delivery by telecopier of
an executed counterpart of any amendment or waiver of any provision of this
Agreement or the Notes or of any Exhibit hereto to be executed and delivered
hereunder shall be effective as delivery of a manually executed counterpart
thereof.
SECTION 7.03. NO WAIVER; REMEDIES. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder or under any
Note shall operate as a waiver thereof; nor shall any single or partial exercise
of any such right preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 7.04. COSTS, EXPENSES. (a) The Borrower agrees to pay on
demand (i) all costs and expenses of the Lender in connection with the
preparation, execution, delivery, administration, modification and amendment of
the Loan Documents (including, without limitation, (A) all due diligence,
collateral review, syndication, transportation, computer, duplication,
appraisal, audit, insurance, consultant, search, filing and recording fees and
<PAGE>
expenses and (B) the reasonable fees and expenses of counsel for the Lender with
respect thereto, with respect to advising the Lender as to its rights and
responsibilities, or the perfection, protection or preservation of rights or
interests, under the Loan Documents, with respect to negotiations with any Loan
Party or with other creditors of any Loan Party or any of its Subsidiaries
arising out of any Default or any events or circumstances that may give rise to
a Default and with respect to presenting claims in or otherwise participating in
or monitoring any Bankruptcy or other similar proceeding affecting creditors'
rights generally and any proceeding ancillary thereto) and (ii) all costs and
expenses of the Lender in connection with the enforcement of the Loan Documents,
whether in any action, suit or litigation, any Bankruptcy or other similar
proceeding affecting creditors' rights generally (including, without limitation,
the reasonable fees and expenses of counsel for the Lender with respect
thereto).
(b) The Borrower agrees to indemnify and hold harmless each
Lender Party, and each of its Affiliates and its officers, directors,
employees, agents and advisors (each, an "INDEMNIFIED PARTY") from and
against any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel) that
may be incurred by or asserted or awarded against any Indemnified Party, in
each case arising out of or in connection with or by reason of (including,
without limitation, in connection with (x) any investigation, litigation or
proceeding or preparation of a defense in connection therewith or (y) any
foreclosure on any Collateral) (i) the Facilities, the actual or proposed use
of the proceeds of the Advances, the Loan Documents, the Related Documents,
the Construction Documents or any of the transactions contemplated thereby,
or (ii) the actual or alleged presence of Hazardous Materials on any property
of any Loan Party or any of its Subsidiaries or any Environmental Action
relating in any way to any Loan Party or any of its Subsidiaries, except to
the extent such claim, damage, loss, liability or expense is found in a
final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful
misconduct. In the case of an investigation, litigation or other proceeding
to which the indemnity in this Section 7.04(b) applies, such indemnity shall
be effective whether or not such investigation, litigation or proceeding is
brought by any Loan Party, its directors, shareholders or creditors or an
Indemnified Party or any Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated hereby are consummated. The
Borrower also agrees not to assert any claim against any Lender Party or any
of its Affiliates, or any of their respective officers, directors, employees,
attorneys and agents, on any theory of liability, for special, indirect,
consequential or punitive damages arising out of or otherwise relating to the
Facilities, the actual or proposed use of the proceeds of the Advances, the
Loan Documents, the Related Documents, the Construction Documents or any of
the transactions contemplated thereby.
(c) If any payment of principal of any Advance is made by the
Borrower to or for the account of the Lender other than on the last day of the
Interest Period for such Advance, as a result of a payment pursuant to Sections
2.05 or 2.08(c), acceleration of the maturity of the Notes pursuant to
Section 6.01 or for any other reason, the Borrower shall, upon demand by the
Lender, pay to the Lender for the account of the Lender any amounts required to
compensate the Lender for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment, including, without limitation, any
loss (including loss of
<PAGE>
anticipated profits), cost or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by the Lender to fund or
maintain such Advance.
(d) If the Borrower fails to pay when due any costs, expenses or
other amounts payable by it under any Loan Document, including, without
limitation, fees and expenses of counsel and indemnities, such amount may be
paid on behalf of such Loan Party by the Lender in its sole discretion.
(e) Without prejudice to the survival of any other agreement of any
Loan Party hereunder or under any other Loan Document, the agreements and
obligations of the Borrower contained in Sections 2.08 and 2.10 and this
Section 7.04 shall survive the payment in full of principal, interest and all
other amounts payable hereunder and under any of the other Loan Documents.
SECTION 7.05. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default, the Lender and each of its Affiliates is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and otherwise apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Lender or such Affiliate to or for the
credit or the account of the Borrower against any and all of the Obligations of
the Borrower now or hereafter existing under this Agreement and the Notes held
by the Lender, irrespective of whether the Lender shall have made any demand
under this Agreement or such Notes and although such Obligations may be
unmatured. The Lender agrees promptly to notify the Borrower after any such
set-off and application; PROVIDED, HOWEVER, that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of
the Lender and its Affiliates under this Section are in addition to other rights
and remedies (including, without limitation, other rights of set-off) that the
Lender and its Affiliates may have.
SECTION 7.06. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrower and the Lender and thereafter
shall be binding upon and inure to the benefit of the Borrower, the Lender and
their respective successors and assigns, except that the Borrower shall not have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Lender.
SECTION 7.07. PARTICIPATIONS. (a) The Lender may sell
participations to Participants in and to the Advances and the Notes pursuant to
Participation Agreements; PROVIDED that (i) subject to the terms and conditions
of each Participation Agreement, the Participants will provide funding to the
Lender in order for the Lender to make the Advances available to the Borrower
and (ii) there is no debtor-creditor relationship arising hereunder with respect
to the Advances between the Borrower and the Participants that will result from
the Participants so funding such Advances.
(b) The Lender may, in connection with any participation or proposed
participation pursuant to this Section 7.07, disclose to any Participant or
proposed Participant, any information relating to the Borrower furnished to the
Lender by or on behalf of the Borrower;
<PAGE>
PROVIDED, HOWEVER, that, prior to any such disclosure, the Participant or
proposed Participant shall agree to preserve the confidentiality of any
Confidential Information received by it from the Lender.
(c) Notwithstanding any other provision set forth in this Agreement,
the Lender may at any time create a security interest in all or any portion of
its rights under this Agreement (including, without limitation, the Advances
owing to it and the Notes held by it) in favor of any United States Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
United States Federal Reserve System.
SECTION 7.08. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 7.09. EXECUTION IN TWO LANGUAGES. This Agreement and each
Note shall be executed in both the English and Spanish languages, both of which
bind the parties hereto and constitute but one agreement and instrument,
respectively; PROVIDED, HOWEVER, that in case of doubt as to the proper
interpretation or construction of this Agreement or any Note, the English text
shall be controlling in all cases except with respect to any action brought in
the courts of Mexico, in which case the Spanish text shall be controlling.
SECTION 7.10. CONFIDENTIALITY. The Lender shall not disclose any
Confidential Information to any Person without the consent of the Borrower,
other than (a) to the Lender's Affiliates and their officers, directors,
employees, agents and advisors and to actual or prospective Participants, and
then only on a confidential basis, (b) as required by any law, rule or
regulation or judicial process and (c) as requested or required by any state,
federal or foreign authority or examiner regulating banks or banking.
SECTION 7.11. JURISDICTION, ETC. (a) Each of the parties hereto
irrevocably agrees that any legal action, suit or proceeding arising out of or
relating to this Agreement, the Notes or any other agreements to which the
Borrower is a party may be brought in the courts of the State of New York or of
the United States located in the Southern District of New York or of the Federal
District of Mexico, at the election of the plaintiff. Final judgment against
the Borrower in any such action, suit or proceeding shall be conclusive and may
be enforced in any other jurisdiction, including Mexico, by suit on the
judgment, a certified or exemplified copy of which shall be conclusive evidence
of the judgment, or in any other manner provided by law.
(b) By the execution and delivery of this Agreement, each of the
parties irrevocably submits to the non-exclusive jurisdiction of the courts of
the State of New York and of the United States District Court for the Southern
District of New York, and of the Federal District of Mexico, in any such action,
suit or proceeding and designates, appoints and
<PAGE>
empowers CT Corporation System, at 1633 Broadway, New York, NY 10019 as its
authorized agent to receive for and on its behalf service of any summons,
complaint or other legal process in any such action, suit or proceeding in
the State of New York for so long as any obligation of the Borrower shall
remain outstanding hereunder. The Borrower shall grant an irrevocable power
of attorney to CT Corporation System in respect of such appointment and shall
maintain such power of attorney in full force and effect for so long as any
obligation of the Borrower shall remain outstanding hereunder.
(c) Nothing in this Agreement shall affect the right of the Lender to
commence legal proceedings or otherwise sue the Borrower in Mexico or any other
appropriate jurisdiction or to serve process, pleadings and other legal papers
upon the Borrower in any manner authorized by the laws of any such jurisdiction.
(d) As long as this Agreement remains in force, the Borrower shall
maintain a duly appointed agent for the service of summons, complaint and other
legal process in New York, New York, United States, for purposes of any legal
action, suit or proceeding the Lender may bring in respect of this Agreement or
any other Loan Document to which the Borrower is a party. The Borrower shall
keep the Lender advised of the identity and location of such agent.
(e) The Borrower also irrevocably consents, if for any reason the
Borrower's authorized agent for service of process of summons, complaint and
other legal process in any such action, suit or proceeding is not present in New
York, New York, service of such papers may be made out of those courts by
mailing copies of the papers by registered United States air mail, postage
prepaid, to the Borrower at its address specified in Section 7.02. In such a
case, the Lender shall also send by telex or facsimile, or have sent by telex or
facsimile, a copy of the papers to the Borrower.
(f) Service in the manner provided in subsection (e) above in any
such action, suit or proceeding will be deemed personal service, will be
accepted by the Borrower as such and will be valid and binding upon the Borrower
for all purposes of any such action, suit or proceeding.
(g) The Borrower irrevocably waives: (i) any objection which it may
have now or in the future to the laying of the venue of any such action, suit or
proceedings in any court referred to in this Section; and (ii) any claim that
any such action, suit or proceedings has been brought in an inconvenient forum;
and (iii) any jurisdiction rights which it may be entitled to now or in the
future by reason of its present or any future domicile, or otherwise.
SECTION 7.12. JUDGMENT. (a) If for the purposes of obtaining
judgment in any court it is necessary to convert a sum due hereunder or under
any of the other Loan Documents in Dollars into another currency, the parties
hereto agree, to the fullest extent that they may effectively do so, that the
rate of exchange used shall be that at which in accordance with normal banking
procedures the Lender could purchase Dollars with such other currency at
Citibank in New York, New York on the Business Day preceding that on which final
judgment is given.
<PAGE>
(b) The obligation of the Borrower in respect of any sum due in
Dollars from it to the Lender hereunder or under any of the other Loan Documents
held by the Lender shall, notwithstanding any judgment in any other currency, be
discharged only to the extent that on the Business Day of receipt by the Lender
of any sum adjudged to be so due in such other currency the Lender may in
accordance with normal banking procedures purchase Dollars with such other
currency; if the amount of Dollars so purchased is less than the sum originally
due by the Borrower to the Lender in Dollars, the Borrower agrees, as a separate
obligation and notwithstanding any such judgment, to indemnify the Lender
against such loss, and if the amount of Dollars so purchased exceeds the sum
originally due by the Borrower to the Lender in Dollars, the Lender agrees to
remit to the Borrower such excess
SECTION 7.13. CONSTRUCTION DOCUMENTS. The Lender shall not be
responsible in any way for the Construction Documents and no claim against any
person with respect to the performances of the Construction Documents will
affect the obligations of the Borrower under this Agreement or the Notes.
SECTION 7.14. GOVERNING LAW. This Agreement and the Notes shall be
governed by, and construed in accordance with, the law of the State of New York,
United States; PROVIDED, HOWEVER, that in connection with any legal action or
proceeding (other than an action to enforce a judgment obtained in another
jurisdiction) brought by the Lender in respect of this Agreement or the Notes in
the courts of Mexico or any political subdivision thereof, this Agreement and
the Notes shall be deemed to be instruments made under the laws of Mexico and
for such purposes shall be governed by, and construed in accordance with, the
law of Mexico.
SECTION 7.15. ENTIRE AGREEMENT. This Agreement and the Exhibits and
Schedules hereto constitute the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements, understandings, negotiations, correspondence, undertakings and
communications, both oral and written, between the parties with respect to the
subject matter hereof, including, without limitation, the Accuride de Mexico,
S.A. de C.V. Summary of Terms and Conditions (finally negotiated by the parties
in May 1998). There are no restrictions, promises, representations, warranties,
covenants or undertakings by or between the parties with respect to the subject
matter hereof other than those expressly set forth or referred to herein.
SECTION 7.16. WAIVER OF JURY TRIAL. Each of the Borrower and the
Lender irrevocably waive all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to any of the Loan Documents, the Advances or the actions of the Lender
in the negotiation, administration, performance or enforcement thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
ACCURIDE DE MEXICO, S.A. DE C.V.,
as Borrower
By /s/ Robert J. Fagerlin
-------------------------------------
Name: Robert J. Fagerlin
Title: Director General
CITIBANK MEXICO, S.A., GRUPO
FINANCIERO CITIBANK, as Lender
By /s/ Samuel Libuic
-------------------------------------
Name: Samuel Libuic
Title: Attorney-in-Fact
<PAGE>
EXECUTION COPY
$32,500,000
CREDIT AGREEMENT
Dated as of July 9, 1998
Between
ACCURIDE DE MEXICO, S.A. DE C.V.
AS BORROWER
and
CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK
AS LENDER
<PAGE>
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01. CERTAIN DEFINED TERMS 1
1.02. COMPUTATION OF TIME PERIODS 21
1.03. ACCOUNTING TERMS 22
1.04. OTHER DEFINITIONAL PROVISIONS 22
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
2.01. THE ADVANCES 22
2.02. MAKING THE ADVANCES 23
2.03. REPAYMENT OF ADVANCES 24
2.04. OPTIONAL TERMINATION OR REDUCTION OF THE COMMITMENTS 24
2.05. PREPAYMENTS 25
2.06. INTEREST 25
2.07. FEES 26
2.08. INCREASED COSTS, ETC. 26
2.09. PAYMENTS AND COMPUTATIONS 29
2.10. TAXES 29
2.11. USE OF PROCEEDS 30
2.12. WORKING CAPITAL COMMITMENT EXTENSIONS 30
ARTICLE III
CONDITIONS OF LENDING
3.01. CONDITIONS PRECEDENT TO INITIAL EXTENSION OF CREDIT 31
3.02. CONDITIONS PRECEDENT TO EACH TERM ADVANCE 36
3.03. CONDITIONS PRECEDENT TO EACH WORKING CAPITAL ADVANCE 37
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER 39
ARTICLE VCOVENANTS OF THE BORROWER
5.01. AFFIRMATIVE COVENANTS 47
5.02. NEGATIVE COVENANTS 51
5.03. REPORTING REQUIREMENTS 61
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
5.04. FINANCIAL COVENANTS 64
ARTICLE VI
EVENTS OF DEFAULT
6.01. ACCELERATION AFTER DEFAULT 67
6.02. EVENTS OF DEFAULT 68
6.03. REMEDIES 71
ARTICLE VII
MISCELLANEOUS
7.01. AMENDMENTS, ETC. 71
7.02. NOTICES, ETC. 71
7.03. NO WAIVER; REMEDIES 72
7.04. COSTS, EXPENSES 72
7.05. RIGHT OF SET-OFF 73
7.06. BINDING EFFECT 74
7.07. PARTICIPATIONS 74
7.08. EXECUTION IN COUNTERPARTS 74
7.09. EXECUTION IN TWO LANGUAGES 75
7.10. CONFIDENTIALITY 75
7.11. JURISDICTION, ETC. 75
7.12. JUDGMENT 76
7.13. CONSTRUCTION DOCUMENTS 77
7.14. GOVERNING LAW 77
7.15. ENTIRE AGREEMENT 77
7.16. WAIVER OF JURY TRIAL 77
</TABLE>
<PAGE>
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1.01(a) - Blueprints
Schedule 1.01(b) - Timetable
Schedule 3.01(b) - Surviving Debt
Schedule 4.01(b) - Subsidiaries of the Borrower
Schedule 4.01(d)(i) - Authorizations, Approvals, Etc.
