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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12936
TITAN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
ILLINOIS 36-3228472
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2701 SPRUCE STREET, QUINCY, IL 62301 (217) 228-6011
(Address of principal executive offices, (Telephone Number)
including Zip Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
Common stock, no par value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 29, 2000, 20,666,339 shares of common stock of the
registrant were outstanding; the aggregate market value of the shares of common
stock of the registrant held by non-affiliates was approximately $91,804,428
based upon the closing price of the common stock on the New York Stock Exchange
on February 29, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the registrant's
definitive proxy statement for its annual meeting of stockholders to be held May
18, 2000.
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ITEM 1. BUSINESS
GENERAL
Titan International, Inc. ("Titan" or the "Company") is a global
manufacturer of off-highway steel wheels and tires in the agricultural,
earthmoving/construction and consumer markets. Titan generally manufactures both
wheels and tires for these markets and provides the value-added service of
assembling the completed wheel-tire system. The Company offers a broad range of
different products that are manufactured in relatively short production runs to
meet original equipment manufacturers' ("OEMs") specifications and/or
aftermarket customer requirements.
During the mid-1990s Titan began a process to reengineer the wheel and tire
industry. The Company established a new identity, creating the framework for
continued well-managed growth. Titan continues a multi-year plan to focus on its
core business and lay the groundwork for ongoing growth and strength in the
off-highway wheel, tire and assembly business. Product innovation has
demonstrated Titan's leadership with the development of the LSW series of wheels
and tires, which is expected to considerably enhance the performance of
off-highway vehicles.
In 1999, Titan's sales in the agricultural market represented 43% of net
sales, the earthmoving/ construction market represented 27% of net sales and the
consumer market represented 30% of net sales. For information concerning the
revenues, certain expenses, income from operations and assets attributable to
each of the segments in which the Company operates, see Note 15 to the
consolidated financial statements of Titan International, Inc. included in Item
8 herein.
AGRICULTURAL MARKET
Titan sells agricultural wheels, rims and tires to OEMs and aftermarket
distributors. These wheels, rims and tires are manufactured by Titan for
installation on various agricultural and forestry equipment, such as tractors,
combines, skidders, plows, planters and irrigation equipment. The wheels and
rims range in diameter from 4" to 54" with the 54" diameter being the largest
agricultural wheel manufactured in North America. Basic configurations are
combined with other features (such as various centers and a wide range of
material thickness) allowing the Company to offer a broad line of different
product models to meet customer specifications. The agricultural tires range in
diameter from 8" to 85" and in width from 4.8" to 46.5". Titan introduced the
world's largest agricultural tire in 1999. This 1100 x 46.5 size LSW assembly
features an 85-inch outside diameter. The Company offers the added value of a
wheel and tire assembly to its customers. The Company's aftermarket tires are
marketed through a network of independent distributors and Titan's own
distribution centers.
EARTHMOVING/CONSTRUCTION MARKET
The Company manufactures wheels and rims for various types of earthmoving,
mining and construction equipment, including skid steers, cranes, graders and
levelers, scrapers, self-propelled shovel loaders, load transporters, haul
trucks and back-hoe loaders. These wheels and rims range in diameter from 20" to
63", in width from 8" to 44" and in weight from 125 pounds to 6,300 pounds. The
63" diameter is the largest earthmoving/construction wheel manufactured in North
America. The Company provides its customers with a broad range of
earthmoving/construction wheels and rims. The majority of the
earthmoving/construction wheels produced by Titan are sold directly to OEMs.
Titan currently produces a wide range of tires for the earthmoving/construction
market. The earthmoving/construction market is another area in which the Company
can offer the added value of wheel and tire assembly.
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CONSUMER MARKET
Titan manufactures a variety of products for all terrain vehicles ("ATV"),
lawn and garden and trailer products. Titan currently produces a wide range of
tires for the consumer market. These wheels and rims range in diameter from 4"
to 16". Four new ATV tire tread patterns for the replacement market were
introduced in 1999. The Company can also offer the value-added service of a
wheel-tire system for the consumer market. The Company continues to hold
significant shares of the domestic markets for boat, recreational, agricultural
and utility trailers wheels and tires. Titan's goal is for continued growth in
2000 with additions of new sizes in ATV, lawn and garden and trailer products.
OPERATIONS
Wheel Manufacturing Process. Most agricultural wheels are produced using a
rim and a wheel center. A rim is produced by first cutting large steel sheets to
required width and length specifications. These steel sheets are rolled and
welded to form a circular rim, which is flared and formed in the rollform
operation. The majority of wheel centers are manufactured using presses that
both blank and form the center to specifications in multiple stage operations.
The Company has the capability to e-coat the wheel using a multi-step process
prior to the final top coating.
Large earthmoving/construction steel wheels are manufactured principally
from hot rolled steel sections. This process is used because the high load
bearing capacity of these wheels requires rim thickness which is beyond the
capability of cold-rolling. Rims are built from a series of hoops that are
welded together to form a rim base. The complete rim is made from either three
or five separate parts that then lock together after the rubber tire has been
fitted to the wheel and inflated.
Smaller wheels (usually 12" or less in diameter), of which the majority are
produced for consumer markets, are manufactured by a process in which
half-wheels are press-formed, then two of these half-wheel stampings are welded
together to form a complete wheel. Generally, for larger wheels (12" or more in
diameter) produced for the consumer market, the Company manufactures rims and
centers, welds the rims to the centers and then paints the assembled product.
Tire Manufacturing Process. Tires are produced by mixing rubber, carbon
black and chemicals to form various rubber compounds. These rubber compounds are
then extruded or processed with textile steel materials to make specific
components. These components: beads (wire bundles that anchor the tire with the
wheel), plies (layers of fabric that give the tire strength), belts (fabric or
steel fabric wrapped under tread in some tires), tread and sidewall, are then
assembled into an uncured tire. The uncured tire is placed in a press that molds
the tire under set time, temperature and pressure into a finished tire.
Wheel and Tire Assemblies. The Company's position as a manufacturer of both
wheels and tires allows Titan to mount and deliver one of the largest selections
of off-road assemblies in the world. Backed by the resources of the Company's
facilities, Titan provides the value-added service of one-stop shopping for
wheel-tire assemblies for the agricultural, earthmoving/construction and
consumer markets. Customer orders are entered into the Company's system either
by electronic data interchange or manually. Based on each customer's
requirements, the appropriate wheel-tire assembly and delivery schedule is
formulated. The Company's just-in-time delivery program offers the product to
the customer when requested.
Quality Control. The Company is ISO 9000 certified at eight of its
manufacturing facilities. The ISO 9000 series is a set of related and
internationally recognized standards of management and quality assurance. The
standards specify guidelines for establishing, documenting and maintaining a
system to ensure quality. The ISO 9000 certifications are evidence of Titan's
dedication to providing quality products to its customers.
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RAW MATERIALS
The primary raw materials used by the Company in all segments are steel and
rubber. Due to demand/capacity issues in the steel industry, steel procurement
planning and execution are paramount. To ensure a consistent steel supply, Titan
purchases its basic steel from key steel mills and maintains relationships with
steel processors for steel preparation. The Company is not dependent on any
single producer for its supply of steel. Rubber and raw materials for tire
manufacture are the Company's second largest commodity expense. Titan buys
rubber in markets where there are numerous sources of supply. In addition to the
development of key suppliers domestically, the Company's strategic procurement
plan includes international suppliers to assure competitive price and quality in
the global marketplace. As is customary in the industry, the Company does not
have long-term contracts for the purchase of steel or rubber and, therefore, its
purchases are subject to fluctuation in price.
CUSTOMERS
The Company's ten largest customers accounted for approximately 45% of net
sales for the year ended December 31, 1999, compared to 46% for the year ended
December 31, 1998. Net sales to Deere & Company in Titan's agricultural,
earthmoving/construction and consumer markets represent 15% of the Company's
consolidated revenues for the year ended December 31, 1999. No other customers
accounted for more than 10% of the Company's net sales in 1999.
MARKETING AND DISTRIBUTION
The Company has an internal sales force and utilizes several manufacturing
representative firms for sales in the United States and Europe. In the United
States sales representatives are organized within geographical regions. The
international sales force includes employees in France, Germany, Italy and the
United Kingdom. The Company believes international sales efforts are enhanced
when sales representatives sell primarily within their native countries.
Titan distributes wheels and tires directly to OEMs. The distribution of
aftermarket tires is done primarily through a network of independent dealers.
The Company distributes wheel and tire assemblies through its own distribution
centers directly to OEMs and to aftermarket customers. Titan's distribution
network consists of twelve facilities throughout the United States and Europe,
which are strategically located near major OEMs and aftermarket customers for
just-in-time delivery.
