<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1999
REGISTRATION NO. 333-72455
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEENAH FOUNDRY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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WISCONSIN 3321 39-1580331
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
2121 BROOKS AVENUE, BOX 729,
NEENAH, WISCONSIN 54927
(920) 725-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
C/O GARY W. LACHEY
VICE PRESIDENT -- FINANCE, TREASURER AND SECRETARY
2121 BROOKS AVENUE, BOX 729,
NEENAH, WISCONSIN 54927
(920) 725-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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HARTLEY CONTROLS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
WISCONSIN 3321 39-0842568
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
NEENAH TRANSPORT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
WISCONSIN 3321 39-1378433
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
DEETER FOUNDRY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEBRASKA 3321 47-0355148
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
MERCER FORGE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 3321 25-1511711
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
A & M SPECIALTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
PENNSYLVANIA 3321 25-1741756
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ADVANCED CAST PRODUCTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 3321 25-1607691
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
BELCHER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 3321 52-1643193
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
PEERLESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
OHIO 3321 52-1644462
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<PAGE> 3
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DALTON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
INDIANA 3321 35-0259770
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
DALTON CORPORATION,
WARSAW MANUFACTURING FACILITY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
INDIANA 3321 35-2054775
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
DALTON CORPORATION,
ASHLAND MANUFACTURING FACILITY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
OHIO 3321 34-1873079
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
DALTON CORPORATION,
KENDALLVILLE MANUFACTURING FACILITY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
INDIANA 3321 35-2054777
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
STRYKER MACHINING FACILITY CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
OHIO 3321 34-1873080
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
NIEMIN PORTER & CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
CALIFORNIA 3321 33-0071223
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<PAGE> 4
PROSPECTUS
[ ], 1999
NEENAH FOUNDRY COMPANY
OFFER FOR ALL OUTSTANDING 11 1/8% SERIES E SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR 11 1/8% SERIES F SENIOR SUBORDINATED NOTES DUE 2007
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
[ ], 1999
UNLESS EXTENDED.
TERMS OF EXCHANGE NOTES
MATURITY:
May 1, 2007.
REDEMPTION:
- - We may redeem the exchange notes at any time on or after May 1, 2002.
- - Before May 1, 2000, we may be able to redeem up to 40% of the exchange notes
with the proceeds of public offerings of equity in Neenah, our parent company,
or the parent of our parent company.
MANDATORY OFFER TO REPURCHASE:
- - If we sell all or substantially all of our assets or experience specific kinds
of changes in control, we may be required to offer to repurchase the exchange
notes.
SECURITY:
- - The exchange notes and the guarantees by our guarantor subsidiaries are
unsecured.
GUARANTEES:
- - If we cannot make payments on the exchange notes when due, our guarantor
subsidiaries must make them instead.
RANKING:
- - These exchange notes and the subsidiary guarantees rank:
1. behind all of our and our guarantor subsidiaries' current and future senior
indebtedness (other than trade payables);
2. equal with all of our and our guarantor subsidiaries' other current and
future senior subordinated indebtedness; and
3. ahead of all of our and our guarantor subsidiaries' other current and
future indebtedness that expressly provides that it is not senior to these
exchange notes and the subsidiary guarantees.
INTEREST:
- - Fixed annual rate of 11 1/8%.
- - Paid every six months on May 1 and November 1.
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the exchange notes or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 1
Risk Factors.......................... 8
Use of Proceeds....................... 13
Capitalization........................ 14
Selected Consolidated Financial and
Other Data.......................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 28
Management............................ 48
Ownership of Securities............... 52
Relationships and Related
Transactions........................ 52
</TABLE>
<TABLE>
<CAPTION>
PAGE
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Description of Senior Bank
Facilities.......................... 53
Description of Notes.................. 58
Exchange Offer........................ 101
United States Federal Income Tax
Considerations...................... 109
Plan of Distribution.................. 110
Legal Matters......................... 111
Experts............................... 111
Incorporation by Reference............ 112
Available Information................. 113
Index to the Financial Statements of
Dalton Corporation.................. F-1
</TABLE>
<PAGE> 6
PROSPECTUS SUMMARY
The following summary contains basic information about this exchange offer.
It probably does not contain all the information that is important to you. For a
more complete understanding of this exchange offer, we encourage you to read
this entire document and the documents we have referred you to.
In addition, our management has estimated the market share percentages
provided in this prospectus. We believe these estimates to be reliable, but
these numbers have not been verified by an independent source.
THE OLD NOTE OFFERING
Old Notes.................. We sold the old notes to Chase Securities Inc., the
initial purchaser, on November 24, 1998. Chase
Securities Inc. subsequently resold the old notes
to qualified institutional buyers under Rule 144A
of the Securities Act of 1933.
Exchange and Registration
Rights Agreement......... We and Chase Securities Inc. entered into a
registration rights agreement on November 24, 1998.
The registration rights agreement granted Chase
Securities Inc. and any subsequent holders of the
old notes exchange and registration rights. We
intend that the exchange offer satisfy those
exchange and registration rights. The exchange and
registration rights we granted will terminate upon
the consummation of our exchange offer.
THE EXCHANGE OFFER
Securities Offered......... Up to $87,000,000 of 11 1/8% series F senior
subordinated notes due 2007. The terms of the
exchange notes and old notes are identical in all
material respects, except for transfer restrictions
and registration rights relating to the old notes.
The Exchange Offer......... We are offering to exchange the old notes for a
principal amount equal to the principal amount of
exchange notes. Old notes may be exchanged only in
integral principal multiples of $1,000.
Expiration Date; Withdrawal
of Tender................ Our exchange offer will expire 5:00 p.m. New York
City time, on [ , 1999], or such later
date and time as we may extend. You may withdraw
your tender of old notes at any time prior to the
expiration date. We will return any old notes not
accepted by us for exchange for any reason at our
expense as promptly as possible after the
expiration or termination of our exchange offer.
Conditions to the Exchange
Offer.................... Based on an interpretation by the staff of the
Securities and Exchange Commission set forth in
no-action letters issued to third parties, we
believe that you may offer for resale, resell or
otherwise transfer the exchange notes without
complying with the registration and prospectus
delivery provisions of the Securities Act of 1933,
provided that:
- such exchange notes are acquired in the
ordinary course of your business,
1
<PAGE> 7
- you do not intend to participate and have no
arrangement or understanding with any person
to participate in the distribution of such
exchange notes and
- you are not our "affiliate" within the
meaning of Rule 405 under the Securities Act
of 1933.
Our obligation to accept for exchange, or to issue
the exchange notes in exchange for, any old notes
is subject to:
- customary conditions relating to compliance
with any applicable law,
- any applicable interpretation by any staff
of the Securities and Exchange Commission,
or
- any order of any governmental agency or
court of law.
We currently expect that each of the conditions
will be satisfied and that no waivers will be
necessary. See "The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes................ Each holder of old notes wishing to accept the
exchange offer must complete, sign and date the
Letter of Transmittal, or a facsimile. The holder
must mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such
old notes and any other required documentation, to
the exchange agent at the address set forth in the
section "The Exchange Offer" under the heading
"Procedures for Tendering Old Notes."
Use of Proceeds............ We will not receive any proceeds from the exchange
of notes according to the terms of our exchange
offer.
Exchange Agent............. United States Trust Company of New York is serving
as the exchange agent in connection with our
exchange offer.
Federal Income Tax
Consequences............. The exchange of old notes in accordance with the
terms of this exchange offer should not be a
taxable event to you for federal income tax
purposes. See "United States Federal Income Tax
Considerations."
THE EXCHANGE NOTES
The terms of the exchange notes are identical to the terms of the old notes,
except that the old notes differed with respect to their transfer restrictions
and their registration rights.
Issuer........................ Neenah Foundry Company.
Total Amount of Exchange Notes
Offered..................... Up to $87.0 million in principal amount of
series F senior subordinated notes.
Maturity...................... May 1, 2007.
Interest...................... Annual rate -- 11 1/8%.
Payment frequency -- every six months on May 1
and November 1.
2
<PAGE> 8
First payment -- May 1, 1999.
Optional Redemption........... On or after May 1, 2002, we may redeem some or
all of the exchange notes and any outstanding
old notes at any time at the redemption prices
listed in the section "Description of Notes"
under the heading "Optional Redemption."
Before May 1, 2000, we may be able to redeem up
to 40% of the exchange notes and old notes with
the proceeds of public offerings of equity in
Neenah, our parent company, or the parent of
our parent company at the price listed in the
section "Description of Notes" under the
heading "Optional Redemption." If less than 60%
of exchange notes and old notes will remain
outstanding immediately after any such
redemption, we cannot consummate such
redemption.
Change of Control............. Before May 1, 2002, we may, upon the occurrence
of a change of control event, redeem the
exchange notes and any outstanding old notes at
a price listed in the section "Description of
Notes" under the heading "Change of Control."
The indenture may require us to offer to
repurchase the exchange notes and any old notes
at a price listed in the section "Description
of Notes" under the heading "Change of Control"
if:
- Prior to May 1, 2002, we do not exercise
our option upon the occurrence of a
change of control event to redeem the
notes, or
- After May 1, 2002, a change of control
event occurs.
Subsidiary Guarantees......... Each guarantor subsidiary will fully guarantee
the exchange notes on an unsecured, senior
subordinated basis. We wholly own each
guarantor subsidiary. Each guarantor subsidiary
is a principal operating subsidiary. Our future
domestic subsidiaries that incur indebtedness,
and all our future foreign subsidiaries that
guarantee the senior bank facilities, will also
guarantee the exchange notes.
If we cannot make payments on the exchange
notes when they are due, the guarantor
subsidiaries must make them instead.
The guarantor subsidiaries are also guarantors
of our senior bank facilities and are liable
with us on a senior basis for such obligations.
We pledged the capital stock of Neenah and our
guarantor subsidiaries to secure the
obligations under our senior bank facilities.
We and the guarantor subsidiaries also granted
security interests in, or liens on,
substantially all other tangible and intangible
assets of Neenah and our guarantor
subsidiaries.
3
<PAGE> 9
Ranking of the Exchange
Notes......................... These exchange notes will be, and the
subsidiary guarantees are, senior subordinated
debts, ranking:
- behind all of our and our guarantor
subsidiaries' current and future senior
indebtedness (other than trade
payables);
- equal with all of our and our guarantor
subsidiaries' other senior subordinated
indebtedness; and
- ahead of all of our and our guarantor
subsidiaries' other current and future
subordinated indebtedness.
Assuming we had completed this exchange offer
on December 31, 1998 and applied the proceeds
as intended, the exchange notes and the
subsidiary guarantees:
- would have been subordinated to $145.1
million of senior debt, excluding $4.6
million of outstanding letters of
credit;
- would have ranked equally with $195.0
million principal amount of other senior
subordinated debt; and
- would not have ranked senior to any
other debt.
Basic Covenants of the
Indenture................... We will issue the exchange notes under an
indenture with United States Trust Company of
New York, as trustee. The indenture places
limitations on our ability, and the ability of
some of our subsidiaries, to:
- borrow money or make restricted
payments,
- change the nature of the business,
- pay dividends on stock or repurchase
stock and subordinated obligations,
- enter into sale and lease back
transactions,
- make investments,
- enter into transactions with affiliates,
- use assets as security in other
transactions,
- create liens, and
- sell assets or merge with or into other
companies.
For more details, see the section "Description
of Notes" under the heading, "Covenants" and
"Merger and Consolidation."
Transfer Restrictions......... The exchange notes are new securities, and
there is currently no established market for
them. We do not intend to list the exchange
notes on any securities exchange.
4
<PAGE> 10
NEENAH FOUNDRY COMPANY
OVERVIEW
Neenah, founded in 1872, is one of the largest manufacturers of a wide
range of high quality ductile and gray iron castings for the heavy municipal
market and selected segments of the industrial market.
RECENT ACQUISITIONS
In 1998, we completed a number of acquisitions, including:
- Deeter Foundry, Inc., which manufactures gray iron castings for the heavy
municipal market;
- Mercer Forge Corporation, a leading producer of complex-shaped forged
components for use in transportation, railroad, mining and heavy
industrial applications;
- Dalton Corporation, which manufactures and sells gray iron castings for
refrigeration systems, air conditioners, heavy equipment, engines, gear
boxes, stationary transmissions, heavy duty truck transmissions and other
automotive parts;
- Advanced Cast Products, Inc., a leading independent manufacturer of
ductile and malleable iron castings; and
- Niemin Porter & Co., a manufacturer of investment-cast titanium and
stainless steel golf club heads.
For more information about Neenah and each of these recent acquisitions,
see the section entitled "Business."
THROUGHOUT THIS PROSPECTUS, WE REFER TO THE ACQUISITIONS DESCRIBED ABOVE AS
THE "RECENT ACQUISITIONS" AND TO THE SUBSIDIARIES AS THE "RECENTLY ACQUIRED
SUBSIDIARIES." WE REFER TO THE FACILITIES AVAILABLE UNDER OUR EXISTING AMENDED
AND RESTATED CREDIT AGREEMENT AS THE "SENIOR BANK FACILITIES." SEE "DESCRIPTION
OF THE SENIOR BANK FACILITIES."
The address for our company and each of the guarantor subsidiaries is 2121
Brooks Avenue, Box 729, Neenah, Wisconsin 54927 and the telephone number is
(920) 725-7000.
RISK FACTORS
Holders of old notes should carefully consider all of the information set
forth in this prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF FACTORS THAT YOU
SHOULD CONSIDER IN CONNECTION WITH YOUR INVESTMENT IN THE EXCHANGE NOTES.
5
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth summary consolidated financial and other
data of:
(1) Neenah Corporation, Neenah's predecessor company, as of March 31, 1994,
1995, 1996 and 1997 and April 30, 1997 and for each of the years ended
March 31, 1994, 1995, 1996 and 1997 and the one month period ended
April 30, 1997, which have been derived from Neenah Corporation's
consolidated financial statements which have been audited by Ernst &
Young LLP, other than the consolidated balance sheets as of March 31,
1994 and April 30, 1997, which were audited by another independent
auditor,
(2) Neenah as of September 30, 1997 and 1998 and for the five months ended
September 30, 1997 and for the year ended September 30, 1998, which
have been derived from Neenah's consolidated financial statements which
have been audited by Ernst & Young LLP and
(3) Neenah as of December 31, 1997 and 1998 and for the three months ended
December 31, 1997 and 1998 which have been derived from Neenah's
unaudited interim condensed consolidated financial statements and
include, in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of the
results of operations and financial position for and as of the end of
such period. Results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year
or any other future period.
We have included information concerning earnings before interest, taxes,
depreciation and amortization ("EBITDA") because we believe that EBITDA is
generally accepted as providing useful information regarding a company's ability
to service and/or incur debt. EBITDA should not be considered in isolation or as
a substitute for net income, cash flows or other income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity. We understand that, while
EBITDA is frequently used by securities analysts in the evaluation of companies,
EBITDA, as used in this prospectus, is not necessarily comparable to other
similarly titled captions of other companies due to potential inconsistencies in
the method of calculation. EBITDA is not intended as an alternative to cash flow
from operating activities as a measure of liquidity, an alternative to net
income as an indicator of our operating performance or an alternative to any
other measure of performance in conformity with generally accepted accounting
principles.
The summary financial and other data should be read in conjunction with
"Capitalization," "Selected Consolidated Financial and Other Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus and the consolidated financial
statements and related notes of Neenah incorporated in this prospectus by
reference.
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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------------------------- FIVE MONTHS YEAR
FISCAL YEAR ENDED MARCH 31, ONE MONTH ENDED ENDED
----------------------------------------- ENDED SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1997 APRIL 30, 1997 1997(3) 1998
-------- -------- -------- -------- ----------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............... $131,982 $160,621 $166,951 $165,426 $ 17,276 $108,353 $ 303,414
Gross profit............ 25,451 39,640 45,320 48,690 5,925 30,909 80,963
Operating income........ 11,837 22,967 28,337 31,143 4,173 18,357 50,006
Interest expense
(income), net......... 1,043 397 (481) (1,162) (121) 9,991 27,203
Net income (loss)....... 6,581 13,704 17,142 19,838 2,679 2,736 11,489
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash and cash
equivalents........... $ 118 $ 238 $ 10,126 $ 22,403 $ 29,043 $ 20,346 $ 19,798
Working capital(1)...... 14,596 15,174 18,094 21,438 21,124 23,175 62,573
Total assets............ 74,327 73,813 82,957 93,869 103,402 358,406 584,309
Total debt.............. 13,325 887 241 134 128 218,413 371,871
Total stockholders'
equity................ 37,929 43,198 54,790 68,857 74,883 47,407 67,922
OTHER DATA:
EBITDA.................. $ 18,577 $ 29,809 $ 35,113 $ 38,024 $ 4,691 $ 26,056 $ 69,660
Depreciation and
amortization.......... 6,740 6,842 6,776 6,881 518 7,699 19,654
Capital expenditures.... 4,583 3,665 7,275 4,546 190 3,081 13,117
Net cash provided by
(used in):
Operating
activities.......... 18,301 23,581 22,273 23,479 3,917 25,160 24,236
Investing
activities.......... (4,949) (3,412) (7,299) (3,104) (191) (14,702) (182,168)
Financing
activities.......... (13,313) (20,049) (5,086) (8,098) 2,917 (1,656) 157,384
Cash interest
expense(2)............ 1,049 624 84 39 1 10,016 27,383
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............... $ 57,988 $115,264
Gross profit............ 15,275 21,772
Operating income........ 8,965 10,097
Interest expense
(income), net......... 5,840 9,907
Net income (loss)....... 1,616 (359)
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash and cash
equivalents........... $ 21,994 $ 34,683
Working capital(1)...... 26,782 75,001
Total assets............ 348,511 638,608
Total debt.............. 212,389 432,271
Total stockholders'
equity................ 55,770 67,563
OTHER DATA:
EBITDA.................. $ 12,766 $ 18,923
Depreciation and
amortization.......... 3,801 8,826
Capital expenditures.... 1,612 6,856
Net cash provided by
(used in):
Operating
activities.......... 2,473 6,780
Investing
activities.......... (1,612) (49,340)
Financing
activities.......... 787 57,445
Cash interest
expense(2)............ 6,047 10,172
</TABLE>
- ---------------
(1) Working capital represents total current assets (excluding cash and cash
equivalents) less total current liabilities (excluding the revolving credit
facility and the current portion of long-term debt).
(2) Cash interest expense is defined as interest expense less amortization of
debt issuance cost plus amortization of premium on senior subordinated notes
issued July 1, 1997 and November 24, 1998.
(3) Neenah changed its fiscal year end to September 30 from March 31 effective
September 30, 1997.
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<PAGE> 13
RISK FACTORS
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD HAVE A SIGNIFICANT
NEGATIVE EFFECT THE FINANCIAL HEALTH OF OUR COMPANY AND PREVENT US FROM
FULFILLING OUR OBLIGATIONS UNDER THESE EXCHANGE NOTES. We currently have and,
after the offering, will continue to have a significant amount of indebtedness,
including any indebtedness we incur to complete future acquisitions. The
following chart presents our total indebtedness and our indebtedness senior to
the exchange notes as of December 31, 1998 and our ratio of earnings to fixed
charges for the year ended September 30, 1998 and the three months ended
December 31, 1998:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
--------------------
<S> <C>
Total indebtedness (excluding $4.6 million of
outstanding letters of credit).................. $432.3 million
Indebtedness senior to the exchange notes
(excluding $4.6 million of outstanding letters
of credit)...................................... $145.1 million
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1998
------------------ --------------------------
<S> <C> <C>
Ratio of earnings to fixed charges...... 1.8x 1.0x
</TABLE>
Our substantial indebtedness, including any additional future indebtedness,
could have important consequences to you. For example, it could:
- make it more difficult to pay our debts as they become due during
general adverse economic and industry conditions;
- require a substantial portion of our cash flow from operations for debt
payments, thereby reducing the availability of our cash flow to fund
working capital, capital expenditures, research and development efforts,
acquisitions and other general corporate purposes;
- limit our ability to borrow additional funds.
ABILITY TO SERVICE DEBT -- WE MAY NOT HAVE SUFFICIENT CASH FROM CASH FLOW FROM
OPERATIONS, AVAILABLE CASH AND AVAILABLE BORROWINGS UNDER OUR SENIOR BANK
FACILITIES TO SERVICE OUR INDEBTEDNESS, WHICH WILL REQUIRE A SIGNIFICANT AMOUNT
OF CASH. Our ability to make payments on and to refinance our indebtedness,
including these exchange notes, and to fund planned capital expenditures,
research and development efforts and future acquisitions will depend on our
ability to generate cash in the future, as well as general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control. We cannot assure you that our business will generate sufficient cash
flow from operations or that future borrowings will be available to us under our
senior bank facilities in an amount sufficient to enable us to pay our
indebtedness, including these exchange notes, or to fund our other liquidity
needs. In addition, we may need to refinance all or a portion of our
indebtedness, including these exchange notes on or before maturity. We might not
be able to refinance any of our indebtedness, including our senior bank
facilities and these exchange notes, on commercially reasonable terms or at all.
SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS ON THESE EXCHANGE NOTES IS
JUNIOR TO ALL OF OUR EXISTING AND FUTURE SENIOR INDEBTEDNESS AND POSSIBLY ALL OF
OUR FUTURE BORROWINGS. FURTHER, THE GUARANTEES OF THESE EXCHANGE NOTES ARE
JUNIOR TO ALL OUR GUARANTOR SUBSIDIARIES' EXISTING AND FUTURE SENIOR
INDEBTEDNESS AND POSSIBLY TO ALL THEIR FUTURE BORROWINGS. These exchange notes
and the subsidiary guarantees rank behind all of our and our guarantor
subsidiaries' existing and future senior indebtedness and all of our and their
future borrowings, except any future indebtedness that expressly provides that
it ranks equal with, or subordinated in right of payment to, the exchange notes
and the guarantees. As a result, upon any distribution to our creditors or the
creditors of our guarantor subsidiaries in a bankruptcy or similar proceeding
relating to us or our guarantor subsidiaries, the holders of senior indebtedness
of our company and our guarantor
8
<PAGE> 14
subsidiaries will be entitled to be paid in full in cash before any payment may
be made with respect to these exchange notes or the subsidiary guarantees.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to Neenah or our guarantor subsidiaries, holders of the
exchange notes will participate with all other holders of subordinated
indebtedness of Neenah and our guarantor subsidiaries in the assets remaining
after we and our guarantor subsidiaries have paid all of the senior debt.
Because our senior debt must be paid first, you may receive less than holders of
senior debt in any such proceeding. In any of these cases, we and our guarantor
subsidiaries may not have sufficient funds to pay all of our creditors,
therefore, holders of exchange notes may receive ratably less than the holders
of senior debt.
RESTRICTIONS IMPOSED BY THE SENIOR BANK FACILITIES AND THE INDENTURE -- WE ARE
SUBJECT TO RESTRICTIVE COVENANTS CONTAINED IN OUR SENIOR BANK FACILITIES AND IN
THE INDENTURE WHICH PLACE RESTRICTIONS ON HOW WE CAN OPERATE OUR BUSINESS.
FAILURE TO COMPLY WITH ANY OF THE RESTRICTIONS COULD RESULT IN ACCELERATION OF
OUR DEBT. SEE "DESCRIPTION OF SENIOR BANK FACILITIES" AND "DESCRIPTION OF
NOTES -- COVENANTS."
INTEGRATION OF THE RECENT ACQUISITIONS -- WE MAY NOT HAVE SUFFICIENT MANAGEMENT,
FINANCIAL AND OTHER RESOURCES TO INTEGRATE AND CONSOLIDATE THE RECENTLY ACQUIRED
SUBSIDIARIES AND ANY FUTURE ACQUISITIONS, AND WE MAY BE UNABLE TO OPERATE
PROFITABLY OUR CONSOLIDATED COMPANY. The recently acquired subsidiaries
constitute our first significant acquisitions. We cannot provide any assurance
that our financial, management and other resources will be adequate to
accomplish any integration of the recently acquired subsidiaries. In addition,
the increased size of our consolidated company following our recent acquisitions
may pose different and greater operational challenges than we have experienced
in the past. We cannot provide any assurance that the recently acquired
subsidiaries will enhance our competitive position and the business prospects of
our consolidated company, that the combination of Neenah and the recently
acquired subsidiaries will be successful, or that management will be able to
profitably operate our consolidated company following any integration.
We engage in evaluations of potential acquisitions and are in various
stages of discussion regarding possible acquisitions. Currently, there are no
definitive agreements or letters of intent with respect to any material
acquisition. Any such future acquisitions may result in significant transaction
expenses and risks associated with entering new markets in addition to the
integration and consolidation risks described above. We may not have sufficient
management, financial and other resources to integrate any such future
acquisitions and we may be unable to profitably operate our consolidated
company.
DEPENDENCE ON KEY PERSONNEL -- LOSS OF KEY PERSONNEL, INCLUDING OUR CHAIRMAN AND
CHIEF EXECUTIVE OFFICER JAMES K. HILDEBRAND, AND/OR OUR FAILURE TO IDENTIFY AND
RECRUIT HIGHLY QUALIFIED PERSONNEL COULD MAKE IT MORE DIFFICULT FOR US TO
GENERATE CASH FLOW FROM OPERATIONS AND SERVICE OUR INDEBTEDNESS. Our ability to
maintain our competitive position in the future depends upon our success in
maintaining certain key senior management, including our Chairman and Chief
Executive Officer, James K. Hildebrand, and attracting and retaining other
highly qualified managerial and manufacturing personnel. Loss of key personnel,
including our Chairman and Chief Executive Officer James K. Hildebrand, and/or
our failure to identify and recruit highly qualified personnel could have a
significant negative affect on our profitability and ability to successfully
compete in our industry.
CONCENTRATION OF CUSTOMERS -- A REDUCTION OR TERMINATION OF PURCHASES BY ANY OF
OUR TOP THREE CUSTOMERS, WHICH ACCOUNT FOR A SIGNIFICANT AMOUNT OF OUR NET
SALES, COULD SIGNIFICANTLY REDUCE OUR
9
<PAGE> 15
ABILITY TO GENERATE SUFFICIENT CASH FLOW TO PAY INTEREST ON THE EXCHANGE NOTES
WHEN DUE. The customer base of Neenah is concentrated. Specifically,
- Sales to our largest customer, Dana Corporation, accounted for 10% of
total net sales for the fiscal year ended September 30, 1998; and
- Sales to our top three customers accounted for approximately 27% of net
sales for the fiscal year ended September 30, 1998.
FINANCING CHANGE OF CONTROL OFFER -- WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE REPURCHASE OPTION CONTAINED IN THE
INDENTURE. Upon the occurrence of specific kinds of change of control events
described in the section entitled "Description of Notes -- Change of Control,"
you will have the right to require us to repurchase all or a portion of your
exchange notes. However, it is possible that we will not have sufficient funds
at the time of the change of control event to make the repurchases or that
restrictions in our senior bank facilities will not allow us to make such
repurchases.
DEPENDENCE ON INDUSTRY/CYCLICALITY -- IF THE MARKETS IN WHICH OUR CUSTOMERS
OPERATE EXPERIENCE DOWNTURNS, THEN DEMAND FOR, AND PRICES OF, OUR PRODUCTS COULD
BE REDUCED. Our company has historically experienced moderate cyclicality in
the heavy municipal and farm equipment markets. We cannot assure you that the
truck and farm equipment markets will not continue to experience fluctuations. A
downturn in these markets could reduce demand for, and prices of, our products.
Such a significant downturn in either of these markets could have a significant
negative impact on our profitability, cash flow and ability to service our
indebtedness.
COMPETITION -- THERE CAN BE NO ASSURANCE THAT WE CAN COMPETE SUCCESSFULLY IN THE
MARKETS WE TARGET, WHICH ARE HIGHLY COMPETITIVE. A LOSS OF MARKET SHARE COULD
MAKE IT DIFFICULT FOR US TO GENERATE SUFFICIENT CASH FLOW TO SERVICE OUR
INDEBTEDNESS. The markets for Neenah's, Dalton's, Advanced Cast Products,
Inc.'s, Mercer's and Deeter's products are highly competitive. We cannot assure
you that Neenah, Dalton, Advanced Cast Products, Inc., Mercer or Deeter will be
able to maintain or improve their competitive positions in the markets in which
they compete.
CONTROLLING SHAREHOLDERS -- THE INTERESTS OF OUR CONTROLLING SHAREHOLDERS MAY BE
IN CONFLICT WITH YOUR INTERESTS AS A HOLDER OF EXCHANGE NOTES. THIS COULD RESULT
IN CORPORATE DECISION MAKING THAT INVOLVES DISPROPORTIONATE RISKS TO THE HOLDERS
OF THE EXCHANGE NOTES, INCLUDING OUR ABILITY TO SERVICE OUR INDEBTEDNESS OR PAY
THE PRINCIPAL AMOUNT OF OUR INDEBTEDNESS WHEN DUE. Citicorp Venture Capital,
Ltd. and other investors beneficially own approximately 90% of our common stock.
Citicorp Venture Capital, Ltd., members of our senior management and members of
the senior management of our recently acquired subsidiaries have the ability to
elect the entire board of directors and generally to control our affairs and
policies. Circumstances may occur in which the interests of Citicorp Venture
Capital, Ltd. and these other investors, as shareholders of Neenah, could be in
conflict with the interests of the holders of the exchange notes. In addition,
Citicorp Venture Capital, Ltd. and these other investors may have an interest in
pursuing acquisitions, divestitures or other transactions that could enhance
their equity investment, even though these transactions might involve
disproportionate risks to the holders of the exchange notes.
YEAR 2000 ISSUE -- IF WE, OR THIRD PARTIES WITH WHICH WE DO BUSINESS, FAIL TO
COMPLY WITH YEAR 2000 REMEDIATION REQUIREMENTS, NEENAH COULD HAVE OPERATIONAL
DIFFICULTIES THAT COULD INCREASE OUR COSTS OF DOING BUSINESS, DECREASE OUR CASH
FLOWS FROM OPERATIONS AND MAKE IT MORE DIFFICULT FOR US TO SERVICE OUR
INDEBTEDNESS. The "Year 2000 Issue" refers generally to the problems that some
10
<PAGE> 16
software may have in determining the correct century for the year. For example,
software with date-sensitive functions that is not year 2000 compliant may not
be able to distinguish whether "00" means 1900 or 2000, which may result in
failures or the creation of erroneous results. Currently, many computer \systems
and software products are coded to accept only two-digit entries in the date
code field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. If we, or third parties with
which we do business, fail to comply with year 2000 requirements, Neenah could
have operational difficulties that could increase our costs of doing business
and decrease our cash flows from operations.
FRAUDULENT CONVEYANCE MATTERS -- FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER
SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES, SUBORDINATE CLAIMS IN RESPECT OF THE
NOTES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM
GUARANTORS. Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, the guarantees of our guarantor subsidiaries could be
voided, claims in respect of the exchange notes or the subsidiary guarantees
could be subordinated to all of our other debts or all other debts of our
guarantor subsidiaries or any payment by us or a guarantor subsidiary could be
voided and required to be returned if, generally speaking
- we incurred such indebtedness with the intent of defrauding
then-existing or future creditors; or
- we or any guarantor subsidiary received less than fair consideration for
incurring such indebtedness and, at the time, we or such guarantor
subsidiary were insolvent, had unreasonably small capital or intended to
incur debts beyond our ability to pay as they mature.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor subsidiary
would be considered insolvent if:
- the sum of its debts was greater than the fair value of its assets; or
- the present fair value of its assets was less than the amount that would
be required to pay its probable liability on its existing debts as they
became mature; or
- it could not pay its debts as they became due.
We cannot assure you what standard a court would apply in making such
determinations or that a court would agree with our conclusions as to the
legality of the subsidiary guarantees.
ENVIRONMENTAL MATTERS -- RISK OF ENVIRONMENTAL LIABILITY IS INHERENT IN THE
NATURE OF OUR BUSINESS AND WE MAY INCUR SIGNIFICANT COSTS TO COMPLY WITH MORE
STRINGENT ENVIRONMENTAL POLICIES. Our facilities are subject to numerous
federal, state and local laws and regulations relating to pollution and the
protection of the environment and worker health and safety, including:
- those relating to discharges to air, water and land;
- the handling and disposal of solid and hazardous waste;
- the operation of landfills; and
- the cleanup of properties affected by hazardous substances.
Risk of environmental liability is inherent in the manufacturing of casting and
forging products. Changes in environmental laws and regulations or the discovery
of previously unknown contamination or other liabilities relating to our
properties and operations could require us to sustain significant environmental
liabilities which could make it difficult to pay the interest or principal
amount of these exchange notes when due. In addition, we might incur significant
capital and other costs to comply
11
<PAGE> 17
with increasingly stringent air emission control laws and enforcement policies
which would decrease our cash flow available to service our indebtedness.
NO PRIOR MARKET FOR EXCHANGE NOTES -- YOU CANNOT BE SURE THAT AN ACTIVE TRADING
MARKET WILL DEVELOP FOR THESE EXCHANGE NOTES WHICH COULD LIMIT THE LIQUIDITY OF
YOUR EXCHANGE NOTES. Prior to this offering, there was no public market for
these exchange notes. We have been informed by the underwriter that it intends
to make a market in these exchange notes after this offering is completed.
However, the underwriter may cease its market-making at any time. In addition,
the liquidity of the trading market in these exchange notes, and the market
price quoted for these exchange notes, may be decreased by changes in the
overall market for high yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry
generally.
------------------------
This prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, in particular, the statements about Neenah's
plans, strategies, and prospects under the headings "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business." Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, we cannot assure you that we will achieve the plans, intentions or
expectations. Important factors that could cause actual results to differ
materially from the forward-looking statements we make in this prospectus are
set forth below and elsewhere in this prospectus. All forward-looking statements
attributable to Neenah or persons acting on our behalf are expressly qualified
in their entirety by the cautionary statements contained in this "Risk Factors"
section. As used in this "Risk Factors" section, unless the context otherwise
requires, the terms "Neenah," "we," "our," "ours," and "us" refer to Neenah
Foundry Company and all of its subsidiaries, including its recently acquired
subsidiaries.
12
<PAGE> 18
USE OF PROCEEDS
Neenah will not receive any proceeds from this exchange offer.
13
<PAGE> 19
CAPITALIZATION
The following table sets forth as of September 30, 1998:
(1) the consolidated historical capitalization of Neenah, and
(2) the unaudited consolidated pro forma capitalization
of Neenah after giving effect to the issuance of the old notes and the
application of the proceeds from the issuance of the old notes were consummated
on such date. This table should be read in conjunction with the "Selected
Consolidated Financial and Other Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," included elsewhere in this
prospectus and the consolidated financial statements and related notes of Neenah
incorporated in this prospectus by reference.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
ACTUAL PRO FORMA
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 34,683 $ 34,683
======== ========
Debt:
Term Loan Facilities(1)...................................
Tranche A Loans........................................ $ 19,250 $ 19,250
Tranche B Loans........................................ 124,628 124,628
Revolving Credit Facility(2).............................. -- --
Acquisition Loan Facility(3).............................. -- --
11 1/8% Series B Senior Subordinated Notes due 2007....... 150,000 150,000
11 1/8% Series D Senior Subordinated Notes due 2007,
including unamortized premium of $2,193 million........ 47,193 47,193
11 1/8% Series E Senior Subordinated Notes due 2007,
including unamortized premium of $2,985 million........ 89,985 --
11 1/8% Series F Senior Subordinated Notes due 2007,
including unamortized premium of $2,985 million........ -- 89,985
Other..................................................... 1,215 1,215
-------- --------
Total debt........................................ 432,271 432,271
Stockholders' equity:
Common stock.............................................. 100 100
Additional paid-in capital................................ 55,167 55,167
Retained earnings......................................... 13,866 13,866
Pension liability adjustment.............................. (1,570) (1,570)
-------- --------
Total stockholders' equity........................ 67,563 67,563
-------- --------
Total capitalization.............................. $499,834 $499,834
======== ========
</TABLE>
- ---------------
(1) The term loan facilities consist of:
(A) a tranche A loan facility in an aggregate principal amount of $19.25
million with a final maturity of September 30, 2003 and
(B) a tranche B loan facility in an aggregate principal amount of $124.6
million with a final maturity of September 30, 2005.
(2) Total borrowings of up to $50.0 million are available under the revolving
credit facility for working capital purposes and to fund certain permitted
acquisitions. The revolving credit facility includes a $15 million sub-limit
for letters of credit, of which $4.6 million were outstanding as of December
31, 1998.
(3) Total borrowings of up to $50.0 million are available under the acquisition
loan facility to finance permitted acquisitions.
14
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth selected consolidated financial and other
data of:
(1) Neenah Corporation, Neenah's predecessor company, as of March 31, 1994,
1995, 1996, and 1997 and April 30, 1997 and for each of the years ended
March 31, 1994, 1995, 1996 and 1997 and the one month period ended
April 30, 1997, which have been derived from Neenah Corporation's
consolidated financial statements which have been audited by Ernst &
Young LLP, other than the consolidated balance sheet as of March 31,
1994 and April 30, 1997, which were audited by another independent
auditor,
(2) Neenah as of September 30, 1997 and 1998 and for the five months ended
September 30, 1997 and for the year ended September 30, 1998, which
have been derived from Neenah's consolidated financial statements which
have been audited by Ernst & Young LLP and
(3) Neenah as of December 31, 1997 and 1998 and for the three months ended
December 31, 1997 and 1998, which have been derived from Neenah's
unaudited interim condensed consolidated financial statements and
include, in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of the
results of operations and financial position for and as of the end of
such period. Results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year
or any other future period.
EBITDA represents operating income plus depreciation and amortization. We
have included information concerning earnings before interest, taxes,
depreciation and amortization ("EBITDA") because we believe that EBITDA is
generally accepted as providing useful information regarding a company's ability
to service and/or incur debt. EBITDA should not be considered in isolation or as
a substitute for net income, cash flows or other income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity. We understand that, while
EBITDA is frequently used by securities analysts in the evaluation of companies,
EBITDA, as used in this prospectus, is not necessarily comparable to other
similarly titled captions of other companies due to potential inconsistencies in
the method of calculation. EBITDA is not intended as an alternative to cash flow
from operating activities as a measure of liquidity, an alternative to net
income as an indicator of our operating performance or an alternative to any
other measure of performance in conformity with generally accepted accounting
principles.
15
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------------------------------- FIVE MONTHS YEAR
FISCAL YEAR ENDED MARCH 31, ONE MONTH ENDED ENDED
----------------------------------------- ENDED SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1997 APRIL 30, 1997 1997(5) 1998
-------- -------- -------- -------- -------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................. $131,982 $160,621 $166,951 $165,426 $17,276 $108,353 $303,414
Cost of sales.............. 106,531 120,981 121,631 116,736 11,351 77,444 222,451
-------- -------- -------- -------- ------- -------- --------
Gross profit............... 25,451 39,640 45,320 48,690 5,925 30,909 80,963
Selling, general and
administrative
expenses................. 13,614 16,673 16,983 17,547 1,752 8,652 23,230
Amortization expense....... -- -- -- -- -- 3,900 7,727
-------- -------- -------- -------- ------- -------- --------
Operating income........... 11,837 22,967 28,337 31,143 4,173 18,357 50,006
Interest expense (income),
net...................... 1,043 397 (481) (1,162) (121) 9,991 27,203
-------- -------- -------- -------- ------- -------- --------
Income before income taxes
and extraordinary item... 10,794 22,570 28,818 32,305 4,294 8,366 22,803
Provision for income
taxes.................... 4,213 8,866 11,676 12,467 1,615 4,000 10,922
-------- -------- -------- -------- ------- -------- --------
Income (loss) before
extraordinary item....... 6,581 13,704 17,142 19,838 2,679 4,366 11,881
Extraordinary charge, net
of income tax
benefit(1)............... -- -- -- -- -- 1,630 392
-------- -------- -------- -------- ------- -------- --------
Net income (loss).......... $ 6,581 $ 13,704 $ 17,142 $ 19,838 $ 2,679 $ 2,736 $ 11,489
======== ======== ======== ======== ======= ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash
equivalents.............. $ 118 $ 238 $ 10,126 $ 22,403 $29,043 $ 20,346 $ 19,798
Working capital(2)......... 14,596 15,174 18,094 21,438 21,124 23,175 62,573
Total assets............... 74,327 73,813 82,957 93,869 103,402 358,406 584,309
Total debt................. 13,325 887 241 134 128 218,413 371,871
Total stockholders'
equity................... 37,929 43,198 54,790 68,857 74,883 47,407 67,922
OTHER DATA:
EBITDA..................... $ 18,577 $ 29,809 $ 35,113 $ 38,024 $ 4,691 $ 26,056 $ 69,660
Depreciation and
amortization............. 6,740 6,842 6,776 6,881 518 7,699 19,654
Capital expenditures....... 4,583 3,665 7,275 4,546 190 3,081 13,117
Net cash provided by (used
in):
Operating activities..... 18,301 23,581 22,273 23,479 3,917 25,160 24,236
Investing activities..... (4,949) (3,412) (7,299) (3,104) (191) (14,702) (182,168)
Financing activities..... (13,313) (20,049) (5,086) (8,098) 2,917 (1,656) 157,384
Cash interest expense(3)... 1,049 624 84 39 1 10,016 27,383
Ratio of earnings to fixed
charges(4)............... 9.5x 25.9x 70.3x 81.4x 2.5x 1.8x 1.8x
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------- ------------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................. $ 57,988 $115,264
Cost of sales.............. 42,713 93,492
-------- --------
Gross profit............... 15,275 21,772
Selling, general and
administrative
expenses................. 4,898 8,260
Amortization expense....... 1,412 3,415
-------- --------
Operating income........... 8,965 10,097
Interest expense (income),
net...................... 5,840 9,907
-------- --------
Income before income taxes
and extraordinary item... 3,125 190
Provision for income
taxes.................... 1,509 549
-------- --------
Income (loss) before
extraordinary item....... 1,616 (359)
Extraordinary charge, net
of income tax
benefit(1)............... -- --
-------- --------
Net income (loss).......... $ 1,616 $ (359)
======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash
equivalents.............. $ 21,994 $ 34,683
Working capital(2)......... 26,782 75,001
Total assets............... 348,511 638,608
Total debt................. 212,389 432,271
Total stockholders'
equity................... 55,770 67,563
OTHER DATA:
EBITDA..................... $ 12,766 $ 18,923
Depreciation and
amortization............. 3,801 8,826
Capital expenditures....... 1,612 6,856
Net cash provided by (used
in):
Operating activities..... 2,473 6,780
Investing activities..... (1,612) (49,340)
Financing activities..... 787 57,445
Cash interest expense(3)... 6,047 10,172
Ratio of earnings to fixed
charges(4)............... 1.5x 1.0x
</TABLE>
- ------------------------------------
See accompanying Notes to Selected Consolidated Financial and Other Data.