Schedule 4.01(d)(ii) - Required Governmental Approvals
Schedule 4.01(aa) - Existing Debt
Schedule 4.01(ii) - Real Property
Schedule 4.01(jj) - Leases of Real Property
Schedule 5.01(d) - Required Insurance
Schedule 5.02(a)(iii) - Liens
Schedule 5.02(e)(ii) - Investments
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A - Term Loan Promissory Note
Exhibit B - Working Capital Promissory Note
Exhibit C - Notice of Term Borrowing
Exhibit D - Form of Cost Certificate
Exhibit E - Notice of Working Capital Borrowing
Exhibit F - Completion Guaranty
Exhibit G - Letter of Comfort
Exhibit H - Form of Opinion of Counsel for the Borrower
Exhibit I - Form of Opinion of Counsel for Accuride
Exhibit J - Form of Opinion of Counsel for Iasa
Exhibit K - Form of Opinion of Mexican Counsel for the Lender
Exhibit L - Form of Participation Agreement
Exhibit M - Form of Pledge Agreement
</TABLE>
<PAGE>
EXECUTION COPY
COMPLETION GUARANTY AGREEMENT
BY AND AMONG
ACCURIDE CORPORATION,
INDUSTRIA AUTOMOTRIZ, S.A. DE C.V.,
ACCURIDE DE MEXICO, S.A. DE C.V.
and
CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK,
as Lender
Dated as of July 9, 1998
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
PARTIES 1
RECITALS 1
ARTICLE I COMPLETION
SECTION 1.01 COMPLETION 1
SECTION 1.02 COMPLETION CERTIFICATES 2
SECTION 1.03 COMPLETION UNDERTAKING 2
SECTION 1.04 WAIVER OF COMPLETION CONDITIONS 2
SECTION 1.05 COMPLETION OF NON-CONFORMING PLANT 2
ARTICLE II FUNDS TO COMPLETE
SECTION 2.01 FUNDS TO COMPLETE 3
SECTION 2.02 NOTICE OF DEFAULT 4
SECTION 2.03 PRO RATA SHARES 4
SECTION 2.04 OBLIGATIONS ABSOLUTE 4
SECTION 2.05 WAIVERS AND ACKNOWLEDGMENTS 6
SECTION 2.06 SEPARATE UNDERTAKING 6
SECTION 2.07 RELEASE UPON PREPAYMENT OF ADVANCES 6
SECTION 2.08. COMPLETION GUARANTY NOT APPLICABLE TO
OBLIGATIONS UNDER THE NOTES 7
ARTICLE III TERMINATION OF OBLIGATIONS
SECTION 3.01 TERMINATION UPON COMPLETION 7
SECTION 3.02 TERMINATION PRIOR TO COMPLETION 7
SECTION 3.03 EFFECT OF TERMINATION 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER 7
ARTICLE V COVENANTS
SECTION 5.01 COVENANTS OF EACH SHAREHOLDER 10
ARTICLE VI COMPLETION DEFAULTS SECTION 6.01 COMPLETION DEFAULTS 12
SECTION 6.02 COMPLETION DEFAULT REMEDIES 13
ARTICLE VII MISCELLANEOUS
SECTION 7.01 AMENDMENTS 13
SECTION 7.02 NOTICES, ETC. 13
SECTION 7.03 NO WAIVER; REMEDIES 14
<PAGE>
SECTION 7.04 BINDING EFFECT 14
SECTION 7.05 EXECUTION IN COUNTERPARTS 14
SECTION 7.06 EXECUTION IN TWO LANGUAGES 14
SECTION 7.07 JURISDICTION, ETC. 14
SECTION 7.08 JUDGMENT 16
SECTION 7.09 GOVERNING LAW 16
SECTION 7.10 THIRD PARTY BENEFICIARIES 16
SECTION 7.11 ENTIRE AGREEMENT 16
SECTION 7.12 WAIVER OF JURY TRIAL 17
SIGNATURES 16
<PAGE>
COMPLETION GUARANTY AGREEMENT
This Completion Guaranty Agreement (this "AGREEMENT"),
dated as of July 9, 1998, is made by and among ACCURIDE CORPORATION, a
Delaware corporation ("ACCURIDE"), INDUSTRIA AUTOMOTRIZ, S.A. DE C.V., a
corporation organized and existing under the laws of the United Mexican
States ("IASA", and together with Accuride, each a "SHAREHOLDER" and
collectively the "SHAREHOLDERS"), ACCURIDE DE MEXICO, S.A. DE C.V., a
corporation organized and existing under the laws of the United Mexican
States (the "BORROWER"), and CITIBANK MEXICO, S.A., GRUPO FINANCIERO
CITIBANK, as Lender (the "LENDER") party to the Credit Agreement (as defined
below).
PRELIMINARY STATEMENTS:
(1) The Borrower and the Lender have entered into that
certain Credit Agreement dated as of the date hereof (such Credit Agreement,
as it hereafter may be amended, supplemented or otherwise modified from time
to time, being referred to herein as the "CREDIT AGREEMENT"; capitalized
terms defined in the Credit Agreement and not otherwise defined herein will
be used herein as defined in the Credit Agreement.
(2) It is a condition precedent to the making of Advances
by the Lender under the Credit Agreement that the Shareholders shall have
executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises, the
Shareholders, the Borrower and the Lender hereby agree as follows:
ARTICLE I
COMPLETION
SECTION 1.01 COMPLETION. Subject to Section 1.05 hereof,
completion of the Plant (the "COMPLETION") shall occur on the first date (the
"COMPLETION DATE") on which the Lender receives from the Borrower all of the
certificates contemplated by Section 1.02 hereof. The Completion Certificates
required by Section 1.02 may be delivered together or separately in any order
and at any time and from time to time on or prior to the Completion Date,
PROVIDED THAT the Legal Conditions Certificate referred to in clause (c) of
Section 1.02 and the Insurance Certificate referred to in clause (d) of
Section 1.02 shall be dated as of a date not earlier than the latest of the
dates of the Physical Facilities Certificate referred to in clause (a) of
Section 1.02 and the Operations Certificate referred to in clause (b) of
Section 1.02.
SECTION 1.02 COMPLETION CERTIFICATES. Completion shall
occur on the first date on which the Lender receives from the Borrower all of
the following certificates:
<PAGE>
(a) PHYSICAL FACILITIES CERTIFICATE. A certificate of the
Borrower, executed by a Senior Officer and acknowledged by the
Independent Engineer, substantially in the form set forth in Appendix
A-1.
(b) OPERATIONS CERTIFICATE. A certificate of the Borrower,
executed by a Senior Officer and acknowledged by the Independent
Engineer, substantially in the form set forth in Appendix A-2.
(c) LEGAL CONDITIONS CERTIFICATE. A certificate of the
Borrower, executed by a Senior Officer, substantially in the form set
forth in Appendix A-3.
(d) INSURANCE CERTIFICATE. A certificate of the Borrower,
executed by a Senior Officer and acknowledged by the Insurance
Consultant, substantially in the form set forth in Appendix A-4.
SECTION 1.03 COMPLETION UNDERTAKING. Each Shareholder
severally undertakes to use its best efforts to cause the Completion Date to
occur by March 31, 2000.
SECTION 1.04 WAIVER OF COMPLETION CONDITIONS. Completion
shall be deemed to have occurred, even if the conditions set forth in Section
1.01 have not been satisfied, if the Lender delivers a notice to the Borrower
and the Shareholders stating that Completion has occurred.
SECTION 1.05 COMPLETION OF NON-CONFORMING PLANT. If the
Lender shall receive from the Borrower all the certificates required in
Section 1.02 hereof other than the certificate required by Section 1.02(b),
Completion shall nonetheless be deemed to have occurred if the following
conditions are met:
(a) The Lender shall have received a certificate of the
Borrower, executed by a Senior Officer and acknowledged by the
Independent Engineer, substantially in the form set forth in Appendix
A-2 except that the "90%" in paragraph (e) thereof shall be replaced by
such other percentage as shall apply (such other percentage being the
"ACTUAL CAPACITY").
(b) The Commitments under the Credit Agreement shall have been
reduced ratably by an aggregate amount equal to the following formula:
amount = C TIMES { 90-P(100) } OVER 100 TIMES 1.25 where AMOUNT is the
aggregate amount by which the Commitments should be ratably reduced, C
is the aggregate amount of the Commitments immediately prior to such
reduction and P is the Actual Capacity expressed as a fraction (E.G.,
80% would be "0.80").
(c) If, in giving effect to the reduction of the Commitments
pursuant to subsection (b) above, the aggregate principal amount of the
outstanding Term Advances exceeds the reduced Term Commitment or the
aggregate principal amount of the outstanding Working Capital Advances
exceed the Working Capital Commitment, then
<PAGE>
the Shareholders shall have made a prepayment of the Term Advances
and/or the Working Capital Advances, as the case may be, in an
amount of principal equal to such excess, together with accrued and
unpaid interest thereon and all other amounts due and payable under
the Credit Agreement with respect to such amount of principal.
ARTICLE II
FUNDS TO COMPLETE
SECTION 2.01 FUNDS TO COMPLETE. (a) Prior to Completion,
each Shareholder shall provide (or cause to be provided) Shareholder funding,
in proportion to such Shareholder's Pro Rata Share (as defined in Section
2.03), at such times and in such amounts as may be necessary (taking into
account all Advances made and those to be made to the Borrower under the
Credit Agreement in accordance with the terms thereof) in order to pay when
required or due all costs and expenses incurred by or on behalf of the
Borrower in connection with the construction, development, design,
engineering, acquisition, financing, outfitting, testing, start-up and
completion of the Plant, including the cost of Plant equipment and each of
the following (such funding being the "FUNDS TO COMPLETE"): (i) all amounts
payable by the Borrower to its contractors, suppliers and subcontractors
pursuant to the Construction Documents; (ii) the costs and expenses of all
engineering, legal, accounting and other professional advisers properly
incurred by the Borrower in connection with and attributable to the Plant;
(iii) costs of Required Insurance; (iv) administration and maintenance costs
incurred during the construction period; and (vi) value-added tax, other
taxes and customs charges payable in respect of any of the above.
(b) The Funds To Complete shall be paid by the Shareholders
in the form of either (i) the subscription to additional shares of common
stock of the Borrower or other additional contributions to the owners' equity
of the Borrower or (ii) the lending of such funds to the Borrower, PROVIDED
that (A) on the date of such lending no event shall have occurred and shall
be continuing, or would result from such lending, that constitutes a Default
and (B) the obligation of the Borrower to repay such funds (and interest
thereon) is duly subordinated in right of payment, in writing and upon terms
(including, without limitation, terms regarding maturity) satisfactory to the
Lender, to the obligations of the Borrower under the Credit Agreement and the
Notes.
(c) Each Shareholder agrees punctually to pay its Pro Rata
Share of all Funds To Complete.
SECTION 2.02 NOTICE OF DEFAULT. The Borrower or any
Shareholder, as the case may be, shall notify the Lender, promptly, but in
any event within three Business Days, of the failure of any Shareholder to
make a timely payment in respect of Funds To Complete which such Shareholder
is obligated to pay, and of the subsequent payment thereof.
<PAGE>
SECTION 2.03 PRO RATA SHARES. The obligations of the
Shareholders under this Agreement are several, and not joint and several, in
the following pro rata shares (the "PRO RATA SHARES"):
Accuride 51%
IASA 49%
Accordingly, notwithstanding any other provisions of this Agreement, neither
the Completion Default (as defined in Section 6.01) of a Shareholder nor the
failure of a Shareholder to meet any of its other obligations hereunder shall
increase the Pro Rata Share of the other Shareholder. The Pro Rata Share of a
Shareholder shall not be affected by any transfer of a Shareholder's interest
in the Borrower or by subscription of additional shares of the Borrower,
unless the Shareholder acquiring the additional interest expressly agrees to
assume the corresponding obligation of the transferring Shareholder and the
Lender shall have consented to such adjustment.
SECTION 2.04 OBLIGATIONS ABSOLUTE. Each Shareholder will
perform its obligations under this Agreement regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction affecting
any of the terms of the Loan Documents or Construction Documents or any other
document related thereto or the rights of the Lender with respect thereto.
The obligations of each Shareholder under this Agreement are independent of
the Loan Documents and Construction Documents, and a separate action or
actions may be brought and prosecuted against each Shareholder to enforce
this Agreement, irrespective of whether any action is brought against the
other Shareholder, the Borrower or whether the Borrower or the other
Shareholder is joined in any such action or actions. The obligations of each
Shareholder under this Agreement shall be absolute and unconditional
irrespective of:
(i) any lack of validity or enforceability of any Loan
Document, any Construction Document or any other agreement or instrument
relating thereto or any collateral therefor;
(ii) any change in the time, manner or place of payment of,
or in any other term of, all or any of the Obligations of any Loan Party
under the Loan Documents or Construction Documents, or any other amendment or
waiver of or any consent to departure from the Loan Documents or Construction
Documents, including, without limitation, any increase in the Notes or the
obligations of the Borrower under the Credit Agreement resulting from the
extension of additional credit to the Borrower or any of its subsidiaries or
otherwise;
(iii) any taking, exchange, release or non-perfection of
any collateral, or any taking, release or amendment or waiver of or consent
to departure from any guaranty, whether for payment, collection or
performance, for the Loan Documents or Construction Documents;
(iv) any manner of application of collateral, or proceeds
thereof, to all or any of the obligations evidenced by the Loan Documents or
Construction Documents, or any manner of sale or other disposition of any
collateral for all or any of the obligations evidenced
<PAGE>
by the Loan Documents or Construction Documents or any other assets
of the Borrower or any of its subsidiaries;
(v) any change, restructuring or termination of the
corporate structure or existence of the Borrower or any of its subsidiaries;
or
(vi) any other circumstance (including, without limitation,
any statute of limitations) which might otherwise constitute a defense
available to, or a discharge of, the Borrower or a surety.