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company's research, development and engineering staffs test new designs
and technologies, developing new manufacturing methods to improve product
quality and performance. These services enhance the Company's relationship with
its customers. The Company has spent, $6.8 million, $7.1 million and $6.3
million on research and development for the years ended December 31, 1997, 1998
and 1999, respectively. The costs are primarily due to the development of the
LSW series of wheels and tires, which is expected to considerably enhance the
performance of off-highway vehicles. Titan continues to introduce new designs of
LSW wheel and tire assemblies for the agricultural, earthmoving/construction and
consumer markets.
The LSW wheel and tire assemblies reduce bounce, hop, lope and heat
build-up and provide more stability and safety for the operator, which in turn
means greater productivity. The key to the success of the LSW is an increase in
the diameter of the wheel while maintaining the original outside diameter of the
tire. This is accomplished by lowering the sidewall (LSW is an acronym for low
sidewall) and increasing its strength. Maintaining the original outside diameter
of the tire allows the LSW to improve the performance of agricultural,
earthmoving/construction and consumer equipment without further modification.
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BACKLOG
As of February 29, 2000, Titan estimates that it had $167 million in firm
orders compared to $193 million at February 28, 1999. Orders are considered firm
if the customer would be obligated to accept the product if manufactured and
delivered pursuant to the terms of such orders. The Company believes that the
majority of its current backlog orders will be filled during the current year.
COMPETITION
The Company competes with several domestic and international competitors,
some of which are larger and have greater financial and marketing resources than
Titan. The Company believes it is the primary source of steel wheels and rims to
the majority of its North American customers. Major competitors in the wheel
market include GKN Wheels, Ltd., and Topy Industry, Ltd., and major competitors
in the tire market include Goodyear Tire & Rubber Co. and Bridgestone/Firestone.
The Company competes primarily on the basis of price, quality, customer service,
design capability and delivery time. The Company's ability to compete with
international competitors may be adversely affected by currency fluctuations. In
addition, certain of the Company's OEM customers could, under certain
circumstances, elect to manufacture certain of the Company's products to meet
their requirements or to otherwise compete with the Company. There can be no
assurance that the businesses of the Company will not be adversely affected by
increased competition in the markets in which it operates or that the Company's
competitors will not develop products that are more effective or less expensive
than the Company's products or which could render certain of the Company's
products less competitive. From time to time, certain competitors of the Company
have reduced their prices in particular product categories, which has prompted
the Company to reduce its prices. There can be no assurance that in the future
competitors of the Company will not further reduce prices or that any such
reductions would not have a material adverse effect on the Company.
EMPLOYEES
At January 31, 2000, the Company employed approximately 5,000 people in the
United States and Europe. Approximately 19% of the Company's employees in the
United States are covered by two collective bargaining agreements, which have
expired or will expire before the year 2003. The majority of employees at
Titan's foreign facilities are represented by collective bargaining agreements
which are renewed from time to time depending on terms of the agreement and the
laws of the foreign jurisdiction. Since the expiration of their collective
bargaining agreement in April 1998, approximately 600 employees at the Company's
Des Moines, Iowa facility have been on strike. Since September 1998, former
Fidelity Tire union employees have been picketing the Natchez, Mississippi
facility. The Company has been hiring and training a new workforce at these two
facilities. Although the Company believes that its relations with its employees
are generally good, the labor disputes could have a material adverse effect on
the Company's financial position and results of operations.
INTERNATIONAL OPERATIONS
In addition to the Company's facilities in the United States, Titan also
operates facilities in Europe. For the year ended December 31, 1999, the Company
generated 25% of its net sales from foreign operations. International operations
and exports to foreign markets are subject to a number of special risks,
including, but not limited to, risks with respect to currency exchange rates,
economic and political destabilization, other disruption of markets, restrictive
actions by foreign governments (such as restrictions on transfer of funds,
export duties and quotas and foreign customs), changes in foreign laws regarding
trade and investment, difficulty in obtaining distribution and support,
nationalization, the laws and policies of the United States affecting trade,
foreign investment and loans, and foreign tax laws. There can be no assurance
that one or a combination of these factors will not have a material adverse
effect on the Company's ability to increase or maintain its foreign sales or on
its results of operations. The Company had total aggregate export sales of
approximately $97.6 million, $103.4 million, and $90.9 million for the years
ended December 31, 1997, 1998 and 1999, respectively. For financial information
regarding international operations, see Note 15 to the consolidated financial
statements of Titan International, Inc. included in Item 8 herein.
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In addition, the Company has significant manufacturing operations in
foreign countries and purchases a portion of its raw materials from foreign
suppliers. The production costs, profit margins and competitive position of the
Company are affected by the strength of the currencies in countries where it
manufactures or purchases goods relative to the strength of the currencies in
countries where its products are sold. The Company's results of operations and
financial position may be adversely affected by fluctuations in foreign
currencies and by translation of the financial statements of the Company's
foreign subsidiaries from local currencies into U.S. dollars.
PATENTS AND TRADEMARKS
The Company owns numerous United States and foreign patents and trademarks
and continues to apply for patent protection for many of its new products. While
it considers that its patents are significant to the operations of the business,
Titan does not consider any one of them to be of such importance that the
patent's expiration or invalidity could materially affect the Company's
business.
ENVIRONMENTAL COMPLIANCE
The Company is subject to various federal, state, local and foreign
environmental laws and regulations in the jurisdictions in which it operates.
The Company does not currently anticipate any material adverse effect on its
operations or financial condition as a result of its efforts to comply with, or
its liabilities under, environmental laws. The Company does not currently
anticipate any material capital expenditures for environmental control
facilities. Some risk of environmental liability is inherent in the Company's
business, including with respect to Company facilities which have been used for
industrial purposes for a period of decades, and there can be no assurance that
material environmental costs will not arise in the future. In particular, the
Company might incur capital, remediation and other costs to comply with
increasingly stringent environmental laws and enforcement policies. Although it
is difficult to predict future environmental costs, the Company does not
anticipate any material adverse effect on its operations, financial condition or
competitive position as a result of future costs of environmental compliance.
ITEM 2. PROPERTIES
The Company maintains twenty-one manufacturing and warehousing/distribution
facilities in the United States with a collective floor space of approximately
8.4 million square feet. Of these facilities, one is used primarily for the
manufacture of agricultural products, one is used primarily for the manufacture
of earthmoving/construction products, three are used primarily for the
manufacture of consumer products, one is used for the manufacture of
earthmoving/construction and consumer products and four are used for the
manufacture of agricultural, earthmoving/construction and consumer products. The
remaining eleven facilities are used for the warehousing/distribution of
products in all of the Company's segments.
In Europe, Titan maintains seven manufacturing and warehousing/distribution
facilities with a collective floor space of approximately 1.3 million square
feet. Of these facilities, one is used for the manufacture of
earthmoving/construction products, five are used for the manufacture of
agricultural and earthmoving/construction products and one is used for
warehousing/distribution of products in all of the Company's segments.
Several of the Company's facilities are leased through operating lease
agreements. For information on operating leases, see Note 12 to the consolidated
financial statements of Titan International, Inc. included in Item 8 herein. The
Company considers each of its facilities to be in good operating condition and
adequate for its present use. Management believes that the Company has
sufficient capacity to meet current market demand.
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ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine legal proceedings arising out of the
normal course of business. Although it is not possible to predict with certainty
the outcome of these unresolved legal actions or the range of possible loss, the
Company believes that none of these actions, individually or in the aggregate,
will have a material adverse affect on its financial condition or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all executive officers of the Company are
listed below, followed by a brief account of their business experience during
the past five years. Officers are normally appointed annually by the Board of
Directors at a meeting of the directors immediately following the Annual Meeting
of Stockholders. The President and Secretary are brother and sister. There is no
arrangement or understanding between any officer and any other person pursuant
to which an officer was selected.
Maurice M. Taylor, Jr., 55, has been President, CEO and a Director of the
Company since 1990, when Titan was acquired in a management-led buyout by
investors, including Mr. Taylor.
J. Michael A. Akers, 56, began organizing the start-up of Titan's European
Operations in 1990 and became a member of the management team in 1995. Mr. Akers
was appointed Vice President in 1999.
Kent W. Hackamack, 41, served as Corporate Controller of the Company from
1994 to 1996. Mr. Hackamack was appointed Vice President of Finance and
Treasurer in 1996.
Cheri T. Holley, 52, joined the Company in 1994 as General Counsel and
Secretary. Ms. Holley was appointed Vice President in 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the New York Stock Exchange
("NYSE") under the symbol TWI. The following table sets forth, for periods
indicated, the high and low sales prices per share of the common stock as
reported on the NYSE, and information concerning per share dividends declared.