16
<PAGE> 22
NOTES TO SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(1) In connection with the prepayment of long-term debt in July 1997 and
September 1998, we recorded an extraordinary charge to write off the
unamortized balances of the related deferred financing costs.
(2) Working capital represents total current assets (excluding cash and cash
equivalents) less total current liabilities (excluding the revolving credit
facility and the current portion of long-term debt).
(3) Cash interest expense is defined as interest expense less amortization of
debt issuance costs plus amortization of premium on the senior subordinated
notes issued July 1, 1997 and November 24, 1998.
(4) For purposes of the computation, the ratio of earnings to fixed charges has
been calculated by dividing
- income before income taxes and extraordinary item plus fixed charges by
- fixed charges.
Fixed charges are equal to interest expense plus the portion of the rent
expense estimated to represent interest.
(5) Neenah changed its fiscal year end to September 30 from March 31 effective
September 30, 1997.
17
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations covers periods before consummation of our corporate reorganization on
April 30, 1997, the recent acquisitions discussed below and the offering of the
old notes. You should read the following information in conjunction with
"Selected Consolidated Financial and Other Data" and the consolidated financial
statements, in each case together with the notes attached to the statements,
incorporated by reference in this prospectus.
GENERAL
On April 30, 1997, under an Agreement and Plan of Reorganization with NC
Merger Company and NFC Castings, Inc., NFC Castings acquired Neenah Corporation,
Neenah's predecessor company. NC Merger merged with and into the predecessor
company to consummate the merger. Prior to July 1, 1997, Neenah was one of three
wholly owned subsidiaries of Neenah Corporation, a holding company with no
significant assets or operations other than its holdings in the common stock of
its three wholly owned subsidiaries. On July 1, 1997, Neenah merged with and
into Neenah Corporation. The surviving company changed its name to Neenah
Foundry Company.
The following discussion and analysis of Neenah's financial condition and
results of operations addresses periods both before and after the merger on
April 30, 1997. The merger has had a significant impact on Neenah's results of
operations and financial condition. The merger resulted in goodwill and
identifiable intangible assets totaling $148.8 million. These amounts are being
amortized over their estimated useful lives, ranging from five months to 40
years. Also as a result of the merger, Neenah's interest expense significantly
increased because the level of its indebtedness increased. The following
discussion compares the results of operations of Neenah for the three months
ended December 31, 1998 to the results of the operations of Neenah for the three
months ended December 31, 1997. This discussion includes the results of
operations from the date of acquisition of any recently acquired subsidiary that
was acquired during that period.
On March 30, 1998, Neenah acquired all the capital stock of Deeter Foundry,
Inc. for $24.3 million, consisting of $20.4 million in cash and a $3.9 million
Deeter Seller Note. On April 3, 1998, Neenah acquired all of the capital stock
of Mercer Forge Corporation for $47.0 million in cash. In addition, on September
8, 1998, Neenah acquired all of the capital stock of Dalton Corporation for
$102.0 million in cash. Advanced Cast Products Inc.'s parent contributed the
capital stock of Advanced Cast Products, Inc. to Neenah in consideration for
Neenah's assumption of $21.3 million of indebtedness. Neenah refinanced $14.9
million of this consideration through borrowings under the senior bank
facilities. The discussion and analysis of financial condition and results of
operations below incorporates the results of these recently acquired
subsidiaries to the extent such acquisition had been completed during the
relevant period.
Currently, each of our recently acquired subsidiaries is operating as a
separate subsidiary with independent operations under the direction of the
management that was in place prior to our control. Although we currently do not
plan to integrate our operations with those of any of our recently acquired
subsidiaries, we may do so in the future. See "Risk Factors -- Integration of
the Recent Acquisitions."
We accounted for each of the Deeter, Mercer and Dalton acquisitions by
using the purchase method of accounting. We accounted for the acquisition of
Advanced Cast Products at historical cost in a manner similar to that in pooling
of interest accounting because our company and Advanced Cast Products were under
common control. Accordingly, our prior period financial statements for the
period during which we and Advanced Cast Products were under common ownership
are restated to reflect the contribution of capital stock of Advanced Cast
Products to Neenah. These recent acquisitions resulted in the recording of
goodwill and identifiable intangible assets totaling $101.1 million. These
amounts are being amortized over their estimated useful lives,
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<PAGE> 24
ranging from four months to 40 years. The recent acquisitions have also resulted
in a significant increase in Neenah's interest expense as a result of a
substantially increased level of indebtedness incurred to finance the recent
acquisitions.
Neenah changed its fiscal year end to September 30 from March 31 effective
September 30, 1997.
RESULTS OF OPERATIONS
The following table sets forth for the periods shown statement of income
data expressed as a percentage of net sales. The statement of income data for
the pro forma twelve months ended September 30, 1997 were determined by
combining statement of income data of Neenah's predecessor company for the six
months ended March 31, 1997 and the one month ended April 30, 1997 with
statement of income data of Neenah for the five months ended September 30, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR PRO FORMA
ENDED TWELVE MONTHS FISCAL YEAR THREE MONTHS THREE MONTHS
MARCH 31, ENDED ENDED ENDED ENDED
------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998 1997 1998
----- ----- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. 72.9 70.6 70.8 73.3 73.7 81.1
----- ----- ----- ----- ----- ------
Gross profit.............. 27.1 29.4 29.2 26.7 26.3 18.9
Selling, general and
administrative
expenses................ 10.1 10.6 9.3 7.7 8.4 7.2
Amortization of intangible
assets.................. -- -- 1.9 2.5 2.4 3.0
----- ----- ----- ----- ----- ------
Operating income.......... 17.0% 18.8% 18.0% 16.5% 15.5% 8.7%
===== ===== ===== ===== ===== ======
</TABLE>
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1998 TO THREE MONTHS ENDED
DECEMBER 31, 1997
Net sales
Net sales for the three months ended December 31, 1998 were $115,264, which
are $57,276 or 98.8% higher than the quarter ended December 31, 1997. The
increase in net sales resulted from the inclusion of the operating results of
the recently acquired subsidiaries, excluding Advanced Cast Products, after
their acquisition.
Gross profit
Gross profit for the three months ended December 31, 1998 was $21,772, an
increase of $6,497, or 42.5%, as compared to the quarter ended December 31,
1997. The increase in gross profit resulted from the inclusion of the operating
results of the recently acquired subsidiaries, excluding Advanced Cast Products,
after their acquisition. Gross profit as a percentage of net sales decreased to
18.9% for the three months ended December 31, 1998 from 26.3% for the quarter
ended December 31, 1997. We attribute the decline in gross profit percentage to
a greater percentage of sales of lower margin industrial products in the three
months ended December 31, 1998 as compared to the three months ended December
31, 1997.
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended
December 31, 1998 were $8,260, an increase of $3,362 or 68.6%, as compared to
the $4,898 for the quarter ended
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<PAGE> 25
December 31, 1997. Approximately $2,800 of the increase was due to the inclusion
of the operating results of the recently acquired subsidiaries, excluding
Advanced Cast Products. Professional and other expenses related to completed and
potential acquisitions accounted for the remainder of the increase. As a
percentage of net sales, selling, general and administrative expenses decreased
from 8.4% for the quarter ended December 31, 1997 to 7.2% for the three months
ended December 31, 1998. The decrease in selling, general and administrative
expenses as a percentage of net sales was mainly due to expenses being spread
over a larger revenue base with the inclusion of the recently acquired
subsidiaries, excluding Advanced Cast Products.
Amortization of intangible assets
Amortization of intangible assets was $3,415 for the three months ended
December 31, 1998, an increase of $2,003 or 141.9%, as compared to the $1,412
for the quarter ended December 31, 1997. The increase is due to the increased
amortization of goodwill and identifiable intangible assets from the recently
acquired subsidiaries.
Operating income
Operating income was $10,097 for the three months ended December 31, 1998,
an increase of $1,132 or 12.6% from the quarter ended December 31, 1997. We
achieved the improvement in operating income for the reasons discussed above
under gross profit. As a percentage of net sales, operating income decreased
from 15.5% for the quarter ended December 31, 1997 to 8.7% for the three months
ended December 31, 1998. The decrease in operating income percentage was due to
the factors discussed above under gross profit, as well as increased
amortization of intangible assets.
Net interest expense
Net interest expense was $9,907 for the three months ended December 31,
1998 compared to $5,840 for the quarter ended December 31, 1997. The increased
interest expense resulted from the interest on the drawings under Neenah's
senior bank facilities and the senior subordinated notes used to finance the
purchase of the recently acquired subsidiaries.
Provision for income taxes
The provision for income taxes for the three months ended December 31, 1997
and 1998 is higher than the amount computed by applying the statutory rate of
approximately 40% to income before income taxes. This is mainly due to the
amortization of goodwill which is not deductible for income tax purposes.
COMPARISON OF FISCAL YEAR ENDED SEPTEMBER 30, 1998 TO PRO FORMA TWELVE MONTHS
ENDED SEPTEMBER 30, 1997
Net Sales
Net sales for the year ended September 30, 1998 were $303.4 million which
was $102.1 million or 50.7% higher than the pro forma twelve months ended
September 30, 1997. The recently acquired subsidiaries, excluding Advanced Cast
Products, accounted for an increase of $53.5 million in net sales. The inclusion
of Advanced Cast Products for twelve months in 1998 versus five months in 1997
accounted for an increase of $33.7 million in net sales. Net sales of municipal
castings increased by $3.1 million or 4.2% due primarily to a strong economy in
the upper Midwest and market share gains in strategic focus areas of the East
and Southwest. Net sales of industrial castings increased by $11.7 million or
11.8% due to the overall strength of the heavy duty truck market coupled with
high demand in the agricultural business.
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<PAGE> 26
Gross Profit
Gross profit for the year ended September 30, 1998 was $81.0 million, an
increase of $22.2 million or 37.8%, as compared to the pro forma twelve months
ended September 30, 1997. Approximately $8.0 million of the increase was from
the inclusion of the operating results of the recently acquired subsidiaries
excluding Advanced Cast Products after their acquisition. The inclusion of
Advanced Cast Products for twelve months in 1998 versus five months in 1997
accounted for an increase of $6.4 million in gross profit. The remaining margin
improvement was due to the combined effect of spreading manufacturing overhead
over a greater volume and improved efficiency in plant operations. Gross profit
as a percentage of net sales decreased to 26.7% during the year ended September
30, 1998 from 29.2% for the pro forma twelve months ended September 30, 1997.
The decline in gross profit percentage is attributable to the mix of industrial
products and lack of seasoning from the recently acquired subsidiaries excluding
Advanced Cast Products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended September
30, 1998 were $23.2 million, an increase of $4.5 million or 24.1% over the $18.7
million for the pro forma twelve months ended September 30, 1997. The increase
in selling, general and administrative expense was due to the inclusion of $2.7
million of expenses from the recently acquired subsidiaries, excluding Advanced
Cast Products after their acquisition. The inclusion of Advanced Cast Products
for twelve months in 1998 versus five months in 1997 accounted for an increase
of $3.0 million in expenses. As a percentage of net sales, selling, general and
administrative expenses decreased from 9.3% for the pro forma twelve months
ended September 30, 1997 to 7.7% for the year ended September 30, 1998. The
percentage decrease was due to expenses being spread over a larger volume base
with the inclusion of the recently acquired subsidiaries' operating results,
excluding Advanced Cast Products.
Amortization of Intangible Assets
Amortization of intangible assets was $7.7 million for the year ended
September 30, 1998, an increase of $3.8 million or 97.4%, as compared to the
$3.9 million for the pro forma twelve months ended September 30, 1997. The
increase is due to:
- twelve months of amortization of goodwill and identifiable intangible
assets arising from the merger on April 30, 1997 during the period ended
September 30, 1998, versus five months of amortization during the period
ended September 30, 1997, and
- increased amortization from goodwill and identifiable intangible assets
from the recently acquired subsidiaries, excluding Advanced Cast
Products.
Operating Income
Operating income was $50.0 million for the year ended September 30, 1998,
an increase of $13.8 million or 38.1% from the pro forma twelve months ended
September 30, 1997. We achieved improvement in operating income for the reasons
discussed above under gross profit. As a percentage of net sales, operating
income decreased from 18.0% for the pro forma twelve months ended September 30,
1997 to 16.5% for the year ended September 30, 1998. The decrease in operating
income percentage was due to the factors discussed above under gross profit, as
well as increased amortization of intangible assets.
Net Interest Expense
Net interest expense increased from $9.1 million for the pro forma twelve
months ended September 30, 1997 to $27.2 million for the year ended September
30, 1998. The increased interest
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<PAGE> 27
expense resulted from Neenah's senior subordinated notes being outstanding for
twelve months during the year ended September 30, 1998 and only five months
during the period ended September 30, 1997, as well as the interest on the
drawings under Neenah's senior bank facilities to finance the recent
acquisitions.
Provision for Income Taxes
The provision for income taxes for the year ended September 30, 1998 is
higher than the amount computed by applying the statutory rate of approximately
40% to income before income taxes. This difference was mainly due to the
amortization of goodwill which is not deductible for income tax purposes.
Extraordinary Item
During the year ended September 30, 1998, Neenah recorded an extraordinary
loss of $0.4 million, net of an income tax benefit of $0.3 million, for the
write-off of unamortized deferred financing costs in connection with the
repayment in full of indebtedness of Advanced Cast Products prior to its
scheduled maturity. For the pro forma twelve months ended September 30, 1997,
Neenah recorded an extraordinary loss of $1.6 million, net of an income tax
benefit of $1.0 million, for the write-off of unamortized deferred financing
costs in connection with the repayment in full of the term indebtedness under
Neenah's senior bank facilities.
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1997 TO FISCAL YEAR ENDED MARCH 31,
1996
Net Sales
Net sales were $165.4 million for the year ended March 31, 1997, a decrease
of $1.6 million or 0.9%, from $167.0 million for the year ended March 31, 1996.
Net sales of industrial castings decreased $3.9 million or 4.2%, to $88.3
million. The decrease in industrial casting sales was primarily due to Neenah's
decision to discontinue its production of some lower margin brake components. As
a result, we produced fewer tons compared to the year earlier period.
Additionally, demand declined for casting products in the medium- and heavy-duty
truck market. Net sales of municipal castings increased $1.9 million, or 2.7%,
to $71.3 million, primarily due to increased pricing. Net sales of Hartley
Controls Corporation, Neenah's wholly-owned subsidiary, grew $0.4 million, or
7.4%, to 5.8 million principally due to increased volume of equipment sales.
Gross Profit
Gross profit was $48.7 million for the year ended March 31, 1997, an
increase of $3.4 million, or 7.5%, from $45.3 million for the year ended March
31, 1996. Gross profit as a percentage of net sales increased to 29.4% for the
year ended March 31, 1997, from 27.1% for the year ended March 31, 1996. The
increase in gross profit as a percentage of net sales was due mainly to improved
product mix in the industrial product line and greater overall plant efficiency.
Gross profit percentage also improved due to the continued effect of the
lightweighted municipal casting program.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $17.5 million for the
year ended March 31, 1997, an increase of $0.5 million or 2.9%, from $17.0
million for the year ended March 31, 1996. As a percentage of net sales,
selling, general and administrative expenses increased to 10.6% for the year
ended March 31, 1997, from 10.1% for the year ended March 31, 1996.
Approximately $0.2 million of the increase in selling, general and
administrative expenses was due to a non-recurring charitable contribution.
Approximately $0.9 million of the increase was due to increased compensation and
benefits to officers of Neenah who resigned at closing of the merger on April
30, 1997. Excluding the effects of estimated nonrecurring officer compensation
and benefits and the
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<PAGE> 28
charitable contribution, selling, general and administrative expenses, as a
percentage of net sales, decreased slightly to 8.3% for the year ended March 31,
1997, from 8.4% for the year ended March 31, 1996.
Operating Income
Operating income increased to $31.1 million for the year ended March 31,
1997, an increase of $2.8 million or 9.9% from $28.3 million for the year ended
March 31, 1996. As a percentage of net sales, operating income increased to
18.8% for the year ended March 31, 1997, from 17.0% for the year ended March 31,
1996. We achieved the improvement in operating income primarily for the reasons
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the merger on April 30, 1997, Neenah issued $150.0
million principal amount of our outstanding series B 11 1/8% senior subordinated
notes due 2007. We also entered into the senior bank facilities with NFC
Castings, Inc. and the lenders party thereto providing for term loans of $45.0
million and a revolving credit facility of up to $30.0 million, subject to a
borrowing base formula.
On July 1, 1997, Neenah issued an additional $45.0 million principal amount
of our outstanding series D 11 1/8% senior subordinated notes due 2007. We used
the proceeds of $47.6 million to repay the term loans, the accrued interest
thereon and related fees and expenses.
On September 12, 1997, Neenah, NFC Castings, Inc. and the lenders party to
the credit agreement amended and restated the senior bank facilities to increase
the amount available under the revolving credit facility to $50.0 million and
eliminate the borrowing base limitations.
On April 3, 1998, in connection with the acquisition of Mercer, Neenah, NFC
Castings, Inc. and the lenders party to the credit agreement amended the senior
bank facilities to provide availability of $75.0 million of term loans to Neenah
(consisting of $20.0 million of tranche A loans and $55.0 million of tranche B
loans) in addition to Neenah's existing $50.0 million revolving credit facility.
On September 8, 1998, in connection with the acquisitions of Dalton and
Advanced Cast Products, Neenah, NFC Castings, Inc. and the lenders party to the
credit agreement amended and restated the senior bank facilities to provide for
additional tranche B loans in an aggregate principal amount of $70.0 million and
an acquisition loan facility in aggregate principal amount outstanding at any
one time not to exceed $50.0 million.
On November 24, 1998, Neenah sold $87.0 million in principal amount
(excluding $3.0 million of unamortized premium) of series E 11 1/8% senior
subordinated notes due 2007. Neenah used $29.0 million of the proceeds to pay
down the borrowings under the acquisition loan facility. We used $42.0 million,
excluding costs and expenses, to acquire Cast Alloys. We used the remaining
proceeds for general corporate purposes.
Neenah's liquidity needs will arise primarily from debt service on the
indebtedness discussed above, working capital needs, the funding of capital
expenditures and additional acquisitions. Borrowings under the senior bank
facilities bear interest at variable interest rates. The senior bank facilities
impose restrictions on Neenah's ability to make capital expenditures. Both the
senior bank facilities and the indentures governing the senior subordinated
notes limit Neenah's ability to incur additional indebtedness.
The covenants contained in the senior bank facilities also, among other
things, restrict the ability of Neenah and its subsidiaries to
- dispose of assets,
- incur guarantee obligations,
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<PAGE> 29
- prepay the senior subordinated notes or amend its indentures, pay
dividends, create liens on assets, enter into sale and leaseback
transactions,
- make investments,
- loans or advances,
- make acquisitions,
- engage in mergers or consolidations,
- change the business conducted by Neenah,
- make capital expenditures or engage in stated transactions with
affiliates, and
- otherwise restrict corporate activities.
For the three months ended December 31, 1998 and December 31, 1997, capital
expenditures were $6,856 and $1,612, respectively. The $5,244 increase in
capital expenditures was primarily the result of planned enhancements to
equipment in the manufacturing area, including significant expenditures at
Advanced Cast Products and Deeter, which were acquired in fiscal 1998. For the
fiscal years ended March 31, 1996 and 1997, the pro forma twelve months ended
September 30, 1997 and the year ended September 30, 1998, capital expenditures
were $7.3 million, $4.5 million, $5.1 million and $13.1 million, respectively.
The capital expenditures for the year ended September 30, 1998 were primarily
the result of planned enhancements to equipment in the manufacturing area and
include expenditures of the recently acquired subsidiaries, excluding Advanced
Cast Products, since their acquisition date.
Neenah's principal source of cash to fund its liquidity needs will be net
cash from operating activities and borrowings under its senior bank facilities.
Net cash from operating activities for the three months ended December 31, 1998
was $6,780, an increase of $4,307 from $2,473 for the three months ended
December 31, 1997. The increase in net cash from operating activities was
primarily the result of increased cash flow from the recently acquired
subsidiaries and improved control of inventory and accounts receivable balances.
Net cash from operating activities for the year ended September 30, 1998 was
$24.2 million. Net cash from operating activities for the pro forma twelve
months ended September 30, 1997 was $37.4 million. The decrease resulted from
lower net income and a paydown of accounts payable and accrued liabilities
during the year ended September 30, 1998. Net cash from operating activities for
the year ended March 31, 1997 was $23.5 million, an increase of $1.2 million
from $22.3 million for the year ended March 31, 1996, primarily as a result of
an increase in net income.
Neenah believes that cash generated from operations and existing revolving
lines of credit under the senior bank facilities will be sufficient to meet its
normal operating requirements, including working capital needs and interest
payments on Neenah's outstanding indebtedness.
Amounts under the $50.0 million revolving credit facility may be used for
working capital and general corporate purposes, subject to the limitations under
the senior bank facilities. Amounts under the acquisition loan facility may be
used to make acquisitions permitted under the senior bank facilities. Neenah
believes that such resources, together with the potential future use of debt or
equity financing, will allow Neenah to pursue its strategic goal of making
selective acquisitions.
RAW MATERIALS
Although the prices of all raw materials used by Neenah vary, the
fluctuations in the price of steel scrap are the most significant to Neenah.
Neenah has arrangements with most of its industrial customers which require
Neenah to adjust industrial casting prices to reflect scrap price fluctuations.
In periods of rapidly rising or falling scrap prices, these adjustments will lag
the current scrap price because they are generally based on average market
prices for prior periods. These periods vary by customer but are generally no
longer than six months. Castings are generally sold to the
24
<PAGE> 30
heavy municipal market on a bid basis. After a bid is won, the price for the
municipal casting subject to the bid generally cannot be adjusted for raw
material price increases. However, in most cases, Neenah has been successful in
obtaining higher municipal casting unit prices in subsequent bids to compensate
for rises in scrap prices in prior periods. Rapidly fluctuating scrap prices may
have a temporary adverse or positive effect on Neenah's results of operations.
INFLATION
Neenah does not believe that inflation has had a material impact on its
financial position or results of operations during the past three years.
CYCLICALITY AND SEASONALITY
Neenah has historically experienced moderate cyclicality in the heavy
municipal market. Sales of municipal products are influenced by, among other
things, public spending. In the industrial market, Neenah has experienced
cyclicality in sales resulting from fluctuations in the medium- and heavy-duty
truck market and the farm equipment market. These markets are subject to general
economic trends.
Neenah experiences seasonality in its municipal business, where sales tend
to be higher during the construction season. The construction season occurs
during the warmer months, generally the third and fourth quarters of Neenah's
fiscal year. Neenah maintains level production throughout the year in
anticipation of such seasonality. As a result, we do not experience production
volume fluctuations. Neenah builds inventory in anticipation of the construction
season, with such inventories reaching a peak near the end of its second quarter
in March. Neenah has not historically experienced seasonality in industrial
casting sales.
YEAR 2000
Neenah and its subsidiaries have conducted an evaluation of the actions
necessary in order to ensure that its computer systems will be able to function
without disruption with respect to the application of dating systems in the year
2000. As a result of this evaluation, each company within the consolidated
entity is engaged in the process of upgrading, replacing and testing its
information and other computer systems in order to operate without disruption
due to year 2000 issues. The following represents a summary of the status of
information systems and non-information systems by subsidiary:
Neenah Foundry Company
Information Systems. As of March 31, 1999, we believe that our information
systems are fully compliant with the year 2000. A local consulting firm has been
engaged since March, 1998 to assess the adequacy of all Neenah's software and
make whatever changes are necessary to be compliant with year 2000 issues. As of
March 31, 1999, Neenah completed all assessment, remediation and testing of its
software.
Non-Information Systems. With respect to date sensitive non-information
systems, Neenah is currently in the assessment phase and is internally checking
all computer programs and PC units, including embedded chip technology and
microcontrollers, for year 2000 compliance. This phase is expected to be
completed by September 30, 1999. Remediation will begin upon completion of the
assessment phase and is scheduled to be completed before December 31, 1999 for
material programs and equipment. Additionally, we are working with our insurance
carrier to develop contingency plans in the event a system failure occurs in our
holding furnaces and other equipment used in processing molten metal.
25
<PAGE> 31
Dalton Corporation
Information Systems. An internal task force was created to access all
information systems to test their compliance with year 2000 issues. The task
force has completed the assessment phase and is currently in the remediation
phase. The remediation phase is expected to be completed by September 30, 1999
with all critical systems year 2000 compliant.
Non-Information Systems. Most of Neenah's non-information systems used in
the operation of its facility are not date sensitive. With respect to date
sensitive non-information systems, Dalton is currently in the assessment phase
and is internally checking all computer programs and equipment that are date
sensitive as well as embedded chip technology and microcontrollers for year 2000
compliance. Remediation will begin upon completion of the assessment phase and
is scheduled to be completed before December 31, 1999 for material programs and
equipment. Additionally, we are working with our insurance carrier to develop
contingency plans in the event a system failure occurs in our holding furnaces
and other equipment used in processing molten metal.
Advanced Cast Products
Information Systems. An internal task force has reviewed all financial and
information systems currently in use and has determined that all existing
systems are year 2000 compliant.
Non-Information Systems. We believe all computer numeric controls and
other controls within the operation are year 2000 compliant.
Mercer Forge Corporation
Information Systems. New year 2000 compliant software has been installed
and is fully operative for information systems.
Non-Information Systems. Older PCs are currently being replaced and custom
programs are being reviewed and updated where necessary. Manufacturing
programmable controllers and computer numeric controls have been analyzed for
year 2000 problems and we believe no problems exist that will have any material
adverse effect on the business. The total review process is expected to be
completed by September 30, 1999.
Deeter Foundry
Information Systems. New year 2000 compliant software has been installed
and is fully operating for information systems.
Non-Information Systems. With respect to non-information systems, Neenah
has just completed major renovations in the melting and sand system areas. As a
result, all of these systems are compliant with Year 2000 issues.
Cast Alloys, Inc.
Information Systems. Neenah has assembled a year 2000 task force
consisting of representatives from each company location to complete the
assessment phase, conduct research, complete testing and create contingency
plans at Cast Alloys. The task force has estimated that the cost to render the
financial software year 2000 compliant is $25,000. This new year 2000 compliant
software has not yet been purchased. The task force review is expected to be
completed by September 30, 1999. The remediation phase is expected to be
completed prior to December 31, 1999. Contingency plans will be completed prior
to December 31, 1999 for those areas in which remediation is not feasible.
Non-Information Systems. With respect to non-information systems, Neenah
is in the assessment phase and is currently internally reviewing all critical
systems as well as embedded chip technology and microcontrollers to make sure
they are year 2000 compliant. The assessment and remediation phase is expected
to be completed by September 30, 1999.
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<PAGE> 32
In addition to investigations of its own systems, Neenah has begun
assessing the Year 2000 readiness of its important vendors and customers. Key
customers, vendors and service providers have been queried about their year 2000
readiness and their responses are being analyzed.
Neenah serves over 17,000 active customers in the municipal business. No
one customer accounts for a significant percentage of the total business. Three
key customers comprise over 60% of Neenah's industrial sales. These customers
are very large manufacturers. Dialogue concerning year 2000 compliance is
ongoing. Neenah mailed an inquiry letter to its 32 vendors regarding their
compliance with the year 2000. All 32 vendors have responded that they are
currently year 2000 compliant or will be by the end of the calendar year.
Utility companies are the most critical vendors for the foundry operation.
Neenah is engaged in ongoing discussions with each provider. We have been
assured that each utility company will be year 2000 compliant. Although other
vendors supply critical raw materials, any year 2000 compliance problems would
only result in temporary shortages which would not seriously jeopardize the
overall business.
In summary, we believe that all our important critical vendors and
customers either have or will have addressed any problems associated with the
year 2000 issue such that there will be no significant deterioration in future
business dealings due to this issue.
Costs specifically associated with renovating software for year 2000
readiness are funded through operating cash flows and expensed as incurred. Year
2000 related costs have not had a material effect on Neenah's financial position
or results of operations. Neenah expects to incur total costs (capital and
expense) in the range of $1.5 to $2.0 million on the year 2000 problem of which
a total of approximately 25% to 30% is remaining to be incurred. Costs of
replacing some of Neenah's systems with year 2000 compliant systems (including
both hardware and software) that have an extended useful life in excess of one
year have been appropriately capitalized.
Although there can be no assurance that the remedial actions being
implemented by Neenah will address every issue relating to the year 2000 issue,
Neenah believes it is unlikely that any disruptions resulting from the year 2000
issue would have a significant impact on its overall operations. Although it is
highly unlikely that Neenah will face year 2000 issues that significantly impact
its overall operations, business continuity plans may have to be developed later
this year should facts and circumstances dictate such a strategy to handle
potential contingencies regarding unforeseen year 2000 problems. Up to this
point, no critical informational technology projects have been either delayed or
curtailed due to year 2000 efforts. In addition, Neenah has not experienced any
significant year 2000 problems to date.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Neenah is exposed to market risk related to changes in interest rates.
Neenah does not use derivative financial instruments for speculative or trading
purposes.
Interest Rate Sensitivity
Neenah's earnings are affected by changes in short-term interest rates as a
result of its borrowings under the senior bank facilities. If market interest
rates for such borrowings average 1% more during the fiscal year ended September
30, 1999 than they did during fiscal 1998, Neenah's interest expense would
increase, and income before income taxes would decrease by approximately $1.7
million. This analysis does not consider the effects of the reduced level of
overall economic activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management could take actions to
further mitigate its exposure to the change. However, due to the uncertainty of
the specific action that would be taken and their possible effects, the
sensitivity analysis assumes no changes in Neenah's financial structure.
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<PAGE> 33
BUSINESS
NEENAH FOUNDRY COMPANY
Overview
On April 30, 1997, under a merger agreement with NC Merger Company and NFC
Castings, Inc., NFC Castings, Inc. acquired Neenah Corporation, Neenah's
company. NC Merger merged with and into the predecessor company to consummate
the Merger. Prior to July 1, 1997, Neenah was one of three wholly owned
subsidiaries of Neenah Corporation, a holding company with no significant
assets or operations other than its holdings in the common stock of its three
wholly owned subsidiaries. On July 1, 1997, Neenah merged with and into Neenah
Corporation. The surviving company changed its name to Neenah Foundry Company.
Neenah was founded in 1872. Along with its two wholly-owned subsidiaries,
Hartley Controls Corporation and Neenah Transport, Inc. Neenah is one of the
largest manufacturers of a wide range of high quality ductile and gray iron
castings for the heavy municipal market and selected segments of the industrial
market. Neenah believes it is the largest manufacturer of heavy municipal iron
castings in the United States. We have a market share of approximately 19% in
the United States. Neenah's broad range of heavy municipal iron castings
includes:
- manhole covers and frames,
- storm sewer frames and grates,
- heavy duty airport castings,
- specialized trench drain castings,
- specialty flood control castings and
- ornamental tree grates.
These municipal castings are sold throughout the United States to state and
local government entities, utility companies, precast concrete manhole
structure producers and contractors for both new construction and
infrastructure replacement. The municipal market generated approximately 41% of
Neenah's net sales for the year ended September 30, 1998. Neenah believes it is
also a leading manufacturer of a wide range of complex industrial castings,
including:
- castings for medium- and heavy-duty truck drive line components,
- a broad range of castings for the farm equipment industry and
- specific components for compressors used in heating, ventilation and air
conditioning systems.
The industrial market generated approximately 56% of Neenah's net sales for
the year ended September 30, 1998. In addition, Neenah engineers, manufactures
and sells customized sand control systems and related products to other iron
foundries. Sand control systems and related products are an essential part of
the casting process. Sales of these sand control systems and related products
represented approximately 3% of Neenah's net sales for the year ended September
30, 1998.
Neenah currently operates two modern foundries with an annual aggregate
rated capacity of approximately 187,000 tons at a single site in Neenah,
Wisconsin. From 1985 to 1997, Neenah has invested approximately $100 million in
its production facilities, with approximately $73 million invested in a major
plant modernization program from 1985 to 1990. This plant modernization program
was a critical part of a long-term strategy. The goals of this strategy were
(1) to produce higher volume, value-added castings for its existing
industrial customers and
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<PAGE> 34
(2) to penetrate other selected segments of the industrial market, while
preserving our position as the leader in the heavy municipal market.
This modernization program entailed the closing of Neenah's oldest
foundry, Plant 1, and the updating of Neenah's other two foundries,
Plants 2 and 3. This program enabled Neenah both to produce higher
volume, complex castings for selected industrial segments and to
improve Neenah's cost position in the heavy municipal market. Following
completion of the modernization program, Neenah has steadily decreased
its production of lower margin products such as axle covers and brake
drums and increased the production of higher margin, more complex
parts, such as transmission and axle housings.
Products, Customers and Markets
Neenah provides a variety of products to both the heavy municipal and
industrial markets. The following table sets forth information regarding the
end-user markets served by Neenah, the products produced by Neenah,
representative customers in each end-user market and the percentage of net
sales attributable to each of Neenah's markets for the fiscal year ended
September 30, 1998.
<TABLE>
<CAPTION>
PERCENTAGE OF NET
SALES(1)
------------------
REPRESENTATIVE FISCAL YEAR ENDED
MARKET END PRODUCT CUSTOMERS SEPTEMBER 30, 1998
----------------- ------------------------ --------------- ------------------
<S> <C> <C> <C>
Heavy Municipal Standard castings State and local 40.7%
including storm and government
sanitary sewer castings, entities,
including manhole covers utility
and frames, storm sewer companies,
frames and grates; precast
specialty castings concrete
including heavy duty structure
airport castings, producers and
specialized trench drain contractors(2)
castings, specialty
flood control castings
and ornamental tree
grates
Industrial
Medium- and
Heavy-Duty
Truck Differential carriers Rockwell 37.3%
and cases, brackets, International
cages, calipers, caps, Eaton Corp.
carriers, hubs, Dana Corp.
knuckles, transmission
housings, yokes
Farm Equipment Various gear housings, John Deere 16.0%
planet carriers, axle New Holland
housings, planting and
harvesting equipment
parts, counterweights
Other
Industrial Compressor components, Aisin 6.0%
various housing and gear The Trane
cases Company
</TABLE>
- ---------------
(1) Net sales include sales of Neenah Foundry Company only, excluding Hartley
Controls Corporation and Neenah Transport, Inc.
(2) No municipal customer represented more than 1.5% of Neenah Foundry's net
sales for the fiscal year ended September 30, 1998.
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<PAGE> 35
Heavy Municipal
Neenah believes it is the largest manufacturer of heavy municipal iron
castings in the United States. We estimate that our United States market share
in calendar year 1998 was 19%. Neenah's broad heavy municipal product line
consists of two general categories of castings, "standard" and "specialty"
castings. Standard castings principally consist of storm and sanitary sewer
castings which are consistent with pre-existing dimension and strength
specifications established by local authorities. Standard castings are
generally high volume items that are routinely used in new construction and
infrastructure replacement. Specialty castings are generally lower volume,
higher margin products which include heavy-duty airport castings, trench drain
castings, flood control castings, special manhole and inlet castings and
ornamental tree grates. These specialty items are frequently selected and/or
specified from Neenah's municipal product catalog and its tree grate catalog.
Together, these catalogs include over 4,400 standard and specialty patterns.
For many of these specialty products, Neenah believes it is the only
manufacturer with existing patterns to produce such a particular casting.
However, a competing manufacturer could elect to make the investment in
patterns or equipment necessary to produce such a casting.
Neenah's municipal castings are sold to state and local government
entities, utility companies, pre-cast concrete manhole structure producers and
contractors for both new construction and infrastructure replacement. Neenah's
17,000 active municipal customers generally make purchase decisions based on a
number of criteria. These criteria include:
- acceptability of the product per local specification,
- quality,
- service,
- price and
- the customer's relationship with the foundry.
Relative to customers in the industrial market, municipal market customers are
less technically demanding and rely on published product specifications to
ensure product performance.
A key aspect of winning orders in the heavy municipal market is the
specification process in which a local authority or design engineer sets
specific criteria for the casting or castings to be used in a particular
project. Those criteria then become part of the formal plans and specifications
that will govern the acceptability of castings for a particular project. Neenah
seeks to be an active participant in the specification process. Our sales staff
makes frequent calls on design engineers as part of a continuous effort to stay
abreast of current specifications and upcoming projects. In these sales calls,
Neenah seeks to create opportunities for the selection of specifications which
utilize an existing Neenah pattern. In many cases, the design engineer who sets
the specification does not make the purchase decision. However, when Neenah's
specialty product is specified, it becomes more difficult for another
manufacturer to provide an alternate part which might be considered acceptable.
Neenah's professional sales staff and product engineering department are highly
regarded by design engineers. Our sales staff are frequently consulted during
the specification drafting process. Neenah believes its reputation for its
product engineering support, consistent quality and reliable service have made
Neenah's municipal and tree grate catalogs two of the most frequently used
specification design tools in the municipal casting industry.
Over the past three years, Neenah has begun to introduce what it calls
"lightweighted" parts to the heavy municipal market. These lightweighted parts
have been reengineered in order to reduce both their weight and the amount of
raw materials necessary for their manufacture. The reengineered product
maintains the high quality performance characteristics of the heavier version
of the casting. This improvement in the design and manufacture of municipal
castings has resulted in lower material costs and improved margins for this
product line. Neenah is able to manufacture lightweighted castings because its
manufacturing processes enables it to refine casting walls down
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<PAGE> 36
to very narrow tolerances. Neenah's competitors cannot currently achieve many
of these tolerances. Presently, only a portion of the municipal castings Neenah
sells are candidates for lightweighting. Neenah expects to continue to increase
the number of lightweighted castings which it offers for sale over the next
several years.
Industrial
Neenah believes it is a leading manufacturer of a wide range of complex
industrial castings, including castings for medium- and heavy-duty truck drive
line components and farm equipment. We also believe we are the leading
manufacturer of castings for specific components for compressors used in
heating, ventilation and air conditioning systems. Neenah's industrial castings
have increased in complexity since the early 1990's. Our industrial castings
are generally produced in higher volumes than municipal castings. Complexity in
the industrial market is determined by the intricacy of a casting's shape, the
thinness of its walls and the amount of processing by a customer required
before a part is suitable for use by it. Original equipment manufacturers
("OEMs") and their first tier suppliers have been demanding higher complexity
parts. Purchasing these parts from an outside source reduces labor costs in
OEMs' production processes by using fewer parts to manufacture the same
finished product or assembly and by using parts which require less preparation
before entering the production process.
Neenah's industrial castings are primarily sold to a limited number of
customers with whom Neenah has established a close working relationship. Neenah
has sold to particular industrial customers for over 20 years. Neenah currently
has multi-year arrangements with some of those customers. These customers make
purchasing decisions based on, among other things, technical ability, price,
service, quality assurance systems, facility capabilities and reputation.
However, as in the municipal market, Neenah's assistance in product engineering
plays an important role in winning the award of industrial castings. The
average industrial casting typically takes between 12 and 18 months to go from
the design phase to full production. It has an average product life cycle of
approximately 8 to 10 years. The patterns for industrial castings, unlike the
patterns for municipal castings, are owned by Neenah's customers rather than
Neenah. However, such industrial patterns are not readily transferrable to
other foundries without, in most cases, significant additional investment.