This Agreement shall continue to be effective or be reinstated, as the case
may be, if at any time any payment of any of the Obligations of the Borrower
under the Loan Documents or Construction Documents is rescinded or must
otherwise be returned by the Lender or any other Person upon the insolvency,
bankruptcy or reorganization of the Borrower or any other Loan Party or
otherwise, all as though such payment had not been made.
SECTION 2.05 WAIVERS AND ACKNOWLEDGMENTS. (a) Each
Shareholder hereby waives promptness, diligence, notice of acceptance and any
other notice with respect to the Loan Documents or Construction Documents and
any requirement that the Lender protect, secure, perfect or insure any Lien
or any property subject thereto or exhaust any right to take any action
against the Borrower or any other Person or any collateral.
(b) Each Shareholder hereby waives any right to revoke this
Agreement, and acknowledges that this Agreement is continuing in nature and
relates to all Obligations under the Loan Documents and Construction
Documents, whether existing now or in the future.
(c) Each Shareholder acknowledges that it will receive
substantial direct and indirect benefits from the financing arrangements
contemplated by the Loan Documents and that the waivers set forth in this
Section 2.05 are knowingly made in contemplation of such benefits.
SECTION 2.06 SEPARATE UNDERTAKING. Without limiting the
generality of any of the foregoing provisions of this Agreement, each
Shareholder irrevocably waives, to the full extent permitted by applicable
law and for the benefit of, and as a separate undertaking with, the Lender,
any defense to the performance of this Agreement which may be available to a
Shareholder as a consequence of this Agreement being rejected or otherwise
not assumed by the Borrower or any trustee or other similar official for the
Borrower or for any substantial part of the property of the Borrower, or as a
consequence of this Agreement being otherwise terminated or modified, in any
proceeding seeking to adjudicate the Borrower a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of the Borrower or the debts of the
Borrower under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, whether such rejection, non-assumption, termination or
modification be by reason of this Agreement being held to be an executory
contract or by reason of any other circumstance. If a Shareholder is
prevented from performing its Obligations under this Agreement to or for the
benefit of the
<PAGE>
Borrower because this Agreement shall be so rejected or otherwise not
assumed, or so terminated or modified, each Shareholder agrees for the
benefit of, and as a separate undertaking with, the Lender that it will be
unconditionally liable to pay to the Lender an amount equal to each payment
which would otherwise be payable by a Shareholder under or in connection with
this Agreement if this Agreement were not so rejected or otherwise not
assumed or were otherwise not so terminated or modified.
SECTION 2.07 RELEASE UPON PREPAYMENT OF ADVANCES.
Notwithstanding anything to the contrary herein, the Shareholders shall be
released of their obligations under Section 2.01 hereof upon (a) payment or
prepayment in full of all Advances then outstanding under the Credit
Agreement, together with all accrued and unpaid interest thereon and all
other amounts due and payable under the Credit Agreement and (b) termination
of all the Lender's obligations under the Credit Agreement, including without
limitation the Lender's obligation to make Advances thereunder.
SECTION 2.08. COMPLETION GUARANTY NOT APPLICABLE TO
OBLIGATIONS UNDER THE CREDIT AGREEMENT OR THE NOTES. Neither Shareholder
(whether as guarantor or otherwise) shall be required pursuant to this
Agreement to pay or otherwise discharge any Obligation of the Borrower
arising under the Credit Agreement or any of the Notes, and no provision in
this Agreement shall be interpreted as imposing any such requirement on
either of the Shareholders.
ARTICLE III
TERMINATION OF OBLIGATIONS
SECTION 3.01 TERMINATION UPON COMPLETION. This Agreement
shall terminate upon Completion. Promptly, but in any case within three
Business Days after such termination, the Lender shall notify the
Shareholders and the Borrower of such termination; provided, however, that no
failure on the part of the Lender to so notify the Shareholders and the
Borrower will extend or otherwise delay the date of such termination.
SECTION 3.02 TERMINATION PRIOR TO COMPLETION. The Borrower
may arrange at any time for insurance, a guaranty or another comparable
arrangement in form and substance, and from a Person or Persons, acceptable
to the Lender as a replacement for the Obligations of each of the
Shareholders under this Agreement. This Agreement shall terminate upon
acceptance in writing by the Lender of any such replacement arrangement.
SECTION 3.03 EFFECT OF TERMINATION Upon any termination of
this Agreement, all Obligations of the Borrower and of each Shareholder under
this Agreement shall terminate.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF EACH
SHAREHOLDER. Each of the Shareholders hereby represents and warrants with
respect to itself as follows:
(a) Such Shareholder (i) is a corporation duly organized,
validly existing and, as to Accuride, in good standing under the laws
of the jurisdiction of its incorporation, and (ii) has all requisite
corporate power and authority (including, without limitation, all
material governmental licenses, permits and other approvals) to own its
shares of stock of the Borrower and to enter into this Agreement.
(b) The execution, delivery and performance of this Agreement
and each Related Document to which such Shareholder is or is to be a
party have been duly authorized by all necessary corporate action on
the part of such Shareholder, and do not (i) contravene such
Shareholder's charter or bylaws, (ii) violate any applicable provision
of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award applicable to such Stockholder, (iii)
result in the breach of, or constitute a default under, any loan
agreement, indenture, mortgage, deed of trust or other financial
instrument, or any other material contract or agreement, binding on or
affecting such Shareholder or any of its properties or (iv) except for
the Liens created under the Loan Documents, result in or require the
creation or imposition of any Lien upon or with respect to any of the
properties of such Shareholder.
(c) Other than those that have already been obtained and as
set forth in Schedule 4.01(c) and are in full force and effect, no
authorization or approval (including, in the case of the IASA, exchange
control approval) or other action by, and no notice to or filing with,
any governmental authority or regulatory body or any other third party
is required for the due execution, delivery or performance by such
Shareholder of this Agreement or any Related Document to which it is or
is to be a party.
(d) Each of this Agreement and the Related Documents to which
such Shareholder is a party has been duly executed and delivered by
such Shareholder and is the legal, valid and binding obligation of such
Shareholder, enforceable against such Shareholder in accordance with
its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditor's rights
generally or by general principles of equity.
(e) In the case of Accuride, the Consolidated balance sheet of
each of Accuride and its respective Subsidiaries as at December 31,
1997, and the related Consolidated statements of income and cash flow
of Accuride and its Subsidiaries for the fiscal year then ended,
accompanied by an opinion of Deloitte & Touche LLP, independent public
accountants, copies of which have been furnished to the Lender,
<PAGE>
fairly present in all material respects the Consolidated financial
condition of Accuride and its respective Subsidiaries as at such
date and the Consolidated results of the operations of Accuride and
its Subsidiaries for the fiscal year ended on such date, all in
accordance with generally accepted accounting principles applied on
a consistent basis (unless otherwise expressly noted therein), and
since December 31, 1997, there has been no Material Adverse Change
other than as a result of the Acquisition as defined in, and the
transactions contemplated by, the Credit Agreement dated as of
January 21, 1998 among Accuride, Accuride Canada, Inc., the
financial institutions party thereto as Lenders, the Issuing Bank
and the Swing Line Bank, Citicorp USA, Inc. as Administrative
Agent, Citicorp Securities, Inc. as Arranger, Bankers Trust Company
as Syndication Agent, and Wells Fargo Bank N.A. as Documentation
Agent, and the issuance of $200,000,000 aggregate principal amount
of Accuride's 9 1/4% Senior Subordinated Notes Due 2008, issued
January 21, 1998.
(f) In the case of IASA, the Consolidated balance sheet of
each of IASA and its respective Subsidiaries as at December 31, 1997,
and the related Consolidated statements of income and cash flow of IASA
and its Subsidiaries for the fiscal year then ended, accompanied by an
opinion of Saldivar y Asociados, independent public accountants, copies
of which have been furnished to the Lender fairly present in all
material respects the Consolidated financial condition of IASA and its
respective Subsidiaries as at such date and the Consolidated results of
the operations of IASA and its Subsidiaries for the fiscal year ended
on such date, all in accordance with generally accepted accounting
principles in Mexico, applied on a consistent basis (unless otherwise
expressly noted therein), and since December 31, 1997, there has been
no Material Adverse Change.
(g) No information, exhibit or report furnished by such
Shareholder to the Lender in writing in connection with the negotiation
of this Agreement or the other Loan Documents or pursuant to the terms
of this Agreement contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements made
herein and therein, taken as a whole, not misleading at such time in
light of the circumstances in which the same were made, it being
understood that for purposes of this Section 4.01(g), such factual
information does not include projections and pro forma financial
information.
(h) There is no action, suit, investigation, litigation or
proceeding affecting such Shareholder pending or, to the knowledge of
such Shareholder, threatened before any court, governmental agency or
arbitrator that (i) could reasonably be expected to have a Material
Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Agreement, any other Loan Document or any
Related Document or the consummation of the transactions contemplated
hereby.
(i) There are no conditions precedent to the effectiveness of
this Agreement that have not been satisfied or waived.
<PAGE>
(j) Each Shareholder has, independently and without reliance
upon the Lender and based on documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into
this Agreement.
ARTICLE V
COVENANTS
SECTION 5.01 COVENANTS OF EACH SHAREHOLDER. So long as any
Advance shall remain unpaid or the Lender shall have any Commitment, each
Shareholder will:
(a) PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and
maintain its existence, legal structure, legal name, rights (charter
and statutory), permits, licenses, approvals, privileges and
franchises, except to the extent that failure to do so could not
reasonably be expected to have a Material Adverse Effect; PROVIDED,
HOWEVER, that such Shareholder shall not be required to preserve any
right, permit, license, approval, privilege or franchise if the Board
of Directors of such Shareholder shall determine that the preservation
thereof is no longer desirable in the conduct of the business of such
Shareholder and that the loss thereof is not disadvantageous in any
material respect to such Shareholder or the Lender.
(b) CONDUCT OF BUSINESS. In the case of Accuride, engage
primarily in the vehicle component business and any activity or
business incidental, directly related or similar thereto, and any other
lines of business carried on by such Shareholder on the date hereof or
utilizing such Shareholder's manufacturing capabilities on the date
hereof, and/or such other businesses or activities that constitute a
reasonable extension, development or expansion thereof or that are
ancillary or reasonably related thereto; in the case of IASA, engage
primarily in the autoparts business.
(c) VISITATION RIGHTS. At any reasonable time and from time to
time, upon reasonable notice and during normal business hours, permit
any authorized representatives designated by the Lender to examine and
make abstracts from the records and books of account of, and visit the
properties of, such Shareholder and to discuss the affairs, finances
and accounts of such Shareholder with any of its officers or directors
and with their independent certified public accountants, PROVIDED that
such Shareholder may, if it so chooses, be present at or participate in
any such discussion.
(d) KEEPING OF BOOKS. Keep proper books of record and account,
in which full and correct entries shall be made of all financial
transactions and the assets and business of such Shareholder in
accordance with, in the case of Accuride, GAAP and, in the case of
IASA, Mexican GAAP, as in effect from time to time.
(e) REPORTING REQUIREMENTS. Furnish to the Lender:
<PAGE>
(i) DEFAULT OR LITIGATION NOTICE. Promptly upon any
Senior Officer of such Shareholder obtaining knowledge
thereof, notice of (i) the occurrence of any event that
constitutes a Completion Default, which notice shall specify
the nature thereof, the period of existence thereof and what
action such Shareholder proposes to take with respect thereto,
and (ii) any litigation or governmental proceeding pending
against such Shareholder that could reasonably be expected to
result in a Material Adverse Effect.
(ii) QUARTERLY FINANCIALS. As soon as available and
in any event within 60 days after the end of each of the first
three fiscal quarters of each fiscal year of such Shareholder,
(A) in the case of Accuride, a Consolidated balance sheet of
Accuride and its Subsidiaries as of the end of such fiscal
quarter and the related Consolidated statements of income and
cash flow for the period commencing at the end of the previous
fiscal quarter and ending with the end of such fiscal quarter
and for the period commencing at the end of the previous
fiscal year and ending with the end of such fiscal quarter,
setting forth in each case in comparative form the
corresponding figures for the corresponding period of the
preceding fiscal year of such Shareholder, all in reasonable
detail and duly certified (subject to year-end audit
adjustments) by the chief financial officer of Accuride as
having been prepared in accordance with GAAP, and (B) in the
case of IASA, a Consolidated balance sheet of IASA and its
Subsidiaries as of the end of such fiscal quarter and the
related Consolidated statements of income and cash flow for
the period commencing at the end of the previous fiscal
quarter and ending with the end of such fiscal quarter and for
the period commencing at the end of the previous fiscal year
and ending with the end of such fiscal quarter, in the form
required to be provided to the Mexican Bolsa de Valores,
together with such other financial information as shall be
provided by IASA with respect to such fiscal quarter to the
Mexican Bolsa de Valores, and in the case of either (A) or
(B), a certificate of an officer of such Shareholder stating
that no Completion Default has occurred and is continuing or,
if a Completion Default has occurred and is continuing, a
statement as to the nature thereof and the action that such
Shareholder has taken and proposes to take with respect
thereto.
(iii) ANNUAL FINANCIALS. As soon as available and in
any event within 120 days after the end of each fiscal year of
such Shareholder, a Consolidated balance sheet of such
Shareholder and its Subsidiaries as of the end of such fiscal
year and the related Consolidated statements of income and
cash flow for such fiscal year setting forth in each case in
comparative form the corresponding figures for the previous
fiscal year of such Shareholder, accompanied by an opinion
which shall be unqualified as to the scope of the audit and as
to the going concern status of such Shareholder and its
Subsidiaries taken as a whole, of independent public
accountants of recognized standing, together with a
certificate of such accounting firm to the Lender stating that
in the course of the regular audit of the business of such
Shareholder and its Subsidiaries, which
<PAGE>
audit was conducted by such accounting firm in accordance with
applicable generally accepted auditing standards, such
accounting firm has obtained no knowledge that a Completion
Default has occurred and is continuing, or if, in the opinion
of such accounting firm, a Completion Default has occurred
and is continuing, a statement as to the nature thereof.
(iv) Promptly after the sending or filing thereof,
copies of all proxy statements, financial statements and
reports that such Shareholder sends to its stockholders, and
copies of all regular, periodic and special reports, and all
registration statements, that such Shareholder files with the
Securities and Exchange Commission or any governmental
authority that may be substituted therefor or any equivalent
governmental authority in Mexico, or with any national
securities exchange in the United States or Mexico (in each
case to the extent not theretofore delivered to the Lender
pursuant to this Agreement), and with reasonable promptness
such other information (financial or otherwise) as the Lender
may reasonably request in writing from time to time.
(f) Within 30 days after the date hereof, provide to the
Lender a Spanish translation of this Agreement, duly executed and
delivered by such Shareholder and in form and substance satisfactory to
the Lender.