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DIVIDENDS
HIGH LOW DECLARED
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1998
First quarter............................................... $20.25 $16.50 $0.015
Second quarter.............................................. 20.19 16.75 0.015
Third quarter............................................... 17.81 9.69 0.015
Fourth quarter.............................................. 12.25 8.56 0.015
1999
First quarter............................................... $ 9.94 $ 6.63 $0.015
Second quarter.............................................. 11.88 7.63 0.015
Third quarter............................................... 14.50 10.00 0.015
Fourth quarter.............................................. 10.38 4.81 0.015
</TABLE>
On February 29, 2000, there were approximately 760 holders of record of
Titan common stock.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below, as of and for the years ended
December 31, 1995, 1996, 1997, 1998 and 1999, are derived from the Company's
consolidated financial statements, audited by PricewaterhouseCoopers LLP,
independent accountants, and should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto.
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YEAR ENDED DECEMBER 31,
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1995 1996 1997 1998 1999
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(IN THOUSANDS EXCEPT PER SHARE DATA)
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Net sales............................... $623,183 $634,553 $690,131 $660,781 $588,023
Gross profit............................ 115,726 97,354 105,982 91,129 61,694
Income from operations.................. 73,055 67,267 53,626 31,163 3,770
Income (loss) before income taxes....... 63,280 56,981 40,542 13,146 (18,445)
Net income (loss)....................... 37,983 35,378 25,136 8,151 (11,436)
Net income (loss) per share -- basic.... $ 1.91 $ 1.58 $ 1.11 $ .38 $ (.55)
Net income (loss) per
share -- diluted...................... 1.50 1.30 1.10 .38 (.55)
Working capital......................... $151,258 $181,015 $183,909 $170,465 $170,783
Current assets.......................... 264,900 284,651 298,596 312,195 279,078
Total assets............................ 512,135 558,592 585,142 678,274 637,181
Long-term debt.......................... 142,305 113,096 181,705 247,584 255,521
Stockholders' equity.................... 215,872 301,181 248,129 247,037 228,866
Dividends declared per common share..... $ 0.05 $ 0.06 $ 0.06 $ 0.06 $ 0.06
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Company's
statement of operations expressed as a percentage of sales. This table and
subsequent discussions should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto.
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AS A PERCENTAGE OF SALES
YEAR ENDED DECEMBER 31,
------------------------
1997 1998 1999
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Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 84.6 86.2 89.5
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Gross profit................................................ 15.4 13.8 10.5
Selling, general, administrative expenses................... 6.6 8.0 8.8
Research and development expenses........................... 1.0 1.1 1.1
----- ----- -----
Income from operations...................................... 7.8 4.7 0.6
Interest expenses........................................... 2.2 2.8 4.0
Other income................................................ (0.3) (0.1) (0.3)
----- ----- -----
Income (loss) before income taxes........................... 5.9 2.0 (3.1)
Provision (benefit) for income taxes........................ 2.3 0.8 (1.2)
----- ----- -----
Net income (loss)........................................... 3.6% 1.2% (1.9)%
===== ===== =====
</TABLE>
In addition, the following table sets forth, for periods indicated,
components of the Company's net sales classified by segment (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Agricultural................................................ $358,255 $324,938 $254,754
Earthmoving/Construction.................................... 172,929 174,354 157,736
Consumer.................................................... 158,947 161,489 175,533
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Total..................................................... $690,131 $660,781 $588,023
======== ======== ========
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998
Net sales for the year ended December 31, 1999, were $588.0 compared to
$660.8 million in net sales for the year ended December 31, 1998. Net sales
decreased due to a decline in U.S. agricultural and earthmoving/construction
equipment sales, which has contributed to extended shutdowns of certain
facilities at several of Titan's largest customers. Net sales were also impacted
by the retraining of workers at two of the Company's facilities.
The Company generates 25% of its net sales from foreign subsidiaries,
therefore the Company is subject to fluctuations in those foreign currencies.
Foreign currency fluctuations for the year ended December 31, 1999, had a
minimal effect on results of operations.
Cost of sales was $526.3 million for the year ended December 31, 1999, as
compared to $569.7 million in 1998. Gross profit for the year ended December 31,
1999, was $61.7 million or 10.5% of net sales, compared to $91.1 million, or
13.8% of net sales for 1998. Gross profit was negatively impacted primarily by
inefficiencies caused by extended shutdowns of certain facilities at several of
Titan's largest customers and the costs associated with retraining the workforce
at two facilities.
Selling, general and administrative ("SG&A") expenses were $51.6 million or
8.8% of net sales for the year ended December 31, 1999, as compared to $52.9
million or 8.0% of net sales for 1998. The rise in SG&A expenses, as a
percentage of net sales, is primarily attributed to the decrease in net sales
volume as discussed above. Research and development expenses were $6.3 million
or 1.1% of net sales for the year ended December 31, 1999, as compared to $7.1
million or 1.1% of net sales for 1998.
Income from operations for the year ended December 31, 1999, was $3.8
million or 0.6% of net sales, compared to $31.2 million, or 4.7% in 1998. Income
from operations was impacted by the items described in the preceding paragraphs.
Net interest expense for the year ended December 31, 1999, was $23.6
million compared to $18.3 million in 1998. The increased interest expense was
primarily due to an increase in the average debt outstanding in 1999 as compared
to 1998.
In 1999, the Company sold a building, certain machinery and equipment and
other assets for a non-recurring pretax gain of $4.5 million, which is included
in other income.
Net loss for the year ended December 31, 1999, was $(11.4) million compared
to net income of $8.2 million in 1998. Loss per common share was $(.55) for the
year ended December 31, 1999, as compared to earnings per share of $.38 in 1998.
Due to the repurchase of the Company's common stock, the average number of
common shares outstanding for the year ended December 31, 1999, decreased 4% as
compared to the same period in 1998.
Net sales in the agricultural market were $254.8 million for the year ended
December 31, 1999, as compared to $324.9 million in 1998. The Company's
earthmoving/construction market net sales were $157.7 million for the year ended
December 31, 1999, as compared to $174.4 million in 1998. Consumer market net
sales were $175.5 million for the year ended December 31, 1999, as compared to
$161.5 million in 1998. Net sales in the agricultural and
earthmoving/construction markets were negatively impacted by the declining
market sustained by low commodity prices and the retraining of workers at two of
the Company's facilities.
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Income from operations in the agricultural market was $8.1 million for the
year ended December 31, 1999, as compared to $25.5 million in 1998. The
Company's earthmoving/construction market income from operations was $14.4
million for the year ended December 31, 1999, as compared to $25.8 million in
1998. Consumer market income from operations was $6.1 million for the year ended
December 31, 1999, as compared to $4.7 million in 1998. The decrease in income
from operations in the agricultural and earthmoving/construction markets was
primarily due to a decline in U.S. agricultural and earthmoving/ construction
equipment sales and the retraining of workers at two of the Company's
facilities. Income from operations on a segment basis does not include corporate
expenses and depreciation and amortization expense related to property, plant
and equipment or goodwill carried at the corporate level of $24.8 million for
the year ended December 31, 1999, as compared to $24.9 million in 1998.
It is predicted that the agricultural market will not rebound significantly
in 2000. However, Titan anticipates that the year will end positively. Sales are
expected to increase and earnings are expected to improve due to a significant
increase in LSW sales combined with escalating demand for replacement tires
created by the delay of new equipment purchases. Strategically, Titan will
concentrate resources on growth opportunities that complement the core business
and secure long term profitability.
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
Net sales for the year ended December 31, 1998, were $660.8 million
compared to $690.1 million in net sales for the year ended December 31, 1997.
During the year, the Company experienced a labor strike at its Des Moines, Iowa
facility; the largest of the Company's tire operations. As a result, production
volumes decreased which caused decreases in sales and operating results, as
discussed below. The decrease in sales was partially offset by the sales related
to the acquisition of Fabrica Uruguaya de Neumaticos S.A. ("FUNSA") in June
1998.
The Company generates 26% of its net sales from foreign subsidiaries,
therefore the Company is subject to fluctuations in those foreign currencies.
Foreign currency fluctuations for the year ended December 31, 1998, had a
minimal effect on results of operations.
Cost of sales was $569.7 million for the year ended December 31, 1998, as
compared to $584.1 million in 1997. Gross profit for the year ended December 31,
1998, was $91.1 million or 13.8% of net sales, compared to $106.0 million, or
15.4% of net sales for 1997. Gross profit was negatively impacted by
inefficiencies caused by the strike at the Company's Des Moines, Iowa facility.
Selling, general and administrative ("SG&A") expenses were $52.9 million or
8.0% of net sales for the year ended December 31, 1998, as compared to $45.5
million or 6.6% of net sales for 1997. The rise in SG&A expenses, as a
percentage of sales, is primarily attributed to the decrease in volume as
discussed above. Research and development ("R&D") expenses were $7.1 million or
1.1% of net sales for the year ended December 31, 1998, as compared to $6.8
million or 1.0% of net sales for 1997. R&D expenses were impacted by increased
spending related to the development of the LSW series of wheel and tire
assemblies.
Income from operations for the year ended December 31, 1998, was $31.2
million or 4.7% of net sales, compared to $53.6 million, or 7.8% in 1997. Income
from operations was impacted by the items described in the preceding paragraphs.