Although foundries, including Neenah, do not design industrial castings, a
close working relationship between a foundry and the customer during a product
launch is critical. This close working relationship reduces potential
production problems and minimizes the customer's risk of incurring lost sales
or reputation damage due to a delayed launch. Involvement by a foundry early in
the design process generally improves the likelihood that the customer will
design a casting within the manufacturing capabilities of such foundry and also
improves the likelihood that such foundry will be awarded the casting for full
production.
Neenah estimates that it has historically retained approximately 90% of
the castings it has been awarded throughout the product life cycle, which is
typical for the industry. Neenah believes industrial customers will continue to
seek out foundries with a strong reputation for performance who are capable of
providing a cost-effective combination of manufacturing technology and quality.
Neenah's strategy is to further its relationships with existing customers by
participating in the design and production of more complex industrial castings.
Additionally, Neenah seeks out selected new customers who would value Neenah's
performance reputation, technical ability and high level of quality and
service.
In addition to increasing its sales to existing customers and seeking out
new customers, Neenah intends to explore opportunities in austempering and
machining and assembling sub-components for specific industrial customers.
Austempering is the process of heat treating a ductile iron casting to increase
its strength. This increases the casting's ability to replace steel in
additional applications. Machining and sub-assembling are value-added processes
often performed by the OEM or third parties. Austempering, machining and
sub-assembly are both
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<PAGE> 37
processes which generally provide higher margins and increase a customer's
reliance on the manufacturer.
Sales and Marketing
Heavy Municipal
Over its 70 years of heavy municipal market participation, Neenah has
emphasized sales and marketing. We believe we have built a strong reputation
for customer service. Neenah believes it is one of the leaders in United States
heavy municipal casting production. Neenah believes it has strong name
recognition. Neenah has the largest sales and marketing effort of any foundry
serving the heavy municipal market. Our sales and marketing force includes 51
Neenah employees and \24 commissioned representatives. The dedicated sales
force works out of regional sales offices to market Neenah's municipal castings
to contractors and state and local governmental entities throughout the United
States. Neenah operates nine regional distribution and sales centers and has
two other sales offices in Oklahoma City, Oklahoma and Norwood, Pennsylvania.
Neenah believes this regional approach enhances its knowledge of local
specifications and its position in the heavy municipal market.
Industrial
Neenah employs a dedicated industrial casting sales force of six people,
five based in Neenah, Wisconsin and one based in Mansfield, Ohio. These six
people consist of three account coordinators and three major account managers.
The account coordinators support the ongoing customer relationships and
organize the scheduling and delivery of shipments. The account managers work
with customers' engineers and procurement representatives, Neenah engineers,
manufacturing management and quality assurance representatives throughout all
stages of the production process to ensure that the final product consistently
meets or exceeds customer specifications. This team approach between sales,
manufacturing, marketing, engineering and quality assurance is an integral part
of Neenah's, marketing strategy.
Manufacturing Process
Neenah operates two modern foundries with an annual rated capacity of
approximately 187,000 tons at a single location in Neenah, Wisconsin. Neenah's
foundries manufacture gray and ductile iron. Our foundries cast the iron into
intricate shapes according to customer metallurgical and dimensional
specifications. From 1985 to 1997, Neenah invested approximately $100 million
in its production facilities, with approximately $73 million invested from 1985
to 1990 in plant modernization and new equipment. Neenah also continually
invests in the improvement of process controls and product performance. We
believe that these investments and our significant experience in the industry
have made us one of the most efficient manufacturers of industrial and heavy
municipal casting products. During the fiscal year ended September 30, 1998,
Neenah had a combined scrap rate of 2.3%.
The casting process involves using metal, wood or urethane patterns to make
an impression of a casting product in a mold made primarily of sand. Cores,
also made primarily of sand, are used to make the internal cavities and
openings in a casting product. Once the casting impression is made in the mold,
the cores are set into the mold and the mold is closed. Molten metal is then
poured into the mold, fills the mold cavity and takes on the shape of the
desired casting product. Once the iron has solidified and cooled, the mold is
shaken from the casting and the sand is recycled. The selection of the
appropriate casting method, pattern, core making equipment and sand and other
raw materials depends on the final product and its complexity, specifications,
and function as well as intended production volumes. The casting process
involves many critical variables, including choice of raw materials, design and
production of tooling, iron chemistry and metallurgy, and core
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<PAGE> 38
and molding sand properties. We must monitor the process parameters closely to
ensure dimensional precision and metallurgical consistency. See "-- Quality
Assurance."
Neenah continually seeks to find ways to expand the capabilities of existing
technology to improve manufacturing processes. For example, we have integrated
Disamatic molding machines into our operations. Disamatic molding machines are
considered to be among the most efficient sand molding machines because they
produce high quality molds at high production rates. Disamatic molding machines
are used by most of Neenah's direct competitors. Although Neenah was not the
first foundry to acquire Disamatic molding machines, it has significantly
enhanced the equipment's range of production by combining Disamatic molding
with core-setting capabilities which exceed those of most foundries. To further
improve upon the productivity of the Disamatic molding machines, Neenah has
recently increased the length of two of its cooling lines, making each line
among the longest lines in the world for comparable Disamatic equipment. This
extension allows Neenah to run its machines at higher production rates while
providing sufficient inmold cooling time prior to mold shakeout to facilitate
the production of high quality castings. As a result of these and other similar
efforts, Neenah has been able to increase productivity as measured in the
number of molds per hour.
Neenah also achieves productivity gains by improving upon the individual
steps of the casting process. For example, Neenah has reduced the amount of
time required to make a pattern change to produce a different casting product.
The reduced time permits it to profitably produce castings in medium volume
quantities on high volume, cost-effective equipment such as the Disamatic
molding machines. Additionally, extensive effort in real time process controls
permits Neenah to produce a consistent, dimensionally accurate casting product.
This product requires less time and effort in the final processing stages of
production. This accuracy contributes significantly to Neenah's manufacturing
efficiency.
Manufacturing Facilities, Equipment and Properties
Neenah's headquarters and two foundries are located in Neenah, Wisconsin.
The first manufacturing foundry, Plant 2, produces gray and ductile iron
castings. Plant 2 is equipped with one BMD air impulse molding line, two Hydro
slinger cope and drag molding units, and one 2070 Type B Disamatic molding
machine. The second manufacturing foundry, Plant 3, produces ductile iron
castings. Plant 3 is equipped with one 2013 Mark IV Disamatic molding machine
and one 2070 Type B Disamatic molding machine. In July, 1995, Neenah completed
a program in Plant 3 to gain efficiencies in material handling, labor
utilization and molding line productivity. Industrial and municipal castings
are produced in both plants. Neenah owns seven and leases six distribution and
sales centers.
Quality Assurance
Constant testing and monitoring of the manufacturing process is important to
maintain product quality. Neenah has adopted sophisticated quality assurance
techniques and policies for its manufacturing operations. During and after the
casting process, Neenah performs numerous tests, including tensile, proof-load,
radiography, ultrasonic, magnetic particle and chemical analysis. Neenah
utilizes statistical process controls to measure and control significant
process variables and casting dimensions. The results of this testing are
documented in metallurgical certifications which are provided with each
shipment to most industrial customers. Neenah strives to maintain systems that
provide for continuous improvement of operations and personnel, emphasize
defect prevention and reduce variation and waste in all areas.
Distribution
Neenah sells a substantial amount of its municipal castings through its
network of two warehouses, nine distribution and sales centers and two other
sales offices. Industrial castings are
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<PAGE> 39
shipped direct to customers from Neenah. For many municipal and a small portion
of its industrial customers, castings are delivered by Neenah Transport, Inc.
("Neenah Transport"). Neenah Transport is a wholly owned subsidiary of Neenah.
Neenah Transport operates a fleet of 28 tractors and 101 trailers that deliver
products throughout the Midwest. For sales outside of the Midwest, increased
transportation costs impact the ability of Neenah to compete on a cost basis.
Neenah Transport also backhauls raw materials for use by Neenah on return
trips. Neenah Transport is staffed with professional drivers who are trained in
service standards and product knowledge as representatives of Neenah. To
Neenah's knowledge, none of Neenah's major heavy municipal competitors have a
captive transportation subsidiary. Neenah believes Neenah Transport's service
and drivers provide another differentiating factor in favor of Neenah.
Raw Materials
The primary raw materials used by Neenah to manufacture iron castings are
steel scrap, pig iron, metallurgical coke and silica sand. While there are
multiple suppliers for each of these commodities, Neenah has sourcing
arrangements with its suppliers of each of these major raw materials, with the
exception of pig iron. Due to long standing relationships with each of its
suppliers, Neenah believes that it will continue to be able to secure raw
materials from its suppliers at competitive prices. The primary energy sources
for Neenah's operations, electricity and natural gas, are purchased through
utilities.
Although the prices of all raw materials used by Neenah vary, the
fluctuations in the price of steel scrap are the most significant to Neenah.
Neenah has arrangements with most of its industrial customers to adjust
industrial casting prices to reflect scrap price fluctuations. In periods of
rapidly rising or falling scrap prices, these adjustments will lag the current
scrap price because they are generally based on average market prices for prior
periods. These periods vary by customer but are generally no longer than six
months. Castings are generally sold to the heavy municipal market on a bid
basis and, after a bid is won, the price for the municipal casting subject to
the bid generally cannot be adjusted for raw material price increases. However,
in most cases, Neenah has been successful in obtaining higher municipal casting
unit prices in subsequent bids to compensate for rises in scrap prices in prior
periods. Rapidly fluctuating scrap prices may have a temporary adverse or
positive effect on Neenah's results of operations.
Competition
The markets for Neenah's products are highly competitive. Competition is
based on:
- price,
- quality of product,
- range of capability,
- level of service and
- reliability of delivery.
Neenah competes with numerous independent and captive foundries, as well as
with a number of foreign iron foundries, including foundries located in India.
Neenah also competes with several large domestic manufacturers whose products
are made with materials other than ductile and gray iron, such as steel or
aluminum. The industry consolidation that has occurred over the past 20 years
has resulted in a significant reduction in the number of smaller foundries and
a rise in the share of production by larger foundries. Some of these larger
foundries have significantly greater financial resources than Neenah.
Competition from India has had a strong presence in the heavy municipal market.
Indian competition continues to be a factor, primarily in the western and
eastern coastal states, due in part to costs associated with transportation.
However, foreign companies have been, and continue to be, subject to
antidumping and counterveiling duty enforcement
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litigation. Neenah believes this litigation has had a negative effect on
foreign companies' ability to compete in the United States markets. We cannot
assure you that these factors will continue to mitigate the impact of foreign
competition, or that we will be able to maintain or improve our competitive
position in the markets in which we compete.
Backlog
Neenah's industrial business generally involves supplying all or a portion
of a customer's annual requirements for a particular casting. Industrial
customers generally order castings on a monthly basis. Orders for the heavy
municipal market are generally received for specific casting products and cover
a much larger range of castings. Neenah's backlog at any given time consists
only of firm industrial and municipal orders. Neenah's backlog was 18,203 tons
at December 31, 1998 as compared to 18,723 tons at September 30, 1998. The
decrease in backlog of approximately 3% was primarily the result of seasonal
softening in the municipal segment and a decrease in product orders for
components used in agriculture. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Hartley Controls
Hartley Controls, a wholly owned subsidiary of Neenah, engineers,
manufactures and sells customized sand control systems. Sand control systems
are an essential part of the casting process, to other iron foundries. The sand
molding media used in all high production iron foundries is a critical element
in determining the mold quality. Exacting and consistent control of this sand
with respect to moisture and chemical additives is an essential element for
process control. This control relates directly to casting quality, scrap rate
and the ability to produce complex molds for highly engineered castings.
Hartley Controls is a major United States supplier of sand control systems,
with over 300 installations since 1986. Hartley Controls has made investments
in process technology and has several patented technologies related to sand
systems, including
- "Automatic Moisture Controllers,"
- "Even-Flo Bin,"
- "Automatic Compactibility Tester,"
- "Automatic Bond Determinator,"
- "Green Sand Reconditioner" and
- "Sandman."
Sales of these sand systems and related products represented approximately 3%
of Neenah's net sales for year ended September 30, 1998.
In addition, Hartley Controls has recently expanded overseas. After only
three years, it has become a significant supplier of sand control systems in
the United Kingdom. Hartley Controls is the only manufacturer to supply control
systems in the United Kingdom for all brands of foundry sand mixers. Hartley
Controls also currently exports sand control systems to India. Hartley Controls
provides Neenah access to the newest technology in sand control as it becomes
available.
Employees
As of September 30, 1998, Neenah had 970 full time employees. 761 were
hourly employees, and 209 were salaried employees. The Local 121B of the Glass,
Molders, Pottery, Plastics and Allied Workers International Union AFL-CIO is
the major bargaining agent for, and representative of, 726 of Neenah's hourly
employees. The collective bargaining agreement with Local 121B was reached on
December 31, 1998 and expires on December 31, 2001. The Independent Pat-
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<PAGE> 41
ternmakers Union of Neenah, Wisconsin is the major bargaining agent for, and
representative of, 35 of Neenah's hourly employees. The collective bargaining
agreement with the Independent Patternmakers Union was reached on January 1,
1998 and expires on December 31, 2000. Neenah believes that it has a good
relationship with its employees.
Litigation
Neenah is involved in routine litigation incidental to its business. Such
litigation is not, in the opinion of management, likely to have a harmful
effect on the financial condition or results of operation of Neenah.
Environmental Matters
Each of Neenah's and the recently acquired subsidiaries' facilities are
subject to federal, state and local laws and regulations relating to pollution
and the protection of the environment and worker health and safety. These laws
and regulations include those relating to discharges to air, water and land,
the handling and disposal of waste, the operation of landfills and the cleanup
of properties affected by hazardous substances. Such laws include, among
others, the federal Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 ("CERCLA"), and the Occupational Safety
and Health Act. Neenah believes that its and each of the recently acquired
subsidiaries' operations are currently in substantial compliance with
applicable environmental laws and regulations. Neenah believes it has no
liabilities arising under such laws and regulations, except those that would
not be expected to have a harmful effect on any of Neenah's or any of the
recently acquired subsidiaries' operations, financial condition or competitive
position. However, some risk of environmental liability and other costs is
inherent in the nature of each of Neenah's and the recently acquired
subsidiaries' businesses. Any of Neenah or the recently acquired subsidiaries
might in the future incur significant costs to meet current or more stringent
compliance, cleanup or other obligations in accordance with environmental
requirements. Such costs may include expenditures related to remediation of
historical releases of hazardous substances or clean-up of physical structures
upon decommissioning.
Under the federal Clean Air Act Amendments of 1990, the U.S. Environmental
Protection Agency is directed to establish maximum achievable control
technology standards for the industrial operations that are major sources of
hazardous air pollutants. The iron foundry industry is not expected to be
required to implement the maximum achievable control technology emissions
limits, control technologies or work practices until the year 2003 at the
earliest. Neenah cannot accurately estimate the costs to comply with the
maximum achievable control technology standard until it is issued. The maximum
achievable control technology standard, when implemented, and state laws
governing the emission of toxic air pollutants may require that Neenah's or the
recently acquired subsidiaries' facilities incur significant costs for air
emission control equipment, air emission monitoring equipment or process
modifications.
DALTON CORPORATION
Overview
On September 8, 1998, Neenah acquired all the capital stock of Dalton
Corporation for $102.0 million in cash (excluding fees and expenses of $0.6
million). Dalton manufactures and sells:
- gray iron castings for refrigeration systems,
- air conditioners,
- heavy equipment,
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<PAGE> 42
- engines,
- gear boxes,
- stationary transmissions,
- heavy duty truck transmissions and
- other automotive parts.
Dalton's four operating facilities have each been structured to manufacture or
machine specific components to customer specifications. Dalton specializes in
using cold box and shell core products as well as precision high-pressure molds
to manufacture gray iron castings. The majority of Dalton's castings range in
size from one pound to 700 pounds.
Products and Market Share
Dalton's revenues are generated from customers in several industries.
However, refrigeration and air conditioning represent the largest concentration
of tons shipped. Management estimates approximately 45% of tons shipped are
related to refrigeration and air conditioning. Dalton serves primarily three
markets:
- refrigeration and air conditioning,
- automotive/truck market and
- heavy equipment.
Recent Financial Results
Over the past five years, Dalton has experienced consistent growth in tons
of castings produced and net sales. However, it has generated a gradually
decreased level of net income. The decrease in net income has been caused
primarily by:
(1) increased interest expense due to indebtedness incurred to finance the
repurchase of shares of Dalton's capital stock from employees when
Dalton was owned by an employee stock ownership plan;
(2) increased fixed costs resulting from increased levels of production;
and
(3) losses incurred by the Ashland facility as a result of its conversion
from a ductile to a gray iron casting facility.
This conversion, which has been completed, was undertaken due to lower than
expected orders of the Ashland facilities ductile casting products.
Customers
Dalton has over 100 customers across several industries, with four of
Dalton's largest five customers operating in the refrigeration and air
conditioning industry. Dalton's largest 10 customers accounted for
approximately 68% of Dalton's fiscal year 1998 net sales.
Raw Materials
The primary raw materials used by Dalton to manufacture iron castings are
steel scrap, pig iron, metallurgical coke and silica sand. There are multiple
suppliers for each of these commodities. Dalton has sourcing arrangements with
its suppliers of each of these major raw materials, with the exception of pig
iron. Due to long standing relationships with each of its suppliers, Dalton
believes that it will continue to be able to secure raw materials from its
suppliers at competitive prices. The primary energy sources for Dalton's
operations are electricity and natural gas. They are purchased through
utilities.
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<PAGE> 43
The prices of all raw materials used by Dalton vary. Fluctuations in the
price of steel scrap are the most significant to Dalton. Dalton has
arrangements with most of its industrial customers to adjust industrial casting
prices to reflect scrap price fluctuations. In periods of rapidly rising or
falling scrap prices, these adjustments will lag the current scrap price
because they are generally based on average market prices for prior periods.
These periods vary by customer but are generally no longer than six months.
Rapidly fluctuating scrap prices may have a temporary adverse or positive
effect on the Dalton's results of operations.
Competition
Dalton operates in the same industry as Neenah and therefore faces the same
competitive environment as Neenah. See "-- Neenah Foundry
Company -- Competition" and "Risk Factors -- Competition."
Manufacturing Facilities
Dalton currently operates four facilities. The main plant, located in
Warsaw, Indiana was established in 1910. Between 1992 and 1995 Dalton acquired
a second plant in Kendallville, Indiana and a third plant in Ashland, Ohio. In
addition, in 1997 Dalton acquired the remaining 50 percent interest in a
machining facility located in Stryker, Ohio. Dalton has established a separate
headquarters and office facility in Warsaw, Indiana.
Employees
At September 30, 1998, Dalton employed 1,638 individuals. There were 1,336
hourly employees and 302 salaried and clerical employees.
Almost all of Dalton's production employees are members of either the Steel
Workers' Union or the Glass, Molders, Pottery, Plastics and Allied Workers
International Union. A collective bargaining agreement is negotiated every
three to five years. The current agreement with the employees at the Warsaw,
Indiana plant expires in April 2003. The current agreement with the employees
at the Kendallville, Indiana plant expires on July 25, 1999. The current
agreement with the employees at the Ashland, Ohio plant expired on April 26,
1999 and was renewed on February 1, 1999 upon substantially the same terms
through April 27, 2002. Management believes that employee relations are good.
Litigation
Dalton is involved in routine litigation incidental to its business. We do
not believe that such litigation is likely to have a harmful effect on our
financial condition or results of operations.
Environmental Matters
Dalton is subject to environmental, health and safety laws comparable to
those governing Neenah. See "-- Neenah Foundry Company -- Environmental
Matters."
Status of Dalton's Air Emission Compliance
In connection with Dalton's submission of operating permit applications for
air emission sources at its facilities in Warsaw, Indiana and Kendallville,
Indiana under Title V of the federal Clean Air Act Amendments of 1990, the
Indiana Department of Environmental Management asked Dalton to address several
issues of concern:
(1) alleged exceedances of particulate and volatile organic compound
emissions levels;
(2) the applicability of Prevention of Significant Deterioration permit
review requirements; and
(3) alleged construction and operation of sources without the required
permits.
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With respect to (1) above, stack testing conducted at the facility in
Warsaw, Indiana in January demonstrated compliance with particulate emissions
levels. Based on results at the facility in Warsaw, Indiana, we believe the
facility in Kendallville, Indiana should also be in compliance. Issues raised
thus far by the Indiana Department of Environmental Management regarding
volatile organic compound issues applicable to the facility in Warsaw, Indiana
have been resolved in favor of the facility in Warsaw, Indiana. The facility in
Kendallville, Indiana has agreed to accept limits on its volatile organic
compound emissions from the paint operation and is also in compliance with
volatile organic compound limits.
With respect to (2) above, Prevention of Significant Deterioration has been
found inapplicable to the Warsaw, Indiana plant; there has been no
determination regarding Prevention of Significant Deterioration applicability
to the facility in Kendallville, Indiana at this time.
With respect to (3) above, both plants expect penalties based on failure to
obtain construction and operation permits, but both plants have applied for
limited liability and any penalties are not expected to be material.
The Title V of the federal Clean Air Act Amendments of 1990 application
review is continuing for both the facility in Warsaw, Indiana and the facility
in Kendallville, Indiana. At this time it appears that the facility in Warsaw,
Indiana will not be required to upgrade equipment or to go through Prevention
of Significant Deterioration review. Determinations regarding the facility in
Kendallville, Indiana have not progressed sufficiently to enable any
conclusions on these issues.
Warsaw Monofill NOVs
Warsaw informed the Indiana Department of Environmental Management that it
overfilled some areas of one cell of its monofill and has received notification
from the Indiana Department of Environmental Management that this constitutes a
violation of its permit. Dalton submitted a request to modify its permit to
allow the overfill to remain. The facility in Warsaw, Indiana has yet to
receive a penalty request from the Indiana Department of Environmental
Management. However, the expected penalty remains at $100,000 to $150,000 based
on similar situations. Although not likely, Dalton could be required to
relocate the overfill material to another location within its permitted
monofill if the modification request is denied.
ADVANCED CAST PRODUCTS, INC.
Overview
On September 8, 1998, ACP Holding Company contributed the capital stock of
Advanced Cast Products, Inc. to Neenah. The fair market value of the
contribution will be added to the amount of restricted payments we are
permitted to make under the indenture listed in the section "Description of
Notes" under the heading "Covenants" and the subheading "Limitation on
Restricted Payments." In connection with the contribution, we assumed $14.9
million of indebtedness of Advanced Cast Products, Inc. We also refinanced
$14.6 million of the assumed indebtedness with borrowings under our senior bank
facilities.
Advanced Cast Products is headquartered in Dublin, Ohio. Advanced Cast
Products produces its products through three principal facilities. The largest
operation, Meadville, manufactures ductile iron castings through both the
traditional green sand molding process and its proprietary Evapcast lost foam
casting process. The Belcher operation manufactures malleable cast iron parts
primarily for the electrical fittings industry. Finally, the Peerless operation
produces bearing adapters for use in rail cars. Peerless is one of only three
U.S. companies that manufacture railroad bearing adapters. Since 1990, Advanced
Cast Products has generated gradually increasing sales and operating income
primarily due to increased volume of products shipped.
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<PAGE> 45
Products and Processes
Advanced Cast Products is a leading independent manufacturer of ductile and
malleable iron castings that are produced through both traditional casting
methods and through Advanced Cast Products' Evapcast lost foam casting process.
Advanced Cast Products' production capabilities also include a range of
finishing operations including austempering and machining. Advanced Cast
Products sells its products primarily to companies in the heavy truck,
construction equipment, railroad, mining, electrical fittings and automotive
industries.
Evapcast and CasTuf are two of Advanced Cast Products' proprietary casting
processes. Evapcast utilizes lost foam molding technology to produce near
net-shape castings. These castings allow for tighter tolerances, a smoother
surface and enhanced part complexity. As a result, Evapcast castings require
significantly less machining. The CasTuf process produces austempered ductile
iron castings with superior strength characteristics. CasTuf replaces more
expensive steel castings, forgings and fabrications. This provides increased
design flexibility. Management believes that Advanced Cast Products is the
first and only ductile foundry in the U.S. with its own in-house austemper
furnace. Additionally, management believes that Advanced Cast Products is one
of only two ductile iron foundries to have developed the lost-foam casting
process. Advanced Cast Products is also a leading provider of in-house machined
castings through its expanded machining capability, which utilizes
state-of-the-art computer numerical controlled machines.
Advanced Cast Products' products and processes have enabled the company to
develop long-term working relationships with many key customers. This has
allowed Advanced Cast Products to retain existing customers, build on its
customer base and obtain favorable pricing.
Customers
Advanced Cast Products serves a diverse base of approximately 400 customers.
Freightliner Corporation, Advanced Cast Products' largest customer, accounted
for more than 16% of Advanced Cast Products' net sales for its fiscal year
ended September 30, 1998. Advanced Cast Products specializes in meeting the
more difficult requirements of its largest customers such as Caterpillar,
Freightliner and Dana. Advanced Cast Products has been presented supplier
awards from each of these OEMs. Advanced Cast Products has earned the ability
to obtain new part awards as they become available.
Advanced Cast Products works closely with its customers from the beginning
of the design process until the shipment of finished parts. Due to this level
of customer service, along with its products and services, Advanced Cast
Products has been able to increase sales to existing customers and expand its
customer base. Advanced Cast Products offers its customers a package, which
includes casting, austempering, machining, painting and assembly. This
combination of products and services reduces the risk of Advanced Cast Products
customers moving their products to other manufacturers.
Advanced Cast Products sells its products to customers in a wide range of
industries. In fiscal year 1997, Advanced Cast Products' net sales were
primarily to the heavy truck, railroad and pipe pressure fitting industries.
Raw Materials
The primary raw materials used by Advanced Cast Products to manufacture iron
castings are steel scrap, alloys and silica sand. There are multiple suppliers
for each of these commodities. Advanced Cast Products has sourcing arrangements
with its suppliers of each of these major raw materials. Due to long standing
relationships with each of its suppliers, Advanced Cast Products believes that
it will continue to be able to secure raw materials from its suppliers at
competitive
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<PAGE> 46
prices. The primary energy sources for Advanced Cast Products' operations are
electricity and natural gas. They are purchased through utilities and
competitive third party bidding.
Although the prices of all raw materials used by Advanced Cast Products vary
over time, the fluctuations in the price of steel scrap are the most
significant to Advanced Cast Products. Advanced Cast Products has arrangements
with most of its industrial customers to adjust industrial casting prices to
reflect scrap price fluctuations.
Competition
Advanced Cast Products operates in the same industry as Neenah. Therefore,
it faces the same competitive environment as Neenah. See "-- Neenah Foundry
Company -- Competition" and "Risk Factors -- Competition."
Manufacturing Facilities
Advanced Cast Products currently operates 3 facilities. Since 1989, Advanced
Cast Products has spent over $14.0 million on capital equipment to:
- expand production capacity,
- improve efficiency,
- add new production capabilities,
- replace equipment and
- improve the quality of its products.
Advanced Cast Products investments have included, for example, state of the art
Disamatic molding lines at both its Meadville and Belcher facilities and
computer numerical controlled machining centers at Meadville. The new molding
lines have increased capacity and reduced operating costs.
In addition, new capital expenditures are underway for Meadville. These
capital expenditures include:
- an autopour unit for its current Disamatic line,
- a larger Disamatic molding line for larger castings,
- a second austemper line, and
- additional computer numerical controlled machines.
Belcher's new capital expenditures also include an autopour unit in addition to
a heat treat furnace. Peerless is adding a new computer numerical controlled
machining center.
Employees
Advanced Cast Products has approximately 90 salaried and approximately 370
hourly employees represented by the United Steelworkers of America. The
collective bargaining agreement for Belcher and Meadville expires in June 1999
and in October 1999, respectively. Neenah is currently beginning discussions
with representatives of the United Steelworkers of America to renew the
collective bargaining agreement for its Belcher facility, and currently
management anticipates renewing the collective bargaining agreement without any
work stoppages.
Litigation
Advanced Cast Products is involved in routine litigation incidental to its
business. We do not believe that such litigation is likely to have a harmful
effect on our financial condition or results of operations.
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<PAGE> 47
Environmental Matters
Advanced Cast Products is subject to environmental, health and safety laws
comparable to those governing Neenah. See "-- Neenah Foundry
Company -- Environmental Matters."
Intellectual Property
Meadville holds trademark rights on two advanced proprietary processes,
Evapcast and CasTuf.Meadville was one of the first foundry operations to
provide completely finished parts through an integrated machining capability.
MERCER FORGE CORPORATION
Overview
On April 3, 1998, we acquired all the capital stock of Mercer Forge
Corporation for $47.0 million in cash (excluding fees and expenses of $0.5
million). Mercer was founded in 1954. Mercer is a leading producer of
complex-shaped forged components for use in transportation, railroad, mining
and heavy industrial applications. Mercer is also a leading producer of
microalloy forgings. Mercer sells directly to OEMs and industrial end users.
Until the mid-1980's, Mercer produced military tank parts. Mercer converted
from a defense contractor to a commercial manufacturer. Today it is one of the
leading suppliers to the heavy duty truck sector. Mercer produces approximately
500 individually forged components. It has developed specialized expertise in
forgings of microalloy steel. Management estimates microalloy steel forgings
account for approximately 40% of its production.
Products and Markets
Mercer designs its products to customer specification. Typical production
runs are 1,000 or more units. Mercer currently operates eight mechanical press
lines. These press lines run from 1,300 tons to 4,000 tons. Mercer's principal
plant is a 130,000 square foot facility located in Mercer, Pennsylvania. Key
markets for Mercer include truck and automotive parts, railroad equipment and
general industrial machinery.
The following is a summary of Mercer's product capabilities, broken out by
the principal customer categories it serves:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
INDUSTRY PRODUCTS
-----------------------------------------------------------------------------------------
<S> <C>
Truck Drive Train Components; Sector Shafts; Knuckles, Spindles;
King Pins
-----------------------------------------------------------------------------------------
Automotive Transmission Gears; Hubs, Front Wheel Universal Components;
Drive Train Yokes; Spindles
-----------------------------------------------------------------------------------------
Mining Equipment Shoes; Fight Bars; Gear Blanks; Hubs; Sleeves
-----------------------------------------------------------------------------------------
Railroad Wheels; Draft Gear Components; Tank Car Valves; Piston
Carries; Articulated Car Bearings; Connecting Rods
-----------------------------------------------------------------------------------------
Off-Highway/ Agriculture Yokes; Spindles; Flanges; Gear Blanks; Hubs; Track Links;
Roller Shafts; Drive Line Components
-----------------------------------------------------------------------------------------
Industrial Gears; Bearings; Wheels; Cams
-----------------------------------------------------------------------------------------
Military Ordinance Projectile Components; Missile Components; Center Guides;
End Connectors; Tank Track Components
-----------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 48
The Forged Components Market
Demand for forged products for civilian application closely follows the
general business cycle and the level demand for capital goods. There is a
consistent base level of demand for replacement parts which is somewhat
inelastic. The strongest expansions in the forging industry coincide with
periods of economic growth. Presently, there are generally improved economic
conditions and a boom in the transportation sector. Therefore, Mercer and most
other domestic forgers are currently experiencing growing demand for their
products.
The Forging Process -- Description and Benefits
Manufacturing Process
Forgings, casting and fabrication are the principal commercial metal
working processes. In forging, metal is pressed, pounded or squeezed under
great pressure, with or without the use of heat, into parts. These parts retain
the metal's original grain flow. This imparts high strength, ductility and
resistance properties.
Forging itself usually entails one of four principal process:
- impression die;
- open die;
- cold; and
- seamless rolled ring forging.
Mercer uses impression die, open die and cold forging, but not seamless rolled
ring forging. Impression die forging is commonly referred to as "closed die"
forging. Closed die forging is the principal process employed by Mercer. It
involves bringing two or more dies containing "impressions" of the part shape
together under extreme pressure. This causes the forging stock to undergo
plastic reformation. Because the metal flow is restricted by die containers,
this process can yield more complex shapes and closer tolerances than the "open
die" forging process. Impression die forging is used to produce:
- military and off-highway track and drive train parts;
- automotive and truck drive train and suspension parts;
- railroad engine, coupling and suspension parts;
- military ordinance parts; and
- other items where close tolerances are required.
In open die forging, metal is not confined laterally by impression dies
during forging. Open die forging progressively works the starting stock into
the desired shape, generally between flat faced dies. Open die forging allows
production of a broad range of shapes and sizes.
Cold forging is a process in which a chemically-lubricated bar slug is
forced into a closed die under extreme pressure. In this way, unheated metal
flows into the desired shape. The cold forging process is best used to
manufacture smaller, cylindrical pats such as shafts, spindles and small net
gears.
Once a rough forging is produced, it must be machined. This process is
known as "finishing" or "conversion." It smooths the component's exterior and
mating surfaces. The finishing process also adds any required specification,
such as groves, threads, bolt holes and brand name markings. The finishing
process can contribute significantly to the value of the end product,
especially in custom situations. Machining can be performed in-house by the
forge, by a machine shop which performs this process exclusively or by the
end-user.
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<PAGE> 49
An internal staff of five engineers designs products to meet customer
specifications incorporating computer assisted design work stations for tooling
design. Mercer's forged products are inherently less expensive and stronger.
Therefore, it has been successful in replacing some cast parts previously
supplied by third party foundries. Management believes that Mercer is an
industry leader in forging techniques using microalloy steel. The use of
microalloy steel produces parts which are lighter and stronger than those
forged from conventional carbon steel.
Customers
Mercer's in-house sales organization sells direct to end users and OEMs. A
key element of Mercer's sales strategy is its ability to develop strong
customer relationships. It develops these customer relationships through
responsive engineering capability, dependable quality and just-in-time
performance.
Raw Materials and Distribution
The principal raw materials used in Mercer's products are carbon and
microalloy steel. Mercer purchases substantially all of its carbon steel from
four principal sources. Mercer typically maintains 30 to 60 days supply on
hand. Mercer buys approximately 40,000 tons of raw steel per year. Mercer has
never suffered an interruption of materials supply. Additionally, management
believes that adequate alternative sources of supply are available within the
immediate vicinity.
Competition
Mercer competes primarily in a highly fragmented industry. The industry
includes several dozen other press forgers and hammer forge shops. Hammer shops
cannot typically match press forgers' high volume, single component
manufacturing, or close tolerance production. Competition in the forging
industry has also historically been determined both by product and geography. A
large number of relatively small forgers across the country carve out their own
product and customer niches. In addition, most end users manufacture some
forgings themselves. End users often maintain a critical minimum level of
production in-house and contracting out the balance. The primary basis of
competition in the forging industry is price. However, engineering, quality and
dependability are also important. Some of Mercer's competitors have
significantly greater resources than Mercer. We cannot assure you that Mercer
will be able to maintain or improve its competitive position in the markets in
which it competes.
Mercer is not aware of any significant offshore competition within its
current product categories. Due to the importance of customer relationships and
engineering capabilities, most foreign producers are unable to compete.
Manufacturing Facilities
Mercer is located in northwest Pennsylvania, about 60 miles north and west
of the Greater Pittsburgh airport. Mercer owns it principal forging facility.
The facility occupies a twenty-one acre site and consists of a 130,000 square
foot manufacturing facility and an adjacent office complex. The facility was
partially rebuilt and expanded by 50,000 square feet in 1989. Mercer also
leases an 18,000 square foot machine shop facility located in Sharon,
Pennsylvania, approximately ten miles from Mercer's headquarters.
Mercer's main plant is able to forge complex components in runs of 500 to
10,000 units. Mercer manufactures approximately 500 individual products (SKUs).
Approximately half run throughout the production year. Heating capacity is
59,000 pounds per hour through eight induction heaters. Mercer's existing
equipment can handle forging weights of 3 to 100 pounds and forging diameters
ranging from 2 1/2 inches to 13 inches. Shear/saw production can handle up to 6
inch diameter billets.
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<PAGE> 50
Mercer presently operates eight press lines consisting of one 4,000 ton, two
3,000 ton, two 2,000 ton and three 1,300 ton press lines. This equipment
includes two new press lines including heating equipment, trim presses and
billet loaders. The plant uses four microalloy conveyors. Mercer is also
equipped with saws and shearers to cut billets from round and square steel
bars. Mercer maintains a fully equipped quality control facility, magniflux
machine, shot cleaning equipment, complete die welding facility and die repair
machine shop.
Backlog
Forging backlog at December 31, 1998 is approximately 16.4 million, based on
firm orders from existing customers. Though Mercer is the sole supplier of
specific components to several of its key accounts, Mercer does not book
backlog until customer release dates are received. Mercer ships most orders
within 30 days of manufacture.
Employees
Mercer currently has 155 full time hourly employees. All of these employees
are represented by a collective bargaining agreement with United Steel Workers
of America. This contract expired March 31, 1999 and there is currently a work
stoppage at the facility. Neenah is currently in discussions with
representatives from the United Steelworkers of America with regard to renewal
of this contract, and does not anticipate a prolonged work stoppage. Management
does not believe that any such work stoppage will have a significant impact on
Neenah as a whole. In addition, Mercer's machining operation has a nine year
contract with the United Steel Workers of America which expires in 2004. Mercer
also occasionally utilizes an outside temporary service in its packing
operation.
Litigation
Mercer is involved in routine litigation incidental to its business. We do
not believe that such litigation is likely to have a harmful effect on our
financial condition or results of operations.
Environmental Matters
Mercer is subject to environmental, health and safety laws comparable to
those governing Neenah. See "-- Neenah Foundry Company -- Environmental
Matters."
DEETER FOUNDRY, INC.
Overview
On March 30, 1998, we acquired the capital stock of Deeter Foundry, Inc. for
$24.3 million (excluding fees and expenses of $0.3 million), consisting of
$20.4 million of cash and a $3.9 million seller note. ACP Holding Company, the
parent company of our parent company, NFC Castings, Inc., issued the $3.9
million seller note to Deeter's selling shareholders. The seller note does not
bear interest and matures on March 30, 1999. Payment of the principal amount of
the seller note is supported by a letter of credit issued under our senior debt
instruments. We financed the cash portion of the purchase price and all fees
and expenses from cash on hand.
Since 1945, Deeter has been producing gray iron castings for the heavy
municipal market. Deeter's municipal casting product line includes manhole
frames and covers, storm sewer inlet frames, grates and curbs, trench grating
and tree grates. Deeter also produces a wide variety of special application
construction castings. These products are utilized in waste treatment plants,
airports, telephone and electrical construction projects. Deeter's centralized
location in Lincoln, Nebraska allows it to service the majority of its
geographical market area with overnight delivery. In addition, Deeter maintains
2 stockyards located in the midwest and western U.S.
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<PAGE> 51
Customers
Deeter serves the same customer and market base as Neenah's heavy municipal
line. See "-- Neenah Foundry Company -- Products, Customers and Markets."
Raw Materials
The primary raw materials used by Deeter to manufacture iron castings are
steel scrap, pig iron, metallurgical coke and silica sand. There are multiple
suppliers for each of these commodities. Deeter has sourcing arrangements with
its suppliers of each of these major raw materials, with the exception of pig
iron. Due to long standing relationships with each of its suppliers, Deeter
believes that it will continue to be able to secure raw materials from its
suppliers at competitive prices. The primary energy sources for Deeter's
operations are electricity and natural gas. They are purchased through
utilities.
The prices of all raw materials used by Deeter vary. Fluctuations in the
price of steel scrap are the most significant to Deeter. Deeter builds to stock
based on forecast sales during any given period and generally does not have any
long term customer contracts. In periods of rapidly rising or falling scrap
prices, prices charged to customers will quickly reflect the current scrap
price. Rapidly fluctuating scrap prices may have a temporary effect on Deeter's
results of operations.
Competition
Deeter operates in the same industry as Neenah and therefore faces the same
competitive environment as Neenah. See "-- Neenah Foundry
Company -- Competition" and "Risk Factors -- Competition."
Manufacturing Facilities
Deeter is located on an 18 acre site in Lincoln, Nebraska with 71,000 square
feet of manufacturing area. Deeter operates three green sand molding lines with
a current annual capacity of 20,000 net saleable tons. Deeter maintains
stockyards located in Denver, Colorado. Their primary distribution yard is
located on site in Lincoln, Nebraska.
Employees
At September 30, 1998 Deeter had 97 full time hourly employees and 25
salaried employees. The workers are non-union. Deeter believes its relations
with its employees are good.
Litigation
Deeter is involved in routine litigation incidental to its business. We do
not believe that such litigation is likely to have a harmful effect on our
financial condition or results of operations.
Environmental Matters
Deeter is subject to environmental, health and safety laws comparable to
those governing Neenah. See "-- Neenah Foundry Company -- Environmental
Matters."
On May 30, 1997, prior to Neenah's acquisition of Deeter, Deeter pleaded
guilty to disposing of hazardous waste without a permit and agreed to pay a
fine of $500,000, perform (by its president, Douglas E. Deeter) 300 hours of
community service and provide information regarding its waste handling and
disposal practices. Management believes that Deeter has complied and that the
matter will result in no further liabilities.
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<PAGE> 52
CAST ALLOYS, INC.