ARTICLE VI
COMPLETION DEFAULTS
SECTION 6.01 COMPLETION DEFAULTS. Each of the following events
shall be a default of a Shareholder (each a "COMPLETION DEFAULT") insofar as it
relates to such Shareholder:
(a) PAYMENT DEFAULT. Such Shareholder fails to pay or cause to
be paid, or to have paid on its behalf, on the date on which the same
is due and payable, any amount due pursuant to this Agreement and such
default is not remedied within 30 days.
(b) BREACH OF REPRESENTATION OR WARRANTY UNDER THIS AGREEMENT.
A representation or warranty made by such Shareholder in this Agreement
proves to have been false in any material respect as and when made and
the condition causing such falsity has a material adverse effect on the
ability of such Shareholder to meet its obligations under this
Agreement.
(c) BREACH OF COVENANT, ETC. Such Shareholder fails to perform
or observe in any material respect any other term, covenant or
agreement contained herein to be performed or observed by it and such
failure continues unremedied for 30 days after notice thereof is given
by the Lender to such Shareholder.
<PAGE>
(d) BANKRUPTCY EVENT. The Bankruptcy of a Shareholder.
(e) AGREEMENT UNENFORCEABLE. This Agreement is declared in a
final, non-appealable judgment of a court of competent jurisdiction to
be unenforceable against such Shareholder or such Shareholder shall
have repudiated its obligations hereunder. For this purposes a
statement or a dispute regarding the scope or nature of the parties'
rights and obligations under this Agreement or a failure to perform any
particular obligation as a result of such statement or dispute shall
not by itself be deemed to be a repudiation thereof other than a
failure that would otherwise constitute a Completion Default.
SECTION 6.02 COMPLETION DEFAULT REMEDIES. Upon the occurrence
and during the continuance of a Completion Default, the Lender shall be entitled
to the remedies afforded to it as set forth in the Credit Agreement.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 AMENDMENTS. This Agreement may be amended only by
an agreement in writing signed by each party hereto.
SECTION 7.02 NOTICES, ETC. All notices and other
communications provided for hereunder shall be in writing (including
telegraphic, telecopy or telex communication) in the English language (or
accompanied by an accurate English language translation upon which any recipient
shall have the right to rely for all purposes) and mailed, telegraphed,
telecopied, telexed or delivered, if to a party hereto, at its address indicated
on the signature pages hereto, or at such other address as shall be designated
by such party in a written notice to the other parties. All such notices and
communications shall, when mailed, telegraphed, telecopied or telexed, be
effective when deposited in the mails, delivered to the telegraph company,
transmitted by telecopier or confirmed by telex answerback, respectively.
Delivery by telecopier of an executed counterpart of any amendment or waiver of
any provision of this Agreement or of any Exhibit hereto to be executed and
delivered hereunder shall be effective as delivery of a manually executed
counterpart thereof.
SECTION 7.03 NO WAIVER; REMEDIES. No failure on the part of
the Lender to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
SECTION 7.04 BINDING EFFECT. This Agreement shall become
effective when the conditions set forth in Section 3.01 of the Credit Agreement
shall have been either fulfilled
<PAGE>
or waived and shall thereafter be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
SECTION 7.05 EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 7.06 EXECUTION IN TWO LANGUAGES. This Agreement shall
be executed in both the English and Spanish languages, both of which bind the
parties hereto and constitute but one agreement; PROVIDED, HOWEVER, that in case
of doubt as to the proper interpretation or construction of this Agreement, the
English text shall be controlling in all cases except with respect to any action
brought in the courts of Mexico, in which case the Spanish text shall be
controlling.
SECTION 7.07 JURISDICTION, ETC. (a) Each of the parties hereto
irrevocably agrees that any legal action, suit or proceeding arising out of or
relating to this Agreement may be brought in the courts of the State of New York
or of the United States of America located in the Southern District of New York
or in the courts of the Federal District of Mexico, at the election of the
plaintiff (except that the Lender shall not commence legal proceedings against
Accuride in Mexico). Final judgment against the Borrower or any Shareholder in
any such action, suit or proceeding shall be conclusive and may be enforced in
any other jurisdiction, including Mexico, by suit on the judgment, a certified
or exemplified copy of which shall be conclusive evidence of the judgment, or in
any other manner provided by law.
(b) By the execution and delivery of this Agreement, the each
of the parties irrevocably submits to the non-exclusive jurisdiction of the
courts of the State of New York and of the United States of America located in
the Southern District of New York in any such action, suit or proceeding and
designates, appoints and empowers CT Corporation Systems, at 1633 Broadway, New
York, NY 10019 as its authorized agent to receive for and on its behalf service
of any summons, complaint or other legal process in any such action, suit or
proceeding in the State of New York for so long as any obligation of the
Borrower or any Shareholder shall remain outstanding hereunder. The Borrower and
each Shareholder shall grant an irrevocable power of attorney to CT Corporation
Systems in respect of such appointment and shall maintain such power of attorney
in full force and effect for so long as any obligation of the Borrower or any
Shareholder shall remain outstanding hereunder.
(c) Nothing in this Agreement shall affect the right of the
Lender to commence legal proceedings or otherwise sue the Borrower or any
Shareholder in Mexico or any other appropriate jurisdiction (except that the
Lender shall not commence legal proceedings against Accuride in Mexico), or to
serve process, pleadings and other legal papers upon the Borrower or any
Shareholder in any manner authorized by the laws of any such jurisdiction.
<PAGE>
(d) As long as this Agreement remains in force, the Borrower
and each Shareholder shall maintain a duly appointed agent for the service of
summons, complaint and other legal process in New York, New York, United States,
for purposes of any legal action, suit or proceeding the Lender may bring in
respect of this Agreement. The Borrower shall keep the Lender advised of the
identity and location of such agent.
(e) The Borrower and each Shareholder also irrevocably
consent, if for any reason its authorized agent for service of process of
summons, complaint and other legal process in any such action, suit or
proceeding is not present in New York, New York, service of such papers may be
made out of those courts by mailing copies of the papers by registered United
States air mail, postage prepaid, to the Borrower and each Shareholder at its
address specified on the signature pages hereto. In such a case, the Lender
shall also send by telex or facsimile, or have sent by telex or facsimile, a
copy of the papers to the Borrower and each Shareholder.
(f) Service in the manner provided in subsection (e) above in
any such action, suit or proceeding will be deemed personal service, will be
accepted by the Borrower and each Shareholder as such and will be valid and
binding upon the Borrower and each Shareholder for all purposes of any such
action, suit or proceeding.
(g) The Borrower and each Shareholder hereby irrevocably
waive: (i) any objection which it may have now or in the future to the laying of
the venue of any such action, suit or proceedings in any court referred to in
this Section; and (ii) any claim that any such action, suit or proceedings has
been brought in an inconvenient forum.
SECTION 7.08 JUDGMENT. (a) If for the purposes of obtaining
judgment in any court it is necessary to convert a sum due hereunder in Dollars
into another currency, the parties hereto agree, to the fullest extent that they
may effectively do so, that the rate of exchange used shall be that at which in
accordance with normal banking procedures the Lender could purchase Dollars with
such other currency at Citibank in New York, New York on the Business Day
preceding that on which final judgment is given.
(b) The obligations of the Borrower and each Shareholder in
respect of any sum due from it to the Lender hereunder held by the Lender shall,
notwithstanding any judgment in a currency other than Dollars be discharged only
to the extent that on the Business Day of receipt by the Lender of any sum
adjudged to be so due in such other currency the Lender may in accordance with
normal banking procedures purchase Dollars with such other currency; if the
Dollars so purchased are less than the sum originally due by the Borrower or any
Shareholder to the Lender in Dollars, the Borrower and each Shareholder agrees,
as a separate obligation and notwithstanding any such judgment, to indemnify the
Lender against such loss, and if the Dollars so purchased exceed the sum
originally due by the Borrower or any Shareholder to the Lender in Dollars, the
Lender agrees to remit to the relevant party such excess.
<PAGE>
SECTION 7.09 GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York, United
States of America; PROVIDED, HOWEVER, that in connection with any legal action
or proceeding (other than an action to enforce a judgment obtained in another
jurisdiction) brought by the Lender in respect of this Agreement in the courts
of Mexico or any political subdivision thereof, this Agreement shall be deemed
to be an instrument made under the laws of Mexico and for such purposes shall be
governed by, and construed in accordance with, the laws of Mexico.
SECTION 7.10 THIRD PARTY BENEFICIARIES. This Agreement is for
the benefit of the parties hereto and their successors and permitted assigns and
nothing herein expressed or implied shall give or be construed to give any
person or entity, other than the parties hereto and such successors and assigns,
any legal or equitable rights hereunder, except that the parties hereto agree
that each Participant is a third party beneficiary to this Agreement, entitled
to all the rights accruing thereto.
SECTION 7.11 ENTIRE AGREEMENT. This Agreement and the Exhibits
and Schedules hereto constitute the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements, understandings, negotiations, correspondence, undertakings and
communications, both oral and written, between the parties with respect to the
subject matter hereof, including, without limitation, those provisions of the
Accuride de Mexico, S.A. de C.V. Summary of Terms and Conditions (finally
negotiated by the parties in May 1998) that deal with the subject of a
"Completion Guaranty". There are no restrictions, promises, representations,
warranties, covenants or undertakings by or between the parties with respect to
the subject matter hereof other than those expressly set forth or referred to
herein.
SECTION 7.12 WAIVER OF JURY TRIAL. The Borrower, each
Shareholder and the Lender irrevocably waive all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the actions of the
Lender in the negotiation, administration, performance or enforcement thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first above written.
ACCURIDE CORPORATION
By: /s/ Robert J. Fagerlin
------------------------------------
Name: Robert J. Fagerlin
Title: Vice President
Address: 2315 Adams Lane
P.O. Box 40
Henderson, KY 42420
<PAGE>
United States of America
Attn: William Geubel
with a copy to:
Kohlberg Kravis Roberts & Co., L.P.
2800 Sand Hill Road, Suite 200
Menlo Park, CA 94205
Attn: Todd Fisher
INDUSTRIA AUTOMOTRIZ, S.A. DE C.V.
By: /s/ Gregorio Ramirez Jauregui
-----------------------------------------
Name: Ing. Gregorio Ramirez Jauregui
Title: Chairman of the Board
Address: Avenida Universidad 1011 Norte,
Planta Baja
San Nicolas de los Garza
Nuevo Leon
C.P. 66450 Mexico
CITIBANK MEXICO, S.A.,
GRUPO FINANCIERO CITIBANK
By: /s/ Samuel Libuic
-----------------------------------------
Name: Samuel Libuic
Title: Attorney-in-Fact
Address: Reforma 390
Mexico City, D.F. 06696
Mexico
Accepted and agreed to as of the
date first written above:
ACCURIDE DE MEXICO, S.A. DE C.V.
<PAGE>
By: /s/ Robert J. Fagerlin
--------------------------------
Name: Robert J. Fagerlin
Title: Director General
Address: Avenida Universidad 1011 Norte,
Planta Baja
San Nicolas de los Garza
Nuevo Leon
C.P. 66450 Mexico
<PAGE>
Appendix A-1
to Completion Guaranty
FORM OF PHYSICAL FACILITIES CERTIFICATE
CITIBANK MEXICO, S.A.,
GRUPO FINANCIERO CITIBANK, as Lender
Grupo Financiero Citibank
Reforma 390,
Mexico City, Mexico, D.F. 06695
Attention: Doug Schmidt
Re: ACCURIDE DE MEXICO, S.A. DE C.V.
Ladies and Gentlemen:
This is the certificate referred to in clause (a) of Section 1.02 of the
Completion Guaranty Agreement, dated as of July 9, 1998 among the Borrower,
ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE
C.V., a corporation organized and existing under the laws of the United Mexican
States, and CITIBANK, S.A., GRUPO FINANCIERO CITIBANK, as the same may be
amended, supplemented or otherwise modified from time to time (the "COMPLETION
GUARANTY"). Capitalized terms herein and in the appendices hereto, except as
otherwise defined herein, shall have the meanings assigned to them in the
Completion Guaranty.
I, [Name of Senior Officer], as [_______________________] of the Borrower,
hereby certify after due inquiry that:
(a) As of the date hereof, the physical facilities and utilities of the
Plant as described in Appendix A-1-A (the "PHYSICAL FACILITIES") have been
installed substantially in accordance with the design documents, as amended in
accordance with the provisions of Appendix A-1-A, are substantially complete and
have become operational.
(b) As of the date hereof, each of the Physical Facilities has been
substantially completed, and each has been accepted by the Borrower from the
contractors or sub-contractors in accordance with the contracts or sub-contracts
for the construction or installation of each such facility.
(c) Attached to this Physical Facilities Certificate is a true and complete
copy of the Acknowledgment of the Independent Engineer in connection with this
Physical Facilities Certificate.
The Borrower hereby certifies, after due inquiry, that the facts stated by
the Borrower in this Certificate are true and complete.
<PAGE>
IN WITNESS WHEREOF, I, [name of Senior Officer], have caused this
certificate to be duly executed.
Dated:
ACCURIDE DE MEXICO, S.A. DE C.V.
By:
Name:
Title: [Senior Officer]
<PAGE>
ACKNOWLEDGMENT
This Acknowledgment is being delivered by the undersigned, [Name of
Independent Engineer], a [________________] duly organized and validly existing
under the laws of the [State] of [_______________], in connection with the
Completion Guaranty Agreement, dated as of July 9, 1998, among the Borrower,
ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE
C.V., a corporation organized and existing under the laws of the United Mexican
States, and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as the same may be
amended, supplemented or otherwise modified from time to time.
[Name of Independent Engineer] hereby certifies that it has reviewed the
Physical Facilities Certificate dated ______________ and has performed such
inspections which we have, in our reasonable judgment, deemed necessary for
purposes of this acknowledgment. Such inspections, including the names of our
employees or agents who performed them, are described in Appendix A-1-B to this
acknowledgment. Based on such inspections, we hereby certify that, to the best
of our knowledge, each of the certifications of the Borrower set forth in the
Physical Facilities Certificates is true and correct in all material respects as
of the date hereof.
IN WITNESS WHEREOF, [Name of Independent Engineer] has caused this
acknowledgment to be duly executed.
Dated:
[Name of Independent Engineer]
By:
Name:
Title:
<PAGE>
Appendix A-1-A
to Completion Guaranty
PLANT PHYSICAL FACILITIES
The Plant's physical facilities shall comprise at a minimum those
facilities described hereafter. Physical facilities shall include facilities
installed by the Plant to connect to third parties. Design modifications and
improvements, as may be approved by the Borrower from time to time, will be
accommodated within this appendix provided that these amendments are documented,
transmitted to the Independent Engineer, approved by the Independent Engineer,
if required, and a final complete listing of these changes is provided to the
Independent Engineer prior to Completion.
Approval of the Independent Engineer is required for:
(i) Modifications to the physical facilities including
but not limited to changes in:
- Manufacturing equipment
- Environmental facilities
- Product lines
provided that only such modifications which
individually or in the aggregate materially impair
the Plant's performance shall require the
Independent Engineer's approval.