Net interest expense for the year ended December 31, 1998, was $18.3
million or 2.8% of net sales compared to $15.1 million or 2.2% for 1997. The
increased interest expense was primarily due to an increase in the average debt
outstanding in 1998 as compared to 1997.
Net income for the year ended December 31, 1998, was $8.2 million compared
to $25.1 million in 1997. Earnings per common share (on a diluted basis) were
$.38 for the year ended December 31, 1998, as compared to $1.10 in 1997. Due to
the repurchase of the Company's common stock, the average number of diluted
common shares outstanding for the year ended December 31, 1998, decreased 5% as
compared to the same period in 1997.
12
<PAGE> 13
Net sales in the agricultural market were $324.9 million for the year ended
December 31, 1998, as compared to $358.3 million in 1997. The Company's
earthmoving/construction market net sales were $174.4 million for the year ended
December 31, 1998, as compared to $172.9 million in 1997. Consumer market net
sales were $161.5 million for the year ended December 31, 1998, as compared to
$158.9 million in 1997. Net sales in all markets were negatively impacted by the
labor strike at the Company's Des Moines, Iowa facility.
Income from operations in the agricultural market was $25.5 million for the
year ended December 31, 1998, as compared to $50.0 million in 1997. The
Company's earthmoving/construction market income from operations was $25.8 for
the year ended December 31, 1998, as compared to $28.4 million in 1997. Consumer
market income from operations was $4.7 million for the year ended December 31,
1998, as compared to $4.8 million in 1997. The decrease in income from
operations in the agricultural, earthmoving/construction and consumer markets
was primarily due to the labor strike at the Company's Des Moines, Iowa
facility.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $5.5 million from the prior year.
Increases in depreciation and amortization and a decrease in inventories
partially offset an increase in prepaid and other current assets, decreases in
accounts payable and other current liabilities and a net loss, resulting in an
overall decrease in net cash provided by operations of $29.6 million.
Depreciation and amortization expenses were $38.6 million for the year
ended December 31, 1999, compared to $34.7 million in 1998. The increase is
primarily attributable to a full year of depreciation on prior year capital
expenditures and current year capital expenditures. The decreases in inventories
and accounts payable are primarily due to lower production levels during 1999,
as compared to 1998. The decrease in other accrued liabilities relates primarily
to the cash payment of approximately $11.8 million for the acquired assets of
the Company's Natchez, Mississippi facility, all of which had been recorded at
the acquisition date during 1998. The remaining decrease in other accrued
liabilities relates primarily to timing of payments.
Net cash used for investing activities decreased to $36.0 million in 1999
from $86.7 million in 1998. Capital expenditures totaled $39.1 million compared
to $64.9 million in 1998. The Company has continued to dedicate funds to
modernize and improve production efficiencies and increase production
capacities. Included in 1999 capital expenditures is $12.1 million used for
equipment and construction related to the Company's tire facility located in
Brownsville, Texas. Included in 1998 capital expenditures was $19.4 million used
to purchase certain property, plant and equipment at the Des Moines, Iowa,
facility. The Company estimates that its capital expenditures for 2000 will
range between $20 million and $30 million.
In 1999, Titan acquired 35.9 percent of the stock of Wheels India Limited
for $12.2 million, which is being accounted for under the equity method of
accounting. Equity earnings for 1999 were not significant to Titan's results of
operations. With facilities in Madras and Poona, India, Wheels India Limited is
the largest manufacturer of steel wheels for all applications in the Indian
sub-continent.
In 1999, the Company received $15.2 million in proceeds related to its sale
of a building, certain machinery and equipment and other assets.
In December 1999, the Company decreased its availability under its credit
facility from $250 million to $175 million. During 1999, the Company received
$27 million in proceeds from its $175 million credit facility. These proceeds
have been used to fund operations and capital expenditures.
During 1999, the Company repurchased 0.4 million shares of its common stock
in the open market for $3.6 million. The Company is authorized to repurchase an
additional 3.0 million common shares.
At December 31, 1999, the Company had cash and cash equivalents of $8.6
million. Cash on hand, anticipated internal cash flows and utilization of
available borrowing under the Company's credit facility are expected to provide
sufficient liquidity for working capital needs, capital expenditures and
acquisitions for the foreseeable future.
13
<PAGE> 14
YEAR 2000
During 1996, the Company formed a project team to address the inability of
certain computer and infrastructure systems to process dates in the year 2000
and later. The major areas for evaluation included mainframe computers, personal
computers, engineering hardware and software, manufacturing systems and the
readiness of the Company's suppliers, customers and distribution network. The
Company's phases for its Year 2000 program included planning, assessment,
remediation and testing and contingency planning.
Assessment, upgrade/replacement, remediation and testing of the Company's
information technology ("IT") and non-IT systems were completed during 1999. The
Company's non-IT systems, including manufacturing equipment, telecommunications
equipment, building control equipment and environmental equipment, were
considered.
The Company also evaluated its critical suppliers to ensure that there was
no interruption in the delivery of products and services to Titan due to Year
2000 issues. The Company sent questionnaires to its major and critical suppliers
and customers in order to evaluate their Year 2000 status. Alternate suppliers
were utilized as necessary.
The Company encountered no significant problems regarding the Year 2000.
During 1999 and 1998, the total capitalized cost of the software upgrades was
approximately $1.0 million and total remediation costs approximated $0.8
million. Prior to 1998, Year 2000 costs were insignificant. The Company did not
separately track the internal payroll costs associated with remediating for year
2000; such costs were expensed as incurred. The Company utilized cash flows from
operations in order to carry out the Year 2000 plans discussed herein. Other
major systems projects were not deferred due to the Year 2000 compliance
projects.
MARKET RISK SENSITIVE INSTRUMENTS
Exchange Rate Sensitivity
The Company is exposed to fluctuations in the British pound, Italian lira,
French franc and German deutschemark. The Company views its investments in
foreign subsidiaries as long-term commitments and does not hedge foreign
currency transaction or translation exposures. The Company's net investment in
foreign subsidiaries translated into U.S. dollars at December 31, 1999, is $55.4
million. The hypothetical potential loss in value of the Company's net
investment in foreign subsidiaries resulting in a 10% adverse change in foreign
currency exchange rates at December 31, 1999 would amount to $5.5 million.
Commodity Price Sensitivity
The Company does not generally enter into long-term commodity contracts and
does not use derivative commodity instruments to hedge its exposures to
commodity market price fluctuations. Therefore, the Company is exposed to
fluctuations in the prices of its key commodities, which consist primarily of
steel and rubber. The Company is, however, generally able to pass through
material price increases and decreases to its customers.
Interest Rate Sensitivity
At December 31, 1999, the fair value of the Company's senior subordinated
notes, based upon quoted market prices obtained through independent pricing
sources for the same or similar types of borrowing arrangements was $120
million, compared to the carrying value of $150 million. The Company believes
the carrying value of its other debt reasonably approximates fair value at
December 31, 1999.
14
<PAGE> 15
EURO CONVERSION
The Company is in the process of identification, implementation and testing
of its systems to adopt the Euro currency in its operations affected by this
change. The Company expects to have its systems ready to process the Euro
conversion by January 1, 2002. The costs associated with the transition to the
Euro are not anticipated to be material.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), will be adopted on
January 1, 2001. The Company is evaluating the effect SFAS 133 will have on its
financial position and results of operations.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements, including statements
regarding, among other items, (i) anticipated trends in the Company's business,
(ii) future expenditures for capital projects, (iii) the Company's ability to
continue to control costs and maintain quality, (iv) the Company's business
strategies, including its intention to introduce new products, (v) expectations
concerning the performance and commercial success of the Company's existing and
new products and (vi) the Company's intention to consider and pursue
acquisitions. These forward-looking statements are based partially on the
Company's expectations and are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control. Actual results could differ
materially from these forward-looking statements as a result of certain factors,
including, (i) changes in the Company's end-user markets as a result of world
economic or regulatory influences, (ii) changes in the competitive marketplace,
including new products and pricing changes by the Company's competitors, or
(iii) changes regarding implementation of the Euro. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained in this document will in fact transpire.
15
<PAGE> 16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Item 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Item 14
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
16
<PAGE> 17
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
Reference is made to the section captioned "Election of Directors" in the
Company's 2000 definitive Proxy Statement, to be filed with the Securities and
Exchange Commission within 120 days after the close of the Company's fiscal
year, incorporated herein by reference. Reference is also made to the
information under the heading "Executive Officers of the Registrant" included
under Item 4a, Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the section captioned "Executive Compensation" in the
Company's 2000 definitive Proxy Statement, to be filed with the Securities and
Exchange Commission within 120 days after the close of the Company's fiscal
year, incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the sections captioned "Security Ownership of Certain
Beneficial Owners and Management" in the Company's 2000 definitive Proxy
Statement, to be filed with the Securities and Exchange Commission within 120
days after the close of the Company's fiscal year, incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the section captioned "Related Party Transactions" in
the Company's 2000 definitive Proxy Statement, to be filed with the Securities
and Exchange Commission within 120 days after the close of the Company's fiscal
year, incorporated herein by reference. Reference is also made to Note 13 to the
consolidated financial statements of Titan International, Inc. included in Item
8 herein.