Overview
On December 31, 1998, we acquired Niemin Porter & Co., which conducts its
business under the name Cast Alloys, Inc., and its subsidiary, International
Golf, S.A. de C.V., a corporation organized under the laws of the United
Mexican States. Consideration for this acquisition was $42.0 million in cash,
subject to a post-closing adjustment. We financed the acquisition of Cast
Alloys from a portion of the proceeds we received from issuance of the old
notes.
Cast Alloys' principal business is the manufacture of investment-cast
titanium and stainless steel golf club heads. Cast Alloys operates out of three
principal facilities in Chatsworth, California, Carlsbad, California and
Northridge, California. Cast Alloys' wholly owned subsidiary, International
Golf, operates as a cost center for Cast Alloys. International Golf is also
principally involved in the manufacture of investment-cast titanium and
stainless steel golf club heads. International Golf operates out of three
facilities located in Tijuana, Mexico. Cast Alloys is operated as our wholly
owned subsidiary under the direction of our management.
Customers
Cast Alloys presently sells almost all of its products to Callaway Golf.
Sales for the twelve months ended September 30, 1998 were $68.7 million. $63.0
million, or 91%, was sold to Callaway. Taylor Made was second on the customer
list. Sales to Taylor Made accounted for $2.4 million or 4%. Smaller customers
such as Wilson Sporting Goods made up the remaining 5%.
Raw Materials
Raw materials include titanium ingot, revert titanium, stainless steel, and
other foundry and polishing materials. Cast Alloys has contractual arrangements
for the purchase of titanium ingot from foreign sources at competitive prices.
Competition
Cast Alloy's main competitors include Coastcast Corporation, the primary
supplier of clubs to Taylor Made; Sturm Ruger, Inc., a titanium ammunition
manufacturer; and Selmet, Inc.
Manufacturing Facilities
Cast Alloys manufactures steel and titanium golf club heads for major golf
club manufacturers. Cast Alloy's golf clubs are produced in four facilities.
Steel clubs are cast and polished in separate facilities in Tijuana, Mexico. In
1996 and 1997, Cast Alloys installed three "arc melting" furnaces and four
"cold wall" furnaces in its Northridge, California foundry for the production
of titanium golf club heads. "Arc melting" furnaces have the ability to melt
titanium in an ingot form. "Cold wall" furnaces have the ability to melt
titanium in various forms. Thus, Cast Alloys is able to recycle by melting
scrap titanium pieces. Recycling results in significantly lower unit production
costs.
Employees
Cast Alloys employed approximately 2,158 people as of September 30, 1998. Of
these, approximately 1,960 are employed at Cast Alloy's Mexican facilities.
Litigation
Cast Alloys is involved in routine litigation incidental to its business. We
do not believe that such litigation is likely to have a harmful effect on our
financial condition or results of operations.
Environmental Matters
Cast Alloys is subject to environmental, health and safety laws comparable
to those governing Neenah. See "-- Neenah Foundry Company -- Environmental
Matters."
47
<PAGE> 53
MANAGEMENT
The following table identifies members of the Board of Directors, key
executive officers and other key employees of Neenah.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James K. Hildebrand.............. 62 Chairman of the Board and Chief Executive Officer
William M. Barrett............... 52 President
Gary W. LaChey................... 53 Vice President -- Finance, Treasurer and Secretary
Charles M. Kurtti................ 62 Vice President -- Manufacturing and Engineering
John Z. Rader.................... 50 Vice President -- Human Resources
William J. Martin................ 51 Vice President -- Hartley Controls Corporation
Timothy J. Koller................ 49 Vice President -- Construction Products, Sales,
and Engineering
Frank C. Headington.............. 50 Director -- Product Reliability
David F. Thomas.................. 49 Director
John D. Weber.................... 34 Director
Brenton F. Halsey................ 72 Director
</TABLE>
Mr. Hildebrand is Chairman of the Board and Chief Executive Officer of
Neenah. Mr. Hildebrand has been President and Chief Executive Officer of
Advanced Cast Products, Inc. since 1988, and will continue in that position for
the foreseeable future. Previously, he served as President of the Cast Products
Group of Amcast Industrial Corp. Mr. Hildebrand is also employed by ACP
Holdings. See "Relationships and Related Transactions."
Mr. Barrett is President of Neenah. Mr. Barrett joined Neenah in 1992 and
has served as Vice President and General Manager and General Sales
Manager -- Industrial Castings. From 1985 to 1992, Mr. Barrett was the Vice
President -- Sales for Harvard Industries Cast Products Group.
Mr. LaChey is Vice President -- Finance, Treasurer and Secretary of Neenah.
Mr. LaChey joined Neenah in 1971, serving in a variety of positions of
increasing responsibility in the finance department.
Mr. Kurtti is Vice President -- Manufacturing and Engineering, a position
he has held since 1991. Mr. Kurtti joined Neenah in 1976 as a salesman. Mr.
Kurtti has served as Director of Marketing, Director of
Purchasing -- Engineering and Director -- Manufacturing and Engineering.
Mr. Rader is Vice President -- Human Resources, a position he has held
since 1990. Mr. Rader joined Neenah in 1987, serving as Director -- Personnel
until 1989 and as Director -- Human Resources until 1990.
Mr. Martin is Vice President -- Hartley Controls Corporation, a wholly
owned subsidiary of Neenah, a position he has held since 1996. Previously, Mr.
Martin was Territory Sales Manager at Disamatic, Inc., a molding machine
manufacturer, from 1986 to 1996.
Mr. Koller is Vice President -- Construction Products, Sales and
Engineering for Neenah. Mr. Koller joined Neenah in 1978, serving in a variety
of positions of increasing responsibility in the sales and marketing
departments.
Mr. Headington is Director -- Product Reliability, a position he has held
since 1991. Mr. Headington joined Neenah in 1989 as Manager -- Technical
Services, a position he held until 1991.
Mr. Thomas is a director of Neenah. Mr. Thomas has been a Managing Director
of Citicorp Venture Capital, Ltd. for over five years. Mr. Thomas is a director
of Lifestyle Furnishings International Ltd., Galey & Lord, Inc., Anvil Knitwear,
Inc., Plainwell, Inc., Stage Stores, Inc. and American Commercial Lines LLC.
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<PAGE> 54
Mr. Weber is a director of Neenah. Mr. Weber has been a Vice President at
CVC since 1994. Previously, Mr. Weber worked at Putnam Investments from 1992
through 1994. Mr. Weber is a director of Anvil Knitwear, Inc., Electrocal
Designs, Inc., FFC Holding, Inc., Graphic Design Technologies, Marine Optical,
Inc., Gerber Childrenswear, Inc., Plainwell Paper Company, Sleepmaster, LLC, and
Smith Alarm.
Mr. Halsey is a director of Neenah. Mr. Halsey was the founding Chief
Executive Officer and Chairman of the James River Corporation from 1969 to 1990.
He continued as Chairman until 1992 when he became Chairman Emeritus.
COMPENSATION OF DIRECTORS
Directors of Neenah who are officers or employees of Neenah or its
affiliates are presently not expected to receive compensation for their services
as directors. No determination has yet been made with respect to compensation
for directors of Neenah who are not officers or employees of Neenah or any of
its affiliates. Directors of Neenah will be entitled to reimbursement of their
reasonable out-of-pocket expenses in connection with their travel to and
attendance at meetings of the board of directors or committee meetings of the
board of directors.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of Neenah will be determined by the
Board of Directors of Neenah. None of the historical benefit or compensation
plans of Neenah are described in this prospectus because each were terminated
with respect to the named officers and replaced as a group by a single
compensation plan in connection with the merger (with the exception of a 401(k)
plan and a retirement plan for Mr. Kurtti). The following table sets forth
information concerning compensation received by the five most highly compensated
officers of Neenah for services rendered in the fiscal year ended September 30,
1998, the five month period ended September 30, 1997 ("FM 1997"), the one month
period ended April 30, 1997 ("OM 1997") and the fiscal year ended March 31,
1997.
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<PAGE> 55
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION -----------------------------------
FISCAL ------------------ OTHER ANNUAL OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) SARS(#) PAYOUTS COMPENSATION
- --------------------------- --------- -------- ------- --------------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James K. Hildebrand 1998 $120,000 $84,000 $34,107 -- -- --
Chairman of the Board FM 1997 50,000 -- 10,860
and Chief Executive OM 1997 -- -- --
Officer 1997 -- -- --
William M. Barrett 1998 $148,500 $85,575 $31,490 -- -- --
President FM 1997 55,000 -- 11,430
OM 1997 8,225 -- 1,936
1997 98,700 20,000 26,030
Gary W. LaChey 1998 $145,345 $86,980 $31,469 -- -- --
Vice President -- FM 1997 59,175 -- 10,723
Finance, Treasurer OM 1997 11,833 -- 2,081
and Secretary 1997 137,998 40,000 26,984
Charles M. Kurtti 1998 $137,500 $80,850 $34,510 -- -- --
Vice President -- FM 1997 55,000 -- 11,430
Manufacturing OM 1997 11,000 -- 2,229
and Engineering 1997 127,750 45,000 32,230
John Z. Rader 1998 $137,000 $80,850 $31,303 -- -- --
Vice President -- FM 1997 55,000 -- 11,430
Human Resources OM 1997 11,000 -- 2,229
1997 127,750 40,000 29,725
</TABLE>
- ---------------
(1) The named officers have participated in Neenah's profit sharing, Neenah
401(k) contributions, and excess benefit programs. The aggregate payments
made by Neenah under such programs are listed as Other Annual Compensation.
EMPLOYMENT AGREEMENTS
Prior to the merger, our predecessor company entered into a consulting
agreement with James P. Keating, Jr. a former Senior Vice President of Neenah,
that provides that Mr. Keating will be available to serve as a consultant to
Neenah from July 1, 1997 to June 30, 1999. Neenah, Advanced Cast Products, Inc.,
ACP Holdings and ACP Products L.L.C. entered into an executive employment and
consulting agreement with James K. Hildebrand dated as of September 15, 1998.
Such agreement provides for:
(1) an initial term of employment until September 30, 2001 after which,
barring termination by Neenah under circumstances including gross
negligence, wilful misconduct and commission of some crimes, Mr.
Hildebrand will serve as a consultant to Neenah for a period of two
years with automatic renewal, subject to earlier termination notice by
either party, for successive one year periods up to an additional three
years;
(2) a minimum base salary of $500,000 and a bonus to be calculated based on
achieved EBITDA performance so long as Mr. Hildebrand is employed by
Neenah;
(3) severance benefits;
(4) non-competition, non-solicitation and confidentiality agreements;
(5) an option to purchase common membership units of ACP Products L.L.C.;
and
(6) other terms and conditions of Mr. Hildebrand's employment including
health benefits. In addition, in connection with Neenah's acquisition
of all of the capital stock of Dalton, Dalton
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<PAGE> 56
entered into an employment agreement with K.L. Davidson dated as of
September 8, 1998 to serve as President of Dalton.
Such agreement provides for:
(1) an initial one year term which shall be renewed automatically, subject
to earlier termination notice by either party, for successive one year
terms until Mr. Davidson attains the age of 65;
(2) a minimum base salary and bonus following the end of each fiscal year
so long as Dalton employs Mr. Davidson;
(3) severance benefits;
(4) non-solicitation, non-compete and confidentiality agreements; and
(5) other terms and conditions of Mr. Davidson's employment.
MANAGEMENT INCENTIVE PLAN
Neenah provides performance-based compensation awards to executive officers
and key employees for achievement during each year as part of a bonus plan. Such
compensation awards may be a function of individual performance and consolidated
corporate results. The qualitative and quantitative criteria will be determined
from time to time by the Board of Directors of Neenah.
MANAGEMENT EQUITY PARTICIPATION
In connection with the merger, the then current Management Investors
acquired units representing membership interests in ACP Products, L.L.C., which
represent, in the aggregate, approximately a ten percent beneficial interest in
Neenah (the "Purchased Interests"). In addition, in connection with the recent
acquisitions, some senior managers of some the recently acquired subsidiaries
purchased common interests in ACP Products, L.L.C. The Management Investors and
other employees of Neenah may be given the opportunity to purchase additional
Purchased Interests either in connection with future acquisitions or otherwise.
Upon the termination of employment with Neenah, an employee's Purchased
Interests will be subject to repurchase provisions exercisable by ACP Products,
L.L.C. or its designees. Any Purchased Interests issued in the future are
expected to be subject to rights and restrictions similar to those of the
Purchased Interests purchased in connection with the merger. The price of the
future Purchased Interests will be established by ACP Products, L.L.C. in
consultation with the board of directors or a compensation committee of Neenah.
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<PAGE> 57
OWNERSHIP OF SECURITIES
Neenah's authorized capital stock consists of 11,000 shares of common
stock, par value $100 per share, 1,000 shares of which are issued and
outstanding and owned by Neenah's parent and are pledged to the lenders under
the senior bank facilities.
Neenah's parent's authorized capital stock consists of 1,000 shares of
common stock, par value $.01 per share, of which 1,000 shares are issued and
outstanding and 44,000 shares of 12% cumulative redeemable preferred stock, par
value $.01 per share of which 44,000 shares are issued and outstanding.
Dividends accrue on Neenah's parent's 12% cumulative redeemable preferred
stock, par value $.01 per share at a rate of 12% per annum and accumulate and
compound on a quarterly basis. Neenah's parent's 12% cumulative redeemable
preferred stock, par value $.01 per share ranks prior to the Neenah's parent's
common stock, par value $.01 per share upon liquidation and in respect of
dividends and redemption. The vote of 66% of the holders of the Neenah's
parent's 12% cumulative redeemable preferred stock, par value $.01 per share,
voting as a separate class, is required to
(1) cause Neenah's parent to direct its subsidiaries to make distributions
sufficient to enable Neenah's parent to pay dividends on the Neenah's
parent's 12% cumulative redeemable preferred stock, par value $.01 per
share and
(2) cause the redemption of the Neenah's parent's 12% cumulative redeemable
preferred stock, par value $.01 per share upon the occurrence of some
events.
Except as described in the foregoing, or as otherwise required by law, the
Neenah's parent's 12% cumulative redeemable preferred stock, par value $.01 per
share is not entitled to the right to vote. The Neenah's parent's 12% cumulative
redeemable preferred stock, par value $.01 per share is subject to mandatory
redemption two years after the maturity of the notes. Upon redemption, a holder
of Neenah's parent's 12% cumulative redeemable preferred stock, par value $.01
per share is entitled to receive for each share of Neenah's parent's 12%
cumulative redeemable preferred stock, par value $.01 per share redeemed its per
share liquidation value plus accrued and unpaid dividends.
The table below sets forth the equity ownership of Neenah's parent by each
person or entity who owns five percent or more of any class of voting capital
stock as of June 30, 1998.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
PREFERRED COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK STOCK
------------------------------------ ------------- -------------
<S> <C> <C>
ACP Holding Company..................................... 100% 100%
525 Metro Place North, Suite 330
Dublin, Ohio 43017
</TABLE>
ACP Holding Company is an affiliate of Citicorp Venture Capital, Ltd., and
a wholly-owned subsidiary of ACP Products, L.L.C. The relationship of these
entities is further described in the section entitled "Relationships and Related
Transactions." The Management Investors have, through an investment in ACP
Products, L.L.C., an approximately ten percent beneficial interest in Neenah, as
outlined in the section entitled "Management" under the subheading "Management
Equity Participation."
RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH ACP HOLDING COMPANY
ACP Products, L.L.C. holds all of the issued and outstanding shares of
capital stock of ACP Holdings. ACP Holdings is the parent company of Holdings,
and thus indirectly owns 100% of the
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<PAGE> 58
Common Stock of Neenah. James K. Hildebrand, who serves as the Chairman of the
Board and Chief Executive Officer of Neenah, currently serves as President and
Chief Executive Officer of ACP Holdings. Mr. Hildebrand held such positions
prior to the contribution of the capital stock of ACP to Neenah and received
payment for such services.
SHAREHOLDER RELATIONSHIPS
The Management Investors and institutional investors, including Citicorp
Venture Capital, Ltd., are parties to the Fifth Amended and Restated Limited
Liability Agreement (the "L.L.C. Agreement"). The L.L.C. Agreement contains
provisions with respect to the beneficial equity interests and corporate
governance of Neenah. The L.L.C. Agreement provides that the Investor Group and
the Management Investors, as the only members of ACP Products, L.L.C. holding
beneficial interests in Neenah, have the right to direct all actions taken in
respect of Neenah's parent and Neenah, including, without limitation, appointing
members of the Board of Directors of Neenah and of Neenah's parent.
CONTRIBUTION OF ADVANCED CAST PRODUCTS CAPITAL STOCK
On September 8, 1998, the capital stock of Advanced Cast Products was
contributed to Neenah by ACP Holdings. In connection with the contribution,
Neenah assumed $14.9 million of indebtedness of Advanced Cast Products, $14.6 of
which was refinanced through borrowings of tranche A loans. In connection with
the contribution of the capital stock of Advanced Cast Products to Neenah,
(1) Neenah's parent issued a $4.2 million senior subordinated note to CVC
in exchange for a $4.2 million current pay obligation of Advanced Cast
Products to CVC and
(2) $6.7 million of outstanding subordinated debt of Advanced Cast Products
to ACP Holdings and Neenah's parent was contributed to the capital of
Advanced Cast Products.
REGISTRATION RIGHTS AGREEMENT
Neenah entered into a registration rights agreement with the Investor Group
and the Management Investors. In accordance with the terms of the registration
rights agreement, some holders of Neenah's Common Stock have the right to
require Neenah, at Neenah's sole cost and expense and subject to limitations, to
register under the Securities Act of 1933 or list on any recognized stock
exchange all or part of the Common Stock beneficially owned by such holders (the
"Registrable Securities"). All such holders will be entitled to participate in
all registrations by Neenah or other holders, subject to limitations. In
connection with all such registrations, Neenah agreed to indemnify all
beneficial owners of Registrable Securities against some liabilities, including
liabilities under the Securities Act of 1933 and other applicable state or
foreign securities laws. Registrations pursuant to the registration rights
agreement will be made, if applicable, on the appropriate registration form and
may be underwritten registrations.
DESCRIPTION OF SENIOR BANK FACILITIES
The following is a summary of the material terms of the credit agreement,
dated April 30, 1997, as amended and restated as of September 12, 1997, April 3,
1998 and September 8, 1998, and as amended as of November 18, 1998, among
Neenah, NFC Castings, Inc., The Chase Manhattan Bank, as administrative agent
and collateral agent, and the lenders named therein. The senior bank facilities
consist of
(1) term loan facilities in an aggregate principal amount of $145.0
million,
(2) an acquisition loan facility in an aggregate principal amount of up to
$50.0 million and
(3) a revolving loan facility in an aggregate principal amount of up to
$50.0 million.
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<PAGE> 59
The following summary outlines basic terms of the senior bank facilities.
For a more complete understanding of the senior bank facilities, we encourage
you to read the credit agreement, copies of which will be made available upon
request.
THE FACILITIES
Term Loan Facilities
The term loan facilities consist of two tranches of term loans. The tranche
A term loans were made available on April 3, 1998 and were borrowed in a single
drawing of $20.0 million on September 8, 1998 in connection with the acquisition
of Dalton and Advanced Cost Products. The tranche B term loans were originally
made in a single drawing of $55.0 million on April 3, 1998, of which $55.0
million was outstanding at June 30, 1998.
On September 8, 1998, the lenders and the agent agreed to commit to make
additional tranche B term loans in an aggregate principal amount of $70.0
million, which was fully drawn by Neenah on that date. The tranche A loans
mature on September 30, 2003 and the tranche B loans mature on September 30,
2005. Installments of the tranche A loans are due in aggregate principal amounts
of
- $0.75 million per quarter until September 30, 1999,
- $1.0 million per quarter from December 31, 1999 until September 30, 2002
and
- $1.25 million per quarter thereafter until maturity.
Installments of the initial tranche B term loans are due in aggregate principal
amounts of
- $0.25 million per quarter until September 30, 2003 and
- $6.25 million per quarter thereafter until maturity.
Installments of the additional tranche B loans are due in aggregate principal
amounts of $8.75 million per quarter commencing on December 31, 2003 and
continuing thereafter until maturity.
Acquisition Loan Facility
The lenders and the agent have agreed to provide loans under the
acquisition loan facility from time to time to Neenah in connection with
permitted acquisitions under the credit agreement in an aggregate principal
amount at any time outstanding not to exceed $50.0 million. Prior to September
8, 2000, the date on which the acquisition loan facility terminates, loans under
the acquisition loan facility may be paid and reborrowed.
On September 8, 1998, Neenah borrowed $29.0 million under the acquisition
loan facility to acquire Dalton. Future acquisition loans may be drawn until
September 8, 2000 with all amounts drawn maturing on June 30, 2004.
Installments of acquisition loans outstanding on September 8, 2000 will be
repaid quarterly beginning on such date until maturity. The aggregate principal
amount due quarterly on and after the termination of the acquisition loan
facility is calculated by multiplying the principal amount outstanding, together
with accrued but unpaid interest, on September 8, 2000 by 6.25%.
Revolving Credit Facility
The revolving credit facility consists of a revolving loan facility in an
aggregate principal amount of $50.0 million. Neenah is entitled to draw amounts
under the revolving credit facility for general corporate purposes, including
permitted acquisitions. The revolving credit facility includes a $15.0 million
sub-limit for letters of credit available on same-day notice. The revolving
credit facility will mature on April 30, 2002.
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<PAGE> 60
Availability
Availability of new drawings under the acquisition loan facility and the
revolving credit facility is subject to various conditions precedent typical of
bank facilities of this type including, among other things
- the absence of any material adverse condition or material adverse change
in or affecting the business,
- property,
- assets,
- nature of assets,
- liabilities or condition of Neenah and
- no event of default having occurred and being continuing.
Acquisition loans may be drawn until September 8, 2000 and the revolving
credit facility may be borrowed, repaid and reborrowed until April 30, 2002.
INTEREST
Interest on borrowings under the senior bank facilities accrues quarterly
with reference to the base rate plus the applicable interest margin. However
Neenah may elect that all or a portion of the borrowings under the facility bear
interest at the Adjusted LIBO Rate plus the applicable interest margin. The base
rate is defined as the higher of
(1) the certificate of deposit rate as published by the Federal Reserve
Bank of New York, plus 1%,
(2) the Prime Rate, as defined in the senior bank facilities, in effect on
such day and
(3) the federal funds rate in effect on such date, plus 1/2%. The Adjusted
LIBO Rate is defined as the rate at which eurodollar deposits for one,
two, three or six months are quoted in the interbank eurodollar market,
as adjusted to reflect statutory reserve requirements to which any
lender is subject.
The senior bank facilities contain provisions under which commitment fees
and interest rates are adjusted in increments based on the ratio of consolidated
net debt to consolidated EBITDA in effect from time to time. Subject to some
exceptions, for Adjusted LIBO Rate
(a) the applicable interest margin for tranche A loans, loans under the
revolving credit facility and the acquisition loans and
(b) the applicable interest margin for the initial tranche B loans and the
additional tranche B loans are, in the case of this leverage ratio
(1) greater than or equal to 4.5:1.0, 2.50% and 2.75%, respectively,
(2) greater than or equal to 4.0:1.0 but less than 4.5:1.0, 2.25% and
2.50%, respectively,
(3) greater than or equal to 3.5:1.0 but less than 4.0:1.0, 2.00% and
2.25%, respectively,
(4) greater than or equal to 3.0:1.0 but less than 3.5:1.0, 1.75% and
2.00%, respectively and
(5) less than 3.0:1.0, 1.50% and 2.00%, respectively, with the
applicable interest margin for base rate loans being 1.0% less than
the corresponding margin for Adjusted LIBO Rate loans (but not less
than 0%).
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<PAGE> 61
Currently all outstanding tranche A loans bear interest at the Adjusted
LIBO Rate plus 2.50%, all outstanding tranche B loans bear interest at the
Adjusted LIBO Rate plus 2.75%, and all outstanding acquisition loans bear
interest at the Adjusted LIBO Rate plus 2.50%.
FEES
Neenah has agreed to pay fees with respect to the senior bank facilities,
including:
(1) fees on the unused commitments of lenders equal to .50% on the undrawn
portion of the commitments in respect of the senior bank facilities,
which fees will be reduced to .375% if the leverage ratio is less than
3.5:1.0;
(2) letter of credit fees on the aggregate face amount of outstanding
letters of credit equal to the then applicable borrowing margin for
Adjusted LIBO Rate loans under the revolving credit facility and a
issuing bank fee for the letter of credit issuing bank;
(3) annual administration fees; and
(4) agent, arrangement and other similar fees.
SECURITY; GUARANTEES
The obligations of Neenah under the senior bank facilities are irrevocably
guaranteed, jointly and severally, by NFC Castings, Inc., the parent of Neenah,
and by each existing and subsequently acquired or organized subsidiary of
Neenah. In addition, the credit agreement and the guarantees thereunder are
secured by substantially all of the assets of Neenah, Neenah's parent and its
domestic subsidiaries including:
(1) a first priority pledge of all the capital stock of Neenah and of each
existing and subsequently acquired or organized subsidiary of Neenah
and
(2) a perfected first priority security interest in, and mortgage on,
substantially all tangible and intangible assets of Neenah and the
guarantors, including
- accounts receivable,
- documents,
- inventory,
- equipment,
- investment property,
- general intangibles,
- real property,
- cash and cash accounts and
- proceeds of the foregoing in each case subject to stated exceptions.
MANDATORY AND OPTIONAL PREPAYMENT
The term loan facilities and the acquisition loans are required to be
prepaid, subject to conditions and exceptions, with
(1) 100% of the net proceeds of any incurrence of indebtedness, subject to
exceptions, by Neenah, Neenah's parent or its subsidiaries,
(2) 100% of the net proceeds of some asset dispositions,
(3) 50% of excess cash flow, as such term is defined in the credit
agreement, on a consolidated basis and
(4) 100% of net proceeds from any insurance recovery events, subject to
re-investment rights.
Subject to exceptions, mandatory prepayments of debt must be made pro rata,
among the acquisition loan facility and the term loan facility. In the case of
an offering of qualified subordinated debt prior to September 8, 2000, mandatory
prepayments must be made first to retire
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<PAGE> 62
borrowings under the acquisition loan facility with the remaining proceeds of
any such offering used to retire pro rata borrowings under the term loan
facility.
The senior bank facilities provide that Neenah may prepay loans in whole or
in part without penalty, subject to minimum prepayments and reimbursement of the
lenders' breakage and redeployment costs in the case of prepayment of Adjusted
LIBO Rate loans.
AFFIRMATIVE, NEGATIVE AND FINANCIAL COVENANTS
The credit agreement contains a number of covenants that, among other
things, restrict the ability of ACP Holdings, Neenah and its subsidiaries to
- dispose of assets,
- incur additional indebtedness,
- incur or guarantee obligations,
- amend other debt instruments,
- pay dividends,
- create liens on assets,
- make investments, loans or advances,
- make acquisitions,
- engage in mergers or consolidations,
- change the business conducted by
Neenah and its subsidiaries,
- make capital expenditures, or
- engage in some transactions with affiliates and otherwise restrict some
corporate activities.
In addition, the credit agreement requires Neenah to comply with specified
financial ratios and tests, including a maximum leverage ratio, an interest
coverage ratio and a minimum consolidated net worth test.
EVENTS OF DEFAULT
The senior bank facilities contain customary events of default, including
- non-payment of principal,
- interest or fees,
- violation of covenants,
- inaccuracy of representations or warranties in any material respect,
- cross default to other indebtedness,
- - bankruptcy,
- - ERISA events,
- - material judgments and liabilities,
- - actual or asserted invalidity of any material security interest and
- - change of control.
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<PAGE> 63
DESCRIPTION OF NOTES
GENERAL
You can find the definitions of some of the terms used in this description
under the subheading "Definitions."
We will issue the exchange notes under the terms of the indenture dated as
of April 30, 1997 between Neenah, the guarantor subsidiaries and United States
Trust Company of New York, as trustee. The terms of the exchange notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939.
The form and terms of the series F senior subordinated notes due 2007 are
the same as the form and terms of the old notes except that
(1) the exchange notes will have been registered under the Securities Act
of 1933 and thus will not bear restrictive legends restricting their
transfer under the Securities Act of 1933 and
(2) holders of exchange notes will not be entitled to rights of holders of
the old notes under the registration rights agreement which terminate
upon the consummation of the exchange offer.
The following description is a summary of the material provisions of the
indenture. It does not restate that agreement in its entirety. We urge you to
read the indenture and the registration rights agreement because they, and not
this description, define your rights as holders of these exchange notes. Copies
of the of the indenture and the registration rights agreement may be obtained by
contacting us at the address and telephone number set forth at the end of the
section entitled "Prospectus Summary."
BRIEF DESCRIPTION OF THE EXCHANGE NOTES
The Notes
These exchange notes:
- are general unsecured obligations of Neenah;
- are subordinated in right of payment to all of our and our guarantor
subsidiaries' current and future senior debt;
- are equal in right of payment to all of our and our guarantor
subsidiaries' existing and future senior subordinated indebtedness; and
- are ahead of all our and our guarantor subsidiaries' other current and
future Indebtedness that expressly provides that it is not senior to
these exchange notes and the subsidiary guarantees.
PRINCIPAL, MATURITY AND INTEREST
We will issue the exchange notes with a maximum aggregate principal amount
of $87.0 million, of which $87.0 million has been issued on the date of original
issuance. We will issue the exchange notes in denominations of $1,000 and
integral multiples of $1,000. The exchange notes will mature on May 1, 2007.
Interest on these exchange notes will accrue at the rate of 11 1/8% per
annum and will be payable semi-annually on May 1 and November 1, commencing on
May 1, 1999. We will make each interest payment to the holders of record of
these exchange notes on the immediately preceding April 15 and October 15.
Interest on these exchange notes will accrue from the date of original issuance
or, if interest has already been paid from the date it was most recently paid.
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<PAGE> 64
METHODS OF RECEIVING PAYMENTS ON THE EXCHANGE NOTES
Principal of any premiums and interest on the exchange notes will be
payable, and the exchange notes may be exchanged or transferred, at our office
or agency in the Borough of Manhattan, the City of New York. Initially this
office shall be the corporate trust office of the trustee at 114 West 47th
Street, New York, N.Y. 10036, Attn: Gerard Ganey. However, at our option, we may
make interest payments by check mailed to the holders at their address set forth
in the register of holders.
No service charge will be made for any registration of transfer or exchange
of exchange notes. However, we may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in connection
therewith.
OPTIONAL REDEMPTION
After May 1, 2002, we may redeem all or part of these exchange notes upon
not less than 30 nor more than 60 days notice. The exchange notes will be
redeemed during the twelve-month period beginning on May 1 of the years
indicated below at the redemption prices expressed as percentages of principal
amount plus accrued and unpaid interest set forth below:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
2002........................................................ 105.5625%
2003........................................................ 103.7083%
2004........................................................ 101.8542%
2005 and thereafter......................................... 100.0000%
========
</TABLE>
Public Equity Offering Redemption
At any time prior to May 1, 2000, we may on one or more occasions redeem up
to 40% of the aggregate principal amount of the exchange notes originally issued
under the indenture. The redemption price will be 111.125% of the principal
amount of the exchange notes, plus accrued and unpaid interest to the redemption
date, with the net cash proceeds of one or more public equity offerings;
provided that:
(1) at least 60% of the original aggregate principal amount of exchange
notes remains outstanding immediately after the occurrence of each such
redemption; and
(2) the redemption must occur within 90 days of the date of the closing of
such equity offering.
Except as described in the above paragraph, we will not have the option of
redeeming the notes prior to May 1, 2002.
Notwithstanding (1) and (2) above, Neenah will not be permitted to redeem
any existing notes unless, substantially concurrently with such redemption,
Neenah redeems an aggregate principal amount of exchange notes, rounded to the
nearest integral multiple of $1,000, equal to
<TABLE>
<S> <C> <C>
the aggregate principal amount of the aggregate principal amount of
existing notes to be redeemed the series of the exchange notes
- ------------------------------------------- X outstanding
the aggregate principal amount of immediately prior to such proposed
existing notes outstanding immediately redemption
prior to such proposed redemption
</TABLE>
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Similarly, Neenah will not be permitted to redeem the exchange notes
unless, substantially concurrently with such redemption, Neenah redeems an
aggregate principal amount of each series of existing notes, rounded to the
nearest integral multiple of $1,000, equal to
<TABLE>
<S> <C> <C>
the aggregate principal amount of
exchange notes to be redeemed the aggregate principal amount of
- ------------------------------------------- X the series of the existing notes
the aggregate principal amount of outstanding
exchange notes outstanding immediately immediately
before the proposed redemption
</TABLE>
Change of Control Call
The exchange notes will be subject to redemption at the option of Neenah,
prior to May 1, 2002, at any time within 180 days after a change of control
event. Neenah must give notice to each holder of exchange notes to be redeemed
not less than 30 nor more than 60 days prior to the scheduled redemption.
Exchange notes may be redeemed in amounts of $1,000 or an integral multiple of
$1,000. The redemption price will be equal to the sum of
(1) the principal amount of the exchange notes plus
(2) accrued and unpaid interest, if any, to the redemption date, subject to
the right of holders of record on the relevant record date to receive
interest due on the relevant interest payment date that is on or prior
to the date of redemption plus
(3) the Applicable Premium.
Each holder of exchange notes will also have rights to require Neenah to
purchase such exchange notes upon the occurrence of a change of control event
described under the section "Change of Control" below.
SELECTION
If less than all of the exchange notes are to be redeemed at any time, the
trustee will select exchange notes for redemption as follows
(1) on a pro rata basis,
(2) by lot or
(3) by such other method as the trustee in its sole discretion shall deem
to be fair and appropriate.
However, no exchange note of $1,000 or less will be redeemed in part.
If any exchange note is to be redeemed in part only, the notice of
redemption relating to such exchange note shall state the portion of the
principal amount of the exchange note to be redeemed. A new note in principal
amount equal to the unredeemed portion of the exchange note will be issued in
the name of the holder upon cancellation of the original note.
RANKING
Neenah
The indebtedness evidenced by the exchange notes will be unsecured senior
subordinated indebtedness of Neenah. The payment of the principal of any
premiums and interest on the exchange notes
(1) is subordinate in right of payment, as set forth in the indenture, to
all existing and future Senior Indebtedness of Neenah,
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(2) will rank equal in right of payment with all existing and future senior
subordinated indebtedness of Neenah, including the existing notes, and
(3) will be senior in right of payment to all existing and future
subordinated obligations of Neenah.
The exchange notes will also be effectively subordinated to any Secured
Indebtedness of Neenah to the extent of the value of the assets securing such
indebtedness. However, payment from the money or the proceeds of U.S. Government
Obligations held in any defeasance trust described under "Defeasance" below is
not subordinated to any Senior Indebtedness or subject to the restrictions in
the indenture.
Guarantor Subsidiaries
The indebtedness evidenced by a subsidiary guaranty will be unsecured
senior subordinated indebtedness of the guarantor subsidiary issuing such
subsidiary guaranty. The payment of a subsidiary guaranty
(1) is subordinate in right of payment, as set forth in the indenture, to
all existing and future senior indebtedness of such guarantor
subsidiary,
(2) will rank equal in right of payment with the existing and future senior
subordinated indebtedness of such guarantor subsidiary and
(3) will be senior in right of payment to all existing and future
subordinated obligations of such guarantor subsidiary.
Each subsidiary guaranty will also be effectively subordinated to any Secured
Indebtedness of the guarantor subsidiary to the extent of the value of the
assets securing such indebtedness.
Current Outstanding Debt
As of December 31, 1998, on a pro forma basis after giving effect to the
recent acquisitions, the offering and the application of the net proceeds
therefrom, Neenah and the guarantor subsidiaries would have had outstanding
(1) $145.1 million, excluding $4.6 million of outstanding letters of
credit, of aggregate principal amount of Senior Indebtedness, all of
which is Secured Indebtedness,
(2) $195.0 million aggregate principal amount of senior subordinated
indebtedness, other than the Indebtedness represented by the exchange
notes, and
(3) no Indebtedness that is subordinate and junior in right of repayment to
senior subordinated indebtedness.
Future Indebtedness
The indenture contains limitations on the amount of additional Indebtedness
that Neenah and its Subsidiaries may incur. However, under circumstances
described under the subheading "Covenants -- Limitation on Indebtedness" below,
the amount of Indebtedness could be substantial. Also, the Indebtedness may be
Senior Indebtedness of Neenah or a guarantor subsidiary.
Only Indebtedness of Neenah or a guarantor subsidiary that is Senior
Indebtedness will rank senior to the exchange notes and the relevant subsidiary
guaranty under the provisions of the indenture.
The exchange notes and each subsidiary guaranty will in all respects rank
equal with all other senior subordinated indebtedness of Neenah and the relevant
guarantor subsidiary, including the existing notes.
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Neenah and each guarantor subsidiary has agreed in the indenture that it
will not incur, directly or indirectly, any Indebtedness which is subordinate or
junior in ranking to Senior Indebtedness unless such Indebtedness is senior
subordinated indebtedness, or is expressly subordinated in right of payment to
senior subordinated indebtedness. Unsecured Indebtedness of Neenah or a
guarantor subsidiary is not deemed to be subordinated or junior to Secured
Indebtedness merely because it is unsecured.
Payment Restrictions Upon Default
The following is considered paying the exchange notes:
(1) paying principal of, or any premiums or interest on, the exchange
notes;
(2) making any deposit following the provisions described under the
subsection "Defeasance" below, and
(3) purchasing, redeeming or otherwise retiring any exchange notes other
than from funds held in a defeasance trust following the provisions
described under the subsection "Defeasance" below.
Neenah may not pay the exchange notes if:
(1) any Senior Indebtedness of Neenah is not paid when due or
(2) any other default on Senior Indebtedness of Neenah occurs and the
maturity of the Senior Indebtedness is accelerated under its terms.
However, Neenah may pay the exchange notes if the default has been cured or
waived and any such acceleration has been rescinded or such Senior Indebtedness
has been paid in full.
In addition, Neenah may pay the exchange notes without regard to the above
limitations if Neenah and the trustee receive written notice approving any
payment from the representative of the holders of the Senior Indebtedness when
either of the events set forth in clause (1) or (2) of the immediately preceding
sentence has occurred and is continuing.
Blockage Period
During the continuance of any default, other than a default described in
clause (1) or (2) above, Neenah may not pay the exchange notes for a period.
This restriction applies to any Designated Senior Indebtedness with maturity
that may be accelerated immediately without further notice, except to effect the
acceleration, or the expiration of any applicable grace periods. This period
will commence upon the receipt by the trustee, with a copy to Neenah, of a
written blockage notice of the default from the representative of the holders of
the Designated Senior Indebtedness. This blockage notice will specify an
election to effect a payment blockage period and which will end 179 days after
or earlier if the payment blockage period is terminated:
(1) by written notice to the trustee and Neenah from the Person or Persons
who gave the blockage notice,
(2) because the default giving rise to the blockage notice is no longer
continuing or
(3) because such Designated Senior Indebtedness has been repaid in full.
Notwithstanding the provisions described in the immediately preceding
sentence, unless the holders of such Designated Senior Indebtedness have, or the
representative of such holders has, accelerated the maturity of such Designated
Senior Indebtedness, Neenah may resume payments on the exchange notes after the
end of any payment blockage period, including any missed payments.
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Not more than one blockage notice may be given in any consecutive 360-day
period. This time period applies irrespective of the number of defaults with
respect to Designated Senior Indebtedness during such period. However, if any
blockage notice within such 360-day period is given by or on behalf of any
holders of Designated Senior Indebtedness other than the Bank Indebtedness, the
representative of the Bank Indebtedness may give another blockage notice within
such period. In no event, however, may the total number of days during which any
payment blockage period or periods is in effect exceed 179 days in the aggregate
during any 360 consecutive day period.
Payments or Distributions. Upon any payment or distribution of the assets
of Neenah upon a total or partial liquidation or dissolution or reorganization
of or similar proceeding relating to Neenah or its property, the holders of
Senior Indebtedness of Neenah will be entitled to receive payment in full of the
Senior Indebtedness of Neenah before the exchange noteholders are entitled to
receive any payment.
In addition, until the Senior Indebtedness of Neenah is paid in full, any
payment or distribution to which noteholders would be entitled but for the
subordination provisions of the indenture will be made to holders of the Senior
Indebtedness of Neenah as their respective interests may appear.
If a payment or distribution is made to exchange noteholders in violation
of the subordination provisions such exchange noteholders are required to (1)
hold such payment or distribution in trust for the holders of Senior
Indebtedness and (2) pay it over to them as their respective interests may
appear.
Default
If payment of the exchange notes is accelerated because of an event of
default, Neenah or the trustee shall promptly notify the holders of the
Designated Senior Indebtedness or the representative of the holders of the
acceleration. Neenah may not pay the exchange notes until five Business Days
after the holders or the representative of the holders of the Designated Senior
Indebtedness receive notice of the acceleration. Thereafter, Neenah may pay the
Notes only if the subordination provisions of the indenture permit payment at
that time.
The terms of the subordination provisions described above with respect to
Neenah's obligations under the exchange notes apply equally to a guarantor
subsidiary and the obligations of each guarantor subsidiary under its subsidiary
guaranty.