(ii) Those modifications which could materially impair the
expected operating or maintenance costs or expected
ongoing capital expenditures.
(iii) Modifications which could impair environmental
compliance or any permit or license (in place or
required).
(iv) Modifications or contractor change orders which are
estimated to cost in aggregate more than $500,000
for changes to the facilities or which could affect
schedule sequencing by more than 20 days.
Required Physical Facilities
1. New Spinner #1
2. New Truing Machine
3. Line A-8
4. Washer
5. Waste Water Treatment Facility
6. E-Coat System
7. Line 427
8. Line 468 or equivalent
9. Raw Material Crane
10. Emergency Electrical Plant to Protect E-Coat System
11. 600 T Press or equivalent
<PAGE>
12. Decoiler
13. New Spinner #2
14. New Spinner #3
15. SARA Line with Decoiler
16. Light Disc Press Line (L-4)
17. Line A-11 with New Truing Machine and Washer
<PAGE>
Appendix A-2
to Completion Guaranty
FORM OF OPERATIONS CERTIFICATE
CITIBANK MEXICO, S.A.,
GRUPO FINANCIERO CITIBANK, as Lender
Grupo Financiero Citibank
Reforma 390,
Mexico City, Mexico, D.F. 06695
Attention: Doug Schmidt
Re: ACCURIDE DE MEXICO, S.A. DE C.V.
Ladies and Gentlemen:
This is the certificate referred to in clause (b) of Section 1.02 of the
Completion Guaranty Agreement, dated as of July 9, 1998, among the Borrower,
ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE
C.V., a corporation organized and existing under the laws of the United Mexican
States, and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as the same may be
amended, supplemented or otherwise modified from time to time (the "COMPLETION
GUARANTY"). Capitalized terms herein and in the appendices hereto, except as
otherwise defined herein, shall have the meanings assigned to them in the
Completion Guaranty.
I, [Name of Senior Officer], as [________________] of the Borrower, hereby
certify after due inquiry that:
(a) Attached to this certificate as Appendix B-2-A are copies of operating
records, test results, inspection reports and other documentation relating to
production by the Plant during the periods referred to in clause (c) below. Such
documentation accurately reflects, in all material respects, the production of
the Plant during the period to which it relates.
(b) All sampling procedures relevant to the matters covered by this
certificate were conducted by Borrower in accordance with Prudent Industry
Practices.
(c) For purposes of this Operations Certificate, the first test period (the
"FIRST TEST PERIOD") began on [date] and ended on [date] and was comprised of 5
consecutive Business Days [or such shorter period reasonably acceptable to the
Independent Engineer, to the extent reasonably justified based upon the
Borrower's current sales volume and other relevant factors], each of which days
was a scheduled operating day, and the second test period (the"SECOND TEST
PERIOD", and together with the First Test Period, the "TEST Periods") began on
[date] and ended on [date] and was comprised of 5 consecutive Business Days [or
such shorter period reasonably acceptable to the Independent Engineer, to the
extent reasonably justified based upon the Borrower's current sales volume and
other relevant factors], each of
<PAGE>
which days was a scheduled operating day. Approximately one month elapsed
between the first day of the First Test Period and the last day of the Second
Test Period.
(d) All product units manufactured during the Test Periods completed
required qualification testing, and processes were verified to insure that parts
met dimensional requirements.
(e) Hourly production rates during the Test Periods were determined by the
total number of good parts that were completed on the specific lines for the
hours scheduled for the production run during the Test Period. Total hours
included set-up and required maintenance completed during the Test Period
("TOTAL HOURS"). The average hourly rates of production, expressed in units
produced per hour, for the Total Hours, for each of the lines or operations
listed below, were each within 90% of the hourly rate listed after such line or
operation:
<TABLE>
Line/Operation Hour Rate (Units)
-------------- -----------------
<S> <C>
Line 427 150
Spinners 52 light discs (each Spinner)
E-Coat 570 (Wheels and Rims)
[Line A-8 138]
SARA 225
</TABLE>
All the foregoing tests, except as specifically otherwise provided herein,
in this Section (e) have been performed during each of the Test Periods.
(f) During the First Test Period the actual quantities were:
Scheduled Actual Production
Scheduled Quantities Actual Quantities Production Hours Hours
- -------------------- ----------------- ---------------- -----
(g) During the Second Test Period the actual quantities were:
Scheduled Actual Production
Scheduled Quantities Actual Quantities Production Hours Hours
- -------------------- ----------------- ---------------- -----
(h) Attached to this Operations Certificate is a true and complete copy of
an Acknowledgment of the Independent Engineer in connection with this Operations
Certificate.
(i) The Plant is being operated by the Borrower in accordance with Prudent
Industry Practices.
The Borrower hereby certifies, after due inquiry, that the facts stated by
the Borrower in this Certificate are true and complete.
IN WITNESS WHEREOF, I, [name of Senior Officer], have caused this
certificate to be duly executed.
<PAGE>
Dated:
ACCURIDE DE MEXICO, S.A. DE C.V.
By: ___________________________
Name:
Title: [Senior Officer]
<PAGE>
ACKNOWLEDGMENT
This Acknowledgment is being delivered by the undersigned, [Name of
Independent Engineer], a [________________] duly organized and validly existing
under the laws of the [State] of [_______________], in connection with the
Completion Guaranty Agreement, dated as of July 9, 1998, among the Borrower,
ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE
C.V., a corporation organized and existing under the laws of the United Mexican
States, and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as the same may be
amended, supplemented or otherwise modified from time to time.
[Name of Independent Engineer] hereby certifies that it has reviewed the
Operations Certificate dated [___________] and has performed such inspections,
observations, analyses and other procedures which we have, in our reasonable
judgment, deemed necessary for purposes of this acknowledgment. Such procedures,
including the names of our employees or agents who performed them, are described
in Appending B-2-B to this acknowledgment. Based on such procedures described
above, we hereby certify that, to the best of our knowledge, each of the
certifications of the Borrower set forth in the Operations Certificate is true
and correct in all material respects as of the date hereof.
IN WITNESS WHEREOF, [name of Independent Engineer] has caused this
acknowledgment to be duly executed.
Dated:
[Name of Independent Engineer]
By: ___________________________
Name:
Title:
<PAGE>
Appendix A-3
to Completion Guaranty
FORM OF LEGAL CONDITIONS CERTIFICATE
CITIBANK MEXICO, S.A.
GRUPO FINANCIERO CITIBANK, as Lender
Grupo Financiero Citibank
Reforma 390,
Mexico City, Mexico, D.F. 06695
Attention: Doug Schmidt
Re: ACCURIDE DE MEXICO, S.A. DE C.V.
Ladies and Gentlemen:
This is the certificate referred to in clause (c) of Section 1.02 of the
Completion Guaranty Agreement, dated as of July 9, 1998, among the Borrower,
ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE
C.V., a corporation organized and existing under the laws of the United Mexican
States, and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as the same may be
amended, supplemented or otherwise modified from time to time (the "COMPLETION
GUARANTY"). Capitalized terms herein and in the appendices hereto, except as
otherwise defined herein, shall have the meanings assigned to them in the
Completion Guaranty.
I, [Name], as _________________________ of the Borrower, hereby certify
after due inquiry that, to the best of my knowledge, as of the date hereof:
(a) Each of the Construction Documents remains in full force and effect.
(b) The authorizations, approvals and consents from governmental
authorities in the United Mexican States listed in Schedule 4.01(d)(ii) to the
Credit Agreement that are still required as of the date hereof, any others that
as of the date hereof have become required for, and in each case are material
to, operation of the Plant substantially as it was operated during the Test
Period referred to in the Operations Certificate, and those which are necessary
for the current stage of development of the Plant are in full force and effect
and not subject to appeal.
(c) The security interests required to be created by or pursuant to the
Collateral Documents are in full force and effect.
(d) No Default has occurred and is continuing.
(e) There are no contractors' liens (other than Permitted Liens as such
term is defined in the Credit Agreement) under Mexican law or under any
Construction Documents on any of the Physical Facilities of the Borrower.
<PAGE>
The Borrower hereby certifies, after due inquiry, that the facts stated by
the Borrower in this Certificate are true and complete.
IN WITNESS WHEREOF, I, [name] have caused this certificate to be duly
executed.
Dated:
ACCURIDE DE MEXICO, S.A. DE C.V.
By: ___________________________
Name:
Title:
<PAGE>
Appendix A-4
to Completion Guaranty
FORM OF INSURANCE CERTIFICATE
CITIBANK MEXICO, S.A.
GRUPO FINANCIERO CITIBANK, as Lender
Grupo Financiero Citibank
Reforma 390,
Mexico City, Mexico, D.F. 06695
Attention: Doug Schmidt
Re: ACCURIDE DE MEXICO, S.A. DE C.V.
Ladies and Gentlemen:
This is the certificate referred to in clause (d) of Section 1.02 of the
Completion Guaranty Agreement, dated as of July 9, 1998, among the Borrower,
ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE
C.V., a corporation organized and existing under the laws of the United Mexican
States, and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as the same may be
amended, supplemented or otherwise modified from time to time (the "COMPLETION
GUARANTY"). Capitalized terms herein and in the appendices hereto, except as
otherwise defined herein, shall have the meanings assigned to them in the
Completion Guaranty.
I, [Name], as _________________________ of the Borrower, hereby certify
after due inquiry that, as of the date hereof all minimum insurance coverage
required to be now in effect pursuant to Section 5.01(d) of the Credit Agreement
is in full force and effect.
Attached to this Insurance Certificate is a true and complete copy of the
Acknowledgment of the Insurance Consultant in connection with this Insurance
Certificate.
The Borrower hereby certifies, after due inquiry, that the facts stated by
the Borrower in this Certificate are true and complete.
IN WITNESS WHEREOF, I, [name] have caused this certificate to be duly
executed.
Dated:
ACCURIDE DE MEXICO, S.A. DE C.V.
By: ___________________________
<PAGE>
Name:
Title:
<PAGE>
ACKNOWLEDGMENT
This Acknowledgment is being delivered by the undersigned, [Name of
Insurance Consultant], a [________________] duly organized and validly existing
under the laws of the [State] of [_______________], in connection with the
Completion Guaranty Agreement, dated as of July 9, 1998 among the Borrower,
ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE
C.V., a corporation organized and existing under the laws of the United Mexican
States, and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as the same may be
amended, supplemented or otherwise modified from time to time.
[Name of Insurance Consultant], hereby certifies that it has reviewed the
Insurance Certificate dated [___________] and has performed such reviews and
other procedures which we have, in our reasonable judgment, deemed necessary for
purposes of this acknowledgment. Such procedures, including the names of our
employees or agents who performed them, are described in Appendix A-4-A to this
acknowledgment. Based on such procedures, we hereby certify that, to the best of
our knowledge, each of the certifications of the Borrower set forth in the
Insurance Certificate is true and correct in all material respects as of the
date hereof.
IN WITNESS WHEREOF, [name of Insurance Consultant] has caused this
acknowledgment to be duly executed.
Dated:
[Name of Insurance Consultant]
By: ___________________________
Name:
Title:
<PAGE>
LEASE
THIS LEASE, entered into between WOODWARD, LLC. hereinafter referred to as
"LANDLORD" and ACCURIDE CORPORATION hereinafter referred to as "TENANT".
WITNESSETH THAT LANDLORD and TENANT, in consideration of their mutual
undertakings, agree as follows:
LANDLORD hereby leases to TENANT and TENANT hereby leases from LANDLORD Lots 10,
11 and 12 situated on the real estate described in the attached Exhibit "A"
which is made a part hereof, including the two-story building and other
improvements described hereinbelow, commonly referred to as a 34,000 square foot
Class A office building located on 4.6 acres of land on Office Circle of
Burkhardt Crossing fronting I-164 and depicted in the attached Exhibit "B"
drawing of building and site plan which are made a part hereof (collectively
hereinafter the "Leased Premises")
TENANT without demand or notice shall pay during the term of this Lease, a
monthly rental as described in a Lease entered between the parties of even
date herewith, all upon the following covenants, terms and conditions:
1.01: MONTHLY RENTAL AMOUNTS AND CONDITIONS PRECEDENT:
Months 1 thru 60: The monthly rental amount shall be Thirty Seven Thousand
Five Hundred Forty-One and 60/100ths Dollars ($37,541.60)
per month, representing an annual rate of Thirteen and
25/100ths Dollars ($13.25) per square foot.
Months 61 thru 120: The monthly rental amount shall be Forty-One Thousand Three
Hundred Ten and 00/100ths Dollars ($41,310.00) per month,
representing an annual rate of Fourteen and 58/100ths
Dollars ($14.58) per square foot.
1.02: The parties agree that the actual square footage of the Leased
Premises shall be determined by mutual written agreement of LANDLORD and
TENANT as the plans for the initial construction, and any expansion option
exercised hereunder, are finalized between LANDLORD and TENANT and their
respective architectural and construction consultants, pursuant to the Work
Letter Agreement attached hereto and made a part hereof. The rent set forth
above shall be adjusted according to the square foot rental rates described
above applied to said actual square footage of the Leased Premises as so
determined, using center-of-wall to center-of-wall measurements, excluding
mechanical shafts and stair wells.
1.03: The LANDLORD represents and warrants it has an option to purchase the
land underlying the Leased Premises from Webb Development, LLC, and LANDLORD
shall promptly exercise and close on said option following the exercise of
this Lease on or before December 1, 1998.
1.04: The LANDLORD agrees that LANDLORD shall cause restrictive covenants
running with the title of such adjoining tracts of land as set forth under
paragraph 29.01 ET.SEQ., to the acceptance of TENANT'S legal counsel and
TENANT'S title insurance underwriter on or before December 1, 1998.
2.01: TERM: The term of this Lease shall commence on the later of November
1, 1999, or the date that the Leased Premises are completely build-out by
LANDLORD and ready for the TENANT's possession. The term of this Lease shall
expire on the later of October 31, 2009 at 11:59 p.m., or the date ten (10)
years from the commencement of this Lease, subject to renewal as provided
hereinbelow.
Page 1 of 16
<PAGE>
3.01: USE, COMPLIANCE WITH LAWS, SIGNS: TENANT shall keep the Leased
Premises in a clean and orderly condition and shall conduct business there
therefrom in a careful and safe manner. TENANT shall not use the Leased
Premises or maintain them in any manner constituting a violation of any
ordinance, statute, regulation, or order of any governmental authority,
including without limitation zoning ordinances, nor shall TENANT maintain,
permit or suffer any nuisance to occur or exist on the Leased Premises.
Notwithstanding anything herein to the contrary, LANDLORD covenants and
warrants upon the commencement of the term of this Lease that the zoning of
the Leased Premises is proper and in full compliance with city, county and
state ordinances, statutes, regulations or other laws or orders of any
governmental authority for use as an office building as set forth herein,
including but not limited to compliance with all set-backs, parking and
signage requirements or standards set forth under any such land use and
zoning laws.