17
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C> <C>
(a) 1. Financial Statements
Report of PricewaterhouseCoopers LLP........................ F-1
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1999... F-3
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1998 and 1999...... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-5
Notes to Consolidated Financial Statements.................. F-6 through F-21
2. Financial Statement Schedule
Schedule II -- Valuation Reserves........................... S-1
3. Exhibits
</TABLE>
The accompanying Exhibit Index is incorporated herein by
reference.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
quarter ended December 31, 1999.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
March 24, 2000 TITAN INTERNATIONAL, INC.
By: /s/ MAURICE M. TAYLOR, JR.
------------------------------------
Maurice M. Taylor, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 24, 2000.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY
---------- --------
<S> <C>
/s/ MAURICE M. TAYLOR, JR. President, Chief Executive Officer
- ----------------------------------------------------- and Director
Maurice M. Taylor, Jr. (Principal Executive Officer)
/s/ KENT W. HACKAMACK Vice President of Finance and Treasurer
- ----------------------------------------------------- (Principal Financial Officer and
Kent W. Hackamack Principal Accounting Officer)
/s/ ERWIN H. BILLIG Director
- -----------------------------------------------------
Erwin H. Billig
/s/ RICHARD M. CASHIN, JR. Director
- -----------------------------------------------------
Richard M. Cashin, Jr.
/s/ EDWARD J. CAMPBELL Director
- -----------------------------------------------------
Edward J. Campbell
/s/ ALBERT J. FEBBO Director
- -----------------------------------------------------
Albert J. Febbo
/s/ MITCHELL I. QUAIN Director
- -----------------------------------------------------
Mitchell I. Quain
/s/ ANTHONY L. SOAVE Director
- -----------------------------------------------------
Anthony L. Soave
</TABLE>
19
<PAGE> 20
TITAN INTERNATIONAL, INC.
EXHIBIT INDEX
FORM 10-K
1999
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3(a)(1) Amended Restated Articles of Incorporation of the Company
3(b)(2) Bylaws of the Company
10(a)(3) Registration Rights Agreement dated November 12, 1993,
between the Company and 399 Venture Partners, Inc.
10(b)(4) Indenture between the Company and The First National Bank of
Chicago dated March 21, 1997
10(c)(1) Multicurrency Credit Agreement dated September 17, 1998
among the Company, Harris Trust and Savings Bank and the
banks named therein
10(d)* The December 22, 1999, Amendment to Multicurrency Credit
Agreement dated September 17, 1998 among the Company, Harris
Trust and Savings Bank and the banks named therein
10(e)(5) 1994 Non-Employee Director Stock Option Plan
10(f)(5) 1993 Stock Incentive Plan
21* Subsidiaries of the Registrant
23.1* Consent of PricewaterhouseCoopers LLP
27* Financial Data Schedule
</TABLE>
- -------------------------
* Filed herewith
(1) Incorporated by reference to the same numbered exhibit contained in the
Company's Form 10-Q for its quarterly period ended September 30, 1998 (No.
001-12936).
(2) Incorporated by reference to the same numbered exhibit contained in the
Company's Registration Statement on Form S-4 (No. 33-69228).
(3) Incorporated by reference to the same numbered exhibit contained in the
Company's Annual Report on Form 10-K for its year ended December 31, 1993.
(4) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (No. 333-22279).
(5) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 333-61743).
20
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Titan International, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 18 present fairly, in all material
respects, the financial position of Titan International, Inc. and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in the
United States, 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.
PRICEWATERHOUSECOOPERS LLP
St. Louis, Missouri
February 21, 2000
F-1
<PAGE> 22
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net sales................................................... $690,131 $660,781 $588,023
Cost of sales............................................... 584,149 569,652 526,329
-------- -------- --------
Gross profit................................................ 105,982 91,129 61,694
Selling, general and administrative expenses................ 45,528 52,902 51,614
Research and development expenses........................... 6,828 7,064 6,310
-------- -------- --------
Income from operations...................................... 53,626 31,163 3,770
Interest expense............................................ 15,127 18,317 23,603
Other income................................................ (2,043) (300) (1,388)
-------- -------- --------
Income (loss) before income taxes........................... 40,542 13,146 (18,445)
Provision (benefit) for income taxes........................ 15,406 4,995 (7,009)
-------- -------- --------
Net income (loss)........................................... $ 25,136 $ 8,151 $(11,436)
======== ======== ========
Earnings (loss) per common share:
Basic..................................................... $ 1.11 $ .38 $ (.55)
Diluted................................................... 1.10 .38 (.55)
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE> 23
TITAN INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 14,116 $ 8,606
Accounts receivable (net of allowance of $6,200 and
$5,863, respectively).................................. 108,194 97,457
Inventories............................................... 154,045 133,365
Prepaid and other current assets.......................... 35,840 39,650
-------- --------
Total current assets................................... 312,195 279,078
Property, plant and equipment, net........................ 284,407 267,049
Other assets.............................................. 40,896 51,927
Goodwill, net............................................. 40,776 39,127
-------- --------
Total assets........................................... $678,274 $637,181
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 7,902 $ 20,195
Accounts payable.......................................... 66,522 51,363
Other current liabilities................................. 67,306 36,737
-------- --------
Total current liabilities.............................. 141,730 108,295
Deferred income taxes....................................... 23,396 28,421
Other long-term liabilities................................. 18,527 16,078
Long-term debt.............................................. 247,584 255,521
-------- --------
Total liabilities...................................... 431,237 408,315
-------- --------
Commitments and contingencies: Notes 6, 12 and 14
Stockholders' equity
Common stock, no par, 60,000,000 shares authorized,
27,520,139 and 27,555,081, issued, respectively........ 27 27
Additional paid-in capital................................ 214,807 214,846
Retained earnings......................................... 128,801 116,123
Accumulated other comprehensive loss...................... (4,294) (7,329)
Treasury stock at cost: 6,591,484 and 6,939,101 shares,
respectively........................................... (92,304) (94,801)
-------- --------
Total stockholders' equity............................. 247,037 228,866
-------- --------
Total liabilities and stockholders' equity.................. $678,274 $637,181
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 24
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
NUMBER OF ADDITIONAL OTHER
COMMON COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE COMPREHENSIVE
SHARES STOCK CAPITAL EARNINGS STOCK INCOME(LOSS) INCOME(LOSS)
---------- ------ ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1997.... 26,526,992 $27 $210,677 $ 98,096 $(10,292) $ 2,673
Net income................. 25,136 $ 25,136
Dividends paid on common
stock.................... (1,298)
Issuance of common stock
under 401(k) plans....... 103,815 1,612
Currency translation
adjustment............... (6,013) (6,013)
Treasury stock
transactions............. (5,013,619) (72,815)
Exercise of stock
options.................. 24,648 326
---------- --- -------- -------- -------- ------- --------
BALANCE DECEMBER 31,
1997..................... 21,641,836 27 212,615 121,934 (83,107) (3,340) $ 19,123
========
Net income................. 8,151 $ 8,151
Dividends paid on common
stock.................... (1,284)
Issuance of common stock
under 401(k) plans....... 93,393 1,531
Currency translation
adjustment............... 1,841 1,841
Minimum pension
liability................ (2,795) (2,795)
Treasury stock
transactions............. (852,700) (9,197)
Exercise of stock
options.................. 46,126 661
---------- --- -------- -------- -------- ------- --------
BALANCE DECEMBER 31,
1998..................... 20,928,655 27 214,807 128,801 (92,304) (4,294) $ 7,197
========
Net income (loss).......... (11,436) $(11,436)
Dividends paid on common
stock.................... (1,242)
Issuance of common stock
under 401(k) plans....... 34,942 336
Issuance of treasury stock
under 401(k) plans....... 80,483 (297) 1,107
Currency translation
adjustment............... (5,341) (5,341)
Minimum pension
liability................ 2,306 2,306
Treasury stock
transactions............. (428,100) (3,604)
---------- --- -------- -------- -------- ------- --------
BALANCE DECEMBER 31,
1999..................... 20,615,980 $27 $214,846 $116,123 $(94,801) $(7,329) $(14,471)
========== === ======== ======== ======== ======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 25
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 25,136 $ 8,151 $(11,436)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 30,917 34,733 38,615
Gain on sale of assets................................. 0 0 (4,933)
(Increase) decrease in current assets, excluding the
effects of acquisitions:
Accounts receivable.................................... (17,182) 15,466 1,481
Inventories............................................ 326 (4,332) 10,631
Prepaid and other current assets....................... (3,359) (6,789) (6,255)
Increase (decrease) in current liabilities, excluding the
effects of acquisitions:
Accounts payable....................................... 9,877 (11,447) (5,662)
Other current liabilities.............................. (329) (1) (26,151)
Other, net................................................ (1,368) (3,107) 6,790
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 44,018 32,674 3,080
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired........................ 0 (14,686) (12,165)
Capital expenditures, net................................. (38,336) (64,920) (39,098)
Proceeds from sale of assets.............................. 0 0 15,226
Other..................................................... (3,321) (7,143) 0
-------- -------- --------
NET CASH USED FOR INVESTING ACTIVITIES................. (41,657) (86,749) (36,037)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings........................ 149,250 57,487 33,967
Repayments on long-term debt.............................. (81,198) (1,071) (668)
Repurchase of common stock................................ (72,815) (9,197) (3,604)
Payment of financing fees................................. (4,300) (610) (1,343)
Dividends paid............................................ (1,382) (1,295) (1,247)
Other..................................................... 1,885 1,670 1,146
-------- -------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES... (8,560) 46,984 28,251
Effect of exchange rate changes on cash..................... 0 0 (804)
Net decrease in cash and cash equivalents................... (6,199) (7,091) (5,510)
Cash and cash equivalents, beginning of year................ 27,406 21,207 14,116
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 21,207 $ 14,116 $ 8,606
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 26
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Titan International, Inc. ("Titan" or the "Company"), is a global
manufacturer of off-highway steel wheels and tires in the agricultural,
earthmoving/construction and consumer markets. The Company generally
manufactures both wheels and tires for these markets and provides the
value-added service of assembling the completed wheel-tire system. The Company's
primary materials utilized in the manufacturing process are steel and rubber,
which are obtained from a broad base of suppliers.