Due to the subordination provisions contained in the indenture, in the
event of insolvency, creditors of Neenah or a guarantor subsidiary who are
holders of Senior Indebtedness of Neenah or a guarantor subsidiary may recover
more, ratably, than the exchange noteholders. Creditors of Neenah who are not
holders of Senior Indebtedness of Neenah or of Senior Subordinated Indebtedness,
including the exchange notes, may recover less, ratably, than holders of Senior
Indebtedness of Neenah.
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SUBSIDIARY GUARANTEES
These exchange notes are guaranteed by the following Subsidiaries of
Neenah:
Hartley Controls Corporation
Neenah Transport, Inc.
Deeter Foundry, Inc.
Mercer Forge Corporation
A & M Specialties, Inc.
Advanced Cast Products, Inc.
Belcher Corporation
Peerless Corporation
Dalton Corporation
Dalton Corporation, Warsaw Manufacturing Facility
Dalton Corporation, Ashland Manufacturing Facility
Dalton Corporation, Kendallville Manufacturing Facility
Stryker Machining Facility Co.
Niemin Porter & Co.
Each of Neenah's principal operating subsidiaries and future issuers of
subsidiary guarantees will jointly and severally, irrevocably Guarantee all
obligations of Neenah under the indenture and the exchange notes. The subsidiary
guarantees will be on an unsecured senior subordinated basis and will cover the
performance and punctual payment when due, whether at Stated Maturity, by
acceleration or otherwise, of all obligations of Neenah under the indenture and
the exchange notes. This payment responsibility includes payment of principal of
or interest on the exchange notes, expenses, indemnification or otherwise.
In addition to the amount stated above, the guarantor subsidiaries will
agree to pay any and all expenses incurred by the trustee or the holders in
enforcing any rights under the subsidiary guarantees. These expenses include
reasonable counsel fees and expenses.
Each subsidiary guaranty will be limited in amount to the maximum amount
that can be Guaranteed by the applicable guarantor subsidiary without rendering
such subsidiary guaranty voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
As described further under the subheading "Covenants -- Future Guarantor
Subsidiaries" below, Neenah will cause
(a) each Restricted Subsidiary that is a Domestic Subsidiary which Incurs
Indebtedness and
(b) each Restricted Subsidiary that is not a Domestic Subsidiary and that
after the Original Issue Date enters into a Guarantee of any of the
obligations of Neenah, Neenah's parent or any of Neenah's Subsidiaries
under the terms of the senior bank facilities
to guarantee payment of the exchange notes.
Each subsidiary guaranty is a continuing guarantee and shall
(1) remain in full force and effect until payment in full of all the
guaranteed obligations,
(2) be binding upon each guarantor subsidiary and
(3) enure to the benefit of and be enforceable by the trustee, the holders
and their successors, transferees and assigns.
A subsidiary guaranty will be released upon the sale of the capital stock,
or all or substantially all of the assets, of the applicable guarantor
subsidiary if the sale is made in compliance with the indenture.
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Each of Neenah's guarantor subsidiaries have also Guaranteed or will also
Guarantee Indebtedness of Neenah Incurred under the terms of the senior bank
facilities and the existing notes.
CHANGE OF CONTROL
Change of Control Events
Upon the occurrence of any of the following events, each a "change of
control," each holder will have the right to require Neenah to repurchase all or
any part of such holder's exchange notes. The purchase price will be a cash
payment in an amount equal to 101% of the principal amount of the exchange note,
plus accrued and unpaid interest, if any, to the date of purchase. The purchase
price is subject to the right of holders of record on the relevant record date
to receive interest due on the relevant interest payment date, following the
provisions of the offer described below and the other procedures set forth in
the indenture.
The following events constitute a change of control:
(1) prior to the earlier to occur of the first public offering of voting
stock of ACP Holdings, Holdings or Neenah, the Permitted Holders cease
to be entitled by "beneficial ownership," contract or otherwise, to
elect or cause the election of directors of Neenah having a majority of
the total voting power of the Board of Directors of Neenah. Neenah will
not be obligated to purchase the exchange notes, whether the Permitted
Holders lose their entitlement as a result of issuance of securities of
Neenah, any merger, consolidation, liquidation or dissolution of
Neenah, any direct or indirect transfer of securities by any Permitted
Holder or otherwise. For purposes of this clause (1), the Permitted
Holders shall be deemed to beneficially own any voting stock of a
parent corporation so long as one or more of the Permitted Holders
beneficially own, as defined in Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934 of voting stock, directly or
indirectly, in the aggregate a majority of the voting power of the
voting stock of the parent corporation;
(2) after the first public offering of voting stock of ACP Holdings,
Neenah's parent or Neenah
- any person or group, as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, other than one or more
of the Permitted Holders, is or becomes the beneficial owner, as
defined in clause (1) above, directly or indirectly, of voting stock
that represents more than 40% of the aggregate ordinary voting power
of all classes of the voting stock of ACP Holdings, Neenah's parent or
Neenah voting together as a single class, and
- either
(x) the Permitted Holders beneficially own, as defined in clause (1)
above, directly or indirectly, in the aggregate voting stock that
represents a lesser percentage of the aggregate ordinary voting
power of all classes of the voting stock of ACP Holdings, Neenah's
parent, or Neenah as the case may be, voting together as a single
class, than such other person or group and are not entitled, by
voting power, contract or otherwise, to elect directors of ACP
Holdings, Neenah's parent or Neenah having a majority of the total
voting power of the board of directors of ACP Holdings, Neenah's
parent or Neenah, as the case may be, or
(y) such other person or group is entitled to elect directors of ACP
Holdings, Neenah's parent or Neenah having a majority of the total
voting power of the board of directors of ACP Holdings, Neenah's
parent or Neenah;
(3) after the first public offering of voting stock of ACP Holdings,
Neenah's parent or Neenah, during any period of not greater than two
consecutive years beginning after the Issue Date, individuals who at
the beginning of any period constituted
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(x) the board of directors of ACP Holdings, Neenah's parent or Neenah,
as the case may be, plus
(y) any new directors whose election by the board of directors, or whose
nomination for election by shareholders was approved by the
Permitted Holders or by the board of directors. These new directors
must have been elected by a vote of a majority of the directors of
ACP Holdings, Neenah's parent or Neenah, as the case may be, then
still in office who were either directors at the beginning of the
period or whose election or nomination for election was previously
so approved, cease for any reason to have a majority of the total
voting power of the board of directors of ACP Holdings, Neenah's
parent or Neenah, as the case may be; or
(4) any sale, lease, or other transfer in one or more related transactions
is made by us or our Restricted Subsidiaries of all or substantially
all of our and our Restricted Subsidiaries' consolidated assets to any
Person.
However, notwithstanding the occurrence of a change of control, Neenah
shall not be obligated to purchase the exchange notes based on this covenant if
it has exercised its rights to redeem all of the exchange notes as described
under the section entitled "Optional Redemption."
Change of Control Notice
Within 30 days following any change of control, we will mail a notice to
each holder with a copy to the trustee stating, among other things:
(1) that a change of control has occurred and that such holder has the
right to require us to purchase all or any portion of such holder's
exchange notes;
(2) that the payment will be in the form of cash;
(3) that the purchase price will be equal to 101% of the principal amount
of the exchange note, plus accrued and unpaid interest, if any, to the
date of repurchase, subject to the right of holders of record on a
record date to receive interest on the relevant interest payment date;
(4) the circumstances and relevant facts and financial information
regarding any change of control;
(5) the repurchase date, which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed; and
(6) our instructions, consistent with this covenant, that a holder must
follow in order to have its exchange notes or any portion of the
exchange notes purchased.
Procedures for Repurchase upon Change of Control
We will comply, to the extent applicable, with the requirements of Section
14(e) of the Securities Exchange Act of 1934 and any other securities laws or
regulations in connection with the repurchase of exchange notes based on this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, we will comply with the
applicable securities laws and regulations and will not be deemed to have
breached our obligations described in the indenture.
Risk Associated with Change of Control
The change of control purchase feature is a result of negotiations between
us and Chase Securities Inc. Management has no present intention to engage in a
transaction involving a change of control. However, it is possible that we or
our parent would decide to do so in the future. Subject to the limitations
discussed below, we could enter into these transactions in the future, including
acquisitions or other recapitalizations, that would not constitute a change of
control under the
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indenture. However, these transactions could increase the amount of indebtedness
outstanding at such time or otherwise affect our capital structure or credit
ratings.
The occurrence of a change of control would constitute a default under the
senior bank facilities. Our future Senior Indebtedness may contain prohibitions
of events which would constitute a change of control or require such Senior
Indebtedness to be repurchased upon a change of control.
Moreover, the exercise by the holders of their right to require us to
repurchase the exchange notes could cause a default under our Senior
Indebtedness, even if the change of control itself does not, due to the
financial effect of such repurchase on us.
Finally, our ability to pay cash to the holders upon a repurchase may be
limited by our then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any repurchases
required in connection with a change of control. Our failure to purchase the
exchange notes in connection with a change of control would result in a default
under the indenture.
COVENANTS
The indenture will covenants including, among others, the following:
Limitation on Indebtedness
We will not, and will not permit any Restricted Subsidiary to, Incur any
Indebtedness unless on the date of such Incurrence the Consolidated Coverage
Ratio exceeds 2.00 to 1.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness:
(1) Indebtedness consisting of revolving credit, working capital or letters
of credit financing in an aggregate principal amount at any time
outstanding not in excess of the greater of $35.0 million and the
Borrowing Base in effect from time to time, in each case less the
aggregate amount of all repayments of principal actually made
thereunder since the Original Issue Date with Net Available Cash from
Asset Dispositions under clause (3)(A) of the first paragraph of the
covenant described under the subheading entitled "Limitation on Sales
of Assets and Subsidiary Stock;"
(2) Indebtedness of us owing to and held by any Wholly Owned Subsidiary or
Indebtedness of our Restricted Subsidiary owing to and held by us or
any Wholly Owned Subsidiary. However, any subsequent issuance or
transfer of any Capital Stock or any other event which results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or
any subsequent transfer of any such Indebtedness, except to Neenah or a
Wholly Owned Subsidiary, will be deemed, in each case, to constitute
the Incurrence of such Indebtedness by the issuer of Indebtedness;
(3) Indebtedness of us represented by the notes;
(4) any Indebtedness of us and any of our Restricted Subsidiaries, other
than the Indebtedness described in clauses (1) or (2) above,
outstanding on the Original Issue Date and Indebtedness Incurred under
Section 4.03(a) of the Original Indenture prior to the Issue Date;
(5) Indebtedness of us and any of our Restricted Subsidiaries
(A) in respect of judgment, appeal, surety, performance and other like
bonds, bankers' acceptances and letters of credit provided by us and
any of our Restricted Subsidiaries in the ordinary course of their
business and which do not secure other Indebtedness and
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(B) under Commodity Agreements, Currency Agreements and Interest Rate
Agreements that are designed to protect us or our Restricted
Subsidiaries against fluctuations in commodity prices for raw
materials used by them, interest rates or currency exchange rates
and not for the purposes of speculation;
(6) Indebtedness represented by our Guarantees of Indebtedness of any of
our Restricted Subsidiaries, or in respect of letters of credit
provided by us to support such Indebtedness, or Guarantees by our
Restricted Subsidiary of our Indebtedness or that of a Restricted
Subsidiary, or in respect of letters of credit provided by a
Restricted Subsidiary to support such Indebtedness; provided, however,
that only Indebtedness that is Incurred in compliance with this
covenant may be guaranteed under this clause (6);
(7) Purchase Money Indebtedness, industrial revenue bonds or similar
Indebtedness and Capitalized Lease Obligations of us and any of our
Restricted Subsidiaries in an aggregate principal amount at any time
outstanding not in excess of 10% of Total Assets;
(8) Indebtedness of us and any of our Restricted Subsidiaries consisting
of guarantees, indemnities or obligations in respect of purchase price
adjustments, in connection with the acquisition or disposition of any
business, assets or Subsidiary of us permitted under the indenture;
(9) Indebtedness of us and any of our Restricted Subsidiaries, to the
extent the proceeds of Indebtedness are immediately used after the
Incurrence of Indebtedness to purchase notes tendered in an offer to
purchase made as a result of a change of control;
(10) Indebtedness of us or any of our Restricted Subsidiaries owed to any
Person in connection with liability insurance provided by such Person
to us or such Restricted Subsidiary, following reimbursement or
indemnification obligations to such Person, including obligations in
respect of letters of credit for the benefit of such Person, in each
case Incurred in the ordinary course of business;
(11) Indebtedness of us consisting of guarantees of up to an aggregate
principal amount of $2.0 million of borrowings by Management Investors
in connection with purchases of Voting Stock of Holdings on or after
the Original Issue Date and following the limitations described under
the subheading "Limitation on Restricted Payments;"
(12) Indebtedness of us or any of our Restricted Subsidiaries in an
aggregate principal amount at any time outstanding not in excess of
$15.0 million which Indebtedness may be incurred under clause (1)
above; and
(13) any Refinancing Indebtedness incurred in respect of any Indebtedness
Incurred under the first paragraph of this covenant or under clause
(1), (2), (4), (7), (9) or (13) of this second paragraph.
Even if the first two paragraphs of this covenant permit us to Incur
Indebtedness:
- we may not Incur any Indebtedness subordinate or junior in ranking in any
respect to any of our Senior Indebtedness unless the Indebtedness is
senior subordinated indebtedness or is expressly subordinated in right of
payment to our senior subordinated indebtedness;
- we may not Incur any Secured Indebtedness which is not Senior
Indebtedness of Neenah unless contemporaneously therewith effective
provision is made to secure the exchange notes equally and ratably with,
or on a senior basis to, in the case of Indebtedness subordinated in
right of payment to the exchange notes, such Secured Indebtedness for so
long as such Secured Indebtedness is secured by a Lien;
- our guarantor subsidiary may not Incur any Indebtedness if such
Indebtedness is subordinate or junior in ranking in any respect to any
Senior Indebtedness of the guarantor subsidiary unless such Indebtedness
is senior subordinated indebtedness of such guarantor subsidiary
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or is expressly subordinated in right of payment to senior subordinated
indebtedness of such guarantor subsidiary; and
- our guarantor subsidiary may not incur any Secured Indebtedness which is
not Senior Indebtedness of such guarantor subsidiary unless
contemporaneously therewith effective provision is made to secure the
subsidiary guaranty equally and ratably with or on a senior basis to, in
the case of Indebtedness subordinated in right of payment to such
subsidiary guaranty such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien.
Limitation on Restricted Payments
We will not, and will not permit any Restricted Subsidiary, directly or
indirectly, to:
(1) declare or pay any dividend or make any distribution on or in respect
of its Capital Stock (including any payment in connection with any
merger or consolidation involving Neenah) except dividends or
distributions
(x) payable solely in its Capital Stock, other than Disqualified Stock,
and except dividends or distributions payable to us or any
Restricted Subsidiary and
(y) if a Restricted Subsidiary has shareholders other than us or other
Restricted Subsidiary, to its other shareholders on a pro rata basis
or on a basis that results in the receipt by us or a Restricted
Subsidiary of dividends or distributions of equal or greater value;
(2) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of us or any Restricted Subsidiary held by Persons other than us
or another Restricted Subsidiary;
(3) purchase, repurchase, redeem, defease or otherwise acquire or retire
for value prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment any subordinated obligations except for the
purchase, repurchase or other acquisition of subordinated obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one
year of the date of acquisition; or
(4) make any Investment, other than a Permitted Investment, in any Person
including any such dividend, distribution, purchase, redemption,
repurchase, defeasance, other acquisition, retirement, Investment or
payment being herein referred to as a "Restricted Payment" if at the
time we or such Restricted Subsidiary makes a Restricted Payment:
(a) a default will have occurred and be continuing or would result
therefrom;
(b) we could not Incur at least $1.00 of additional Indebtedness under
the first paragraph of the covenant described under "-- Limitation
on Indebtedness;" or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash,
to be determined in good faith by the Board of Directors, whose
determination will be conclusive and evidenced by a resolution of
the Board of Directors) declared or made subsequent to the Original
Issue Date would exceed the sum of:
(1) 50% of the Consolidated Net Income accrued during the period,
treated as one accounting period, from the Original Issue Date to
the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income will be a deficit, minus 100% of such
deficit);
(2) 100% of the aggregate net proceeds received by us, including the
fair market value as determined in good faith by the Board of
Directors, whose determination will be conclusive and evidenced
by a resolution of the Board of Directors, of
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property received by us. However, the property must be related,
ancillary or complementary to our business and the business of
the Restricted Subsidiaries conducted on the Original Issue Date,
as a capital contribution or from the issue or sale of Capital
Stock, which is not Disqualified Stock, of us or Holdings
subsequent to the Original Issue Date, Issuance or Sale of
Capital Stock does not include the issuance or sale to any of our
Subsidiaries or an employee stock ownership plan or other trust
established by us or any of our Subsidiaries to the extent the
purchase by such plan or trust is financed by Indebtedness of
such plan or trust and for which we or our Subsidiary are liable,
directly or indirectly, as a guarantor or otherwise, including by
the making of cash contributions to such plan or trust which are
used to pay interest or principal on such Indebtedness;
(3)(A) the amount by which our Indebtedness or our Restricted
Subsidiaries' Indebtedness is reduced on our balance sheet
upon the conversion or exchange, other than by a Subsidiary,
of any of our or our Restricted Subsidiaries' Indebtedness
issued subsequent to the Original Issue Date and convertible
or exchangeable for our Capital Stock which is not
Disqualified Stock less
(B) the amount of any cash or other property (other than such
Capital Stock) distributed by us or any Restricted Subsidiary
upon such conversion or exchange, including any such exchange
following the exercise of a conversion right or privilege in
connection with which cash is paid in lieu of the issuance of
fractional shares or scrip;
(4) the aggregate Net Cash Proceeds received subsequent to the
Original Issue Date by us or Holdings, other than from any
Restricted Subsidiary, upon the exercise of any options or
warrants to purchase our or our parent's Capital Stock which is
not Disqualified Stock; and
(5) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from
(A) payments of dividends, repayments of the principal of loans,
return of capital or advances or other transfers of assets to
us or our Restricted Subsidiary from Unrestricted
Subsidiaries or
(B) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the
definition of "Investment") or the receipt of proceeds from
the sale or other disposition of any portion of any
Investment in an Unrestricted Subsidiary not to exceed, in
the case of any Unrestricted Subsidiary, the amount of
Investments previously made by us or our Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was
included in the calculation of the amount of Restricted
Payments.
The first paragraph of this covenant will not prohibit:
(1) any purchase, redemption, retirement or other acquisition of Capital
Stock or subordinated obligations of us made by exchange for, or out
of the proceeds of the substantially concurrent sale of, our Capital
Stock (other than Disqualified Stock and other than Capital Stock
issued or sold to a Subsidiary or an employee stock ownership plan or
other trust established by us or any of our Subsidiaries to the extent
the purchase by such plan or trust is financed by Indebtedness of such
plan or trust and for which we or our Subsidiary are liable, directly
or indirectly, as a guarantor or otherwise, (including by the making
of cash contributions to such plan or trust which are used to pay
interest or principal on such Indebtedness); provided, however, that
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(A) such purchase, redemption, retirement or other acquisition will be
excluded in the calculation of the amount of Restricted Payments
and
(B) the Net Cash Proceeds from such sale to the extent so used will be
excluded from clause (4)(C)(2) of the first paragraph of this
covenant;
(2) any purchase, defeasance, retirement, redemption or other acquisition
of
(A) subordinated obligations of Neenah made by exchange for, or out of
the proceeds of the substantially concurrent sale of, Indebtedness
of Neenah which is permitted to be Incurred under the second
paragraph of the covenant described under "Limitation on
Indebtedness" or
(B) subordinated obligations of a Restricted Subsidiary made by
exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of any Restricted Subsidiary or
Neenah which is permitted to be Incurred under the second paragraph
of the covenant described under "Limitation of Indebtedness";
provided, however, that such purchase, defeasance, retirement,
redemption or other acquisition will be excluded in the calculation
of the amount of Restricted Payments;
(3) any purchase, redemption, retirement or other acquisition of
Disqualified Stock made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Disqualified Stock; provided,
however, that such purchase, redemption, retirement or other
acquisition will be excluded in the calculation of the amount of
Restricted Payments;
(4) any purchase or redemption of subordinated obligations from Net
Available Cash to the extent permitted by the covenant described under
"Limitation on Sales of Assets and Subsidiary Stock"; provided,
however, that such purchase or redemption will be excluded in the
calculation of the amount of Restricted Payments;
(5) upon the occurrence of a change of control and within 60 days after
the completion of the offer to repurchase the exchange notes under the
covenant described under "Change of Control" above (including the
purchase of all notes tendered), any purchase, defeasance, retirement,
redemption or other acquisition of subordinated obligations required
under the terms of the subordinated obligations as a result of such
change of control; provided, however, that such purchase, defeasance,
retirement, redemption or other acquisition will be included in the
calculation of the amount of Restricted Payments;
(6) dividends paid within 60 days after the date of declaration of
dividends if at such date of declaration such dividend would have
complied with this covenant; provided, however, that such dividend
will be included in the calculation of the amount of Restricted
Payments;
(7) the repurchase, for cash or notes, of shares of, or options or
warrants to purchase shares of, or payments to Holdings to enable
Holdings to repurchase shares of, or options or warrants to purchase
shares of, Capital Stock of Holdings, Neenah or any of our
Subsidiaries from present or former Management Investors in an amount
not in excess of $2.0 million in any one year and $5.0 million in the
aggregate since the Original Issue Date; provided, however, that the
amount of such repurchase will be included in the calculation of the
amount of Restricted Payments;
(8) payments in lieu of fractional shares in amount not in excess of
$250,000 in the aggregate since the Original Issue Date;
(9) payments by us to our parent to pay Federal, state and local taxes to
the extent such taxes are attributable to us and our Restricted
Subsidiaries; provided, however, that such payments will be excluded
from the calculation of the amount of Restricted Payments;
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(10) loans, advances, dividends or distributions by us to Holdings to pay
dividends on the common stock of Holdings following a public equity
offering of such stock; but only to the extent that such loans,
advances, dividends or distributions do not exceed 6% per annum of the
net proceeds received by us in such public equity offering; provided,
however, that the amount of such loans, advances, dividends or
distributions will be included in the amount of Restricted Payments;
or
(11) in each case to the extent such payments by our parent are
attributable to us and our Restricted Subsidiaries, payments by us to
our parent not to exceed an amount necessary to permit our parent to
(A) make payments in respect to its indemnification obligations owing to
directors, officers or other Persons under our parent's charter or
by-laws or under written agreements with any such Person,
(B) make payments in respect of its other operational expenses, other
than taxes, incurred in the ordinary course of business, or
(C) make payments in respect of indemnification obligations and costs
and expenses incurred by Holdings in connection with any offering of
common stock of Holdings; provided, however, that all such payments
will be included in the calculation of the amount of Restricted
Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
We will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to
(A) pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness owed to us,
(B) make any loans or advances to us or
(C) transfer any of its property or assets to us, except:
(1) any encumbrance or restriction under an agreement in effect at or
entered into on the Original Issue Date;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary under an agreement relating to any Indebtedness entered
into prior to the date on which such Restricted Subsidiary was
acquired or designated as a Restricted Subsidiary by us, other than
as consideration in, in contemplation of, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions following which such
Restricted Subsidiary became a Restricted Subsidiary or was
otherwise acquired by us;
(3) any encumbrance or restriction under
(x) an agreement constituting Refinancing Indebtedness of
Indebtedness Incurred under an agreement referred to in clause
(1) or (2) of this covenant or this clause (3) or contained in
any amendment to an agreement referred to in clause (1) or (2) of
this covenant or this clause (3) or
(y) Indebtedness Incurred under clause (1) of the second paragraph of
the covenant described above under the subheading entitled
"Limitation on Indebtedness;"
However, the encumbrances and restrictions contained in
(A) any such refinancing agreement or amendment referred to in
clause (x) above must be, collectively, no more restrictive
in any material respect than the encumbrances and
restrictions contained in such agreements, as determined in
good faith by us, and
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(B) any instrument relating to any Indebtedness referred to in
clause (y) above, must be, collectively, no more restrictive,
as determined in good faith by us, any material respect than
the encumbrances and restrictions contained in the Senior
Bank Facilities as in effect on the Original Issue Date;
(4) in the case of clause (3) above, any encumbrance or restriction
contained in security agreements or mortgages securing Indebtedness
of a Restricted Subsidiary which are not prohibited by the covenant
described under the subheading entitled "Limitation on Liens" to the
extent such encumbrances or restrictions restrict the transfer of
the property or assets subject to such security agreements or
mortgages;
(5) any encumbrance or restriction existing under or by reason of
applicable law;
(6) customary non-assignment provisions of any licensing agreement or of
any lease;
(7) any encumbrance or restriction contained in contracts for sales of
assets otherwise permitted by the indenture;
(8) with respect to a Restricted Subsidiary, any encumbrance or
restriction imposed under an agreement that has been entered into
for the sale of all or substantially all of the Capital Stock of
such Restricted Subsidiary; and
(9) Purchase Money Obligations for property acquired in the ordinary
course of business that impose restrictions of the type referred to
in clause (3) of this covenant.
Limitation on Sales of Assets and Subsidiary Stock
We will not, and will not permit any Restricted Subsidiary to, make any
Asset Disposition unless:
(1) we or such Restricted Subsidiary receives consideration at the time of
such Asset Disposition at least equal to the fair market value of the
shares and assets subject to such Asset Disposition. Consideration
included relief from any other person assuming sole responsibility for
any liabilities, contingent or otherwise. Fair market value will be met
to the extent an Asset Disposition or a series of Asset Dispositions
involves a fair market value greater than $1.0 million (and shall be
determined, to the extent an Asset Disposition (or a series of related
Asset Dispositions) involves a fair market value greater than $1.0
million) fair market value will be determined in good faith by the
Board of Directors, whose determination will be conclusive and
evidenced by a resolution of the Board of Directors. Fair market value
will be met to the extent an Asset Disposition or a series of Asset
Dispositions;
(2) in the case of an Asset Disposition or a series of related Asset
Dispositions having a fair market value of $1.0 million or more, at
least 80%, or 100% in the case of lease payments, of the consideration
of the Asset Disposition received by us or such Restricted Subsidiary
is in the form of cash or cash equivalents; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by us or a Restricted Subsidiary:
(A) first, to the extent we or such Restricted Subsidiary elects or is
required by the terms of any Senior Indebtedness
(1) to prepay, repay or purchase our Senior Indebtedness or Senior
Indebtedness of a Wholly Owned Subsidiary or
(2) in the case of a sale by a Restricted Subsidiary which is not a
Wholly Owned Subsidiary to prepay, repay or purchase Senior
Indebtedness of such Restricted Subsidiary, in each case other
than Indebtedness owed to us or our Affiliate,
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within 365 days after the later of the date of such Asset
Disposition or the receipt of such Net Available Cash;
(B) second, to the extent of the balance of Net Available Cash after
application under clause (A), to the extent we or such Restricted
Subsidiary elects, to reinvest or enter into a binding contract to
elect or reinvest in Additional Assets, including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by us or another Restricted Subsidiary,
within 365 days from the later of such Asset Disposition or the
receipt of such Net Available Cash;
(C) third, to the extent of the balance of Net Available Cash after
application under clauses (A) and (B), to offer to purchase Original
Notes to the extent required by the Original Indenture;
(D) fourth, to the extent of the balance of Net Available Cash after
application under clauses (A), (B) and (C), to offer to purchase the
Add-on Notes to the extent required by the Add-on indenture and the
Second Add-on indenture;
(E) fifth, to the extent of the balance of such Net Available Cash after
application under clauses (A), (B), (C) and (D), to make an offer to
purchase exchange notes subject to the conditions set forth in
section of this covenant; and
(F) sixth, to the extent of the balance of such Net Available Cash after
application under clauses (A), (B), (C), (D) and (E), to fund any
corporate purpose, to the extent consistent with any other
applicable provision of the indenture.
However, in connection with any prepayment, repayment or purchase of
Indebtedness under clause (A) above, we or our Restricted Subsidiary will retire
such Indebtedness and will cause the related loan commitment, if any, to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, Neenah and its
Restricted Subsidiaries will not be required to apply any Net Available Cash
under this covenant except to the extent that the aggregate Net Available Cash
from all Asset Dispositions in any year which are not applied under this
covenant exceed $5.0 million in such year.
For the purposes of clause (2) of this covenant, the following are deemed
to be cash
(w) the assumption of Indebtedness of Neenah, other than Disqualified Stock
of Neenah, or any Restricted Subsidiary and the release of Neenah or
such Restricted Subsidiary from all liability on such Indebtedness in
connection with such Asset Disposition,
(x) securities received by Neenah or any Restricted Subsidiary from the
transferee that are promptly converted by Neenah or such Restricted
Subsidiary into cash,
(y) Indebtedness of any Restricted Subsidiary that is no longer a
Restricted Subsidiary as a result of such Asset Disposition, to the
extent that Neenah and each other Restricted Subsidiary is released
from any Guarantee of such Indebtedness in connection with such Asset
Disposition, and
(z) consideration consisting of Indebtedness of Neenah or any Restricted
Subsidiary.
In the event of an Asset Disposition that requires the purchase of exchange
notes under clause (3)(E) of the first paragraph of this covenant, Neenah will
be required to purchase exchange notes tendered following an offer. Neenah's
offer for the exchange notes will commence within 30 days following the
expiration of the 365 day period referred to in clause (3)(B) of the first
paragraph of this covenant or, if Neenah so elects, at any time within such 365
day period. The purchase price will be 100% of the principal amount of the
exchange of notes plus accrued and
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unpaid interest, if any, to the date of purchase following the procedures,
including prorationing in the event of oversubscription set forth in the
indenture.
If the aggregate purchase price of exchange notes tendered following the
offer is less than the Net Available Cash allotted to the purchase of the
exchange notes, Neenah will apply the remaining Net Available Cash under clause
(3)(F) of the first paragraph of this covenant. Upon completion of the purchase
of the notes tendered following the offer, the remaining amount of Net Available
Cash, if any, will be reset at zero.
Neenah will not be required to make an offer for exchange notes under this
covenant if the Net Available Cash available after application of the proceeds
as provided in clauses (A) and (B) of section (3) of the first paragraph of this
covenant is less than $5.0 million. This lesser amount will be carried forward
for purposes of determining whether an offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition.
Neenah will comply, to the extent applicable, with the requirements of
Section 14(e) of the Securities Exchange Act of 1934 and any other securities
laws or regulations in connection with the repurchase of Notes under this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Neenah will comply with
the applicable securities laws and regulations and will not be deemed to have
breached its obligations under this covenant of the indenture.
Limitation on Transactions with Affiliates
Neenah will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, enter into or conduct any transaction, including the purchase,
sale, lease or exchange of any property or the rendering of any service, with
any Affiliate of Neenah (an "Affiliate Transaction") on terms
(1) that are less favorable to Neenah or such Restricted Subsidiary, as the
case may be, than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an
Affiliate and
(2) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $1.0 million, are not in writing and have not been
approved by a majority of the members of the Board of Directors having
no material direct or indirect financial interest in or with respect to
such Affiliate Transaction.
In addition, if such Affiliate Transaction involves an amount in excess of $5.0
million, a fairness opinion must be obtained from a nationally recognized
appraisal or investment banking firm.
The restrictions outlined in the first paragraph of this covenant will not
prohibit
(1) any Restricted Payment or Permitted Investment permitted to be made
under the covenant described under the subheading entitled "Limitation
on Restricted Payments,"
(2) fees, compensation or employee benefit arrangements paid to, and any
indemnity provided for the benefit of, directors, officers or employees
of Neenah, Neenah's parent or any Subsidiary of Neenah in the ordinary
course of business or any Indebtedness permitted to be Incurred under
clause (7) of the second paragraph of the covenant described under the
subheading entitled "Limitation on Indebtedness," or any payments in
respect of the fees, compensation or employee benefit arrangements,
(3) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise following the provisions of employment
arrangements, stock options and stock ownership plans approved by the
Board of Directors,
(4) transactions under agreements entered into or in effect on the Original
Issue Date, including amendments to the agreements entered into after
the Original Issue Date, provided that the terms of any such amendment
are not, in the aggregate, less favorable to
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Neenah or such Restricted Subsidiary than the terms of such agreement
prior to such amendment,
(5) loans or advances to employees that are Affiliates of Neenah in the
ordinary course of business, but in any event not to exceed $2.0
million in the aggregate outstanding at any one time,
(6) any transaction between Neenah and a Restricted Subsidiary or between
Restricted Subsidiaries, so long as the other stockholders of any
participating Restricted Subsidiaries which are not Wholly Owned
Subsidiaries are not themselves Affiliates of Neenah or
(7) payments with respect to Indebtedness Incurred under clause (8) of the
second paragraph of the covenant described under the subheading
entitled "Limitation on Indebtedness."
Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries
Neenah will not sell any shares of Capital Stock of a Restricted
Subsidiary, and will not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell any shares of its Capital Stock, except
(1) to Neenah or a Wholly Owned Subsidiary,
(2) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted
Subsidiary,
(3) directors' qualifying shares or
(4) in a Public Equity Offering as a result of or after which a Public
Market exists.
The proceeds of any sale of such Capital Stock permitted by clause (2) must be
treated as Net Available Cash from an Asset Disposition and must be applied
under the covenant described under the subheading entitled "Limitation on Sales
of Assets and Subsidiary Stock."
Limitation on Liens
Neenah will not, and will not permit any guarantor subsidiary to, directly
or indirectly, create or permit to exist any Lien (the "Initial Lien") on any of
its property or assets, including Capital Stock, whether owned on the Original
Issue Date or thereafter acquired, securing any Indebtedness other than
(1) in the case of Neenah, Senior Indebtedness of Neenah or
(2) in the case of a guarantor subsidiary, Senior Indebtedness of a
guarantor subsidiary.
Notwithstanding the above paragraph, Neenah or a guarantor subsidiary may
create or permit a Lien if:
(1) in the case of Liens on Neenah's property or assets, contemporaneously
therewith effective provision is made to secure the notes; and
(2) in the case of Liens on any guarantor subsidiary's property or assets,
effective provision is made to secure the notes equally and ratably
with the subsidiary guaranty of such guarantor subsidiary; and
(3) in the case of Indebtedness expressly subordinated in right of payment
to the exchange notes and such subsidiary guaranty, effective provision
is made to secure the notes on a senior basis to such obligation for so
long as such obligation is so secured.
However, the preceding will not require Neenah or any Restricted Subsidiary to
equally and ratably secure the notes if the Initial Lien consists of Permitted
Liens.
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Any Lien created for the benefit of the holders of the exchange notes under
the paragraphs above shall provide by its terms that such Lien shall be
automatically and unconditionally released and discharged upon the release and
discharge of the Initial Lien.
Securities and Exchange Commission Reports
Notwithstanding that Neenah may not be required to be or remain subject to
the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, Neenah will file with the Securities and Exchange Commission, and
provide the trustee and noteholders and prospective exchange noteholders (upon
request) with, the annual reports and the information, documents and other
reports which are specified in Sections 13 and 15(d) of the Securities Exchange
Act of 1934. Neenah also will comply with the other provisions of TIA Sec.
314(a).
Future Guarantor Subsidiaries
Neenah will cause
(a) each Restricted Subsidiary that is a Domestic Subsidiary which Incurs
Indebtedness and
(b) each Restricted Subsidiary that is not a Domestic Subsidiary and that
after the Issue Date enters into a Guarantee of any of the obligations
of Neenah, Neenah's parent or any of Neenah's Subsidiaries under the
senior bank facilities to execute and deliver to the trustee a
supplemental indenture following which such Subsidiary will Guarantee
payment of the exchange notes.
However, such Subsidiary shall not be required to execute and deliver a
supplemental indenture following this section in the event that such Subsidiary
is a party to the indenture or the supplemental indenture at the time of such
Incurrence of Indebtedness. Each subsidiary guaranty will be limited to an
amount not to exceed the maximum amount that can be Guaranteed by that
Subsidiary without rendering the subsidiary guaranty, as it relates to such
Subsidiary, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
Limitation on Lines of Business
Neenah will not, and will not permit any Restricted Subsidiary to, engage
in any business other than
(1) a Related Business and
(2) the making of Permitted Investments and the operations of any business
that is part of a Permitted Investment.
Holdings will not engage in any business other than managing its investment
in Neenah.
Limitation on Sale/Leaseback Transactions
Neenah will not, and will not permit any Restricted Subsidiary to, enter
into any Sale/Leaseback Transaction with respect to any property unless
(1) Neenah or such Restricted Subsidiary would be entitled to Incur
Indebtedness in an amount equal to the Attributable Debt with respect
to such Sale/Leaseback Transaction under the covenant described under
the subheading entitled "Limitation on Indebtedness" and
(2) (x) the net cash proceeds received by Neenah or any Restricted
Subsidiary in connection with such Sale/Leaseback Transaction are
at least equal to the fair market value (in the case of
Sale/Leaseback Transactions involving amounts in excess of $1.0
million, as determined by the Board of Directors, whose
determination will be conclusive and evidenced by a resolution of
the Board of Directors) of such property and
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(y) the transfer of such property is permitted by, and Neenah applies
the proceeds of such transaction in compliance with, the covenant
described under the subheading entitled "Limitation on Sale of
Assets and Subsidiary Stock."
MERGER AND CONSOLIDATION
Neenah will not consolidate with or merge with or into, or convey, transfer
or lease all or substantially all its assets to, any Person, unless:
(1)(x) the resulting, surviving or transferee Person (the "successor
company") will be a corporation, limited liability company, limited
partnership or business trust organized and existing under the laws
of the United States of America, any State of the United States of
America or the District of Columbia and
(y) the successor company, if not Neenah, will expressly assume by an
indenture supplemental hereto executed and delivered to the
trustee, in form satisfactory to the trustee, all the obligations
of Neenah under the exchange notes and the indenture;
(2) immediately after giving effect to such transaction, and treating
any Indebtedness which becomes an obligation of the successor
company or any Restricted Subsidiary as a result of such
transaction as having been Incurred by the successor company or
such Restricted Subsidiary at the time of such transaction, no
default will have occurred and be continuing;
(3) except in the case of a merger the sole purpose of which is to
change Neenah's jurisdiction of incorporation, immediately after
giving effect to such transaction, the successor company would be
able to Incur an additional $1.00 of Indebtedness under the first
paragraph of the covenant described under the subheading entitled
"Limitation on Indebtedness;"
(4) immediately after giving effect to such transaction, the successor
company will have Consolidated Net Worth in an amount which is not
less than the Consolidated Net Worth of Neenah immediately prior to
such transaction and
(5) Neenah will have delivered to the trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply
with the indenture.
However, clauses (2), (3) and (4) above do not prohibit any Restricted
Subsidiary from consolidating with, merging into or transferring all or part of
its properties and assets to Neenah.
The successor company will succeed to, and be substituted for, and may
exercise every right and power of, Neenah under the indenture. However, the
predecessor company in the case of a conveyance, transfer or lease of all or
substantially all its assets will not be released from the obligation to pay the
principal of and interest on the exchange notes.
DEFAULTS
Events of Default
Each of the following is an event of default:
(1) a default in any payment of interest on any exchange note when due,
whether or not such payment is prohibited by the provisions described
under the heading "Ranking" above, continued for 30 days;
(2) a default in the payment of principal of any exchange note when due at
its Stated Maturity upon
- optional redemption,
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- upon required repurchase,
- upon declaration or
- otherwise, whether or not such payment is prohibited by the
provisions described under the heading "Ranking" above;
(3) the failure by Neenah to comply with its obligations under the covenant
described under the heading "Merger and Consolidation" above;
(4) the failure by Neenah to comply for 30 days after notice with any of
its obligations under the covenants described under the heading "Change
of Control" or "Covenants" above, in each case, other than a failure to
purchase exchange notes;
(5) the failure by Neenah or any guarantor subsidiary to comply for 60 days
after notice with its other agreements contained in the exchange notes
or the indenture;
(6) the failure by Neenah or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or
the acceleration of any such Indebtedness by the holders of
Indebtedness because of a default, if the total amount of such
Indebtedness unpaid or accelerated exceeds $5.0 million or its foreign
currency equivalent;
(7) bankruptcy, insolvency or reorganization of Neenah or a Restricted
Subsidiary;
(8) the rendering of any judgment or decree in excess of $5.0 million or
its foreign currency equivalent (net of amounts paid within 30 days of
any such judgment or decree under any insurance, indemnity, bond,
surety or similar instrument) against Neenah or a Restricted Subsidiary
by a court or other adjudicatory authority of competent jurisdiction
for which Neenah or the Restricted Subsidiary, as applicable, is not
fully insured by a third Person and
(A) an enforcement proceeding is commenced with respect to such
judgment or decree or
(B) such judgment or decree remains outstanding the later of
(1) the day which is the sixtieth day after the judgment is
rendered and
(2) the day on which any right to appeal expires (the "judgment
default provision"); or
(9) any subsidiary guaranty ceases to be in full force and effect, except
as contemplated by the terms of the subsidiary guaranty, or any
guarantor subsidiary denies or disaffirms its obligations under the
indenture or any subsidiary guaranty and such default continues for 10
days.