3.02: TENANT shall not affix to or upon the exterior of the Leased Premises,
or any place on the Leased Premises any sign, insignia, or decoration without
the prior written consent of LANDLORD, which consent shall not be
unreasonably withheld. TENANT acknowledges receipt of a copy of the
Conditions, Covenants, and Restrictions on record for the sub division in
which this property is located.
4.01: SURRENDER AND HOLDOVER: Upon the expiration or sooner termination of
this Lease, TENANT shall surrender to LANDLORD the Leased Premises, together
with all other property affixed to the Leased Premises, (except trade
fixtures) broom clean and in the same order and condition in which TENANT
received them, the effects of ordinary wear and acts of God, excepted.
4.02: Unless an event of default as hereinafter defined has occurred and
remains uncured, TENANT shall prior to the expiration of the term remove all
of TENANT's furniture, belongings and personal property from the Leased
Premises. Any damage to the Leased Premises caused by such removal shall be
repaired by TENANT prior to the expiration of the term.
4.03: At LANDLORD's option, If TENANT fails to remove such furniture,
belongings, trade fixtures, and personal property, then upon thirty (30) days
advance written notice, the same shall be deemed the property of LANDLORD.
4.04: If TENANT shall remain in possession of all or any part of the Leased
Premises after the expiration of the term of this Lease, with the consent of
the LANDLORD, then the TENANT shall be a lessee from month to month at a
Lease rate one and one half times the rate immediately prior to the Lease
expiration, and subject to all of the other applicable covenants, terms and
conditions hereof.
5.01: ASSIGNMENT AND SUBLETTING: TENANT shall not assign, mortgage,
encumber, or transfer this Lease in whole or in part, or sublet the Leased
Premises or any part thereof, nor grant a license or concession in connection
therewith, without the prior written consent of LANDLORD, which consent shall
not be unreasonably withheld. Should LANDLORD allow TENANT to sublet, TENANT
shall continue to be held responsible for the terms and conditions of this
Lease. This prohibition shall include any act which has the effect of an
assignment or transfer and occurs by operation of law.
5.02: Notwithstanding anything herein to the contrary, provided the TENANT
is not in default under this Lease, TENANT may assign or sublease part or all
of the Leased Premises without LANDLORD's consent to any entity which at the
time of such assignment or sublease has a net worth of equal or greater than
the TENANT's net worth as of the date of December 31, 1997. "Net worth" as
used herein
Page 2 of 16
<PAGE>
shall mean the value of such entity's total assets less its liabilities from
its last quarterly financial statement as prepared by its accountants.
In the event of such permitted assignment or sublease without LANDLORD's
consent, LANDLORD agrees to provide a written estoppel certification in form
and substance reasonably satisfactory to the assignee or subtenants that (i)
this Lease is in full force and effect; (ii) the amount of rent such an
assignee or subtenant shall be obligated to pay hereunder; and (iii) LANDLORD
shall not disturb such assignee or subtenant's right to lease and occupy the
Leased Premises, subsequent to such assignment or subletting. Whereupon such
assignee or subtenant agrees to perform all such obligations under this
Lease, the TENANT shall thereupon be automatically fully released from the
terms of this Lease.
6.01: ALTERATION OF LEASED PREMISES: Except as provided in the Work Letter
Agreement which is attached and made a part hereof, TENANT shall not cause or
permit any alterations, additions or changes of or upon any part of the
Leased Premises without first obtaining the written consent of LANDLORD,
which shall not be unreasonably withheld.
6.02: All alterations, additions or changes to the Leased Premises shall be
made in accordance with all applicable laws and shall immediately upon
completion become the property of LANDLORD.
7.01: HAZARDOUS MATERIAL: TENANT shall not cause or permit any Hazardous
Material to be brought upon, kept or used in or about the Leased Premises by
TENANT, TENANT's agents, employees, contractors or invitees, except for such
Hazardous Material as is necessary or useful to TENANT's business. Any
Hazardous Material permitted on the Leased Premises as provided in this
Section 7, and all containers thereof, shall be used, kept, stored and
disposed of in a manner that complies with all federal, state and local laws
or regulations applicable to this Hazardous Material.
7.02: TENANT shall not discharge, leak or emit or permit to be discharged,
leaked or emitted, any material into the atmosphere, ground, sewer system or
any body of water, if that material (as is reasonably determined by the
LANDLORD, or any governmental authority does or may pollute or contaminate
the same, or may adversely affect: (a) the health, welfare or safety of
persons, whether located on the Real Estate or in the Building or elsewhere,
or (b) the condition, use or enjoyment of the Real Estate, Building or any
other real or personal property. As used in the Lease, "Hazardous Material"
means:
(i) any "hazardous waste" as defined by the Resource Conservation and
Recovery Act of 1976, as amended from time to time, and regulations
promulgated thereunder;
(ii) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended from time to time, and regulations promulgated thereunder;
(iii) and oil, petroleum products, and their by-products;
(iv) any substance that is toxic, ignitable, reactive, radioactive,
contagious and life threatening, or corrosive and that is regulated
by any local government, the State of Indiana, or the United States
Government; and
(v) all material or substance that is defined as "hazardous waste",
"extremely hazardous waste", or a "hazardous substance" pursuant to
state, federal or local governmental law,
Page 3 of 16
<PAGE>
including, but not limited to, asbestos, polychlorobiphenyls
("PCB's") and petroleum products.
7.03: TENANT hereby agrees that it shall be fully liable for all costs and
expenses related to the use, storage and disposal of Hazardous Material kept
or brought upon the Leased Premises, and the TENANT shall give immediate
notice to the LANDLORD of any violation or potential violation of the
provisions of this Section 7.
7.04: TENANT shall defend, indemnify and hold harmless LANDLORD, LANDLORD's
officers, agents and employees from and against any all claims, demands,
actions, causes of action, loss and liability resulting from or arising
from (a) the presence, disposal, release or threatened release of any
Hazardous Material, or dangerous medical waste product that is on, from or
affecting the soil, water, vegetation, buildings, personal property, persons,
animals or otherwise; (b) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to that
Hazardous Material; (c) any lawsuit brought or threatened, settlement
reached, or governmental order relating to that Hazardous Material; or (d)
any violation of the laws applicable thereto caused by the TENANT. TENANT
further warrants and represents that should TENANT or TENANT's guest,
customers or any other person leak, discharge, spill or dispose of any
hazardous substance on said property that it will assume total financial
responsibility for clean-up of said substance and further it will reimburse
LANDLORD for any damage LANDLORD might incur arising from said leak,
discharge, spill or disposal.
7.05. LANDLORD shall defend, indemnify and hold harmless TENANT, TENANT's
officers, agents and employees from and against any all claims, demands,
actions, causes of action, loss and liability resulting from or arising
from (a) the presence, disposal, release or threatened release of any
Hazardous Material, or dangerous medical waste product that is on, from or
affecting the soil, water, vegetation, buildings, personal property, persons,
animals or otherwise; (b) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to that
Hazardous Material; (c) any lawsuit brought or threatened, settlement
reached, or governmental order relating to that Hazardous Material; or (d)
any violation of the laws applicable thereto caused by the LANDLORD. LANDLORD
further warrants and represents that should LANDLORD or LANDLORD's guests,
customers or any other person leak, discharge, spill or dispose of any
hazardous substance on said property that it will assume total financial
responsibility for clean-up of said substance and further it will reimburse
TENANT for any damage TENANT might incur arising from said leak, discharge,
spill or disposal.
7.06: The provisions of this Section 7 shall be in addition to any other
obligations and liabilities TENANT or LANDLORD may have to TENANT or LANDLORD
at law or equity and shall survive the transactions contemplated herein and
shall survive the termination of the Lease.
8.01: MAINTENANCE OF LEASED PREMISES: Except as provided herein otherwise,
the interior of the rental area shall be maintained by the TENANT, including
but not limited to wall and floor coverings, painting, and regular normal
maintenance of heating, air conditioning, plumbing and doors.
8.02: Except as provided herein otherwise, the exterior of the structure
shall be maintained as follows:
Page 4 of 16
<PAGE>
(a) LANDLORD shall be responsible for the walls, door and window frames
and seals, roof, guttering and utility connections.
(b) TENANT shall be responsible for the door glass, window glass, and
all exterior lighting.
8.03: Except as provided herein otherwise, mechanical, electrical, plumbing,
heating and air conditioning units including repair and replacement within
the Leased area shall be the responsibility of the TENANT.
8.04: Except as provided herein otherwise, maintenance and repair of grounds
shall be the responsibility of the TENANT, including but not limited to,
drive ways, parking areas, landscaping, sidewalks, lawn care and snow
removal.
8.05: Except as provided herein otherwise, TENANT shall be responsible for
any maintenance or repair not mentioned in this Lease. This is a net Lease,
the intent being the rent received by the LANDLORD shall be free of any
expense in connection with the care, maintenance and operation of the Leased
Premises.
8.06: Except as provided herein otherwise, TENANT shall be responsible for
the deductible portion of expense not covered by the casualty insurance
policy should a casualty occur. The deductible portion of said policy shall
be no more than One Thousand Dollars ($1000.00).
8.07: Except as provided herein otherwise, LANDLORD shall not be liable to
TENANT or any other person, including the guests, customers, invitees, and
employees of TENANT for any damage to their person or property caused by the
failure of the TENANT to properly maintain the Leased Premises, except if the
result of the LANDLORD's negligence or intentional acts or omission.
9.01: DESTRUCTION: If the Leased Premises should be damaged or destroyed by
fire or other cause to such an extent that the cost of repair and restoration
would be more than fifty percent (50%) of the amount it would cost to replace
the Leased Premises in their entirety at the time such damage or destructing
took place, then LANDLORD shall have the right to cancel this Lease by giving
TENANT notice of such election within thirty (30) days after the occurrence
of such damage or destruction and this Lease shall terminate as of fifteen
(15) days after the date such notice is given.
9.02: If LANDLORD fails to exercise this option to terminate then LANDLORD
shall at LANDLORD's expense promptly repair and restore the Leased Premises
to substantially the same condition they were in prior to the damage or
destruction. The LANDLORD shall at LANDLORD's expense promptly repair and
restore the Leased Premises to substantially the same condition it was in
prior to the damage or destruction, commencing such within thirty (30) days
after the occurrence of such damage or destruction, and diligently finishing
the same in not greater than one hundred twenty (120) days after the deadline
for said option expires.
9.03: If the Leased Premises should be damaged by fire or other causes to
such an extent that the costs of repair and restoration would be less than
fifty percent (50%) of the amount it would cost to replace the Leased
Premises in their entirety at the time such damage or destruction took place,
then this Lease shall not terminate and the LANDLORD shall at LANDLORD's
expense promptly repair and restore the Leased Premises to substantially the
same condition it was in prior to the damage or
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destruction, commencing such within thirty (30) days after the occurrence of
such damage or destruction, and diligently finishing the same in not greater
than one hundred twenty (120) days.
9.04: In the event the Leased Premises are damaged or destroyed, the rents
herein provided, or a fair and equitable portion thereof shall be abated
until such time as the Leased Premises are repaired and restored. The term of
this Lease shall be extended for a period equal to the period during which
there has been a complete abatement of rent.
9.05: The opinion of an architect or registered engineer appointed by
LANDLORD and TENANT as to the costs or repair, restoration or replacement
shall be controlling upon the parties. LANDLORD's obligation to restore or
repair does not include fixtures or improvements installed or owned by
TENANT. The provisions of this Section are not intended to limit, modify or
release TENANT from any liability it may have for damage or destruction.
10.01: CONDEMNATION: If the whole of the Leased Premises shall be condemned
or taken either permanently or temporarily for any public or quasi-public use
or purpose, under any statute or by right of eminent domain, or by right of
private purchase in lieu thereof, then and in that event, the term of this
Lease shall cease and terminate from the date of possession of the Leased
Premises by such condemning authority. In the event a portion only of the
Leased Premises or a portion of the Building shall be so taken (even though
the Leased Premises may not have been affected by the taking of some other
portion of the Building), either party may elect to terminate this Lease from
the date of title vesting and such proceeding or purchase, or LANDLORD may
elect to repair and restore, at LANDLORD's own expense, the portion not taken
and thereafter the rent shall be reduced proportionately (ie. based on the
ratio that the square feet of the Leased Premises immediately prior to such
condemnation bears to the square feet of the Leased Premises remaining
thereafter). If twenty five percent (25%) or more of the floor area of the
Leased Premises shall be so taken, TENANT may cancel and terminate this Lease
effective as of the date possession of such portion condemned shall be taken
by such condemning authority, provided that such option to cancel is
exercised within sixty (60) days of the receipt of notice by TENANT to the
effect that such condemnation exceeds twenty five percent (25%) of the floor
area of the Leased Premises. Both TENANT and LANDLORD shall cooperate with
one another in such condemnation and shall execute all documents required to
that end.
11.01: LIENS: TENANT agrees to pay promptly for any work contracted for by
TENANT or done for TENANT's account (or material furnished therefor) in, on
or about the Leased Premises. TENANT shall not permit or suffer any lien to
attach to the Leased Premises and shall promptly cause any such lien or
Statement of Intention to Hold a Mechanic's Lien or any other claim therefor,
to be released. If a Statement of Intention to hold a Mechanic's Lien or
other claim of a mechanic's lien is filed, LANDLORD, at LANDLORD's option,
may compel the prosecution of an action for pursuit or foreclosure of such
mechanic's lien filing by the lienor.
11.02: In the event TENANT contests any such claim, TENANT agrees to
indemnify LANDLORD and, if requested by LANDLORD, to deposit or escrow with
LANDLORD cash or surety bond in form and with a company satisfactory to
LANDLORD in an amount equal the amount of such contested claim. Any escrow
of cash pursuant to this provision shall be deposited in a separate
interest-bearing escrow account with the LANDLORD's attorney and not
commingled. Interest earned shall be at the highest rate reasonably
achievable and any such interest earned shall be paid to the TENANT when the
escrow funds are returned to TENANT upon TENANT's successful discharge of
such lien. Otherwise, said interest shall be paid to the LANDLORD. If
TENANT shall fail to cause such lien forthwith to be so discharged or bonded
after being notified of the filing thereof, then this Lease shall be deemed in
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default and in addition to any other right or remedy of LANDLORD, LANDLORD
may discharge the same by paying the amount claimed to be due, and the amount
so paid by LANDLORD together with LANDLORD's attorneys' fees and interest
therein at eighteen percent (18%) per annum or the highest annual interest
rate permitted under applicable law.
11.03: Nothing in this Lease shall be deemed or construed to constitute consent
to or request to any party for the performance of any labor or services, or the
furnishing of any materials for the improvement, alteration or repairing of the
Leased Premises; nor as giving TENANT the right of authority to contract for,
authorize or permit the performance of any labor or services or the furnishings
of any material that would permit the attaching of a valid Mechanic's Lien or
other lien right.
11.04: TENANT's obligation to observe and perform any of the provisions of this
Article 10 shall survive the expiration of the term hereof or the earlier
termination of this Lease. TENANT and LANDLORD shall immediately give the other
party written notice of the recording of any lien or other claim of and against
the Leased Premises in connection with any work done by or at the direction of
either party.