USE OF ESTIMATES
The policies utilized by the Company in the preparation of the financial
statements conform to generally accepted accounting principles and require
management to make estimates and assumptions that affect the reported amount 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 amounts could differ from these
estimates and assumptions.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly and majority-owned subsidiaries. Titan records its investment in
each unconsolidated affiliated company (20% to 50% ownership) at its related
equity in the net assets of such affiliate as adjusted for equity earnings.
Investments of less than 20% in other companies are carried at cost. All
significant intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION
Sales revenue and cost of sales are recorded by the Company when products
are shipped to customers.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method for 48% of inventories and the
first-in, first-out ("FIFO") method for 52% of inventories. Inventory of foreign
subsidiaries is valued using the FIFO method.
FOREIGN CURRENCY TRANSLATION
Gains and losses arising from the settlement of foreign currency
transactions are charged to the related period's Consolidated Statement of
Operations. Translation adjustments arising from the translation of foreign
subsidiary financial statements are recorded as a separate component of
stockholders' equity.
F-6
<PAGE> 27
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS
Property, plant and equipment have been recorded at cost. Depreciation is
provided using the straight-line method over the following estimated useful
lives of the related assets:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Building and improvements................................... 25
Machinery and equipment..................................... 10
Tools, dies and molds....................................... 5
</TABLE>
Maintenance and repairs are expensed as incurred. When property, plant and
equipment are retired or otherwise disposed of, the related cost and accumulated
depreciation are eliminated and any gain or loss on disposition is included in
income.
DEFERRED FINANCING COSTS
Deferred financing costs are costs incurred in connection with the
Company's credit facilities and senior subordinated notes. The costs associated
with the credit facilities are being amortized over their respective terms. The
discount and costs associated with the senior subordinated notes are being
amortized over ten years, the term of the notes.
GOODWILL
Goodwill for foreign and domestic subsidiaries are amortized over 25 and 40
years, respectively, on a straight-line basis.
IMPAIRMENT OF ASSETS
The Company reviews long-lived assets, goodwill and other intangibles to
assess recoverability from future operations whenever events and circumstances
indicate that the carrying values may not be recoverable. Impairment losses are
recognized in operating results when expected undiscounted future cash flows are
less than the carrying value of the asset.
INCOME TAXES
Deferred income tax provisions are determined using the liability method
whereby deferred tax assets and liabilities are recognized based upon temporary
differences between the financial statement and income tax basis of assets and
liabilities.
F-7
<PAGE> 28
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, the Company
considers financial investments with an original maturity of three months or
less to be cash equivalents.
Investing activities during the years ended December 31, 1998 and 1999,
including certain non-cash transactions, related to the Company's acquisition of
certain assets of Condere Corporation, Fabrica Uruguaya de Neumaticos S.A.
("FUNSA") and Wheels India Limited, involved the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Fair value of assets acquired, other than cash and cash
equivalents:
Current assets.......................................... $ 27,122 $ 0
Property, plant and equipment........................... 34,331 0
Other assets............................................ (8,162) 12,165
Liabilities assumed..................................... (38,605) 0
-------- -------
Cash paid.......................................... $ 14,686 $12,165
======== =======
</TABLE>
During 1999, Titan paid $12.2 million to acquire 35.9 percent of Wheels
India Limited, which is being accounted for under the equity method of
accounting.
During 1999, the Company sold 78 percent of its original interest in FUNSA,
resulting in a remaining interest of 18 percent at December 31, 1999, which is
carried at cost. The gain on this transaction was immaterial to operating
results.
During 1998, the Company acquired certain assets of Condere Corporation
from the United States Bankruptcy Court for the Southern District of Mississippi
for a total estimated purchase price of $28 million, which included a cash
payment of $13 million.
During 1998, the Company issued $10 million of notes to purchase certain
property, plant and equipment of the Des Moines, Iowa facility.
The Company paid $11.1 million, $16.9 million and $22.3 million for
interest; and $13.5 million, $8.5 million and $0.7 million for income taxes in
1997, 1998 and 1999, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company records all financial instruments, including cash and cash
equivalents, accounts receivable, notes receivable, accounts payable, other
accruals and notes payable at cost which approximates fair value. The senior
subordinated notes are the only significant financial instrument of the Company
with a fair value different than the recorded value. At December 31, 1999, the
fair value of the senior subordinated notes, based on quoted market prices
obtained through independent pricing sources for the same or similar types of
borrowing arrangements, was approximately $120 million, compared to a recorded
value of $150 million.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company's activity with derivative financial instruments in 1997, 1998
and 1999 was minimal and the impact on operations was insignificant.
F-8
<PAGE> 29
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ENVIRONMENTAL LIABILITIES
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and that do not contribute to current or future
revenue are expensed. Liabilities are recorded when environmental assessments
and/or remedial efforts are probable and can be reasonably estimated.
STOCK-BASED COMPENSATION
The Company utilizes Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" (APB 25) to account for employee stock options
and related instruments. Pro forma fair value based disclosures required under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" (SFAS 123), are reflected in Note 10.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), will be adopted on
January 1, 2001. The Company is evaluating the effect SFAS 133 will have on its
financial position and results of operations.
RECLASSIFICATION
Certain amounts from prior years have been reclassified to conform with the
current year's presentation.
2. INVENTORIES
Inventories at December 31, 1998 and 1999, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Raw material............................................. $ 49,970 $ 35,333
Work-in-process.......................................... 17,831 18,810
Finished goods........................................... 82,579 73,564
-------- --------
150,380 127,707
LIFO Reserve............................................. 3,665 5,658
-------- --------
$154,045 $133,365
======== ========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1998 and 1999, consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Land and improvements.................................. $ 10,598 $ 4,873
Buildings and improvements............................. 59,693 73,938
Machinery and equipment................................ 231,452 245,839
Tools, dies and molds.................................. 51,623 58,970
Construction in process................................ 55,287 39,312
--------- ---------
408,653 422,932
Less accumulated depreciation.......................... (124,246) (155,883)
--------- ---------
$ 284,407 $ 267,049
========= =========
</TABLE>
F-9
<PAGE> 30
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. GOODWILL
Goodwill at December 31, 1998 and 1999, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Goodwill................................................... $46,567 $46,436
Less accumulated amortization.............................. (5,791) (7,309)
------- -------
$40,776 $39,127
======= =======
</TABLE>
Amortization of goodwill for the years 1997, 1998 and 1999 totaled $1.2
million, $1.4 million, and $1.3 million, respectively.
5. OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 1998 and 1999, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Acquisition payable........................................ $14,750 $ 5,929
Accrued wages and commissions.............................. 10,247 8,600
Other...................................................... 42,309 22,208
------- -------
$67,306 $36,737
======= =======
</TABLE>
6. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1999, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Senior subordinated notes................................... $150,000 $150,000
Credit facility............................................. 55,000 82,000
Notes payable to Pirelli.................................... 29,743 29,743
Industrial revenue bonds and other.......................... 20,743 13,973
-------- --------
255,486 275,716
Less amounts due within one year............................ 7,902 20,195
-------- --------
$247,584 $255,521
======== ========
</TABLE>
In December 1999, the Company decreased its availability under its credit
facility ("Facility") from $250 million to $175 million, which is also available
for documentary trade and/or standby letters of credit. The Facility is secured
by certain receivables, inventory and fixed assets. Borrowings under the
Facility may be made in U.S. dollars and major foreign currencies. Debt
outstanding under this Facility at December 31, 1998 and 1999 totaled $55
million and $82 million, respectively. The Facility, which expires in December
2002, allows Titan to borrow funds under various interest rate options. The
Company paid interest rates ranging from 5 1/4% to 9 1/4% on the outstanding
balance under the Facility in 1999. The Facility contains restrictions related
to dividends, investments, guarantees, certain financial ratios and other less
restrictive covenants.
In March 1997, the Company issued $150 million principal amount of 8 3/4%
senior subordinated notes, priced to the public at 99.5 percent, due 2007.
F-10
<PAGE> 31
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM DEBT (CONTINUED)
In August 1994, Titan Tire Corporation issued a subordinated note for $19.7
million with a fixed interest rate of 7% to Pirelli Armstrong Tire Corporation
("Pirelli"). At December 31, 1999, the note was classified as current portion of
long-term debt and was paid in February 2000. In December 1998, Titan Tire
Corporation issued two $5 million subordinated notes with fixed interest rates
of 6 1/2% to Pirelli LLC to acquire certain property, plant and equipment. The
notes mature in June 2001, and December 2003, respectively.
Other debt primarily consists of industrial revenue bonds, loans from local
and state entities and various other long-term notes.
Aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $20,195
2001........................................................ 5,402
2002........................................................ 82,415
2003........................................................ 6,367
2004........................................................ 418
</TABLE>
7. OTHER (INCOME) EXPENSE
Other (income) expense consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
(Gain) loss on sale of assets....................... $ (508) $ 22 $(4,500)
Interest income..................................... (1,869) (1,670) (1,293)
Foreign exchange losses............................. 29 635 2,752
All other expense................................... 305 713 1,653
------- ------- -------
$(2,043) $ (300) $(1,388)
======= ======= =======
</TABLE>
In 1999, the Company sold a building, certain machinery and equipment and
other assets for a non-recurring pretax gain of $4.5 million.
F-11
<PAGE> 32
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES
Income (loss) before income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Domestic........................................... $29,104 $ 3,139 $(20,779)
Foreign............................................ 11,438 10,007 2,334
------- ------- --------
$40,542 $13,146 $(18,445)
======= ======= ========
</TABLE>
The provision (benefit) for income taxes was as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Current
Federal.......................................... $10,248 $ 3,468 $(11,929)
State............................................ 2,112 157 (2,609)
Foreign.......................................... 3,433 3,009 1,246
------- ------- --------
15,793 6,634 (13,292)
------- ------- --------
Deferred
Federal.......................................... (319) (1,736) 5,826
State............................................ (68) 97 1,253
Foreign.......................................... 0 0 (796)
------- ------- --------
(387) (1,639) 6,283
------- ------- --------
Provision (benefit) for income taxes............... $15,406 $ 4,995 $ (7,009)
======= ======= ========
</TABLE>
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the statutory U.S. federal income tax rate to pretax
income (loss) as a result of the following:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal tax rate........................... 35.0% 35.0% (35.0)%
State taxes, net.......................................... 3.3 1.3 (4.8)
Foreign taxes, net........................................ (1.4) 0.3 (1.8)
Nondeductible goodwill amortization....................... 1.0 3.2 2.2
U.S. benefit from foreign sales corporation............... (1.1) (2.5) 0.0
Other, net................................................ 1.2 0.7 1.4
---- ---- -----
Effective tax rate........................................ 38.0% 38.0% (38.0)%
==== ==== =====
</TABLE>
Federal income taxes are provided on earnings of foreign subsidiaries
except to the extent that such earnings are expected to be indefinitely
reinvested abroad. It is not practicable to determine the amount of unrecognized
deferred tax liabilities associated with such earnings.
F-12
<PAGE> 33
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
Deferred tax assets (liabilities) at December 31, 1998 and 1999,
respectively, consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Employee benefits and related costs...................... $ 6,321 $ 5,838
EPA reserve.............................................. 2,200 1,938
Allowance for bad debts.................................. 1,605 1,936
Inventory................................................ 967 287
Other.................................................... 5,317 1,838
-------- --------
Gross deferred tax assets................................ 16,410 11,837
-------- --------
Fixed assets............................................. (20,786) (30,376)
Deferred gain............................................ (2,542) (2,542)
Other.................................................... (5,445) (1,055)
-------- --------
Gross deferred tax liabilities........................... (28,773) (33,973)
-------- --------
Net deferred tax liabilities............................. $(12,363) $(22,136)
======== ========
</TABLE>
9. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has a frozen contributory defined benefit pension plan covering
certain hourly employees of its Walcott, Iowa, facility. The Company sponsors a
contributory defined benefit plan that covered former eligible bargaining
employees of Dico, Inc. The Company has a frozen defined benefit pension plan
covering certain employees of Titan Tire Corporation ("Titan Tire"). The
Company's policy is to fund pension costs as accrued, which is consistent with
the funding requirements of federal laws and regulations.
The Company's defined benefit plans have been aggregated below. Included in
the December 31, 1998 amounts are two plans with an aggregate projected benefit
obligation and aggregated accumulated benefit obligation of $63.7 million which
exceeds the aggregate fair value of plan assets of $59.9 million at December 31,
1998. Included in the December 31, 1999 amounts is one plan with a projected
benefit obligation and accumulated benefit obligation of $1.5 million which
exceeds the fair value of plan assets of $1.0 million at December 31, 1999.
F-13
<PAGE> 34
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following tables provide the change in benefit obligation, change in
plan assets, funded status and amounts recognized in the consolidated balance
sheet of the defined benefit pension plans as of December 31, 1998 and 1999 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.................... $62,522 $68,642
Interest cost.............................................. 5,307 5,077
Actuarial losses........................................... 6,835 236
Benefits paid.............................................. (6,022) (5,957)
------- -------
Benefit obligation at end of year.......................... $68,642 $67,998
======= =======
Change in plan assets:
Fair value of plan assets at beginning of year............. $60,853 $65,098
Actual return on plan assets............................... 8,620 12,320
Employer contributions..................................... 1,648 3,251
Benefits paid.............................................. (6,023) (5,957)
------- -------
Fair value of plan assets at end of year................... $65,098 $74,712
======= =======
Funded status.............................................. $(3,543) $ 6,714
Unrecognized net loss (gain)............................... 4,533 (3,014)
Unrecognized deferred tax liability........................ (762) (699)
------- -------
Net amount recognized...................................... $ 228 $ 3,001
======= =======
Amounts recognized in the consolidated balance sheet:
Prepaid benefit cost....................................... $ 68 $ 2,762
Accrued benefit liability.................................. (3,858) (503)
Accumulated other comprehensive income..................... 4,018 742
------- -------
Net amount recognized...................................... $ 228 $ 3,001
======= =======
</TABLE>
Included in the consolidated balance sheet at December 31, 1999, is the
minimum pension liability for the unfunded pension plans. The adjustment for the
minimum pension liability in the amount of $3.3 million resulted in an increase
in stockholders' equity and other comprehensive income of $2.3 million and a
deferred tax asset of $0.3 million, at December 31, 1999.
Included in the consolidated balance sheet at December 31, 1998, is the
adjustment for the minimum pension liability in the amount of $4.0 million,
which resulted in a reduction in stockholders' equity and other comprehensive
income of $2.8 million and a deferred tax asset of $1.2 million.
F-14
<PAGE> 35
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table provides the components of net periodic pension cost
for the plans and the assumptions used in the measurement of the Company's
benefit obligation for years ended December 31, 1997, 1998 and 1999 (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Components of net periodic pension cost:
Interest cost................................... $ 5,371 $ 5,307 $ 5,077
Assumed return on assets........................ (5,101) (4,195) (4,553)
Amortization of unrecognized deferred taxes..... (63) (63) (63)
Amortization of net unrecognized loss........... 11 9 17
------- ------- -------
Net periodic pension cost............... $ 218 $ 1,058 $ 478
======= ======= =======
Major assumptions:
Discount rate................................... 8-9% 7 1/4-7 3/4% 7 1/4-7 3/4%
Rate of return on plan assets................... 8 1/2-9% 7-8 1/2% 7-8 1/2%
</TABLE>
401(k)
The Company sponsors 401(k) retirement savings plans. One plan is for the
benefit of substantially all employees who are not covered by a collective
bargaining arrangement and a second plan is for the employees covered by a
collective bargaining arrangement at Titan Tire. These plan participants may
contribute up to 17% of their annual compensation, up to a maximum of $10,000 in
1999. Employees are fully vested with respect to their contributions. Titan
provides a 50% match in the form of the Company's common stock on the first 6%
of the employee's contribution. Titan issued 103,815 shares, 93,393 shares, and
34,942 shares of common stock in connection with these 401(k) plans during 1997,
1998 and 1999, respectively. In addition, Titan issued 80,483 shares of treasury
stock during 1999 in connection with these 401(k) plans. Expenses related to
these 401(k) plans were $1.6 million, $1.5 million and $1.1 million for 1997,
1998 and 1999, respectively.