The events listed in clauses (1)-(9) above constitute events of default
whatever the reason for any such event of default and whether it is voluntary or
involuntary or is effected by operation of law or following any judgment, decree
or order of any court or any order, rule or regulation of any administrative or
governmental body.
However, a default under clauses (4) or (5) above will not constitute an
event of default until
(a) the trustee or the holders of 25% in principal amount of the
outstanding notes notify Neenah of the default and
(b) Neenah does not cure such default within the time specified in clauses
(4) and (5) hereof after receipt of such notice.
Effect of Event of Default
If an event of default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the outstanding exchange notes by notice
to Neenah may declare the principal
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of and accrued but unpaid interest on all the exchange notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately.
If an event of default relating to bankruptcy, insolvency or reorganization
of Neenah occurs and is continuing, the principal of and interest on all the
exchange notes will become immediately due and payable without any declaration
or other act on the part of the trustee or any holders. Under some
circumstances, the holders of a majority in principal amount of the outstanding
exchange notes may rescind any such acceleration with respect to the exchange
notes and its consequences.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an event of default occurs and is continuing, the trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the holders unless such holders
have offered to the trustee reasonable indemnity or security against any loss,
liability or expense.
Except to enforce the right to receive payment of principal, any premiums
or interest when due, no holder may pursue any remedy with respect to the
indenture or the exchange notes unless
(1) such holder has previously given the trustee notice that an event of
default is continuing,
(2) holders of at least 25% in principal amount of the outstanding exchange
notes have requested the trustee to pursue the remedy,
(3) such holders have offered the trustee reasonable security or indemnity
against any loss, liability or expense,
(4) the trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and
(5) the holders of a majority in principal amount of the outstanding
exchange notes have not given the trustee a direction inconsistent with
such request within such 60 day period.
Subject to some restrictions, the holders of a majority in principal amount
of the outstanding exchange notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
or of exercising any trust or power conferred on the trustee. The trustee,
however, may refuse to follow any direction that conflicts with law or the
indenture or that the trustee determines is unduly prejudicial to the rights of
any other holder or that would involve the trustee in personal liability. Prior
to taking any action under the indenture, the trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
Procedures Upon an Event of Default
The indenture provides that if a default occurs and is continuing and is
known to the trustee, the trustee must mail to each holder notice of the
default. The notice of default must be mailed within the earlier of 90 days
after it occurs or 30 days after it is known to a trust officer or written
notice of it is received by the trustee. Except in the case of a default in the
payment of principal of, premium, if any, or interest on any note, the trustee
may withhold notice if and so long as a committee of its trust officers in good
faith determines that withholding notice is in the interests of the Noteholders.
In addition, Neenah is required to deliver to the trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
of the certificate know of any default that occurred during the previous year.
Neenah also is required to deliver to the trustee, within 30 days after the
occurrence of an event of default, written notice of any event which would
constitute defaults, their status and what action Neenah is taking or proposes
to take in respect of the default.
AMENDMENTS AND WAIVERS
The indenture may be amended with the consent of the holders of a majority
in principal amount of the exchange notes then outstanding and any past default
and its consequences or compliance
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with any provisions may be waived with the consent of the holders of a majority
in principal amount of the exchange notes then outstanding.
Amendments Requiring Consent
However, without the consent of each holder of an outstanding exchange note
affected, no amendment may
(1) reduce the amount of exchange notes whose holders must consent to an
amendment or waiver,
(2) reduce the rate of or extend the time for payment of interest on any
exchange note,
(3) reduce the principal of or extend the Stated Maturity of any exchange
note,
(4) reduce the premium payable upon the redemption of any exchange note or
change the time at which any exchange note may be redeemed as described
under the heading "Optional Redemption" above,
(5) make any exchange note payable in money other than that stated in the
exchange note,
(6) impair the right of any holder to receive payment of principal of and
interest on such holder's exchange notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or
with respect to such holder's exchange notes,
(7) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions or
(8) make any change in any subsidiary guaranty that would have a
significant negative effect the exchange noteholders.
Amendments not Requiring Consent
Without the consent of any holder, we and the trustee may amend the
indenture
(1) to cure any ambiguity, omission, defect or inconsistency,
(2) to provide for the assumption by a successor corporation of the
obligations of Neenah under the indenture,
(3) to provide for uncertificated exchange notes in addition to or in place
of certificated exchange notes; provided that the uncertificated
exchange notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated
exchange notes are described in Section 163(f)(2)(B) of the Code,
(4) to add further Guarantees with respect to the exchange notes,
(5) to release guarantor subsidiaries when permitted by the indenture, to
secure the exchange notes,
(6) to add to the covenants of Neenah for the benefit of the exchange
noteholders or to surrender any right or power conferred upon Neenah,
(7) to make any change that does not harm the rights of any holder, or
(8) to comply with any requirement of the Securities and Exchange
Commission in connection with the qualification of the indenture under
the TIA.
The consent of the exchange noteholders is not necessary under the
indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
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Notice of Amendment
After an amendment under the indenture becomes effective, Neenah is
required to mail to exchange noteholders a notice briefly describing such
amendment. However, the failure to give such notice to all exchange noteholders,
or any defect in giving the notice, will not impair or affect the validity of
the amendment.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes under the indenture. The Registrar
and the trustee may require a holder, among other things, to furnish appropriate
endorsements and transfer documents and we may require a holder to pay any taxes
and fees required by law or permitted by the indenture. We are not required to
transfer or exchange any note selected for redemption. Also, we are required to
transfer or exchange any note for a period of 15 days before a selection of
notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
DEFEASANCE
We may, at our option and at any time, terminate our obligations under the
exchange notes and the indenture and elect to have all of our obligations
discharged with respect to the outstanding exchange notes and the indenture
("legal defeasance"). This option does not apply to those obligations respecting
the defeasance trust and obligations:
(1) to register the transfer or exchange of the exchange notes,
(2) to replace mutilated, destroyed, lost or stolen exchange notes and
(3) to maintain a registrar and paying agent in respect of the exchange
notes.
Neenah at any time may terminate its obligations under the covenants
described under the heading "Covenants," the operation of the cross acceleration
provision, the bankruptcy default provisions with respect to Subsidiaries and
the judgment default provision described under the heading "Defaults" above and
the limitations contained in clauses (3) and (4) under "Merger and
Consolidation" above. If Neenah exercises its legal defeasance option or its
covenant defeasance option, each guarantor subsidiary will be released from all
of its obligations with respect to its subsidiary guaranty.
Neenah may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Neenah exercises its legal
defeasance option, payment of the exchange notes may not be accelerated because
of an event of default with respect to the exchange notes. If Neenah exercises
its covenant defeasance option, payment of the exchange notes may not be
accelerated because of an event of default specified in clause (4), (6), (7)
(with respect to Restricted Subsidiaries only), (8) (with respect to Significant
Subsidiaries only), (9) or (10) under the heading "Defaults" above or because of
the failure of Neenah to comply with clause (3) or (4) under the heading "Merger
and Consolidation" above.
Procedure to Exercise Defeasance
Defeasance options with respect to the exchange notes may be exercised to
any redemption date or the applicable maturity date. In order to exercise either
defeasance option, Neenah must irrevocably deposit in trust with the trustee
money or U.S. Government Obligations for the payment of principal, any premiums,
and interest on the notes to redemption or maturity. Neenah must also comply
with other conditions including
(1) delivery to the trustee of an Opinion of Counsel to the effect that
holders of the exchange notes will not recognize income, gain or loss
for Federal income tax purposes as a result of such deposit and
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(2) defeasance and will be subject to Federal income tax on the same amount
and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred. In the case of
legal defeasance only, the Opinion of Counsel must be based on a ruling
of the Internal Revenue Service or other change in applicable Federal
income tax law.
Neenah will not be permitted to exercise either defeasance option described
above with respect to the exchange notes unless it defeases existing notes
equivalently and substantially simultaneously. Similarly, Neenah will not be
permitted to defease old notes unless it defeases the notes equivalently and
substantially simultaneously.
CONCERNING THE TRUSTEE
United States Trust Company of New York will be the trustee under the
indenture and has been appointed by Neenah as Registrar and paying agent with
regard to the exchange notes.
GOVERNING LAW
The indenture and the exchange notes will be governed by, and construed
following, the laws of the State of New York without giving effect to applicable
principles of conflicts of law to the extent that the application of the law of
another jurisdiction would be required thereby.
DEFINITIONS
"ACP Holdings" means ACP Holding Company, a Delaware corporation.
"ACP Products, L.L.C." means ACP Products, L.L.C., a Delaware limited
liability company.
"Additional Assets" means:
(1) any property or assets (other than Indebtedness and Capital Stock),
including improvements to existing assets, to be used by us or a
Restricted Subsidiary in a Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by us or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary; provided, however, that, in the
case of clauses (2) and (3), such Restricted Subsidiary is primarily
engaged in a Related Business.
"Add-on Indenture" means the indenture dated July 1, 1997 among Neenah
Corporation, our subsidiaries party to the Add-on Indenture, and the trustee.
"Add-on Notes" means:
(1) Neenah's 11 1/8% series C senior subordinated notes due 2007 issued
under the Add-on Indenture;
(2) any of Neenah's 11 1/8% series D senior subordinated notes due 2007
exchanged therefor; and
(3) Neenah's 11 1/8% series E senior subordinated notes due 2007 issued
under the Second Add-on Indenture.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person.
For the purposes of this definition, "control" when used with respect to
any Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through
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the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
For purposes of the provisions described under the heading
"Covenants -- Limitation on Transactions with Affiliates" only, "Affiliate"
shall also mean any beneficial owner of shares representing 5% or more of the
total voting power of the voting stock, on a fully diluted basis, of Neenah or
of rights or warrants to purchase such voting stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner under the first sentence hereof.
"Applicable Premium" means, with respect to an exchange note, the greater
of:
(1) 1.0% of the then outstanding principal amount of such exchange note;
and
(2) the excess of
(A) the present value of all remaining required interest and principal
payments due on such exchange note, computed using a discount rate
equal to the Treasury Rate plus 75 basis points, over
(B) the then outstanding principal amount of such exchange note.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or assets (each referred to for the purposes of
this definition as a "disposition") by us or any of our Restricted Subsidiaries
(including any disposition by means of a merger, consolidation or similar
transaction) other than:
(1) a disposition by a Restricted Subsidiary to us or by us or a Restricted
Subsidiary to a Restricted Subsidiary;
(2) a disposition of inventory, in the ordinary course of business
consistent with our and our subsidiaries past practices;
(3) dispositions with a fair market value of less than $500,000 in the
aggregate in any fiscal year;
(4) a disposition of properties and assets that is governed by the
provisions under the first paragraph of the heading "Merger and
Consolidation" above; and
(5) for purposes of the provisions described under
"-- Covenants -- Limitation on Sales of Assets and Subsidiary Stock"
only, a disposition subject to the covenant described under the heading
"Covenants -- Limitation on Restricted Payments."
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
assumed in making calculations under SFAS 13) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction, including any period for which such lease has
been extended.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal
payment of such Indebtedness or scheduled redemption or similar payment
with respect to such Preferred Stock multiplied by the amount of such
payment by
(2) the sum of all such payments.
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"Bank Indebtedness" means any and all amounts payable under or in respect
of the senior bank facilities or any refinancing or replacements of the Bank
Indebtedness including principal, any premiums, interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to Neenah whether or not a claim for post-filing
interest is allowed in such proceeding), fees, charges, expenses, reimbursement
obligations, guarantees and all other amounts payable thereunder or in respect
of the Bank Indebtedness.
"Board of Directors" means Neenah's Board of Directors or any committee of
the Board of Directors duly authorized to act on behalf of such board.
"Borrowing Base" means, as of the date of determination, an amount equal to
the sum, without duplication, of
(1) 80% of the net book value of Neenah's accounts receivable at such date
and
(2) 50% of the net book value of Neenah's inventories at such date.
Net book value shall be determined under GAAP and shall be that reflected on the
most recent available balance sheet, it being understood that the accounts
receivable and inventories of an acquired business may be included if such
acquisition has been completed on or prior to the date of determination.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes under GAAP. The amount of Indebtedness represented by a Capitalized
Lease Obligation shall be the capitalized amount of such obligation determined
under GAAP, and the Stated Maturity of the Capitalized Lease Obligations shall
be the date of the last scheduled payment of rent or any other amount due under
the relevant lease.
"Citicorp" means Citicorp, a Delaware corporation.
"Code" means the Internal Revenue Code of 1986.
"Commodity Agreement" means one or more of the following agreements entered
into by a Person and one or more financial institutions: commodity future
contracts, forward contracts, options or other similar arrangements or
agreements designed to protect against fluctuations in the price of, or the
shortage of supply of, commodities from time to time.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of
(A) the aggregate amount of EBITDA for the period of the most recent four
consecutive fiscal quarters ending at least 45 days prior to the date
of such determination to
(B) Consolidated Interest Expense for such four fiscal quarters.
However, if
(1) Neenah or any Restricted Subsidiary has Incurred any Indebtedness
since the beginning of such period that remains outstanding on the
date of determination or if the transaction giving rise to the need
to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, EBITDA and Consolidated Interest Expense for such
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period shall be calculated after giving effect on a pro forma basis
to such Indebtedness and the application of the proceeds of the
Indebtedness as if such Indebtedness had been Incurred on the first
day of such period and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred
on the first day of such period, except that in the case of
Indebtedness to finance seasonal fluctuations in working capital
needs Incurred under a revolving credit or similar arrangement, the
amount of Consolidated Interest Expense shall be deemed to be the
average daily balance of such Indebtedness during such four quarter
period;
(2) since the beginning of such period Neenah or any Restricted
Subsidiary shall have disposed of any assets constituting all or
substantially all of the assets of an operating unit of a business
(a "Disposal"),
(x) the EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive) directly attributable to the assets
which are the subject of such Disposal for such period or
increased by an amount equal to the EBITDA (if negative) directly
attributable to the Disposal for such period and
(y) Consolidated Interest Expense for such period shall be reduced by
an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of Neenah or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged
with respect to Neenah and its continuing Restricted Subsidiaries
in connection with such Disposal for such period (or, if the
Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to
the extent Neenah and its continuing Restricted Subsidiaries are
no longer liable for such Indebtedness after such sale);
(3) since the beginning of such period Neenah or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition
of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or
substantially all of the assets of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect to the Investment or
acquisition of assets (including the Incurrence of any Indebtedness
in connection therewith) as if such Investment or acquisition
occurred on the first day of such period; and
(4) since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into Neenah or
any Restricted Subsidiary since the beginning of such period) shall
have made any Disposal or any Investment or acquisition of assets
that would have required an adjustment under clause (2) or (3) above
if made by Neenah or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect to the merger as if such
Disposal, Investment or acquisition of assets occurred on the first
day of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating to the
acquisition of assets and the amount of Consolidated Interest Expense associated
with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of Neenah. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest expense on such
Indebtedness shall be calculated as if the rate in effect on the
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date of determination had been the applicable rate for the entire period. The
calculation shall take into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term as at the
date of determination in excess of 12 months.
If any Indebtedness bears, at the option of Neenah or a Restricted
Subsidiary, a fixed or floating rate of interest and is being given pro forma
effect, then
(1) if any interest had accrued on such Indebtedness prior to the date of
determination, the interest expense on such Indebtedness shall be
computed by applying a fixed or floating rate of interest as selected
by Neenah or such Restricted Subsidiary for the interest period
immediately preceding such determination or
(2) if no interest accrued on such Indebtedness prior to the date of
determination, the interest expense on such Indebtedness shall be
computed by applying, at the option of Neenah or such Restricted
Subsidiary, either a fixed or floating rate.
If any Indebtedness which is being given pro forma effect was Incurred under a
revolving credit facility that was in effect throughout the applicable period,
the interest expense on such Indebtedness shall be computed based upon the
average daily balance of such Indebtedness during the applicable period.
"Consolidated Interest Expense" means, for any period, the total
consolidated interest expense of Neenah and its Restricted Subsidiaries for such
period, plus, to the extent Incurred by Neenah and its Restricted Subsidiaries
in such period but not included in such interest expense,
(1) interest expense attributable to Capitalized Lease Obligations and
Attributable Debt,
(2) amortization of debt discount,
(3) capitalized interest,
(4) noncash interest expense,
(5) commissions, discounts and other fees and charges with respect to
letters of credit and bankers' acceptance financing,
(6) net costs associated with Interest Rate Agreements,
(7) the interest portion of any deferred payment obligation for goods or
services,
(8) interest actually paid by Neenah or any Restricted Subsidiary on any
Indebtedness of any other Person that is Guaranteed by Neenah or any
Restricted Subsidiary,
(9) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than Neenah or a Wholly
Owned Subsidiary) in connection with Indebtedness Incurred by such plan
or trust and
(10) the earned discount or yield with respect to the sale of receivables
(without duplication of amounts included in Consolidated Net Income);
but in no event shall include
(a) amortization of debt issuance costs,
(b) Preferred Stock dividends in respect of all Preferred Stock of
Subsidiaries of Neenah and Disqualified Stock of Neenah held by
Persons other than Neenah or a Wholly Owned Subsidiary, or
(c) interest Incurred in connection with Investments in discontinued
operations.
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"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of Neenah and its Subsidiaries for such period. However, the
following shall not be included in the calculations of Consolidated Net Income:
(1) any net income (loss) of any Person if such Person is not a Restricted
Subsidiary, except that
(A) subject to the limitations contained in clause (4) below, Neenah's
equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such Person during such period to
Neenah or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations
contained in clause (3) below) and
(B) Neenah's equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income,
(2) for purposes of subclause 3(A) of the first paragraph of the covenant
described under "Limitation on Restricted Payments" only, any net
income (loss) of any person acquired by Neenah or a Subsidiary in a
pooling of interests transaction for any period prior to the date of
such acquisition,
(3) any net income (loss) of any Restricted Subsidiary if such Subsidiary
is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to Neenah, except that
(A) subject to the limitations contained in (4) below, Neenah's equity
in the net income of any such Restricted Subsidiary for such period
shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to Neenah or another
Restricted Subsidiary as a dividend (subject, in the case of a
dividend that could have been made to another Restricted Subsidiary,
to the limitation contained in this clause) and
(B) Neenah's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net
Income,
(4) any gain (or loss) realized upon the sale or other disposition of any
asset of Neenah or its Consolidated Subsidiaries, including following
any Sale/Leaseback Transaction, which is not sold or otherwise disposed
of in the ordinary course of business and any gain (or loss) realized
upon the sale or other disposition of any Capital Stock of any Person,
(5) any extraordinary gain or loss, and
(6) the cumulative effect of a change in accounting principles after the
Issue Date.
Notwithstanding the foregoing, for the purpose of the covenant described under
"Covenants-Limitation on Restricted Payments" only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or other
transfers of assets from Unrestricted Subsidiaries to Neenah or a Restricted
Subsidiary to the extent such dividends, repayments or transfers increase the
amount of Restricted Payments permitted under such covenant under clause (3)(D)
of the first paragraph of clause (3)(D).
Notwithstanding anything to the contrary in the covenant described under
"Covenants -- Limitations on Restricted Payments," all amounts paid to Neenah's
parent under clause (11)(B) of the second paragraph such covenant shall be
deducted in computing Consolidated Net Income.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of Neenah and the Restricted Subsidiaries, determined on a
Consolidated basis, as of the end of the
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most recent fiscal quarter of Neenah ending at least 45 days prior to the taking
of any action for the purpose of which the determination is being made, as
(1) the par or stated value of all outstanding Capital Stock of Neenah plus
(2) paid-in capital or capital surplus relating to such Capital Stock plus
(3) any retained earnings or earned surplus less (A) any accumulated
deficit and (B) any amounts attributable to Disqualified Stock.
"Consolidated Non-Cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Consolidated Subsidiaries for such period, on a Consolidated basis, as
determined under GAAP, excluding any such other non-cash charge which consists
of an accrual or reserve for cash charges for any future period.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of Neenah under GAAP consistently applied.
However, "Consolidation" will not include consolidation of the accounts of any
Unrestricted Subsidiary, but the interest of Neenah or any Restricted Subsidiary
in an Unrestricted Subsidiary will be accounted for as an investment. The term
"Consolidated" has a correlative meaning.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement as
to which such Person is a party or a beneficiary.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
"Designated Senior Indebtedness" means
(1) the Bank Indebtedness and
(2) any other Senior Indebtedness of Neenah which, at the date of
determination, has an aggregate principal amount outstanding of, or
under which, at the date of determination, the holders of Senior
Indebtedness are committed to lend at least $25.0 million and is
specifically designated by Neenah in the instrument evidencing or
governing such Senior Indebtedness as "Designated Senior Indebtedness"
for purposes of the indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms, or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable, or upon the happening of any
event
(1) matures or is mandatorily redeemable under a sinking fund obligation or
otherwise,
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock
or
(3) is redeemable at the option of the holder of Disqualified Stock, in
whole or in part, in each case on or prior to ninety-one days after the
Stated Maturity of the exchange notes.
Disqualified Stock shall not include any Capital Stock that is not otherwise
Disqualified Stock if by its terms the holders have the right to require the
issuer to repurchase such stock upon a change of control, or upon events
substantially similar to a change of control.
"Domestic Subsidiary" means a Subsidiary that is incorporated or organized
under the laws of the United States of America, any State of the United States
of America or the District of Columbia.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income
(1) income tax expense,
(2) Consolidated Interest Expense and
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(3) Consolidated Non-Cash Charges, in each case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Subsidiary of Neenah
shall be added to Consolidated Net Income to compute EBITDA only to the extent
(and in the same proportion) that the net income (loss) of such Subsidiary was
included in calculating Consolidated Net Income.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, in statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the indenture shall be
computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person through
an agreement enforceable by or for the benefit of the holder of such
Indebtedness and any such obligation, direct or indirect, contingent or
otherwise, such Person
(1) to purchase or pay, or advance or supply funds for the purchase or
payment of, such Indebtedness or other obligation of such other Person
(whether arising to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or
otherwise) or
(2) entered into for purposes of assuring in any other manner the obligee
of such Indebtedness or other obligation of the payment of Indebtedness
or to protect such obligee against loss in respect of Indebtedness (in
whole or in part).
However, the term "Guarantee" shall not include endorsements for collection or
deposit in the ordinary course of business. The term "Guarantee" used as a verb
has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
under any Commodity Agreement, Interest Rate Agreement or Currency Agreement.
"Holdings" means Neenah's parent company, NFC Castings, Inc., a Delaware
corporation, any Person succeeding to its ownership, and successors to any
Person succeeding to its ownership.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for. However, any Indebtedness or Capital Stock of a Person existing at the time
such person becomes a Restricted Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such person at the
time it becomes a Restricted Subsidiary. However, in the case of a discount
security, the accretion of original issue discount on such security shall not be
considered an Incurrence of Indebtedness only if at the time of issuance of such
security, Neenah elects to treat the whole face amount of such security as
Incurred at such time (and such Incurrence is then permitted under the
indenture).
"Indebtedness" means, with respect to any specified Person, any
Indebtedness of such Person, in respect of:
(1) borrowed money;
(2) the principal of obligations evidenced by bonds, debentures, notes or
other similar instruments;
(3) all obligations in respect of letters of credit or other similar
instruments, including reimbursement obligations with respect to
letters of credit or other similar instruments, other than letters of
credit or similar instruments supporting Trade Payables entered into in
the ordinary course of business to the extent that such letters of
credit are not drawn upon
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or, if and to the extent drawn upon, such drawing is reimbursed not
later than the third business day following such drawing;
(4) all obligations to pay the deferred and unpaid purchase price of
property or services (except Trade Payables), which purchase price is
due more than twelve months after the date of placing such property in
service or taking delivery and title to the property or the completion
of such services;
(5) all Capitalized Lease Obligations and all Attributable Debt;
(6) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of Neenah, any Preferred Stock (but
excluding, in each case, any accrued dividends);
(7) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of Indebtedness of such
Person shall be the lesser of
(A) the fair market value of such asset at such date of determination
and
(B) the amount of such Indebtedness of such other Persons;
(8) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and
(9) to the extent not otherwise included in this definition, Hedging
Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability,
upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance or loans,
other than advances or loans to customers or suppliers in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of the
Person making such loan or advance, or other extension of credit (including by
way of Guarantee or similar arrangement) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary" and the
covenant described under "-- Covenants -- Limitation on Restricted Payments,"
only
(1) "Investment" shall include the portion (proportionate to Neenah's
equity interest in such Subsidiary) of the fair market value of the net
assets of any Subsidiary of Neenah at the time that such Subsidiary is
designated an Unrestricted Subsidiary. However, upon a redesignation of
such Subsidiary as a Restricted Subsidiary, Neenah shall be deemed to
continue to have a permanent "Investment" in an Unrestricted Subsidiary
in an amount (if positive) equal to
(x) Neenah's "Investment" in such Subsidiary at the time of such
redesignation less
(y) the portion (proportionate to Neenah's equity interest in such
Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and
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(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the exchange notes are originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including any conditional sale or other title retention
agreement or lease in the nature of a title retention agreement.
"Management Investors" means the officers and employees of ACP Holdings,
ACP Products, L.L.C., Neenah, Neenah's parent company, or one of Neenah's
Subsidiaries who acquire Voting Stock of ACP Holdings, ACP Products, L.L.C.,
Neenah or Neenah's parent company, on or after the Original Issue Date.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"NC Merger" means NC Merger Company, a Wisconsin corporation.
"Neenah Merger" means the merger, consummated on April 30, 1997 of NC
Merger Company with and into Neenah under the terms of the Agreement and Plan of
Reorganization by and among Neenah, Neenah's parent company and NC Merger
Company and dated November 20, 1996.
"Net Available Cash" from an Asset Disposition means cash payments
received, including any cash payments received by way of deferred payment of
principal under a note or installment receivable or from an escrow account or
otherwise, in each case only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring person of
Indebtedness or other obligations relating to the properties or assets that are
the subject of such Asset Disposition or received in any other non-cash form,
therefrom, in each case net of
(1) all legal, title and recording expenses, commissions and other expenses
(including fees and expenses of counsel and investment bankers)
incurred, and all Federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition,
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, under any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to
such asset disposition, or by applicable law, be repaid out of the
proceeds from such Asset Disposition,
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition and
(4) appropriate amounts to be provided by the party or parties making such
Asset Disposition as a reserve, under GAAP, against any liabilities
associated with the assets disposed of in such Asset Disposition and
retained by Neenah or any Restricted Subsidiary after such Asset
Disposition, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Disposition.
"Net Cash Proceeds" with respect to any issuance or sale of Capital Stock,
means the proceeds of such issuance or sale in the form of cash, including
payments in respect of deferred payment obligations when received in form of, or
stock or other assets when disposed for, cash, net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, filing and registration fees, trustee's fees,
consultant and other fees actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result of the sale of Capital Stock.
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"Officer" includes the following positions with respect to Neenah:
- the Chairman of the Board,
- the Chief Executive Officer,
- the Chief Financial Officer,
- the President,
- any Vice President,
- the Treasurer or
- the Secretary.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the trustee. The counsel may be an employee of or counsel to
Neenah or the trustee.
"Original Indenture" means the indenture dated April 30, 1997 between NC
Merger and the trustee.
"Original Issue Date" means the date of issuance of the Original Notes,
April 30, 1997.
"Original Notes" means Neenah's 11 1/8% senior subordinated notes due 2007
issued under the Original Indenture and any of Neenah's 11 1/8% series B senior
subordinated notes due 2007 exchanged therefor.
"Permitted Holders" means
(1) CVC and its Affiliates and Permitted Transferees and
(2) the Management Investors and their Permitted Transferees.
"Permitted Investment" means an Investment by Neenah or any Restricted
Subsidiary in:
(1) Neenah;
(2) a Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary; provided, however, that the
primary business of such Restricted Subsidiary is a Related Business;
(3) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Neenah or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related
Business;
(4) Temporary Cash Investments;
(5) receivables owing to Neenah or any Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or
dischargeable following customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as Neenah
or any such Restricted Subsidiary deems reasonable under the
circumstances;
(6) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of
business;
(7) loans or advances to employees made in the ordinary course of business
and not exceeding $1.0 million in the aggregate outstanding at any one
time;
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(8) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to Neenah or any
Restricted Subsidiary or in satisfaction of judgments;
(9) securities received as consideration in sales of assets made in
compliance with the covenant described under
"-- Covenants -- Limitation on Sales of Assets and Subsidiary Stock;"
(10) other Investments, of any type, provided that the amount of such
Investments made after the Issue Date in reliance on this clause (10)
and outstanding at any time does not exceed 7.5% of Total Assets; or
(11) Guarantees relating to Indebtedness which is permitted to be Incurred
under the covenant described under "-- Covenants -- Limitation on
Indebtedness."
"Permitted Liens" means with respect to any Person:
(a) Liens to secure Indebtedness permitted under the provisions described
under clause (b)(1) or (2) of the second paragraph under
"-- Covenants -- Limitation on Indebtedness";
(b) pledges or deposits made or other Liens granted by
(1) such Person under workmen's compensation laws, unemployment
insurance laws or similar legislation,
(2) in connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which such Person is a party,
or
(3) to secure public or statutory obligations of such Person or deposits
of cash or United States government bonds to secure surety or appeal
bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each
case Incurred in the ordinary course of business;
(c) Liens imposed by law, such as carriers', warehousemen's, mechanics',
employees' and other like Liens, in each case for sums not yet due or
being contested in good faith by appropriate proceedings or other Liens
arising out of judgments, awards, decrees or orders of any court or
other governmental authority against such Person with respect to which
such Person shall then be proceeding with an appeal or other
proceedings for review;
(d) Liens for property taxes not yet due or payable or subject to penalties
for non-payment or which are being contested in good faith and by
appropriate proceedings;
(e) Liens in favor of issuers of surety, performance, judgment, appeal and
other like bonds or letters of credit issued following the request of
and for the account of such Person in the ordinary course of its
business;
(f) minor survey exceptions, minor encumbrances, easements or reservations
of, or rights of others for, licenses, rights of way, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or
zoning provisions, carveouts, conditional waivers or other restrictions
as to the use of real properties or minor irregularities of title (and
with respect to leasehold interests, mortgages, obligations, Liens and
other encumbrances incurred, created, assumed or permitted to exist and
arising by, through or under a landlord or owner of the leased
property, with or without consent of the lessee) or Liens incidental to
the conduct of the business of such Person or to the ownership of its
properties which were not Incurred in connection with Indebtedness and
which do not in the aggregate materially impair the use of such
properties in the operation of the business of such Person;
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(g) Liens existing or provided for under written arrangements existing on
the Original Issue Date;
(h) Liens securing Indebtedness or other obligations of a Subsidiary of
such Person owing to such Person or a wholly owned Subsidiary of such
Person;
(i) Liens securing Hedging Obligations so long as the related Indebtedness
is, and is permitted to be under the Indenture, secured by a Lien on
the same property securing such Hedging Obligations;
(j) Liens to secure any refinancing, refunding, replacement, renewal,
repayment or extension, or successive refinancings, refundings,
replacements, renewals, repayments or extensions, as a whole, or in
part, of any Indebtedness secured by any Lien referred to in clause
(g), (i), (l), (m) or (n); provided, however, that
(x) such new Lien shall be limited to all or part of the same property
that secured the original Lien (plus improvements on such property)
and
(y) the Indebtedness secured by such Lien at such time is not increased
to any amount greater than the sum of
(A) the outstanding principal amount or, if greater, committed amount
of the Indebtedness described under clauses (g), (i), (l), (m)
and (n) at the time the original Lien became a Permitted Lien and
(B) an amount necessary to pay any fees and expenses, including
premiums, related to such refinancing, refunding, replacement,
renewal, repayment or extension;
(k)(1) mortgages, liens, security interests, restrictions or encumbrances
that have been placed by any developer, landlord or other third
party on property over which Neenah or any Restricted Subsidiary or
Neenah has easement rights or on any real property leased by Neenah
and subordination or similar agreements relating to the real
property and
(2) any condemnation or eminent domain proceedings affecting any real
property;
(l) Liens on property, assets or shares of stock of a Person at the time
such Person becomes a Subsidiary; provided, however, such Liens are
not created, Incurred or assumed by such Person in connection with, or
in contemplation of, such other Person becoming such a Subsidiary;
provided further, however, that such Liens may not extend to any other
property owned by Neenah or any Restricted Subsidiary;
(m) Liens on property or assets at the time Neenah or a Restricted
Subsidiary acquired the property or assets, including any acquisition
by means of a merger or consolidation with or into Neenah or a
Restricted Subsidiary; provided, however, that such Liens are not
created in connection with, or in contemplation of, such acquisition;
provided further, however, that the Liens may not extend to any other
property owned by Neenah or any Restricted Subsidiary; and
(n) any Lien on stock or other securities of an Unrestricted Subsidiary
that secures Indebtedness of such Unrestricted Subsidiary.
"Permitted Transferee" means
(a) with respect to CVC
(1) Citicorp, any direct or indirect wholly owned subsidiary of
Citicorp, and any officer, director or employee of CVC, Citicorp or
any wholly owned subsidiary of Citicorp,
(2) any spouse or lineal descendant (including by adoption and
stepchildren) of the officers, directors and employees to in clause
(a)(1) above or
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(3) any trust, corporation or partnership 100% in interest of the
beneficiaries, stockholders or partners of which consists of one or
more of the persons described in clause (a)(1) or (2) above and
(b) with respect to any officer or employee of ACP Products, L.L.C., ACP
Holdings, Neenah, Neenah's parent company or a Subsidiary of Neenah
(1) any spouse or lineal descendant (including by adoption and
stepchildren) of such officer or employee and
(2) any trust, corporation or partnership 100% in interest of the
beneficiaries, stockholders or partners of which consists of such
officer or employee, any of the persons described in clause (b)(1)
above or any combination of the persons described in clause (b)(1).
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision of the agency or
any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Public Equity Offering" means an underwritten public offering of common
stock of ACP Holdings, Neenah, Neenah's parent company (or, for purposes of the
covenant described under "-- Covenants -- Limitation on the Sale or Issuance of
Capital Stock of Restricted Subsidiaries," any Restricted Subsidiary) under an
effective registration statement (other than a registration statement on Form
S-4, S-8 or any successor or similar forms) under the Securities Act of 1933,
whether alone or in conjunction with any secondary public offering, provided,
however, that if any such offering is an offering of the common stock of ACP
Holdings, only the net proceeds of such offering that are contributed to Neenah
shall be taken into consideration for the purposes of this definition.
"Public Market" means any time after
(x) a Public Equity Offering has been consummated and
(y) at least 15% of the total issued and outstanding common stock of ACP
Holdings, Neenah, Neenah's parent company (or, for purposes of the
covenant described under "-- Covenants -- Limitation on the Sale or
Issuance of Capital Stock of Restricted Subsidiaries," any Restricted
Subsidiary) has been distributed by means of an effective registration
statement under the Securities Act of 1933.
"Purchase Money Indebtedness" means Indebtedness
(1) consisting of the deferred purchase price of an asset or assets
(including Capital Stock and the assets of an ongoing business)
including additions and improvements, any conditional sale obligation,
any obligation under any title retention agreement or any other
purchase money obligation, or
(2) incurred to finance the acquisition by Neenah or a Restricted
Subsidiary of an asset or assets (including Capital Stock and the
assets of a Related Business) including additions and improvements;
provided in the case of clause (1) that the Average Life of such
Indebtedness is less than the anticipated useful life of assets having
an aggregate fair market value representing more than 50% of the
aggregate fair market value of all assets so acquired and that in the
case of clauses (1) and (2) such Indebtedness is incurred within 180
days after the acquisition by Neenah or Restricted Subsidiary of such
asset or assets, or is in existence with respect to any asset or other
property at the time such asset or property is acquired.
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"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including under any defeasance or
discharge mechanism) (collectively, "refinances" and "refinanced" shall have a
correlative meaning) any Indebtedness existing on the Original Issue Date or
Incurred in compliance with or which is permitted by the indenture (including
Indebtedness of Neenah that refinances Indebtedness of any Restricted Subsidiary
(to the extent permitted in the indenture) and Indebtedness of any Restricted
Subsidiary that refinances Indebtedness of that or another Restricted Subsidiary
of Neenah), including Indebtedness that refinances Refinancing Indebtedness;
provided, however, that
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced,
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than
the Average Life of the Indebtedness being refinanced,
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or, if issued with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount
(or, if issued with original issue discount, the aggregate accreted
value) then outstanding of the Indebtedness being refinanced plus the
amount of any premium reasonably determined by Neenah or such
Restricted Subsidiary, as applicable, as necessary at the time of such
refinancing to accomplish such refinancing or required following the
terms of the refinancing, plus the amount of expenses of Neenah or such
Restricted Subsidiary, as applicable, Incurred in connection with such
refinancing and
(4) if the Indebtedness being refinanced is subordinated in right of
payment to the exchange notes, such Refinancing Indebtedness is
subordinated in right of payment to the exchange notes to the extent of
the Indebtedness being refinanced provided further, however, that
Refinancing Indebtedness shall not include Indebtedness of Neenah or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means any business of Neenah and the Restricted
Subsidiaries as conducted on the Issue Date and any business related, ancillary
or complementary to the Related Business.
"Restricted Subsidiary" means any Subsidiary of Neenah other than an
Unrestricted Subsidiary.
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc. and its successors.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by Neenah or a Restricted Subsidiary whereby Neenah
or such Restricted Subsidiary transfers such property to a Person and Neenah or
such Restricted Subsidiary leases it from such Person, other than leases between
Neenah and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries.
"Second Add-on Indenture" means the indenture dated November 24, 1998 among
Neenah, the subsidiaries of Neenah party to the Second Add-on Indenture, and the
trustee.
"Secured Indebtedness" means any Indebtedness of Neenah secured by a Lien.
"Secured Indebtedness" of any Guarantor Subsidiary has a correlative meaning.
"Senior Bank Facilities" means the credit agreement dated as of the
Original Issue Date waived or otherwise modified from time to time, among
Holdings, Neenah, the lenders party to the senior bank facilities from time to
time and The Chase Manhattan Bank, a New York banking corporation, as agent
(except to the extent that any such amendment, waiver or other modification to
the Senior bank facilities would be prohibited by the terms of the indenture).
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"Senior Indebtedness" of Neenah means
(1) all principal of,
(2) premium, if any,
(3) accrued interest, including interest accruing on or after the filing of
any petition in bankruptcy or for reorganization relating to Neenah
whether or not a claim for post-filing interest is allowed in such
proceedings,
(4) fees,
(5) charges,
(6) expenses,
(7) reimbursement obligations,
(8) guarantees, including all Bank Indebtedness, whether outstanding on the
Issue Date or thereafter incurred, unless in the instrument creating or
evidencing the same or following which the same is outstanding it is
expressly provided that such obligations are not superior in right of
payment to the exchange notes, and
(9) other amounts owing with respect to all Indebtedness of Neenah.
However, Senior Indebtedness shall not include
(1) any obligation of Neenah to any Subsidiary,
(2) any liability for federal, foreign, state, local or other taxes owed or
owing by Neenah,
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business, including Guarantees of Senior
Indebtedness or instruments evidencing such liabilities,
(4) any Indebtedness or obligation of Neenah which is subordinate or junior
in any respect, other than as a result of the Indebtedness being
unsecured, to any other Indebtedness or obligation of Neenah, including
any senior subordinated indebtedness and any subordinated obligations,
(5) any obligations with respect to any Capital Stock or
(6) any Indebtedness Incurred in violation of the indenture.
"Senior Indebtedness" of any guarantor subsidiary has a correlative
meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Neenah within the meaning of clause (w)(1) or (2) of
Rule 1-02 under Regulation S-X promulgated by the Securities and Exchange
Commission.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including under any mandatory redemption provision,
but excluding any provision providing for the purchase of such security at the
option of the holder of the security upon the happening of any contingency
beyond the control of the issuer unless such contingency has occurred.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers, trustees or members of any other governing body
the corporation, association, partnership or other business entity is at the
time owned or controlled, directly or indirectly, by
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(1) such Person or
(2) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations
(x) of the United States of America or any agency of the United States
of America or obligations Guaranteed by the United States of America
or any agency of the United States of America or
(y) of any foreign country recognized by the United States of America
rated at least "A" by S&P or "A-1" by Moody's,
(2) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 365 days of the date of acquisition of
the investments in time deposit accounts, certificates of deposit and
money market deposits issued by a bank or trust company which is
organized under the laws of the United States of America, any state of
the United States of America or any foreign country recognized by the
United States of America having capital and surplus in excess of $250.0
million (or the foreign currency equivalent of $250.0 million) and
whose long-term debt is rated "A" (or such similar equivalent rating)
or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act of 1933),
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above
entered into with a bank meeting the qualifications described in clause
(2) above,
(4) investments in commercial paper, maturing not more than 365 days after
the date of acquisition, issued by a corporation (other than an
Affiliate of Neenah) organized and in existence under the laws of the
United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P,
(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority of any state, commonwealth or
territory of the United States of America, and rated at least "A" by
S&P or "A" by Moody's,
(6) any money market deposit accounts issued or offered by a domestic
commercial bank or a commercial bank organized and located in a country
recognized by the United States of America, in each case, having
capital and surplus in excess of $250.0 million (or the foreign
currency equivalent of $250.0 million), or investments in money market
funds complying with the risk limiting conditions of Rule 2a-7 (or any
successor rule) of the Securities and Exchange Commission under the
Investment Company Act of 1940 and
(7) similar investments approved by the Board of Directors in the ordinary
course of business.