12.01: EVENTS OF DEFAULT BY TENANT: Any of the following shall be deemed an
Event of Default:
(a) The failure to pay any installment of rent when the same becomes due
and the failure continues for five (5) days after written notice
thereof is given to TENANT.
(b) TENANT's failure to perform or observe any other covenant, term or
condition of this Lease to be performed or observed by TENANT, and if
curable, the failure continues for fifteen (15) days after written
notice thereof is given to TENANT.
(c) Abandonment of the Leased Premises.
(d) Any petition is filed by or against TENANT in bankruptcy and not
dismissed within thirty days after said filing thereof, or TENANT
takes advantage of any debtor relief after the filing thereof under
any present or future law, whereby the Lease payment hereunder or any
part thereof is or is imposed to be reduced or deferred, or TENANT
becomes insolvent, or a receiver is appointed for a substantial part
of TENANTS assets.
13.01: LANDLORD'S REMEDIES: Upon the occurrence of any Event of Default,
LANDLORD may, at LANDLORD's option, in addition to any other remedy or right
LANDLORD has hereunder or by law: (1) Re-enter the Leased Premises, without
demand or notice, and resume possession by an action in law or equity or by
force or otherwise, and without being liable in trespass for any damages and
without terminating this Lease. LANDLORD may remove all persons and property
from the Leased Premises and such property may be removed and stored at the cost
of TENANT. (2) Terminate this Lease at any time upon the date specified in a
notice to TENANT. TENANT's liability for damages shall survive such termination.
Upon termination, such damages recoverable by LANDLORD from TENANT shall, at
LANDLORD's option, be either an amount equal to "Liquidated Damages" or an
amount equal to "Indemnity Payments".
13.02: "Liquidated Damages" means an amount equal to the excess of the
rentals provided for in this Lease which would have been payable hereunder by
TENANT, had this Lease not so terminated, for the period commencing with such
termination and ending with the date set for the expiration of the original term
granted, (hereinafter referred to as "Unexpired Term"). Said total Liquidated
Damages are
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due and pay immediately; provided however, the LANDLORD shall retain a duty
to mitigate LANDLORD's damages and accordingly, to the extent the LANDLORD
later recovers rentals from another within said original term of this Lease,
such rental as recovered shall be refunded and promptly reimbursed to TENANT.
13.03: "Indemnity Payments" means an amount equal to the rent and other
payments provided for in this Lease which would have become due and owing
thereunder from time to time during the Unexpired Term plus the cost and
expenses paid or incurred by LANDLORD from time to time in connection with:
(a) Obtaining possession of the Leased Premises;
(b) Removal and storage of TENANT's or other occupant's property;
(c) Care, maintenance and repair of the Leased Premises while vacant;
(d) Reletting the whole or any part of the Leased Premises;
(e) Repairing, altering, renovating, partitioning, enlarging,
remodeling or otherwise putting the Leased Premises, either
separately or as part of larger Leased Premises, into condition
acceptable to, and necessary to obtain new tenants; and
(f) Making all repairs, alterations and improvements required to be
made by TENANT hereunder and performing all covenants of the
TENANT relating to the condition of the Leased Premises, less the
rent and other payments, if any, actually collected and allocable
to the Leased Premises or to the portions thereof relet by
LANDLORD. TENANT shall on demand make Indemnity Payments monthly
and LANDLORD can sue for all Indemnity Payments as they accrue;
provided however, the LANDLORD shall retain a duty to mitigate LANDLORD's
damages and accordingly, to the extent the LANDLORD later recovers rentals from
another within said original term of this Lease, such rental as recovered shall
be refunded and promptly reimbursed to TENANT.
14.01: EVENTS OF DEFAULT BY LANDLORD: Any of the following shall be deemed a
LANDLORD Event of Default:
(a) LANDLORD's failure to perform or preserve any covenant, term or
condition of this Lease to be performed or observed by the TENANT,
where such failure continues forth fifteen (15) days after written
notice thereof is give to the LANDLORD.
(b) Any petition that is filed by or against LANDLORD in bankruptcy
and is not dismissed within thirty (30) days after said filing
thereof, or LANDLORD takes advantage of any relief after the
filing thereof under any present or future law, whereby the lease
obligations, covenants, terms or condition imposed thereunder are
reduced or deferred, or LANDLORD becomes insolvent or a receiver
is appointed for a substantial part of LANDLORD's assets.
15.01: TENANT'S REMEDIES: Upon the occurrence of any LANDLORD Event of
Default, TENANT may, at TENANT's option, in addition to any other remedy or
right it has hereunder or by
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law, without being obligated and without waiving such rights, cure such
default and apply the cost of curing said default against the rent due under
this Lease or the purchase price as set forth under the option to purchase
granted herein.
16.01: ATTORNEY'S FEES: In the event of any arbitration or litigation
between the parties hereto involving this Lease or the respective rights of
the parties hereunder, the party who is unsuccessful in such arbitration or
litigation shall pay to the successful party reasonable attorney fees, court
costs and expenses of such arbitration or litigation incurred by such
successful party.
17.01: ACCESS BY LANDLORD TO LEASED PREMISES: LANDLORD, LANDLORD's Agents,
and LANDLORD's prospective tenants, purchasers or mortgages shall be
permitted to inspect and examine the Leased Premised at all reasonable times,
upon twenty-four (24) hours advance written notice, unless entry and
inspection is made necessary for the LANDLORD by an emergency, whereupon no
advance notice will be required of the LANDLORD. LANDLORD shall have the
right to make any repairs to the Leased Premises which LANDLORD may deem
necessary, but this provision shall not be construed to require LANDLORD to
make repairs except as is otherwise required hereby. For a period commencing
three (3) months prior to the expiration of the term of this Lease, LANDLORD
may maintain "For Rent/Sale" signs on the front or on any part of the Leased
Premises.
18.01: QUIET ENJOYMENT: If TENANT shall perform all of the covenants and
agreements herein provided to be performed on TENANT's part, TENANT shall, at
all times during the term, have the peaceable and quiet enjoyment of
possession of the Leased Premises without any manner of hindrance from
LANDLORD or any parties lawfully claiming under LANDLORD.
19.01: EXCULPATION: TENANT agrees that it shall look solely to the estate and
property of the LANDLORD in the Leased Premises and any tracts of land owned
by the LANDLORD in said Burkhardt Crossing Subdivision, for the collection of
any judgement requiring the payment of money by LANDLORD with respect to any
of the terms, covenants and conditions of this Lease to be observed and or
preformed by LANDLORD and no other property or assets of LANDLORD shall
become subject to levy, execution, attachment or other enforcement procedure
for the satisfaction of the remedies.
20.01: GENERAL AGREEMENT OF PARTIES: This Lease shall extend to and be
binding upon the heirs, personal representatives, successors and assigns of
the parties. This provision, however, shall not be construed to permit the
assignment of this Lease, except as may be permitted herein.
21.02: When applicable, use of the singular form of any work shall mean or
apply to the plural and the neuter form shall mean or apply to the feminine
or masculine. The captions and article numbers appearing in this Lease are
inserted only as a matter of convenience and are not intended to define,
limit, construe or describe the scope or intent of such provisions. No waiver
by TENANT or LANDLORD of any Event of Default shall be effective unless in
writing, nor operate as a waiver of any default or of the same default on a
future occasion.
22.01: NOTICES: All notices to be given under this Lease shall be in writing,
and shall be deemed to have been given and served when delivered in person,
by UPS, Federal Express (or similar overnight carrier), via facsimile
transmission, or by United States mail, postage pre-paid to the addressee at
the following addresses:
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TO LANDLORD: Attention: Robert Woodward, Jr.
Woodward, LLC.
7321 Eagle Crest Boulevard
Evansville, Indiana 47715
Facsimile Number: 812-473-0623
TO TENANT: Attention: Chief Financial Officer
Accuride Corporation
2315 Adams Lane
P. O. Box 40
Henderson, Kentucky 42419-0040
Facsimile Number: (502) 827-6814
COPY TO: Attention: G. Michael Schopmeyer, Esq.
Kahn, Dees, Donovan & Kahn, LLP
305 Fifth and Main Building
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P. O. Box 3646
Evansville, Indiana 47735-3646
Facsimile Number (812) 423-3841
Any party may change its mailing address by serving written notice of such
change and of such new address upon the other party.
23.01: UTILITIES: The payment of the utilities shall be the responsibility of
the party indicated below:
Gas and oil to Leased area shall be paid by: TENANT
Electricity to Leased area shall be paid by: TENANT
Water to Leased area shall be paid by: TENANT
24.01: TAXES AND INSURANCE: The payment of real property taxes and fire,
casualty and extended coverage property insurance, including earthquake and
"all risk" liability coverage, which LANDLORD shall secure, in the coverage
amount of Four Million Five Hundred Thousand and 00/100th Dollars
($4,500,000.00) on the property, shall be the responsibility of the TENANT.
Said coverage shall be purchased through an underwriter agree upon by the
parties and both TENANT and LANDLORD shall be listed as named or additional
insured. This insurance shall not be subject to cancellation except after at
least thirty (30) days advance written notice to both parties. LANDLORD
shall pay the tax and insurance bills and shall immediately send proof of
payment to TENANT. TENANT shall within ten days of receipt of said proof
repay LANDLORD for said expense. Payment of tax bills shall be made in a
timely fashion that gives the TENANT the benefit of any available discounts.
TENANT shall be responsible for all tax and insurance bills received during
the term of the Lease, beginning with the first bill received after TENANT's
initial occupancy of the Leased Premises. TENANT shall be responsible for
maintaining TENANT's own insurance on TENANT's property, furniture and
fixtures, and TENANT improvements made to Leased Premises. Both the TENANT
and LANDLORD shall have the right to appeal or challenge any property tax
assessment with respect to the Leased Premises. The parties hereby covenant
and agree to cooperate with the other party in the event any such appeal or
challenge of the property tax assessment is raised in an effort to reduce the
property tax assessed for the Leased Premises.
25.01: RENEWAL OF LEASE: Upon the expiration of the initial term of this
Lease or the first renewal hereof, in the event that there is not a pending a
breach of this Lease, TENANT shall have the right to renew this Lease for two
(2) additional periods of five years each. For each renewal, thereafter the
rent shall be adjusted to reflect a 15% increase in the monthly lease amount.
TENANT shall give LANDLORD written notice 180 days in advance of any Lease
expiration of TENANT's intent to renew said Lease.
25.02: TENANT's failure to provide LANDLORD written notice of intent to renew
180 days prior to Lease expiration shall relieve LANDLORD of any and all
responsibility to renew TENANT's Lease.
26.01: INDEMNITY OF LANDLORD: TENANT shall indemnify and save harmless
LANDLORD against and from (i) any and all claims against LANDLORD of whatever
nature arising from any act, omission or negligence of TENANT, TENANT's
contractors, licensees, agents, servants, employees, invitees and/or visitors,
(ii) all claims against LANDLORD arising from any accident, injury or damage
whatsoever caused to any person or to property of any person and occurring
during this Lease in, around or about the Leased Premises, arising from any act,
omission or negligence of TENANT,
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TENANT's contractors, licensees, agents, servants, employees, invitees and/or
visitors, (iii) all claims against LANDLORD arising from any accident, injury
or damage occurring outside of the Leased Premised, but within or about the
Leased Premises and Building where such accident, injury or damage results or
is caused by an act of omission of TENANT, TENANT's contractors, licensees,
agents, servants, employees, invitees and/or visitors, and (iv) any breach,
violation or non-performance of any of the terms, covenants and conditions
contained in this Lease on the part of TENANT to be fulfilled, kept, observed
and performed. This indemnity and hold harmless covenant shall include
indemnity from and against any and all liability, fines, suits, demands,
costs and expenses (including attorneys' fees and disbursements) of any kind
or nature incurred in connection with any such claim or proceeding brought
thereon, and the defense thereof by the LANDLORD including attorneys fees.
This indemnity and hold harmless covenant shall survive the termination of
this Lease for acts or omissions alleged to have occurred during the Lease
term and for any period of time prior to the commencement of the Lease term
during which TENANT was given access to the Leased Premises.
27.01: INDEMNITY OF TENANT: LANDLORD shall indemnify and save harmless TENANT
against and from (i) any and all claims against TENANT of whatever nature
arising from any act, omission or negligence of LANDLORD, LANDLORD's
contractors, licensees, agents, servants, employees, invitees and/or
visitors, (ii) all claims against TENANT arising from any accident, injury or
damage whatsoever caused to any person or to property of any person and
occurring during this Lease in, around or about the Leased Premises, arising
from any act, omission or negligence of LANDLORD, LANDLORD's contractors,
licensees, agents, servants, employees, invitees and/or visitors, (iii) all
claims against TENANT arising from any accident, injury or damage occurring
outside of the Leased Premised, but within or about the Leased Premises and
Building where such accident, injury or damage results or is caused by an act
of omission of LANDLORD, LANDLORD's contractors, licensees, agents, servants,
employees, invitees and/or visitors, and (iv) any breach, violation or
non-performance of any of the terms, covenants and conditions contained in
this Lease on the part of LANDLORD to be fulfilled, kept, observed and
performed. This indemnity and hold harmless covenant shall include indemnity
from and against any and all liability, fines, suits, demands, costs and
expenses (including attorneys' fees and disbursements) of any kind or nature
incurred in connection with any such claim or proceeding brought thereon, and
the defense thereof by the TENANT including attorneys fees. This indemnity
and hold harmless covenant shall survive the termination of this Lease for
acts or omissions alleged to have occurred during the Lease term and for any
period of time prior to the commencement of the Lease term during which
LANDLORD was given access to the Leased Premises.
28.01: LIABILITY INSURANCE: The TENANT agrees to carry public liability
insurance with a company or companies qualified to engage in the insurance
business within the State of Indiana, wherein LANDLORD and TENANT shall be
named as parties insured and shall provide that the insurer may not cancel or
materially alter the coverage without ten (10) days prior written notice to
LANDLORD.
28.02: Said public liability insurance shall cover any and all liability
occurring on the Leased Premises or upon the public ways adjoining the Leased
Premises, and the combined single limit (bodily injury and property damage)
of said insurance shall not be less than One Million Dollars ($1,000,000.00)
and such minimal amounts of insurance shall not be changed without the prior
written consent of LANDLORD. The premiums for all of the aforesaid public
liability insurance shall be paid by TENANT and TENANT shall furnish LANDLORD
with certificates of such insurance and evidence that such policies are in
full force and effect and that the premiums are fully paid throughout the
term of this Lease.
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29.01: BILLBOARD REMOVAL AND RESTRICTIVE COVENANTS: The LANDLORD agrees to
cause, before the commencement of this Lease, the removal of the two (2)
billboards located along I-164 south of Lot 4 in the Burkhardt Crossing
Subdivision, and cause restrictive covenants running with the land to be
recorded barring all current and future titleholders from the erection of any
new billboards on Lots 4 through 14. "Billboards" as used in this provision
shall have the same meaning as defined under the Vanderburgh Zoning Code.