"Total Assets" means, at any date of determination, the total consolidated
assets of Neenah and its Restricted Subsidiaries, as set forth on the Neenah's
then most recent consolidated balance sheet.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two
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Business Days prior to the date fixed for redemption of the exchange notes
following a Change of Control (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining Average Life to Stated Maturity of the exchange
notes.
However, if the Average Life to Stated Maturity of the Notes is not equal
to the constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation, calculated to the nearest one-twelfth of a year, from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the Average Life to Stated Maturity of the exchange notes
is less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the trustee assigned by the trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means
(1) any of our Subsidiaries that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors
may designate any of our Subsidiaries, including any newly acquired or
newly formed Subsidiary, to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or owns or holds any Lien on any property of, Neenah
or any other Restricted Subsidiary of Neenah that is not a Subsidiary
of the Subsidiary to be so designated; provided, however, that either
(A) the Subsidiary to be so designated has total Consolidated assets of
$1,000 or less or
(B) if such Subsidiary has Consolidated assets greater than $1,000, then
such designation would be permitted under the covenant entitled
"Limitation on Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation
(x) Neenah could Incur $1.00 of additional Indebtedness under paragraph (a)
of the covenant described under "Limitation on Indebtedness" and
(y) no Default shall have occurred and be continuing.
Any such designation by the Board of Directors shall be evidenced to the trustee
by promptly filing with the trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality of the United States of
America) for the payment of which the full faith and credit of the United States
of America is pledged and which are not callable or redeemable at the issuer's
option.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and, to the extent
required by local ownership laws in foreign countries, shares owned by foreign
shareholders) is owned by Neenah or another Wholly Owned Subsidiary (including
shares held of record by a nominee for the benefit of Neenah or another Wholly
Owned Subsidiary).
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EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
expiration date. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding notes accepted in the
exchange offer. Holders may tender some or all of their notes pursuant to the
exchange offer. However, notes may be tendered only in integral multiples of
$1,000.
The form and terms of the exchange notes are the same as the form and terms
of the notes except that:
(1) the exchange notes have been registered under the Securities Act of
1933 and hence will not bear legends restricting their transfer
thereof; and
(2) the holders of the exchange notes will not be entitled to rights under
the registration rights agreement. These rights include the provisions
for an increase in the interest rate on the notes in some circumstances
relating to the timing of the exchange offer. All of these rights will
terminate when the exchange offer is terminated. The exchange notes
will evidence the same debt as the notes. Holders of exchange notes
will be entitled to the benefits of the indenture.
As of the date of this prospectus, $87.0 million aggregate principal amount
of notes was outstanding. We have fixed the close of business on [ , 1999]
as the record date for the exchange offer for purposes of determining the
persons to whom this prospectus and the letter of transmittal will be mailed
initially.
We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
We shall be deemed to have accepted validly tendered notes when, as and if
we have given oral or written notice to the exchange agent. The exchange agent
will act as agent for the tendering holders for the purpose of receiving the
exchange notes from the issuers.
If any tendered notes are not accepted for exchange because of an invalid
tender, the occurrence of other events set forth in this prospectus or
otherwise, we will return the certificates for any unaccepted notes, at our
expense, to the tendering holder as promptly as practicable after the expiration
date.
Holders who tender notes in the exchange offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of notes. We will pay
all charges and expenses, other than transfer taxes in some circumstances, in
connection with the exchange offer as described under the subheading "-- Fees
and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean 5:00 p.m., New York City time, on
[ ], 1999, unless we extend the exchange offer. In that case, the term
"expiration date" shall mean the latest date and time to which the exchange
offer is extended. Notwithstanding the foregoing, we will not extend the
expiration date beyond [ ], 1999.
In order to extend the exchange offer, prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date,
we will:
(1) notify the exchange agent of any extension by oral or written notice
and
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(2) mail to the registered holders an announcement of any extension.
We reserve the right, in our sole discretion,
(1) if any of the conditions set forth below under the heading "Conditions"
shall not have been satisfied,
(A) to delay accepting any notes,
(B) to extend the exchange offer or
(C) to terminate the exchange offer, or
(2) to amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice of delay to the registered
holders. We will give oral or written notice of any delay, extension or
termination to the exchange agent.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from their date of issuance. Holders
of notes that are accepted for exchange will receive, in cash, accrued interest
on the exchange notes to, but not including, the date of issuance of the
exchange notes. We will make the first interest payment on the exchange notes on
June 1, 1999. Interest on the notes accepted for exchange will cease to accrue
upon issuance of the exchange notes.
Interest on the exchange notes is payable semi-annually on each May 1 and
November 1, commencing on May 1, 1999.
PROCEDURES FOR TENDERING OLD NOTES
Only a holder of notes may tender notes in the exchange offer. To tender in
the exchange offer, a holder must
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal,
- have the signatures guaranteed if required by the letter of transmittal,
and
- mail or otherwise deliver the letter of transmittal or such facsimile,
together with the notes and any other required documents, to the exchange
agent prior to 5:00 p.m., New York City time, on the expiration date.
To tender notes effectively, the holder must complete the letter of transmittal
and other required documents and the exchange agent must receive all the
documents prior to 5:00 p.m., New York City time, on the expiration date.
Delivery of the notes may be made by book-entry transfer in accordance with the
procedures described below. The exchange agent must receive confirmation of
book-entry transfer prior to the expiration date.
The tender by a holder and the acceptance of the tender by us will
constitute agreement between the holder and us under the terms and subject to
the conditions set forth in this prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE
HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO US. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
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Any beneficial owner whose notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should promptly instruct the registered holder to tender on the beneficial
owner's behalf. See "Instruction to Registered Holder and/or Book-Entry Transfer
Facility Participant from Owner" included with the letter of transmittal.
An institution that is a member firm of the Medallion system must guarantee
signatures on a letter of transmittal or a notice of withdrawal unless the notes
are tendered:
(1) by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
(2) for the account of member firm of the Medallion system.
If the letter of transmittal is signed by a person other than the
registered holder of any notes listed in that letter of transmittal, the notes
must be endorsed or accompanied by a properly completed bond power, signed by
the registered holder as the registered holder's name appears on the notes. An
institution that is a member firm of the Medallion System must guarantee the
signature.
Trustees, executors, administrators, guardians, attorneys-in-fact, offices
of corporations or others acting in a fiduciary or representative capacity
should indicate their capacities when signing the letter of transmittal or any
notes or bond powers. Evidence satisfactory to us of their authority to so act
must be submitted with the letter of transmittal.
We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts with respect to the notes at
the book-entry transfer facility, The Depository Trust Company, for the purpose
of facilitating the exchange offer. Subject to the establishment of the
accounts, any financial institution that is a participant in The Depository
Trust Company's system may make book-entry delivery of notes. To do so, the
financial institution should cause the book-entry transfer facility to transfer
the notes into the exchange agent's account with respect to the notes following
the book-entry transfer facility's procedures for transfer. Delivery of the
notes may be effected through book-entry transfer into the exchange agent's
account at the book-entry transfer facility. However, the holder must transmit
and the exchange agent must receive or confirm an appropriate letter of
transmittal properly completed and duly executed with any required signature
guarantee and all other required documents on or prior to the expiration date,
or, if the guaranteed delivery procedures described below are complied with,
within the time period provided under such procedures. Delivery of documents to
the book-entry transfer facility does not constitute delivery to the exchange
agent.
The Depositary and The Depository Trust Company have confirmed that the
exchange offer is eligible for The Depository Trust Company Automated Tender
Offer Program. Accordingly, The Depository Trust Company participants may
electronically transmit their acceptance of the exchange offer by causing The
Depository Trust Company to transfer notes to the depositary in accordance with
The Depository Trust Company's Automated Tender Offer Program procedures for
transfer. The Depository Trust Company will then send an "agent's message" to
the Depositary.
The term "agent's message" means a message transmitted by The Depository
Trust Company, received by the Depositary and forming part of the confirmation
of a book-entry transfer, which states that
(1) The Depository Trust Company has received an express acknowledgment
from the participant in The Depository Trust Company tendering notes
subject of the book-entry confirmation,
(2) the participant has received and agrees to be bound by the terms of the
letter of transmittal and
(3) we may enforce such agreement against such participant.
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In the case of an agent's message relating to guaranteed delivery, the term
means a message transmitted by The Depository Trust Company and received by the
Depositary, which states that The Depository Trust Company has received an
express acknowledgment from the participant in The Depository Trust Company
tendering notes that such participant has received and agrees to be bound by the
notice of guaranteed delivery.
Notwithstanding the foregoing, in order to validly tender in the exchange
offer with respect to securities transferred through the Automated Tender Offer
Program, a The Depository Trust Company participant using Automated Tender Offer
Program must also properly complete and duly execute the applicable letter of
transmittal and deliver it to the Depositary.
By the authority granted by The Depository Trust Company, any The
Depository Trust Company participant which has notes credited to its The
Depository Trust Company account at any time (and held of record by The
Depository Trust Company's nominee) may directly provide a tender as though it
were the registered holder by completing, executing and delivering the
applicable letter of transmittal to the Depositary. DELIVERY OF DOCUMENTS TO THE
DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
All questions as to the
- validity,
- form,
- eligibility (including time of receipt),
- acceptance of tendered notes and
- withdrawal of tendered notes
will be determined by us in our sole discretion. Our determination will be final
and binding. We reserve the absolute right to reject any and all notes not
properly tendered. We reserve the absolute right to reject any notes which would
be unlawful if accepted, in the opinion of our counsel. We also reserve the
right in our sole discretion to waive any defects, irregularities or conditions
of tender as to particular notes. Our interpretation of the terms and conditions
of the exchange offer, including the instructions in the letter of transmittal,
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of notes must be cured within such
time as we shall determine. We intend to notify holders of defects or
irregularities with respect to tenders of notes. However, neither we, the
exchange agent nor any other person shall incur any liability for failure to
give such notification. Tenders of notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the exchange agent to the tendering holders, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their notes and:
(1) whose notes are not immediately available;
(2) who cannot deliver their notes, the letter of transmittal or any other
required documents to the exchange agent; or
(3) who cannot complete the procedures for book-entry transfer, prior to
the expiration date
may effect a tender if:
(1) they tender through an institution that is a member firm of the
Medallion system;
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(2) prior to the expiration date, the exchange agent receives from an
institution that is a member firm of the Medallion system a properly
completed and duly executed notice of guaranteed delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address
of the holder, the certificate number(s) of such notes and the
principal amount of notes tendered, stating that the tender is being
made and guaranteeing that, within five New York Stock Exchange trading
days after the expiration date, the letter of transmittal (or facsimile
thereof) together with the certificate(s) representing the notes (or a
confirmation of book-entry transfer of such notes into the exchange
agent's account at the book-entry transfer facility), and any other
documents required by the letter of transmittal will be deposited by
the firm with the exchange agent; and
(3) the exchange agent receives
(A) such properly completed and executed letter of transmittal (of
facsimile thereof),
(B) the certificate(s) representing all tendered notes in proper form
for transfer (or a confirmation of book-entry transfer of such notes
into the exchange agent's account at the book-entry transfer
facility), and
(C) all other documents required by the letter of transmittal
upon five New York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, we will send a notice of guaranteed
delivery to holders who wish to tender their notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders may withdraw
tenders of notes at any time prior to 5:00 p.m., New York City time, on the
expiration date. To withdraw a tender of notes in the exchange offer, the
exchange agent must receive a telegram, telex, letter or facsimile transmission
notice of withdrawal at its address set forth in this prospectus prior to 5:00
p.m., New York City time, on the expiration date. Any such notice of withdrawal
must:
(1) specify the name of the person having deposited the notes to be
withdrawn;
(2) identify the notes to be withdrawn (including the certificate number(s)
and principal amount of such notes, or, in the case of notes
transferred by book-entry transfer, the name and number of the account
at the book-entry transfer facility to be credited);
(3) be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such notes were tendered (including
any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the trustee with respect to the notes
register the transfer of notes into the name of the person withdrawing
the tender; and
(4) specify the name in which any notes are to be registered, if different
from that of the person who deposited the notes.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such notices. Our determination shall be final and
binding on all parties. We will not deem notes so withdrawn to have been validly
tendered for purposes of the exchange offer. We will not issue exchange notes
for withdrawn notes unless you validly retender the withdrawn notes. We will
return any notes which have been tendered but which are not accepted for
exchange to the holder of the notes at our cost as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. You may
retender properly withdrawn notes by following one of the procedures described
above under the heading "Procedures for Tendering Old Notes" at any time prior
to the expiration date.
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CONDITIONS
Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or exchange exchange notes for, any notes, and
may terminate or amend the exchange offer as provided in this prospectus before
the acceptance of the notes, if:
(1) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our sole judgment, might materially impair our ability to
proceed with the exchange offer or any development has occurred in any
existing action or proceeding which may be harmful to us or any of our
subsidiaries; or
(2) any law, statute, rule, regulation or interpretation by the staff of
the Securities and Exchange Commission is proposed, adopted or enacted,
which, in our sole judgment, might impair our ability to proceed with
the exchange offer or impair the contemplated benefits of the exchange
offer to us; or
(3) any governmental approval has not been obtained, which we believe, in
our sole discretion, is necessary for the consummation of the exchange
offer as outlined in this prospectus.
If we determine in our sole discretion that any of the conditions are not
satisfied, we may:
(1) refuse to accept any notes and return all tendered notes to the
tendering holders;
(2) extend the exchange offer and retain all notes tendered prior to the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw their notes; or
(3) waive such unsatisfied conditions of the exchange offer and accept all
properly tendered notes which have not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the exchange
agent for the exchange offer. You should direct all
- executed letters of transmittal,
- questions,
- requests for assistance,
- requests for additional copies of this prospectus or of the letter of
transmittal and
- requests for Notices of Guaranteed Delivery
to the exchange agent addressed as follows:
<TABLE>
<S> <C> <C>
By Overnight Courier and By Hand: By Registered or
by Hand after 4:30 pm United States Trust Certified Mail:
on the Expiration Date: Company of New York United States Trust
United States Trust 111 Broadway, Lower Level Company of New York
Company of New York New York, New York 10006 P.O. Box 844
770 Broadway, 13th Floor Attn: Corporate Trust Services Cooper Station
New York, New York 10003 Via Facsimile: New York, New York 10276-0844
Attn: Corporate (212) 780-0592 Attn: Corporate
Trust Services Attn: Corporate Trust Services Trust Services
Confirm by Telephone:
(800) 548-6565
</TABLE>
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
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FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We are mailing the
principal solicitation. However, our officers and regular employees and those of
our affiliates may make additional solicitation by telegraph, telecopy,
telephone or in person.
We have not retained any dealer-manager in connection with the exchange
offer. We will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offer. However, we will pay the exchange agent
reasonable and customary fees for its services. We will reimburse the exchange
agent for its reasonable out-of-pocket expenses.
We will pay the cash expenses incurred in connection with the exchange
offer. These expenses include fees and expenses of the exchange agent and
trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
notes. The carrying value is face value, as reflected in our accounting records
on the date of exchange. Accordingly, we will recognize no gain or loss for
accounting purposes. The expenses of the exchange offer will be expensed over
the term of the exchange notes.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection with the exchange. However, holders who
instruct us to register exchange notes in the name of, or request that old notes
not tendered or not accepted in the exchange offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax on that transfer.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF EXCHANGE NOTES
The notes that are not exchanged for exchange notes under the exchange
offer will remain restricted securities. Accordingly, those notes may be resold
only:
(1) to us (upon redemption of the notes or otherwise);
(2) so long as the notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States who is a qualified institutional
buyer according to Rule 144A under the Securities Act of 1933 or
pursuant to another exemption from the registration requirements of the
Securities Act of 1933, based upon an opinion of counsel reasonably
acceptable to us;
(3) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act of 1933; or
(4) under an effective registration statement under the Securities Act of
1933
in each case in accordance with any applicable securities laws of any state of
the United States.
RESALES OF THE EXCHANGE NOTES
Based on interpretations by the staff of the Securities and Exchange
Commission set forth in no-action letters issued to third parties, we believe
that a holder or other person who receives exchange notes will be allowed to
resell the exchange notes to the public without further registration under the
Securities Act of 1933 and without delivering a prospectus that satisfies the
requirements of Section 10 of the Securities Act of 1933. The holder (other than
a person that is our "affiliate" within the meaning of Rule 405 under the
Securities Act of 1933) who receives exchange notes in exchange for notes in the
ordinary course of business and who is not participating, need not intend
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to participate or have an arrangement or understanding with any person to
participate in the distribution of the exchange notes. However, if any holder
acquires exchange notes in the exchange offer for the purpose of distributing or
participating in a distribution of the exchange notes, the holder cannot rely on
the position of the staff of the Securities and Exchange Commission enunciated
in the no-action letters or any similar interpretive letters. A holder who
acquires exchange notes in order to distribute them must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each broker-dealer that receives exchange notes
for its own account in exchange for notes as a result of market-making
activities or other trading activities must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion, including the opinion of counsel described below,
is based upon current provisions of the Internal Revenue Code of 1986, as
amended, applicable Treasury regulations, judicial authority and administrative
rulings and practice. The Internal Revenue Service may take a contrary view, and
no ruling from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the following statements and conditions. Any changes or interpretations
may or may not be retroactive and could affect the tax consequences to holders.
Some holders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. We recommend that each holder consult his own tax advisor as to
the particular tax consequences of exchanging such holder's old notes for
exchange notes, including the applicability and effect of any state, local or
foreign tax laws.
Kirkland & Ellis, counsel to Neenah, has advised us that in its opinion,
the exchange of the old notes for exchange notes pursuant to the exchange offer
will not be treated as an "exchange" for federal income tax purposes because the
exchange notes will not be considered to differ materially in kind or extent
from the old notes. Rather, the exchange notes received by a holder will be
treated as a continuation of the old notes in the hands of such holder. As a
result, there will be no federal income tax consequences to holders exchanging
old notes for exchange notes pursuant to the exchange offer.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account under
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of exchange notes.
This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of exchange notes
received in exchange for series E notes if the series E senior subordinated
notes were acquired as a result of market-making activities or other trading
activities.
We and our guarantor subsidiaries have agreed to make this prospectus, as
amended or supplemented, available to any broker-dealer to use in connection
with any such resale for a period of at least 180 days after the expiration
date. In addition, until [ , 1999], all dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
Neither we nor our guarantor subsidiaries will receive any proceeds from
any sale of exchange notes by broker-dealers. Exchange notes received by
broker-dealers for their own accounts under the exchange offer may be sold from
time to time in one or more transactions
- in the over-the-counter market,
- in negotiated transactions,
- through the writing of options on the exchange notes or a combination of
such methods of resale,
- at market prices prevailing at the time of resale,
- at prices related to such prevailing market prices or
- at negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers. Brokers or dealers may receive compensation in the form of commissions
or concessions from any broker-dealer or the purchasers of any such exchange
notes. An "underwriter" within the meaning of the Securities Act of 1933
includes
(1) any broker-dealer that resells exchange notes that were received by it
for its own account pursuant to the exchange offer or
(2) any broker or dealer that participates in a distribution of such
exchange notes.
Any profit on any resale of exchange notes and any commissions or concessions
received by any persons may be deemed to be underwriting compensation under the
Securities Act of 1933. The letter of transmittal states that, by acknowledging
that it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933.
Based on interpretations by the staff of the Securities and Exchange
Commission set forth in no-action letters issued to third parties, we believe
that a holder or other person who receives exchange notes will be allowed to
resell the exchange notes to the public without further registration under the
Securities Act of 1933 and without delivering to the purchasers of the exchange
notes a prospectus that satisfies the requirements of Section 10 of the
Securities Act of 1933. The holder (other than a person that is an "affiliate"
of Neenah within the meaning of Rule 405 under the Securities Act of 1933) who
receives exchange notes in exchange for old notes in the ordinary course of
business and who is not participating, need not intend to participate or have an
arrangement or understanding with person to participate in the distribution of
the exchange notes.
However, if any holder acquires exchange notes in the exchange offer for
the purpose of distributing or participating in a distribution of the exchange
notes, the holder cannot rely on the position of the staff of the Securities and
Exchange Commission enunciated in such no-action letters
110
<PAGE> 116
or any similar interpretive letters. The holder must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933
in connection with any resale transaction. A secondary resale transaction should
be covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K under the Securities Act of 1933, unless an exemption from
registration is otherwise available.
Further, each broker-dealer that receives exchange notes for its own
account in exchange for old notes, where the old notes were acquired by such
participating broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of any exchange notes. We and each of our guarantor
subsidiaries have agreed, for a period of not less than 180 days from the
consummation of the exchange offer, to make this prospectus available to any
broker-dealer for use in connection with any such resale.
For a period of not less than 180 days after the expiration date we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests those documents
in the letter of transmittal. We and each of our guarantor subsidiaries have
jointly and severally agreed to pay all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the series E senior
subordinated notes, other than commissions or concessions of any brokers or
dealers. We will indemnify the holders of the series E senior subordinated notes
against liabilities under the Securities Act of 1933, including any
broker-dealers.
LEGAL MATTERS
Kirkland & Ellis, New York, New York will issue an opinion for Neenah and
the guarantor subsidiaries with respect to the issuance of the exchange notes
offered hereby, including
(1) the existence and good standing of Neenah under its state of
incorporation,
(2) the authorization of the sale and issuance of the exchange notes by
Neenah and
(3) the enforceability of the exchange notes.
EXPERTS
The consolidated financial statements of Neenah at March 31, 1996 and 1997
and at September 30, 1997 and 1998, and for the years ended March 31, 1996 and
1997, the one month ended April 30, 1997, the five months ended September 30,
1997 and for the year ended September 30, 1998, incorporated by reference in
this prospectus and in the registration statement, and the financial statement
schedule incorporated by reference in the registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon incorporated by reference in this Prospectus and in the
registration statement, and are included herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Dalton Corporation, formerly known
as The Dalton Foundries, Inc., as of January 3, 1998 and December 28, 1996 and
for each of the three fiscal years in the period ended January 3, 1998 included
in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on authority of said
firm as experts in auditing and accounting.
The consolidated financial statements of Mercer Forge Corporation and
Subsidiary as of November 30, 1997 and 1996, and for each of the years in the
two year period ended November 30, 1997, have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent auditors, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
111
<PAGE> 117
INCORPORATION BY REFERENCE
The following portions of documents filed by Neenah with the Securities and
Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange
Act in 1934 (File No. 333-28751) are incorporated herein by reference:
(1) The consolidated financial statements, including the notes thereto and
schedules filed therewith of Neenah and its predecessor company, and
the independent auditors' reports thereon, filed as part of the Annual
Report on Form 10-K for the fiscal year ended September 30, 1998;
(2) The consolidated financial statements, including the notes thereto, of
Mercer Forge Corporation and the independent auditors' report thereon
contained in Item 7(a) "Financial Statements of Business Acquired" and
the unaudited pro forma condensed consolidated financial statements,
including the notes thereto, of Neenah contained in Item 7(b) "Pro
Forma Financial Information," contained in Item 7 "Financial
Statements, Pro Forma Financial Information and Exhibits" of the
Current Reports on Form 8-K/A dated June 12, 1998 and November 5, 1998;
(3) The consolidated financial statements, including the notes thereto, of
Dalton Corporation and the report of independent accountants thereon
contained in Item 7(a) "Financial Statements of Business Acquired" and
the unaudited pro forma condensed consolidated financial statements,
including the notes thereto, of Neenah contained in Item 7(b) "Pro
Forma Financial Information," contained in Item 7 "Financial
Statements, Pro Forma Financial Information and Exhibits" of the
Current Reports on Form 8-K/A dated November 6, 1998, November 19,
1998, and November 23, 1998; and
(4) The unaudited condensed consolidated financial statements, including
the notes thereto of Neenah, filed as part of the Current Report on
Form 10-Q for the three months ended December 31, 1998.
All documents and reports filed by Neenah pursuant to the exchange act
after the date of this prospectus will be deemed to be incorporated by reference
in this prospectus and to be a part hereof from the dates of filing such
documents or reports.
Any statement contained herein or in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained or incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the other documents incorporated herein by reference and
not delivered herewith, except the exhibits to such documents, unless such
exhibits are specifically incorporated by reference in such documents. Requests
for such documents should be directed to the attention of our Secretary at (920)
725-7000.
The reports and other information, including the annual, quarterly and
current reports incorporated herein by reference and filed by us with the
Securities and Exchange Commission should also be available for inspection at
the public reference facilities of the Securities and Exchange Commission
located at 450 Fifth Street, N.W., Washington, DC 20549, and at the regional
offices of the Securities and Exchange Commission located at Citicorp Center,
500 West Madison Street (Suite 1400), Chicago, IL 60661 and Seven World Trade
Center, 13th Floor, New York, NY 10048. Copies should be obtainable by mail,
upon payment of the Securities and Exchange Commission's customary charges, by
writing to the Securities and Exchange Commission's principal office at 450
Fifth Street, N.W., Washington, DC 20549. The Securities and Exchange Commission
also maintains an internet website at http://www.sec.gov that contains reports
and other information.
112
<PAGE> 118
AVAILABLE INFORMATION
We and our guarantor subsidiaries have filed with the Securities and
Exchange Commission a Registration Statement on Form S-4, the "Exchange Offer
Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto, pursuant to the Securities Act of 1933, and the
rules and regulations promulgated thereunder, covering the exchange notes being
offered. This prospectus does not contain all the information set forth in the
exchange offer registration statement. For further information with respect to
Neenah, the guarantor subsidiaries and the exchange offer, reference is made to
the exchange offer registration statement. Statements made in this prospectus as
to the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the exchange offer registration statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
The exchange offer registration statement, including the exhibits thereto,
can be inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Securities and
Exchange Commission at Seven World Trade Center, Suite 1300, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the Securities and Exchange
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of such Web site is:
http://www.sec.gov.
We are currently subject to the informational requirements of the
Securities Act of 1933, and in accordance therewith will be required to file
periodic reports and other information with the Securities and Exchange
Commission. Our obligation to file periodic reports and other information with
the Securities and Exchange Commission will be suspended if the exchange notes
are held of record by fewer than 300 holders as of the beginning of our fiscal
year other than the fiscal year in which the exchange offer registration
statement is declared effective.
We will nevertheless be required to continue to file reports with the
Securities and Exchange Commission if the exchange notes are listed on a
national securities exchange. In the event we cease to be subject to the
informational requirements of the Securities Exchange Act of 1934, we will be
required under the indenture to continue to file with the Securities and
Exchange Commission the annual and quarterly reports, information, documents or
other reports, including, without limitation, reports on Forms 10-K, 10-Q and
8-K, which would be required pursuant to the informational requirements of the
Securities Exchange Act of 1934.
Under the indenture, we shall file with the trustee annual, quarterly and
other reports after it files such reports with the Securities and Exchange
Commission. Annual reports delivered to the trustee and the holders of exchange
notes will contain financial information that has been examined and reported
upon, with an opinion expressed by an independent public accountant. We will
also furnish such other reports as may be required by law.
Information contained in this prospectus contains "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," or "anticipates" or the
negative thereof or other similar terminology, or by discussions of strategy.
Our actual results could differ materially from those anticipated by any such
forward-looking statements as a result of factors set forth under the "Risk
Factors" beginning on page 9 and elsewhere in this prospectus.
------------------------
113
<PAGE> 119
INDEX TO THE FINANCIAL STATEMENTS FOR DALTON CORPORATION
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets for January 3, 1998 and December
28, 1996.................................................. F-3
Consolidated Statements of Income for the years ended
January 3, 1998, December 28, 1996 and December 30,
1995...................................................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended January 3, 1998, December 28, 1996 and
December 30, 1995......................................... F-5
Consolidated Statements of Cash Flows for the years ended
January 3, 1998, December 28, 1996 and December 30,
1995...................................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 120
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of
Dalton Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of Dalton
Corporation (formerly known as The Dalton Foundries, Inc.) and its subsidiaries
at January 3, 1998 and December 28, 1996, and the results of their operations
and their cash flows for each of the three years in the period ended January 3,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------
PricewaterhouseCoopers LLP
Indianapolis, Indiana
March 6, 1998, except as to
Note 13, which is as of September 8, 1998
F-2
<PAGE> 121
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 184,097 $ 167,377
Accounts receivable, trade, net of allowance for doubtful
accounts of $150,000 in each year (Note 6)............. 19,907,606 19,203,346
Accounts receivable from affiliate (Note 5)............... -- 1,887,391
Income taxes receivable (Notes 1 and 7)................... 219,361 702,971
Inventories (Notes 1, 3 and 6)............................ 13,065,647 13,304,238
Prepaid expenses and other assets......................... 2,031,280 1,208,056
Current deferred taxes (Notes 1 and 7).................... 922,238 737,416
------------ ------------
Total current assets................................... 36,330,229 37,210,795
------------ ------------
Property, plant and equipment, net (Notes 1, 4 and 6)....... 34,637,663 30,592,885
Cash value of life insurance................................ 1,759,410 1,577,954
Other assets................................................ 1,473,183 1,323,636
Investment in and advances to affiliate (Note 5)............ -- 925,894
------------ ------------
Total assets........................................... $ 74,200,485 $ 71,631,164
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations and notes payable
(Notes 6 and 13)....................................... $ 202,847 $ 1,060,922
Trade accounts payable.................................... 9,742,856 7,811,748
Salaries and wages........................................ 3,481,816 3,472,222
Group medical insurance................................... 931,900 821,313
Taxes, other than income taxes............................ 605,757 480,298
Retirement benefits and deferred compensation (Note 8).... 818,103 339,596
Accrued ESOP contribution (Note 8)........................ 1,006,568 --
Other..................................................... 804,197 1,087,954
------------ ------------
Total current liabilities.............................. 17,594,044 15,074,053
============ ============
Long-term obligations and notes payable (Notes 6 and 13).... 41,238,089 27,054,830
Long-term retirement benefits and deferred compensation
(Note 8).................................................. 2,752,499 3,278,630
Long-term deferred income taxes (Notes 1 and 7)............. 1,362,753 1,233,270
Commitments and contingencies (Notes 11 and 13)
Stockholders' equity:
Common stock -- no par value, 8,750,000 shares authorized,
4,801,750 shares issued (Notes 11, 12 and 13).......... 350,000 350,000
Paid in capital........................................... 11,384,837 11,384,837
Retained earnings......................................... 38,211,260 36,449,277
Treasury stock, 2,430,407 and 1,889,573 shares at cost
(Notes 11 and 12)...................................... (38,445,695) (22,723,640)
Minimum pension liability adjustment, net of tax (Note
8)..................................................... (247,302) (470,093)
------------ ------------
Total stockholders' equity............................. 11,253,100 24,990,381
------------ ------------
Total liabilities and stockholders' equity............. $ 74,200,485 $ 71,631,164
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 122
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales.................................... $172,107,096 $154,506,085 $146,007,312
Cost of goods sold........................... 158,906,460 136,523,283 124,393,208
------------ ------------ ------------
Gross profit............................ 13,200,636 17,982,802 21,614,104
------------ ------------ ------------
Expenses:
Selling.................................... 2,745,837 2,803,663 2,137,483
General and administrative................. 3,986,329 4,403,056 4,307,217
------------ ------------ ------------
Operating profit........................ 6,468,470 10,776,083 15,169,404
Other income (expense):
Interest expense........................... (2,958,124) (1,798,819) (1,057,600)
Other income (expense), net................ (196,281) 242,474 (230,880)
------------ ------------ ------------
Pretax income from operations........... 3,314,065 9,219,738 13,880,924
Provision for income taxes................... 1,017,480 3,553,628 5,319,000
------------ ------------ ------------
Income from operations....................... 2,296,585 5,666,110 8,561,924
Equity income (loss) from Stryker (Note 5)... -- 8,099 (42,728)
------------ ------------ ------------
Net income................................... $ 2,296,585 $ 5,674,209 $ 8,519,196
============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 123
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------------
COMMON
STOCK TREASURY COMMON PAID IN RETAINED TREASURY
OUTSTANDING STOCK STOCK CAPITAL EARNINGS STOCK
---------------- --------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1995.................... 3,582,950 1,218,800 $350,000 $10,079,926 $23,455,420 $ (5,720,129)
Net income......................... 8,519,196
Purchase of treasury stock......... (298,460) 298,460 (6,292,705)
Cash dividends of $.18 per share... (599,501)
Change in minimum pension liability
adjustment.......................
Contribution of treasury stock to
ESOP............................. 18,685 (18,685) 429,179 48,638
Reduction in loan to ESOP..........
--------- --------- -------- ----------- ----------- ------------
DECEMBER 30, 1995.................. 3,303,175 1,498,575 350,000 10,509,105 31,375,115 (11,964,196)
Net income......................... 5,674,209
Purchase of treasury stock......... (424,086) 424,086 (10,845,579)
Cash dividends of $.18 per share... (600,047)
Change in minimum pension liability
adjustment.......................
Contribution of treasury stock to
ESOP............................. 33,088 (33,088) 875,732 86,135
--------- --------- -------- ----------- ----------- ------------
DECEMBER 28, 1996.................. 2,912,177 1,889,573 350,000 11,384,837 36,449,277 (22,723,640)
Net income......................... 2,296,585
Purchase of treasury stock......... (540,834) 540,834 (15,722,055)
Cash dividends of $.20 per share... (534,602)
Change in minimum pension liability
adjustment.......................
--------- --------- -------- ----------- ----------- ------------
JANUARY 3, 1998.................... 2,371,343 2,430,407 $350,000 $11,384,837 $38,211,260 $(38,445,695)
========= ========= ======== =========== =========== ============
<CAPTION>
MINIMUM
PENSION TOTAL
LIABILITY LOAN TO STOCKHOLDERS'
ADJUSTMENT ESOP EQUITY
---------- --------- -------------
<S> <C> <C> <C>
JANUARY 1, 1995.................... $(340,523) $(289,272) $27,535,422
Net income......................... 8,519,196
Purchase of treasury stock......... (6,292,705)
Cash dividends of $.18 per share... (599,501)
Change in minimum pension liability
adjustment....................... 108,087 108,087
Contribution of treasury stock to
ESOP............................. 477,817
Reduction in loan to ESOP.......... 289,272 289,272
--------- --------- -----------
DECEMBER 30, 1995.................. (232,436) -- 30,037,588
Net income......................... 5,674,209
Purchase of treasury stock......... (10,845,579)
Cash dividends of $.18 per share... (600,047)
Change in minimum pension liability
adjustment....................... (237,657) (237,657)
Contribution of treasury stock to
ESOP............................. 961,867
--------- --------- -----------
DECEMBER 28, 1996.................. (470,093) -- 24,990,381
Net income......................... 2,296,585
Purchase of treasury stock......... (15,722,055)
Cash dividends of $.20 per share... (534,602)
Change in minimum pension liability
adjustment....................... 222,791 222,791
--------- --------- -----------
JANUARY 3, 1998.................... $(247,302) $ -- $11,253,100
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 124
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
------------ ------------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................... $ 2,296,585 $ 5,674,209 $ 8,519,196
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense......................... 6,659,295 5,551,810 5,084,829
Equity (income) loss from Stryker............ -- (8,099) 42,728
Contribution of treasury stock to ESOP....... -- 961,867 477,817
Loss (gain) on disposal of property, plant
and equipment............................. 191,091 (33,049) 52,664
Change in, excluding effects of acquisitions:
Accounts receivable, trade and other...... 2,989,447 (1,947,507) (4,278,637)
Inventories............................... 571,246 (2,627,894) (8,116)
Accounts payable, trade and accrued
liabilities............................. 1,055,552 585,925 (3,688,036)
Deferred taxes............................ (339,224) 486,673 (278,696)
Other..................................... (1,138,550) (30,525) (518,271)
------------ ------------ -----------
Total adjustments......................... 9,988,857 2,939,201 (3,113,718)
------------ ------------ -----------
Net cash provided by operating activities.... 12,285,442 8,613,410 5,405,478
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment,
excluding effects of acquisitions............ (6,706,277) (6,594,714) (7,439,097)
Proceeds from sale of property, plant and
equipment.................................... 5,919 -- 8,250
Acquisition of Stryker, net of cash assumed.... (200,000) -- --
Cash assumed in acquisition of Ashland......... -- -- 44,382
------------ ------------ -----------
Net cash used in investing activities........ (6,900,358) (6,594,714) (7,386,465)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving loan............ (131,000) 10,128,243 7,393,757
Borrowing of long-term debt.................... 11,019,293 -- 8,000,000
Repayment of long-term obligations............. -- (1,084,130) (6,262,184)
Dividends paid................................. (534,602) (600,047) (599,501)
Purchase of treasury stock..................... (15,722,055) (10,845,579) (6,292,705)
------------ ------------ -----------
Net cash (used in) provided by financing
activities................................ (5,368,364) (2,401,513) 2,239,367
------------ ------------ -----------
Increase (decrease) in cash and cash
equivalents.................................. 16,720 (382,817) 258,380
Cash and cash equivalents at beginning of
period....................................... 167,377 550,194 291,814
------------ ------------ -----------
Cash and cash equivalents at end of period..... $ 184,097 $ 167,377 $ 550,194
============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest......................... $ 2,985,453 $ 1,831,683 $ 829,457
Cash paid for income taxes..................... $ 1,192,614 $ 3,005,000 $ 6,126,557
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Dalton Corporation (formerly known as The Dalton Foundries, Inc.,
the Company or Dalton) and its wholly-owned subsidiaries, Warsaw Manufacturing
Facility (Warsaw), Kendallville Manufacturing Facility (formerly known as Newnam
Manufacturing, Inc., Kendallville), Ashland Manufacturing Facility (formerly
known as Ashland Castings Corporation, Ashland) and Stryker Machining Facility
(formerly known as Economy North, Stryker -- see Note 5). All intercompany
accounts and transactions have been eliminated.
Prior to January 2, 1998, the Company was majority owned by an employee
stock ownership plan (ESOP, see Note 8), with 4.8% of the shares held outside of
the ESOP, primarily by certain key executives and officers of the Company.
Effective January 2, 1998, the Company repurchased all shares held outside of
the ESOP at the market value of the Company's stock as of December 28, 1996
(Note 8), for a total purchase price of $3,492,935. As a result, effective
January 3, 1998 the Company is 100% owned by the ESOP.
DESCRIPTION OF BUSINESS. The Company manufactures and sells grey iron
castings, primarily to the refrigeration, heavy equipment and automotive
industries. The Company operates foundries in Warsaw and Kendallville, Indiana
and Ashland, Ohio and a machining facility in Stryker, Ohio. The Company has no
foreign operations and direct export sales are not significant.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure 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.
FISCAL YEAR. The Company's fiscal year ends on the Saturday nearest
December 31. Included in these financial statements are the fiscal years ended
January 3, 1998 (1997 -- 53 weeks), December 28, 1996 (1996 -- 52 weeks), and
December 30, 1995 (1995 -- 52 weeks).
CASH FLOWS. For purposes of the Statement of Cash Flows, the Company
considers all highly liquid instruments with a maturity of three months or less
at date of purchase to be cash and cash equivalents.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost
is determined using the last-in, first-out (LIFO) method for approximately 67%
of the Company's inventories. Inventories not valued on LIFO are valued on the
first-in, first-out (FIFO) method.
REVENUE RECOGNITION. Revenues from product sales are recognized at the
time of shipment to the customer.
PROPERTY, PLANT AND EQUIPMENT. Properties are stated at cost. Maintenance
and minor repairs are expensed as incurred. Depreciation for financial reporting
purposes is determined using the straight-line method over the estimated useful
lives of the assets. The estimated lives are 7 to 8 years for land improvements,
7 to 20 years for buildings and improvements, and 2 to 10 years for machinery
and equipment. When property is retired from service or otherwise disposed of,
the cost and related amount of accumulated depreciation are eliminated from the
asset and reserve accounts, with the resulting gain or loss recognized in
income.
INCOME TAXES. The Company records income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for
Income Taxes". Deferred income taxes reflect the net tax effects of temporary
differences between the financial reporting carrying values of assets and
liabilities and the income tax carrying amounts.
F-7
<PAGE> 126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS. The fair value of all financial
instruments where the face value differs from the fair value are estimated based
upon the use of current rates available for similar financial instruments. If
fair value accounting had been used at January 3, 1998 instead of the historic
basis of accounting used in the financial statements, long-term debt would be
reduced from the reported level by approximately $600,000.
2. ACQUISITION OF ASHLAND MANUFACTURING FACILITY
On July 1, 1995 the net assets of Ashland were acquired by Dalton. At the
time of the acquisition, the fair value of the assets exceeded the fair value of
the liabilities by $1,887,000. The basis of long-term assets, primarily
machinery and equipment, was reduced by this excess. The purchase agreement
requires that Dalton pay the seller, as purchase price consideration, the lesser
of 50% of Ashland's cumulative net income earned through December 31, 2001 or
$7,000,000. Dalton has made no payments to the seller since the date of
acquisition.
This transaction was recorded as a purchase of assets in accordance with
Accounting Principles Board Opinion No. 16 (APB 16), "Business Combinations".
The results of Ashland subsequent to July 1, 1995 have been included in these
financial statements. These results reflect cumulative net losses of $7,724,338.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
----------- ------------
<S> <C> <C>
Raw materials and supplies............................. $ 1,651,054 $ 1,342,007
In process and finished goods.......................... 8,434,856 8,754,406
Factory supplies....................................... 2,979,737 3,207,825
----------- -----------
Total inventories............................ $13,065,647 $13,304,238
=========== ===========
</TABLE>
If the FIFO method of accounting had been used for all inventories,
inventories would have increased by $1,165,699 at January 3, 1998 and $542,909
at December 28, 1996.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
----------- ------------
<S> <C> <C>
Land and improvements.................................. $ 1,777,812 $ 1,709,710
Buildings and improvements............................. 10,157,540 7,813,421
Machinery and equipment................................ 59,361,016 51,947,021
----------- -----------
71,296,368 61,470,152
Accumulated depreciation............................... (37,874,273) (32,244,594)
----------- -----------
33,422,095 29,225,558
Construction in progress............................... 1,215,568 1,367,327
----------- -----------
Net property, plant and equipment...................... $34,637,663 $30,592,885
=========== ===========
</TABLE>
F-8
<PAGE> 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. STRYKER MACHINING FACILITY
Prior to January 2, 1997, the Company owned a 50% interest in Stryker.
Stryker machines castings produced by Kendallville and sells the finished
castings primarily within the automotive industry. This investment was accounted
for using the equity method of accounting.
Effective January 2, 1997, the Company purchased from its joint venture
partner the remaining 50% interest in Stryker, for a purchase price of
$1,000,000, $200,000 payable in cash and the balance in the form of an
interest-free installment note payable in equal annual payments over a five year
period. Based upon its non-cash nature, the installment note payable has not
been reflected within the Statements of Cash Flows. The net present value of the
purchase price approximated the book value of the remaining 50% interest. This
transaction was accounted for as a purchase transaction in accordance with APB
16.
Sales of castings to Stryker were $5,503,725 in 1996 and $5,584,428 in
1995. Management fees charged to Stryker were $12,000 in 1996 and 1995. All such
amounts in 1997 have been eliminated as the results of Stryker have been
consolidated with the Company subsequent to the purchase of the remaining 50%
ownership interest.
A summary of Stryker's financial information for 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash...................................................... $ 57,588 $ 98,573
Trade accounts receivable................................. 1,223,954 1,108,272
Inventories............................................... 332,655 294,074
Other assets.............................................. 188,245 75,033
Property and equipment, net............................... 4,228,721 4,694,814
---------- ----------
Total assets......................................... $6,031,163 $6,270,766
========== ==========
Accounts payable to Kendallville.......................... $1,887,391 $1,512,952
Advances payable to Kendallville.......................... 31,583 31,583
Other current liabilities................................. 785,735 807,372
Long-term obligations..................................... 1,537,832 2,146,435
Stockholders' equity...................................... 1,788,622 1,772,424
---------- ----------
Total liabilities and stockholders' equity........... $6,031,163 $6,270,766
========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net sales................................................. $9,191,675 $9,004,353
========== ==========
Net income (loss)......................................... $ 16,197 $ (85,455)
========== ==========
</TABLE>
F-9
<PAGE> 128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM OBLIGATIONS AND NOTES PAYABLE
Long-term obligations and notes payable consist of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
----------- ------------
<S> <C> <C>
Revolving and reducing line of credit.................. $20,000,000 $ 7,000,000
Revolving line of credit............................... 20,691,000 20,822,000
Capital lease obligations, 10%......................... 2,847 60,922
Borrowings against cash value of insurance policies,
5%................................................... 232,830 232,830
Notes payable.......................................... 514,259 --
----------- -----------
Total obligations and notes payable.................... 41,440,936 28,115,752
Amounts due within one year............................ (202,847) (1,060,922)
----------- -----------
Long-term obligations and notes payable................ $41,238,089 $27,054,830
=========== ===========
</TABLE>
The Company negotiated a number of modifications to its two primary
outstanding debt obligations during the course of fiscal 1997. The commitment
under the revolving and reducing line of credit was increased to $20,000,000,
payable in annual installments beginning in May 1999, with a balloon payment in
May 2002. The first annual installment due in May 1999 is $2,000,000, with
annual installments due in May 2000 and 2001 of $2,670,000. The facility bears
interest at a fixed rate of 8.56% for its entire term, with interest payable
monthly.
The commitment under the revolving line of credit was increased to
$25,000,000 during the year. Interest on amounts outstanding under the facility
are charged at a rate which floats with LIBOR and the Company's Tangible Net
Worth Ratio, as defined in the loan agreement, and is payable monthly. The
interest rate approximated 9.465% as of January 3, 1998. The revolving line of
credit expires in May 1999, with a one-year renewal option if the Company
maintains compliance with terms of the agreement and certain covenants. Amounts
available under the revolving line of credit are also subject to a borrowing
base computation based upon receivable and inventory balances. As of January 3,
1998, the borrowing base computation indicated available borrowings under the
facility of $22,740,000.
Each of the above debt obligations are secured by substantially all of the
assets of the Company, including accounts receivable, inventories and property,
plant and equipment. The obligations are jointly and severally guaranteed by the
Company and all its subsidiaries. The Company is subject to certain covenants in
relation to the above debt obligations, including the maintenance of a minimum
level of Tangible Net Worth, a maximum ratio of Total Liabilities to Tangible
Net Worth, and a minimum Debt Service ratio as defined in the loan agreements.
As of January 3, 1998, the Company was not in compliance with certain of these
covenants, which could effectively result in the obligations being callable on
demand. See Note 13 for subsequent actions taken by the lenders with respect to
such non-compliance.
The outstanding notes payable of $514,259 at January 3, 1998 represents the
present value of the remaining installments due in relation to the acquisition
of Stryker (Note 5). Annual equal installments are due under the interest-free
note through 2001.
F-10
<PAGE> 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled payments under the Company's debt agreements as of January 3,
1998 are as follows:
<TABLE>
<S> <C>
1998.......................................... $ 202,847
1999.......................................... 22,841,996
2000.......................................... 2,833,263
2001.......................................... 2,670,000
2002.......................................... 12,660,000
Thereafter.................................... 232,830
-----------
Total......................................... $41,440,936
===========
</TABLE>
7. INCOME TAXES
At January 3, 1998, deferred tax assets consist primarily of temporary
differences associated with accruals such as pensions, deferred compensation
liabilities, self-insurance reserves, employee benefits and environmental
accruals, along with state operating loss carryforwards at Ashland. Deferred tax
liabilities relate to temporary differences primarily associated with property,
plant and equipment due to accelerated methods of depreciation for tax purposes.
Components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
------------ ------------
<S> <C> <C>
Deferred tax assets................................... $ 4,045,405 $ 3,349,762
Deferred tax liabilities.............................. (3,862,059) (3,428,116)
------------ ------------
183,346 (78,354)
Valuation allowances.................................. (623,861) (417,500)
------------ ------------
Net deferred tax liability............................ $ (440,515) $ (495,854)
============ ============
</TABLE>
A full valuation allowance has been recorded at January 3, 1998 and
December 28, 1996 relating to the net state deferred tax assets at Ashland,
including operating loss carryforwards. An operating loss carryforward of
$14,115,000 is available for Ohio State tax purposes, with expiration dates in
2010 through 2012.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current income taxes:
Federal.................................. $1,235,179 $1,797,665 $4,481,000
State.................................... 241,486 1,141,322 1,175,000
---------- ---------- ----------
Total current.............................. 1,476,665 2,938,987 5,656,000
Deferred income taxes:
Federal.................................. (394,379) 649,655 (303,000)
State.................................... (64,806) (35,014) (34,000)
---------- ---------- ----------
Total deferred............................. (459,185) 614,641 (337,000)
---------- ---------- ----------
Total provision for income taxes........... $1,017,480 $3,553,628 $5,319,000
---------- ---------- ----------
</TABLE>
F-11
<PAGE> 130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory Federal income tax rate to the effective
income tax rate for each fiscal year is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate........................ 34.0% 34.0% 34.0%
State income tax, net of Federal benefit.................... 3.5 7.9 5.4
ESOP dividend............................................... (5.5) (2.2) (1.5)
Other....................................................... (1.3) (1.2) 0.4
---- ---- ----
Effective income tax rate................................... 30.7% 38.5% 38.3%
==== ==== ====
</TABLE>
On March 2, 1998, the Company filed an election to be treated as an
S-Corporation for income tax purposes effective January 4, 1998. As a result of
this election, the Company will no longer be subject to Federal and state income
taxes, other than potential taxes resulting from the disposal of assets within a
ten-year period of the election or non-income based taxes. With this change in
tax status, the deferred tax accounts and other income tax accounts of the
Company will be adjusted in fiscal 1998 to take into account the new tax status
of the Company, subject to the maintenance of certain tax liabilities associated
with potential taxes due upon the disposition of assets subsequent to the
effective date of the S-Corporation election.
8. RETIREMENT BENEFITS AND DEFERRED COMPENSATION
Accrued retirement benefits and deferred compensation consist of the
following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
<S> <C> <C>
Defined benefit plan..................................... $1,578,197 $1,922,806
Supplemental benefits.................................... 1,800,826 1,518,194
Defined contribution plans............................... 126,550 103,329
Multi-employer plan...................................... 45,390 36,376
Other.................................................... 19,639 37,521
---------- ----------
3,570,602 3,618,226
Amounts to be paid within one year....................... (818,103) (339,596)
---------- ----------
Long-term retirement benefits and
deferred compensation.................................. $2,752,499 $3,278,630
========== ==========
</TABLE>
DEFINED BENEFIT PLAN. Substantially all of the Company's employees in the
Warsaw bargaining units are covered by a non-contributory defined benefit
pension plan. The plan provides benefits of stated amounts for each year of
service.
The Company's pension expense was determined in accordance with SFAS No.
87, "Employers' Accounting for Pensions". The discount rate used was 7.25% for
all fiscal years. The assumed long-term rate of return on assets was 7.50% for
all fiscal years.
F-12
<PAGE> 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension expense consists of the following for each fiscal year:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the
period..................................... $ 389,411 $ 363,655 $ 313,182
Interest on projected benefit obligation..... 501,806 430,603 394,839
Amortization of transition liability......... 26,437 26,437 26,437
Amortization of prior service cost........... 23,251 23,251 23,251
Actual return on plan assets................. (820,660) (418,620) (664,568)
Unrecognized net gain........................ 427,313 78,565 387,168
--------- --------- ---------
Net pension expense.......................... $ 547,558 $ 503,891 $ 480,309
========= ========= =========
</TABLE>
The funded status of the Company's defined benefit pension plan and the net
accrued pension liability recognized in the Company's consolidated Balance Sheet
consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested.................................................. $7,272,722 $6,544,105
Nonvested............................................... 457,705 519,208
---------- ----------
Projected benefit obligation.............................. 7,730,427 7,063,313
Plan assets at fair value................................. 6,152,230 5,140,507
---------- ----------
Projected benefit obligation in excess of plan assets..... 1,578,197 1,922,806
Unrecognized prior service cost........................... (209,263) (232,514)
Unrecognized net liability at January 4, 1987 being
recognized over 15 years................................ (105,760) (132,197)
Unrecognized net gains.................................... (380,463) (723,215)
Recorded additional minimum liability..................... 695,486 1,087,926
---------- ----------
Accrued pension liability................................. $1,578,197 $1,922,806
========== ==========
</TABLE>
The Company has recognized the amount of the projected benefit obligation
in excess of plan assets as a liability in its financial statements. An
intangible asset of $315,023 and $364,711 was recorded at January 3, 1998 and
December 28, 1996 with the remaining $380,463 and $723,215 of the minimum
liability recorded as a reduction of stockholders' equity, net of tax.
SUPPLEMENTAL BENEFITS. The Company provides supplemental retirement
benefits and death benefits for certain executives. As a method of funding a
portion of the benefits under this plan, the Company purchased and is the
beneficiary of life insurance policies with a cash value of $1,759,410 and a
face value of $3,246,392 at January 3, 1998. Provisions for these benefits are
charged to operations over the employees' expected terms of employment. Expense
of the plan, net of the increase in cash value of life insurance policies, was
$244,431 in 1997, $286,577 in 1996, and $253,763 in 1995.
DEFINED CONTRIBUTION PLANS. The Company maintains defined contribution
plans for substantially all non-union employees and Ashland union employees.
Participants may contribute up to 10% of their compensation on a pretax basis.
The Company may make contributions to the plans at its discretion. The expense
associated with these plans was $126,550 in 1997, $103,329 in 1996, and $82,643
in 1995. Warsaw also has a defined contribution plan for the union employees.
Participants may contribute up to 15% of their compensation on a pretax basis
and an additional 10% on a posttax basis. The Company does not make
contributions to the Plan.
F-13
<PAGE> 132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MULTI-EMPLOYER PLAN. Substantially all of Kendallville's hourly employees
are covered by a union-sponsored multi-employer defined benefit pension plan. As
long as the Company remains a participant in this plan, its obligation is
satisfied by its defined contributions. Information is not available for the
union-sponsored plan to permit Kendallville to determine its share of any
unfunded vested benefits. Contributions to the Plan are established under a
collective bargaining agreement and charges to operations related to this plan
totaled $477,106 in 1997, $451,678 in 1996, and $391,623 in 1995.
EMPLOYEE STOCK OWNERSHIP PLAN. All employees of the Corporate location and
all non-union employees of the Company's Warsaw operation and Kendallville
operation participate in the ESOP. Effective January 1, 1996, all non-union
employees of the Ashland operation began participating in the ESOP. Effective
January 1, 1997, all employees of the Stryker facility also began participating
in the ESOP. The amount of the Company's annual contribution to the ESOP is at
the discretion of the Board of Directors. The total contribution is allocated to
participants based upon participant compensation. There is no outstanding debt
under the ESOP and all shares have been released and allocated. Historically,
the Company has funded a portion of its annual ESOP contribution with Company
stock. The market value of the Company's stock, as determined by an independent
appraiser, was $29.07 per share at December 28, 1996. There has been no updated
appraisal of stock value as of January 3, 1998. During 1997 the Company funded
its entire ESOP contribution with a cash contribution and in 1995 the
contribution was partially funded by cash. The Company's ESOP contributions for
each fiscal year were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Contribution based on compensation............. $1,006,568 $961,867 $847,308
========== ======== ========
</TABLE>
9. SIGNIFICANT CUSTOMERS
The Company sells its products primarily to large industrial companies.
During each fiscal year, two customers individually comprised more than 10% of
sales. One customer comprised 17% of sales in 1997, and 20% of sales in 1996 and
1995, while the other customer comprised 12% of sales in 1997 and 1996, and 15%
of sales in 1995. At January 3, 1998 these two customers and one additional
customer collectively comprised 27% of trade accounts receivable. The Company
generally does not require collateral as a basis for granting credit.
10. LEASES
The Company maintains several operating leases with terms in excess of one
year. Minimum payments are approximately $320,000 in 1998, $200,000 in 1999 and
are approximately $100,000 in each of the three years subsequent to 1999. Lease
expense in fiscal 1997 was approximately $675,000 and was minimal in the other
two fiscal years.
11. COMMITMENTS AND CONTINGENCIES
STOCK REPURCHASE OBLIGATION. When employees leave the Company they are
required to put, and the Company is obligated to purchase, all of their Dalton
common shares at an appraised price. The repurchase of these shares is generally
paid in equal annual installments over a five year period as allowed under the
ESOP. The Company is obligated to purchase approximately $23,560,770 of Company
stock from employees who have terminated or retired prior to January 3, 1998.
There has been no appraisal update for the 1997 year-end, therefore, this amount
is based upon the appraised price of the stock as of December 28, 1996, and is
subject to change based upon future appraised values.
F-14
<PAGE> 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Repurchase commitments over the next five years, based upon the December
28, 1996 stock valuation, are as follows:
<TABLE>
<S> <C>
1998............................................ $6,268,384
1999............................................ $6,051,822
2000............................................ $6,051,822
2001............................................ $3,769,942
2002............................................ $1,418,800
</TABLE>
See Note 13 for subsequent events impacting the stock repurchase
obligation.
MEDICAL BENEFITS AND WORKERS' COMPENSATION. The Company is essentially
self-insured with respect to medical benefits and maintains excess insurance
coverage to limit its exposure. The Company is also self-insured for workers'
compensation exposures at the Warsaw operation and maintains excess insurance
coverage limiting its exposure to no more than $275,000 per accident. The
Company pays all Warsaw claims below the insured level. The Company charges the
expected ultimate costs of self-insured claims to income in the period the
accident or illness occurs. At January 3, 1998 the Company had accrued
$1,391,000 for reported and unreported medical and workers' compensation claims.
Actual costs may be different than this estimate.
ENVIRONMENTAL. The Company has been identified by the United States
Environmental Protection Agency (EPA) as a Potentially Responsible Party (PRP)
under Superfund legislation because industrial wastes were allegedly sent to two
hazardous waste sites (Wayne Reclamation Superfund site and Lakeland Superfund
site). Dalton has entered into a consent decree filed with the U.S. District
Court for the Wayne Reclamation Superfund site. All involved parties have
accepted the consent decree, and it is pending approval by the court. Dalton is
one of 16 defendants at the Lakeland Superfund site. Dalton has been previously
dismissed from the PRP list at this site; however, during 1997, the plaintiffs
appealed the dismissal previously entered in Dalton's favor. During February
1998, the Company reached an agreement with the EPA to settle its obligation for
the Lakeland Superfund site. The amount owed under the terms of the settlement
approximates the accrued amount recorded at January 3, 1998.
The Company is also in the process of closing an on-site surface
impoundment. The amount accrued relative to this closure represents the
estimated total clean up, monitoring and administrative costs associated with
this closure. This project has been substantially completed as of January 3,
1998. The Company also operates an operating landfill at which on-going
environmental monitoring costs will be incurred.
Total accruals for environmental liabilities are $150,370 at January 3,
1998.
12. COMMON STOCK SPLIT
Effective August 1, 1996, the Board of Directors approved an increase in
the number of authorized common shares to 8,750,000 and simultaneously declared
a five-for-one stock split on the Company's common stock. All share and per
share data included in this report reflect this stock split.
13. SUBSEQUENT EVENTS
On July 28, 1998, the Company had a fire at the Warsaw operation. There is
no current estimate of damages, however, the Company is fully insured for
property damage subject to a minimal deductible of $25,000. There were no
reported personal injuries and the Company did not suffer significant business
interruption as a result of the fire.
F-15
<PAGE> 134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 7, 1998, the Company entered into an agreement to sell all its
operations to Neenah Foundry Company (Neenah) for a purchase price of
$102,000,000, less amounts due under outstanding debt agreements and subject to
certain other adjustments. The agreement was subject to shareholder and
regulatory approval, which was received, and the transaction closed September 8,
1998. With consummation of the transaction, the ESOP was terminated, pending
approval from the Internal Revenue Service, and all shares were acquired.
Furthermore, certain "change in control" provisions of select benefit agreements
may be activated as a result of the transaction.
Effective August 14, 1998, the Company's primary lenders formally waived
their rights with respect to certain covenant violations to accelerate payment
of amounts outstanding under the bank term loan and the revolving loan through
May 31, 1999, the scheduled expiration date of the revolving loan agreement.
Based upon the waiver of compliance, the amounts outstanding under these loan
agreements were classified as long-term within the Balance Sheet. With
consummation of the sale transaction to Neenah on September 8, 1998, all
outstanding debt obligations were paid in full from the sale proceeds.
F-16
<PAGE> 135
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$87,000,000
[NEENAH CORPORATION LOGO]
11 1/8% SENIOR SUBORDINATED NOTES
DUE 2007
------------------------
PROSPECTUS
------------------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 136
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 180.0850 to 180.0859 of the Wisconsin Statutes require a
corporation to indemnify any director or officer who is a party to any
threatened, pending or completed civil, criminal, administrative or
investigative action, suit, arbitration or other proceeding, whether formal or
informal, which involves foreign, federal, state or local law and which is
brought by or in the right of the corporation or by any other person. A
corporation's obligation to indemnify any such person includes the obligation to
pay any judgment, settlement, penalty, assessment, forfeiture or fine, including
any excise tax assessed with respect to an employee benefit plan, and all
reasonable expenses including fees, costs, charges, disbursements, attorney's
and other expenses except in those cases in which liability was incurred as a
result of the breach or failure to perform a duty which the director or officer
owes to the corporation and the breach or failure to perform constitutes: (i) a
willful failure to deal fairly with the corporation or its shareholders in
connection with a matter in which the director or officer has a material
conflict of interest; (ii) a violation of criminal law, unless the person has
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful; (iii) a transaction from which the person
derived an improper personal profit; or (iv) willful misconduct.
Unless otherwise provided in a corporation's articles of incorporation or
by-laws or by written agreement, an officer or director seeking indemnification
is entitled to indemnification if approved in any of the following manners: (i)
by majority vote of a disinterested quorum of the board of directors, or if such
quorum of disinterested directors cannot be obtained, by a majority vote of a
committee or two or more disinterested directors; (ii) by independent legal
counsel; (iii) by a panel of three arbitrators; (iv) by affirmative vote of
shareholders; (v) by a court; or (vi) with respect to any additional right to
indemnification granted by any other method permitted in Section 180.0859 of the
Wisconsin Statutes.
Reasonable expenses incurred by a director or officer who is a party to a
proceeding may be reimbursed by a corporation at such time as the director or
officer furnishes to the corporation written affirmation of his good faith
belief that he has not breached or failed to perform his duties and a written
undertaking to repay any amounts advanced if it is determined that
indemnification by the corporation is not required.
The indemnification provisions of Sections 180.0850 to 180.0859 are not
exclusive. A corporation may expand an officer's or director's right to
indemnification (i) in its articles of incorporation or by-laws; (ii) by written
agreement, (iii) by resolution of its board of directors; or (iv) by resolution
of a majority of all of the corporation's voting shares then issued and
outstanding.
As permitted by Section 180.0859, the Registrant has adopted
indemnification provisions in its By-Laws which closely track the statutory
indemnification provisions with certain exceptions. In particular, Article VIII
of the Registrant's By-Laws provides that payment or reimbursement of expenses,
subject to certain limitations, will be mandatory rather than permissive.
The Registrant maintains and has in effect insurance policies covering all
of their respective directors and officers against certain liabilities for
actions taken in such capacities, including liabilities under the Securities Act
of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
See Exhibit Index
(b) Financial Statement Schedules.
II-1
<PAGE> 137
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(A) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(B) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
(C) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 20 or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(4) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(5) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became effective.
II-2
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
NEENAH FOUNDRY COMPANY
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive
- --------------------------------------------- Officer (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------- Secretary (principal financial officer and
Gary W. LaChey accounting officer)
* Vice President -- Manufacturing and
- --------------------------------------------- Engineering
Charles M. Kurtti
* Director
- ---------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------
John D. Weber
* Director
- ---------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-3
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
Hartley Controls Corporation
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive Officer
- --------------------------------------------- (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and Secretary
- --------------------------------------------- (principal financial officer and accounting officer)
Gary W. LaChey
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------
John D. Weber
* Director
- ---------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-4
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
NEENAH TRANSPORT, INC.
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive Officer
- --------------------------------------------------- (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------------- Secretary (principal financial officer
Gary W. LaChey and accounting officer)
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------------
John D. Weber
* Director
- ---------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-5
<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
DEETER FOUNDRY, INC.
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive Officer
- --------------------------------------------------- (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------------- Secretary (principal financial officer
Gary W. LaChey and accounting officer)
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------------
John D. Weber
* Director
- ---------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-6
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
MERCER FORGE CORPORATION
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and
- --------------------------------------------------- Chief Executive Officer
James K. Hildebrand (principal executive officer)
* President
- ---------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------------- Secretary (principal financial officer
Gary W. LaChey and accounting officer)
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------------
John D. Weber
* Director
- ---------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-7
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
A & M SPECIALTIES, INC.
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive Officer
- --------------------------------------------------- (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------------- Secretary
Gary W. LaChey (principal financial officer and accounting
officer)
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------------
John D. Weber
* Director
- ---------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-8
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
ADVANCED CAST PRODUCTS, INC.
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive Officer
- --------------------------------------------------- (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------------- Secretary (principal financial officer and
Gary W. LaChey accounting officer)
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------------
John D. Weber
* Director
- ---------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-9
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
BELCHER CORPORATION
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive Officer
- --------------------------------------------------- (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------------- Secretary (principal financial officer and
Gary W. LaChey accounting officer)
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------------
John D. Weber
* Director
- ---------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-10
<PAGE> 146
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
PEERLESS CORPORATION
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive Officer
- --------------------------------------------------- (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------------- Secretary (principal financial officer and
Gary W. LaChey accounting officer)
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------------
John D. Weber
* Director
- ---------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-11
<PAGE> 147
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
DALTON CORPORATION
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive
- ----------------------------------------------------- Officer
James K. Hildebrand (principal executive officer)
* President
- -----------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- ----------------------------------------------------- Secretary (principal financial officer
Gary W. LaChey and accounting officer)
* Vice President -- Manufacturing and
- ----------------------------------------------------- Engineering
Charles M. Kurtti
* Director
- -----------------------------------------------------
David F. Thomas
* Director
- -----------------------------------------------------
John D. Weber
* Director
- -----------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-12
<PAGE> 148
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
DALTON CORPORATION,
WARSAW MANUFACTURING FACILITY
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive Officer
- --------------------------------------------------- (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------------- Secretary (principal financial officer
Gary W. LaChey and accounting officer)
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------------
John D. Weber
* Director
- ---------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-13
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
DALTON CORPORATION,
ASHLAND MANUFACTURING FACILITY
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive Officer
- --------------------------------------------------- (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------------- Secretary (principal financial officer and
Gary W. LaChey accounting officer)
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------------
John D. Weber
* Director
- ---------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-14
<PAGE> 150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
DALTON CORPORATION,
KENDALLVILLE MANUFACTURING FACILITY
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive Officer
- --------------------------------------------------- (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------------- Secretary (principal financial officer and
Gary W. LaChey accounting officer)
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------------
John D. Weber
* Director
- ---------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-15
<PAGE> 151
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
STRYKER MACHINING FACILITY CO.
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive Officer
- --------------------------------------------------- (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------------- Secretary (principal financial officer
Gary W. LaChey and accounting officer)
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------------
John D. Weber
* Director
- ---------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-16
<PAGE> 152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Neenah, State of Wisconsin, on May 13, 1999.
NIEMIN PORTER & CO.
By: *
------------------------------------
Name: James K. Hildebrand
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on May 13, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* Chairman of the Board and Chief Executive Officer
- --------------------------------------------------- (principal executive officer)
James K. Hildebrand
* President
- ---------------------------------------------------
William M. Barrett
/s/ GARY W. LACHEY Vice President -- Finance, Treasurer and
- --------------------------------------------------- Secretary (principal financial officer and
Gary W. LaChey accounting officer)
* Vice President -- Manufacturing and Engineering
- ---------------------------------------------------
Charles M. Kurtti
* Director
- ---------------------------------------------------
David F. Thomas
* Director
- ---------------------------------------------------
John D. Weber
* Director
- ---------------------------------------------------
Brenton S. Halsey
</TABLE>
- ---------------
* Executed by power of attorney.
II-17
<PAGE> 153
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
2.1 Agreement and Plan of Reorganization, dated November 20,
1996, by and among NFC Castings, Inc., NC Merger Company and
Neenah Corporation.**
2.2 First Amendment to Agreement and Plan of Reorganization,
dated as of January 13, 1997, by and among NFC Castings,
Inc., NC Merger Company and Neenah Corporation.**
2.3 Second Amendment to Agreement and Plan of Reorganization,
dated as of February 21, 1997, by and among NFC Castings,
Inc., NC Merger Company and Neenah Corporation.**
2.4 Third Amendment to Agreement and Plan of Reorganization,
dated as of April 3, 1997, by and among NFC Castings, Inc.,
NC Merger Corporation.**
2.5 Merger Agreement, made as of July 1, 1997, by and between
Neenah Corporation and Neenah Foundry Company.**
2.6 Stock Purchase Agreement for the acquisition of Deeter
Foundry, Inc. dated as of March 26, 1998 by and among Neenah
Foundry Company and the Selling Shareholders of Deeter
Foundry, Inc. (Incorporated by reference to the Company's
Form 10-Q for the period ended March 31, 1998 filed on May
14, 1998.)
2.7 Stock Purchase Agreement for the acquisition of Mercer dated
as of April 3, 1998 by and among Neenah Foundry Company,
Mercer Forge Corporation and the Selling Shareholders of
Mercer (Incorporated by reference to the Company's Form 8-K
filed on April 14, 1998.)
2.8 Stock Purchase Agreement for the acquisition of Dalton dated
as of August 7, 1998 by and among Neenah Foundry Company,
Dalton Corporation and the Dalton Corporation Employee Stock
Ownership Plan and Trust (Incorporated by reference to the
Company's Form 8-K filed on September 21, 1998.)
2.9 Stock Purchase Agreement dated as of December 3, 1998 among
Niemin Porter & Co. d/b/a Cast Alloys, Inc., the Sellers as
defined therein and Neenah Foundry Company.****
2.10 First Amendment to the Stock Purchase Agreement dated
December 30, 1998 among Niemin Porter & Co. d/b/a Cast
Alloys, Inc., the Sellers as defined therein and Neenah
Foundry Company.****
3.1 Restated Articles of Incorporation of Neenah Foundry
Company.**
3.2 By-laws of Neenah Foundry Company.**
3.3 (Intentionally omitted.)
3.4 (Intentionally omitted.)
3.5 Restated Articles of Incorporation of Hartley Controls
Corporation.**
3.6 By-laws of Hartley Controls Corporation.**
3.7 Restated Articles of Incorporation of Neenah Transport,
Inc.**
3.8 By-laws of Neenah Transport, Inc.**
4.1 Indenture dated as of April 30, 1997 among NC Merger Company
and United States Trust Company of New York.**
4.2 Purchase Agreement dated as of April 23, 1997 among NC
Merger Company, Chase Securities Inc. and Morgan Stanley &
Co. Incorporated.**
4.3 Exchange and Registration Rights Agreement dated as of April
30, 1997 among Neenah Corporation, Neenah Foundry Company,
Hartley Controls Corporation and Neenah Transport, Inc. and
Chase Securities, Inc.**
</TABLE>
<PAGE> 154
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
4.4 First Supplemental Indenture, dated as of April 30, 1997
among Neenah Corporation, Neenah Foundry Company, Neenah
Transport, Inc. and Hartley Controls Corporation and United
States Trust Company of New York.**
4.5 Letter Agreement, dated as of April 30, 1997 among Neenah
Corporation, Neenah Foundry Company, Hartley Controls
Corporation and Neenah Transport, Inc. and Chase Securities
Inc. and Morgan Stanley & Co. Incorporated.**
4.6 Form of Global Note relating to the Indenture dated as of
April 23, 1997.**
4.7 Indenture dated as of July 1, 1997 among Neenah Corporation,
Neenah Foundry Company, Neenah Transport, Inc., Hartley
Controls Corporation and United States Trust Company of New
York.**
4.8 Purchase Agreement dated as of June 26, 1997 among Neenah
Corporation, Neenah Foundry Company, Hartley Controls
Corporation, Neenah Transport, Inc. and Chase Securities
Inc.**
4.9 Exchange and Registration Rights Agreement dated as of July
1, 1997 by and between Neenah Corporation, Neenah Foundry
Company, Hartley Controls Corporation, Neenah Transport,
Inc. and Chase Securities, Inc.**
4.10 Form of Global Note related to the Indenture dated as of
July 1, 1997.**
4.11 Indenture dated as of November 24, 1998 among Neenah Foundry
Company, Neenah Transport, Inc., Hartley Controls
Corporation, the Guarantors and United States Trust Company
of New York.****
5.1 Opinion and Consent of Kirkland & Ellis.*
8.1 Opinion of Kirkland & Ellis as to federal income tax
consequences.****
10.1 Master Lease Agreement between Neenah Foundry Company and
Bank One Leasing Corporation dated December 14, 1992.**
10.2 Agreement between Neenah Foundry Company and Rockwell
International Corporation effective April 1, 1995.**
10.3 Letter Agreement between Neenah Foundry Company and Eaton
Corporation dated April 4, 1996.**
10.4 (Intentionally omitted).
10.5 1996-1998 Collective Bargaining Agreement between Neenah
Foundry Company and Local 121B Glass, Molders, Pottery,
Plastics and Allied Workers International Union
AFL-CIO-CLC.**
10.6 1998-2000 Collective Bargaining Agreement between Neenah
Foundry Company and The Independent Patternmakers Union of
Neenah, Wisconsin.***
10.7 Credit Agreement dated as of April 30, 1997 as Amended and
Restated as of September 12, 1997, as of April 3, 1998, and
as of September 8, 1998 by and among Neenah Foundry Company,
NFC Castings, Inc., the Chase Manhattan Bank as
Administrative Agent, Chase Securities, Inc. as Arranger and
the other Lenders from time to time party thereto
(Incorporated by reference to the Company's Form 8-K filed
on September 21, 1998)
10.8 Employment Agreement dated September 9, 1994 between the
Neenah Corporation, Neenah Foundry Company, Harley Controls
Corporation, Neenah Transport, Inc. and James P. Keating,
Jr.**
10.9 Consulting Agreement dated September 9, 1994 between the
Neenah Foundry Company and the Guarantors and James P.
Keating, Jr.**
</TABLE>
<PAGE> 155
<TABLE>
<CAPTION>
EXHIBITS
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<C> <S>
10.10 First Amendment to Employment Agreement, dated September 9,
1994, between Neenah Foundry Company, Neenah Corporation,
Hartley Controls Corporation and James P. Keating, Jr.**
10.11 Pledge Agreement dated as of April 30, 1997, among NC Merger
Company, a Wisconsin Corporation, NFC Castings, Inc., a
Delaware Corporation.**
10.12 Subsidiary Guarantee Agreement dated as of April 30, 1997,
among each of the subsidiaries listed of NC Merger Company,
a Wisconsin corporation, and The Chase Manhattan Bank, a New
York banking corporation, as collateral agent for the
secured parties.**
10.13 Parent Guarantee Agreement dated as of April 30, 1997,
between NFC Castings, Inc., a Delaware corporation and The
Chase Manhattan Bank, a New York banking corporation, as
collateral agent for the secured parties.**
10.14 Security Agreement dated as of April 30, 1997, among NC
Merger Company, a Wisconsin corporation, each subsidiary of
the borrower and The Chase Manhattan Bank, a New York
banking corporation, as collateral agent for the secured
parties.**
10.15 Form of Mortgage.**
10.16 Amendment No. 1, Consent and Waiver, dated as of November
18, 1998, to the Credit Agreement dated as of April 30, 1997
as Amended and Restated as of September 12, 1997, as of
April 3, 1998, and as of September 8, 1998 by and among
Neenah Foundry Company, NFC Castings, Inc., the Lenders from
time to time party thereto, and the Chase Manhattan Bank.***
10.17 Cash Collateral Account Agreement dated as of November 24,
1998, between Neenah Foundry Company and the Chase Manhattan
Bank.***
10.18 Executive Employment and Consulting Agreement dated
September 15, 1998 by and among Neenah Foundry Co., Advanced
Cast Products, Inc., ACP Holding Co., ACP Products, LLC and
James K. Hildebrand.***
10.19 Dalton Corporation, K.L. Davidson Employment Agreement dated
September 8, 1998.***
10.20 Purchase Agreement dated November 19, 1998 among Neenah
Foundry Company, Neenah Transport, Inc., Hartley Controls
Corporation, the Guarantors and the Initial Purchasers.****
10.21 Exchange and Registration Rights Agreement dated November
24, 1998 among Neenah Foundry Company Neenah Transport,
Inc., Hartley Controls Corporation, the Guarantors and the
Initial Purchasers.****
12.1 Computation of Ratio of Earnings to Fixed Charges.****
21.1 Subsidiaries of the Registrant.****
23.1 Consent of Ernst & Young LLP.*
23.2 Consent of PricewaterhouseCoopers LLP.*
23.3 Consent of KPMG LLP.*
23.4 Consent of Kirkland & Ellis (included in exhibit 5.1).****
24.1 Powers of Attorney (included in signature pages).****
25.1 Statement of Eligibility of Trustee on Form T-1.****
27.1 Financial Data Schedule.***
27.2 Financial Data Schedule (Incorporated by Reference to the
Company's Form 10-Q for the period ended December 31, 1998
filed on February 11, 1999).
</TABLE>
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBITS
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99.1 Form of Letter of Transmittal.****
99.2 Form of Notice of Guaranteed Delivery.****
99.3 Form of Tender Instructions.****
</TABLE>
- ---------------
* Filed herewith.
** Incorporated by reference to the Company's Form S-4 (Registration No.
333-28751) which became effective August 29, 1997.
*** Incorporated by reference to the Company's Form 10-K (Registration No.
332-28751) which was filed December 23, 1998.
**** Previously filed.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF KIRKLAND & ELLIS]
To Call Writer Direct:
212 446-4800
May 6, 1999
Neenah Foundry Company
2121 Brooks Avenue, Box 729
Neenah, Wisconsin 54927
Re: Series F 11-1/8% Senior Subordinated Notes due 2007
Ladies and Gentlemen:
We are acting as special counsel to Neenah Foundry Company, a Wisconsin
corporation (the "Company") and the Subsidiary Guarantors (together with the
Company, the "Registrants") in connection with the proposed registration by the
Company of up to $87,000,000 in aggregate principal amount of the Company's
Series F 11-1/8% Senior Subordinated Notes due 2007 (the "Exchange Notes"),
pursuant to a Registration Statement on Form S-4 filed with the Securities and
Exchange Commission (the "Commission") on May 6, 1999 under the Securities Act
of 1933, as amended (the "Securities Act") (such Registration Statement, as
amended or supplemented, is hereinafter referred to as the "Registration
Statement"), for the purpose of effecting an exchange offer (the "Exchange
Offer") for the Company's Series E 11-1/8% Senior Subordinated Notes due 2007
(the "Old Notes"). The Exchange Notes are to be issued pursuant to the Indenture
(the "Indenture"), dated as of November 24, 1998, among the Registrants and
United States Trust Company of New York, as Trustee, in exchange for and in
replacement of the Company's outstanding Old Notes, of which $87,000,000 in
aggregate principal amount is outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the corporate and organizational documents of each of the
Registrants, (ii) minutes and records of the corporate proceedings of each of
the
<PAGE> 2
Neenah Foundry Company
May 6, 1999
Page 2
Registrants with respect to the issuance of the Exchange Notes, (iii) the
Registration Statement and exhibits thereto and (iv) the Exchange and
Registration Rights Agreement, dated as of November 24, 1998, among the
Registrants, Chase Securities, Inc. and Morgan Stanley & Co. Incorporated.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Registrants, and the due authorization, execution
and delivery of all documents by the parties thereto other than the Registrants.
As to any facts material to the opinions expressed herein which we have not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Registrants and
others.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
(1) The Company is a corporation existing and in good standing under
the laws of the state of Wisconsin.
(2) The sale and issuance of the Exchange Notes has been validly
authorized by the Company.
(3) When the Exchange Notes are issued pursuant to the Exchange
Offer, the Exchange Notes will constitute valid and binding obligations of
the Registrants and the Indenture will be enforceable in accordance with its
terms.
<PAGE> 3
Neenah Foundry Company
May 6, 1999
Page 3
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), and
(iii) except for purposes of the opinion in paragraph 1, any laws except the
laws of the State of New York.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance of the Exchange Notes.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of New York be changed by legislative action, judicial
decision or otherwise.
<PAGE> 4
Neenah Foundry Company
May 6, 1999
Page 4
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes.
Yours very truly,
KIRKLAND & ELLIS
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our Firm under the captions "Experts", "Summary
Consolidated Financial and Other Data" and "Selected Consolidated Financial and
Other Data" and to the use of our reports dated November 6, 1998, except for
Note 10, as to which the date is November 24, 1998 and June 4, 1997, except for
Notes 1 and 10, as to which the date is July 1, 1997 to Amendment No.3 to the
Registration Statement (Form S-4, No. 333-72455) and related Prospectus of
Neenah Foundry Company for the registration of $87,000,000 11-1/8% Series F
Senior Subordinated Notes.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
May 13, 1999
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Neenah Foundry Company of our report dated
March 6, 1998, except as to Note 13, which is as of September 8, 1998, relating
to the consolidated financial statements of Dalton Corporation (formerly known
as The Dalton Foundries, Inc.), which appears in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Indianapolis, Indiana
May 13, 1999
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Mercer Forge Corporation:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG LLP
Pittsburgh, Pennsylvania
May 13, 1999