29.02: The LANDLORD agrees to cause, to the acceptance of TENANT'S legal
counsel, before December 1, 1998, restrictive covenants or obtain a first
right of refusal running with the land to be recorded restricting the use of
Lots 7, 8, 9, 13 and 14 of said Subdivision to uses limited to the following
category of uses:
- Office buildings;
- Exercise or sports clubs; or
- Mobil three-star or three diamond or greater rated hotels.
In the event any such acceptable use of said Subdivision lots is deemed at the
TENANT'S discretion to be unappealing to the Leased Premises, LANDLORD agrees it
will cause to be planted and maintained a staggered double row of not less than
three-inch caliber white pine trees along the boundary line bordering such
offensive use.
30.01: CONSTRUCTION OF LEASED PREMISES: The LANDLORD shall, on or before
November 1, 1999, construct the Leased Premises according to the Work Letter
Agreement which is attached hereto as Exhibit "C" and made a part hereof.
Notwithstanding anything herein to the contrary, all of the improvements
constructed pursuant to said Work Agreement shall be fully warranted against
any defects for a period of two (2) years from the completion of said
construction. Notwithstanding any provision herein to the contrary, the
LANDLORD warrants that the Leased Premises meet the requirements of the
Americans With Disabilities Act for all portion of the Lease Premises,
LANDLORD has constructed throughout the term of this Lease. The LANDLORD
shall purchase and maintain throughout the term of any construction of the
Leased Premises, Builder's Risk insurance coverage with an insurance carrier
and liability limitations and deductibles acceptable to both parties.
31.01: EXPANSION OF PREMISES: The LANDLORD agrees that at the TENANT's
option, at any time during the first seven (7) years of the term of this
Lease, elect to have the Leased Premises expanded by not less than ten
thousand (10,000) square feet and not more than fifteen thousand (15,000)
square feet. Upon such election by the TENANT, the LANDLORD shall diligently
complete such expansion within eight (8) months. Such expansion shall be
performed by the LANDLORD consistent with the Work Letter Agreement and other
terms and conditions contained herein, including but not limited to the
Construction of Leased Premises clause set forth in this Lease. The other
terms and conditions of this Lease, including the per square foot rental rate
and per square foot option purchase price, shall remain the same for such
expanded premises as for the Leased Premises described in this Lease;
provided however, the term of this Lease and all renewal rights set forth
hereunder shall be extended out for a period of five (5) years from the date
of completion of such expansion.
32.01: APPLICABLE LAW: This Lease shall be interpreted and enforced
according to laws of the State of Indiana.
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33.01: OPTION TO PURCHASE: LANDLORD grants to TENANT the option to purchase
the Lease Premises upon the terms and conditions set forth in the attached
Exhibit "D" which is attached hereto and made a part hereof. The TENANT's
election to exercise this option shall be evidenced by written notice
delivered to the LANDLORD, not sooner than the ninth (9th) anniversary, but
before the tenth (10th) anniversary, of the commencement of this Lease and
prior to the expiration of this Lease Term. The TENANT's right to exercise
the Option to Purchase herein granted is conditioned upon the TENANT having
paid all rent due hereunder current through the date of exercising this
Option.
34.01: ARBITRATION: Any and all disputes arising relating to the Agreement
shall be settled by binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and any judgment
or award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. Notwithstanding said Rules, any arbitration hearing to
take place hereunder shall be conducted in Evansville, Indiana, before one
(1) arbitrator who shall be an attorney from Indianapolis, Indiana, and who
has substantial experience in real estate law issues. However, neither party
shall institute an arbitration, or any other proceeding to resolve such
disputes between the parties before that party has sought to resolve disputes
through direct negotiation with the other party. If disputes are not
resolved within three (3) weeks after a demand for direct negotiation, the
parties shall attempt to resolve disputes through mediation conducted in
Evansville, Indiana. If the parties do not agree on mediator within ten (10)
days, either party may request the American Arbitration Association to
appoint a mediator who shall be an attorney from Indianapolis, Indiana, and
who has substantial experience in real estate law issues. If the mediator is
unable to facilitate a settlement of disputes within forty-five (45) days,
the mediator shall issue a written statement to the parties to that effect
and the aggrieved party may then seek relief through arbitration as provided
above. The fees and expenses of the mediator shall be split and paid equally
by each of the parties. In the event of any arbitration between the parties
hereto involving this Agreement or the respective rights of the parties
hereunder, the party who does not prevail in such arbitration shall pay to
the prevailing party reasonable attorneys' fees, costs and expenses of such
arbitration incurred by the prevailing party. Each party hereby consents to
a single, consolidated arbitration proceeding of multiple claims, or claims
involving more than two (2) parties. Either party may apply to any court of
competent jurisdiction for injunctive relief or other interim measures in aid
of the arbitration proceedings or to enforce the arbitration award, but not
otherwise, and the non-prevailing party shall be responsible for all costs
thereof, including but not limited to attorney fees. Any such application to
a court shall not be deemed incompatible or a waiver of this section. The
arbitrator shall be required to make written findings of fact and conclusions
of law to support their award. Notwithstanding anything to the contrary in
the Commercial Arbitration Rules and supplementary procedures, the arbitrator
shall not be authorized or empowered to award punitive damages or damages in
excess of the amounts set forth within this Agreement, and the parties
expressly waive any claim to such damages.
35.01: RECORDING: The LANDLORD and TENANT hereby agree that prior to, at the
commencement of, or during the term of this Lease, at the request of the
other party, they will execute, acknowledge and deliver a Short Form Lease
and the Option to Purchase contained herein for recording in the Office of
the Recorder of Vanderburgh County, Indiana. Recording fees and any other
costs associated therein shall be paid by the party requesting such Short
Form Lease.
36.01: TITLE INSURANCE: The LANDLORD shall furnish to TENANT a Commitment
for Title Insurance from Evansville Titles Corp., Lawyers Title Insurance
Company, or Ticor Title Insurance Company, insuring the TENANT's leasehold
interest to the satisfaction of TENANT's legal counsel. To the extent there
are subrogation of mortgages or other non-disturbance agreements that must be
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procured in order to affect clean title for purposes of this Lease and the
Option to Purchase contained herein, the LANDLORD shall be responsible for
such expenses and fees attributable to assure priority and marketability of
the title thereto. The LANDLORD shall pay the portion of the title insurance
cost of the service which is equivalent to the abstract extension with TENANT
to pay the balance of the title insurance costs. Such Commitment for Title
Insurance shall be secured promptly upon execution of this Lease. Should
LANDLORD be unable to convey marketable title as required by this Lease, and
the defect or defects are not waived by TENANT, LANDLORD's sole obligation
shall be to return promptly return any sums expended by TENANT relating to
this Lease, providing however, that TENANT shall have the right to pay and
satisfy any existing liens not otherwise assumed by LANDLORD and deduct the
same from the purchase price. If the LANDLORD refuses to perform as
required, TENANT may pursue all available legal and equitable remedies to
cure such title defects, if the TENANT chooses not to terminate this Lease.
37.01: FORCE MAJEURE: This Lease and terms and conditions hereunder shall in
no way be affected, impaired or excused because either party is unable to
fulfill any of its obligations under this Lease, or to supply, or is delayed
in supplying, any service, expressly or impliedly to be supplied hereunder,
if either party is prevented or delayed from doing so by reason of strikes or
labor troubles or any outside cause or force majeure of any kind whatsoever,
including, but not limited to, governmental preemption in connection with a
national emergency, or by reason of any rule, order or regulation of any
department or subdivision of any governmental agency, or by reason of supply
and demand which have been affected or are affected war or other emergency;
provided however, rent as provided for under this Lease shall appropriately
abate during such period of delay.
37.01: MISCELLANEOUS: All time limits stated in this Lease are of the
essence of this Contract and essential to the performance hereof. In the
event that any of the provisions of this Lease shall be held by a court or
other tribunal of competent jurisdiction to be unenforceable, such provision
shall be enforced to the fullest extent permissible and the remaining portion
of this Lease shall remain in full force and effect. This Lease may be
executed simultaneously in several counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument. The recitals set forth in the above preamble are
incorporated herein by this reference and made a part of this Agreement. All
headings set forth herein are included for the convenience of reference only
and shall not affect the interpretation hereof, nor shall any weight or value
be given to the relative position of any part or provision hereof in relation
to any other provision in determining such construction. This instrument is
the final agreement, contains the entire, complete and exclusive agreement
between the parties concerning the lease of the Real Estate, and supersedes
all prior oral or written understandings, agreements or contracts, formal or
informal, between the parties. THIS PROVISION, AND EACH AND EVERY OTHER
PROVISION OF THIS LEASE MAY NOT UNDER ANY CIRCUMSTANCES BE MODIFIED, CHANGED,
AMENDED OR PROVISIONS HEREUNDER WAIVED VERBALLY, BUT MAY ONLY BE MODIFIED,
CHANGED, AMENDED OR WAIVED BY A LEASE IN WRITING EXECUTED BY ALL PARTIES
HERETO.
Page 15 of 16
<PAGE>
IN WITNESS WHEREOF, LANDLORD and TENANT have executed this Lease on this
26th day of October, 1998, and if this Lease is executed in counterparts,
each shall be deemed an original.
ACCURIDE CORPORATION WOODWARD, LLC
By: /s/ William P. Greubel By: /s/ Robert G. Woodward, Jr.
-------------------------------- -------------------------------
William P. Greubel, President Robert G. Woodward, Jr.
and Chief Executive Officer
Page 16 of 16
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
1.01: MONTHLY RENTAL AMOUNTS AND CONDITIONS PRECEDENT: . . . . . . . . . . . . .1
2.01: TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3.01: USE, COMPLIANCE WITH LAWS, SIGNS . . . . . . . . . . . . . . . . . . . . .2
4.01: SURRENDER AND HOLDOVER . . . . . . . . . . . . . . . . . . . . . . . . . .2
5.01: ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . . . . . . . . . . .2
6.01: ALTERATION OF LEASED PREMISES. . . . . . . . . . . . . . . . . . . . . . .3
7.01: HAZARDOUS MATERIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
8.01: MAINTENANCE OF LEASED PREMISES . . . . . . . . . . . . . . . . . . . . . .5
9.01: DESTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
10.01: CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
11.01: LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
12.01: EVENTS OF DEFAULT BY TENANT. . . . . . . . . . . . . . . . . . . . . . . .7
13.01: LANDLORD'S REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
14.01: EVENTS OF DEFAULT BY LANDLORD. . . . . . . . . . . . . . . . . . . . . . .9
15.01: TENANT'S REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
16.01: ATTORNEY'S FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
17.01: ACCESS BY LANDLORD TO LEASED PREMISES. . . . . . . . . . . . . . . . . . .9
18.01: QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
19.01: EXCULPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
20.01: GENERAL AGREEMENT OF PARTIES . . . . . . . . . . . . . . . . . . . . . . 10
22.01: NOTICES: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
23.01: UTILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
24.01: TAXES AND INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
25.01: RENEWAL OF LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
26.01: INDEMNITY OF LANDLORD. . . . . . . . . . . . . . . . . . . . . . . . . . 11
27.01: INDEMNITY OF TENANT. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
28.01: LIABILITY INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 12
29.01: BILLBOARD REMOVAL AND RESTRICTIVE COVENANTS. . . . . . . . . . . . . . . 12
30.01: CONSTRUCTION OF LEASED PREMISES. . . . . . . . . . . . . . . . . . . . . 13
31.01: EXPANSION OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . 13
32.01: APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
33.01: OPTION TO PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
34.01: ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
35.01: RECORDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
36.01: TITLE INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
37.01: FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
37.01: MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
EXHIBIT "A" LEGAL DESCRIPTION . . . . . . . . . . . . . . . . . . . . . . ATTACHED
EXHIBIT "B" DRAWING OF BUILDING AND SITE PLAN . . . . . . . . . . . . . . ATTACHED
EXHIBIT "C" WORK LETTER AGREEMENT . . . . . . . . . . . . . . . . . . . . ATTACHED
EXHIBIT "D" PURCHASE OPTION TERMS . . . . . . . . . . . . . . . . . . . . ATTACHED
</TABLE>
<PAGE>
LEASE
BETWEEN WOODWARD, LLC.
AND
ACCURIDE CORPORATION
OFFICE CIRCLE OF
BURKHARDT CROSSING
EVANSVILLE, INDIANA
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-68227 of Accuride Corporation on Form S-8 of our report dated February
12, 1999, appearing in this Annual Report on Form 10-K of Accuride
Corporation for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
March 26, 1999
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each officer and/or
director of Accuride Corporation whose signature appears below constitutes
and appoints William P. Greubel and John R. Murphy, or any of them, as his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign in the name of or on behalf of the undersigned, as a
director and/or officer of said corporation, the Annual Report on Form 10K of
Accuride Corporation for the year ended December 31, 1998, and any and all
amendments to such Annual Report, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission granting unto said attorney's-in-fact and agents and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney's-in-fact and agents, or any of them,
or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney this 30th day of March, 1999.
SIGNATURE TITLE DATE
/s/ William P. Greubel President and Chief Executive March 30, 1999
- ------------------------
William P. Greubel Officer (Principal Executive
Officer) and Director
/s/ John R. Murphy Vice President and Chief Financial March 30, 1999
- ------------------------
John R. Murphy Officer (Principal Financial and
Accounting Officer)
/s/ Henry R. Kravis Director March 30, 1999
- ------------------------
Henry R. Kravis
/s/ George R. Roberts Director March 30, 1999
- ------------------------
George R. Roberts
/s/ James H. Greene Director March 30, 1999
- ------------------------
James H. Greene
/s/ Todd A. Fisher Director March 30, 1999
- ------------------------
Todd A. Fisher
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ACCURIDE CORPORATION AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 3,471 7,418
<SECURITIES> 0 0
<RECEIVABLES> 53,295 38,044
<ALLOWANCES> 1,088 967
<INVENTORY> 36,980 29,107
<CURRENT-ASSETS> 109,505 91,971
<PP&E> 317,338 285,898
<DEPRECIATION> 157,512 151,901
<TOTAL-ASSETS> 404,925 347,447
<CURRENT-LIABILITIES> 56,831 57,137
<BONDS> 387,939 0
0 0
0 0
<COMMON> 24,158 178,931
<OTHER-SE> (82,524) 77,124
<TOTAL-LIABILITY-AND-EQUITY> 404,925 347,447
<SALES> 383,583 332,966
<TOTAL-REVENUES> 383,583 332,966
<CGS> 301,029 266,972
<TOTAL-COSTS> 34,034 21,316
<OTHER-EXPENSES> 2,904 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 33,084 145
<INCOME-PRETAX> 15,886 49,995
<INCOME-TAX> 7,935 22,150
<INCOME-CONTINUING> 7,951 27,837
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,951 27,837
<EPS-PRIMARY> 321 1,160
<EPS-DILUTED> 321 1,160
</TABLE>