In 1999, the Company adopted 401(k) plans for the employees of Titan Tire
Corporation of Texas and the employees of Titan Tire Corporation of Natchez.
These plan participants may contribute up to 20% of their annual compensation,
up to a maximum of $10,000 in 1999. Employees are fully vested with respect to
their contributions. Each employee who elects to participate is eligible to
receive Company matching contributions up to a maximum of $500 per year. Expense
for the Company matching contribution was $0.1 million in 1999.
10. STOCK OPTION PLANS
The Company adopted the 1993 Stock Incentive Plan (the "Plan") in which a
total of 1,125,000 shares of common stock are reserved. Under the Plan, stock
options (both incentive and non-qualified) restricted stock awards and
performance awards may be granted to key employees or consultants at an exercise
price not less than 85% of the fair market value of the common stock on the date
of grant. Options under the Plan vest and become exercisable at a rate of 40% on
December 31 of the year following the date of grant, and an additional 20% each
year thereafter.
F-15
<PAGE> 36
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK OPTION PLANS (CONTINUED)
The Company adopted the 1994 Non-Employee Director Stock Option Plan (the
"Director Plan") to provide for grants of stock options as a means of attracting
and retaining highly qualified independent directors for the Company. The
exercise price of stock options may not be less than the fair market value of
the common stock on the date of grant. No more than 400,000 shares of Titan's
common stock may be issued under the Director Plan. Such options vest and become
exercisable immediately. All options under both plans expire 10 years from date
of grant.
The following is a summary of activity in the stock option plans for 1997,
1998 and 1999:
<TABLE>
<CAPTION>
SHARES SUBJECT WEIGHTED-AVERAGE
TO OPTION EXERCISE PRICE
-------------- ----------------
<S> <C> <C>
Outstanding, January 1, 1997...................... 481,120 $12.67
Granted........................................... 201,280 $12.83
Exercised......................................... (24,648) 11.11
Canceled.......................................... (11,858) 11.11
-------- ------
Outstanding, December 31, 1997.................... 645,894 $12.80
Granted........................................... 173,340 $18.00
Exercised......................................... (11,724) 12.02
Canceled.......................................... (23,792) 12.96
-------- ------
Outstanding, December 31, 1998.................... 783,718 $13.96
Granted........................................... 313,050 $ 8.26
Canceled.......................................... (107,650) 13.37
-------- ------
Outstanding, December 31, 1999.................... 989,118 $12.22
======== ======
</TABLE>
The exercise price for options outstanding at December 31, 1999 ranged from
$8.00 to $18.00 per share and the weighted-average remaining contractual life of
these options approximates seven years. At December 31, 1999, a total of 615,158
options were exercisable at a weighted-average exercise price of $13.20.
The Company has recorded an insignificant amount of compensation expense
under APB 25 as exercise price on the date of grant generally approximates fair
market value. Had compensation cost been determined based on the fair value at
the grant date for awards in 1997, 1998 and 1999 consistent with the provisions
of SFAS 123, the Company's pro forma net income and earnings per share would
have been as presented below (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net income (loss) -- as reported.................. $25,136 $8,151 $(11,436)
Net income (loss) -- pro forma.................... 24,740 7,518 (11,989)
Net income (loss) per share -- as reported........ $ 1.10 $ .38 $ (.55)
Net income (loss) per share -- pro forma.......... 1.08 .35 (.58)
</TABLE>
F-16
<PAGE> 37
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK OPTION PLANS (CONTINUED)
The fair value of each option is calculated using the Black-Scholes
option-pricing model with the following assumptions used for grants in 1997,
1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Stock price volatility............................. 30% 34% 38%
Risk-free interest rate............................ 6.1% 5.6% 4.7%
Expected life of options........................... 6 years 6 years 6 years
Dividend yield..................................... .36% .39% .37%
</TABLE>
The weighted-average fair value of options granted during 1997, 1998 and
1999 was $4.83, $7.47 and $3.77 per option, respectively.
The pro forma effect on net income for 1997, 1998 and 1999 may not be
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation related to grants made
prior to 1995.
11. STOCKHOLDERS' EQUITY
The Company's Board of Directors has authorized Titan to repurchase up to
ten million shares of its common stock. The Company repurchased 5.0 million, 0.9
million and 0.4 million shares of its common stock for a cost of $72.8 million,
$9.2 million and $3.6 million in 1997, 1998 and 1999, respectively. The Company
is authorized to repurchase an additional 3.0 million common shares. The Company
paid cash dividends of $.06 per share of common stock during each of 1997, 1998
and 1999.
12. LEASE COMMITMENTS
The Company leases certain of its buildings and equipment under operating
leases including a lease for the building in Brownsville, Texas. Certain lease
agreements provide for renewal options, fair value purchase options, and payment
of property taxes, maintenance and insurance by the Company. Total rental
expense was $2.2 million, $3.7 million and $5.7 for the years ended December 31,
1997, 1998 and 1999, respectively.
At December 31, 1999, future minimum rental commitments under
noncancellable operating leases with initial or remaining terms in excess of one
year are as follows: $5.6 million in 2000; $5.2 million in 2001; $4.8 million in
2002; $4.7 million in 2003; and $3.4 million in 2004.
13. RELATED PARTY TRANSACTIONS
The Company sells products and pays commissions to companies controlled by
persons related to the Chief Executive Officer of the Company. During 1997, 1998
and 1999, sales of Titan product to these companies were approximately $8.3
million, $11.5 million and $12.5 million, respectively. On sales referred to
Titan from these manufacturing representative companies, commissions were paid
in the amount of approximately $1.1 million for each of 1997, 1998 and 1999.
These sales and commissions were made in the ordinary course of business and
were made on terms no less favorable to Titan than comparable sales and
commissions to unaffiliated third parties.
14. LITIGATION
The Company is a party to routine legal proceedings arising out of the
normal course of business. The Company believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
financial condition or results of operations of the Company.
F-17
<PAGE> 38
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company has aggregated its operating units into reportable segments
based on its three customer markets: agricultural, earthmoving/construction and
consumer. These segments are based on the management approach, which is the
internal organization used by management in making operating decisions and
assessing performance. The accounting policies of the segments are the same as
those described in Note 1, "Summary of Significant Accounting Policies." Sales
between segments are priced at certain margins over the cost to manufacture and
all intersegment revenues are eliminated in consolidation. Segment external
revenues, expenses and income from operations are determined on the basis of the
results of operations of operating units' manufacturing facilities. Segment
assets are generally determined on the basis of the tangible assets located at
such operating units' manufacturing facilities and the intangible assets
associated with the acquisitions of such operating units. However, certain
operating units' goodwill and property, plant and equipment balances are carried
at the corporate level.
Titan is organized primarily on the basis of products being included in
three separate marketing units. The products for each reportable segment include
wheels, tires and wheel-tire assemblies. The Company has manufacturing and
distribution facilities worldwide.
Revenues from one customer of Titan's agricultural,
earthmoving/construction and consumer segments represents approximately $107
million, $107 million and $90 million of the Company's consolidated revenues in
1997, 1998 and 1999, respectively.
F-18
<PAGE> 39
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SEGMENT AND GEOGRAPHICAL INFORMATION (CONTINUED)
The table below presents information about certain revenues and expenses,
income (loss) from operations and segment assets used by the chief operating
decision maker of the Company as of and for the years ended December 31, 1997,
1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
EARTHMOVING/ RECONCILING CONSOLIDATED
AGRICULTURAL CONSTRUCTION CONSUMER ITEMS TOTALS
------------ ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1997
Revenues from external
customers...................... $358,255 $172,929 $158,947 $ 0 $690,131
Intersegment revenues............ 84,877 37,361 47,566 0 169,804
Depreciation & amortization...... 12,099 8,295 4,985 5,538 (a) 30,917
Income from operations........... 49,975 28,403 4,780 (29,532)(b) 53,626
Total assets..................... 246,906 133,825 110,450 93,961 (c) 585,142
Capital expenditures............. 16,698 9,079 5,536 7,023 (d) 38,336
1998
Revenues from external
customers...................... $324,938 $174,354 $161,489 $ 0 $660,781
Intersegment revenues............ 98,914 40,334 47,519 0 186,767
Depreciation & amortization...... 13,961 9,247 5,664 5,861 (a) 34,733
Income from operations........... 25,527 25,750 4,743 (24,857)(b) 31,163
Total assets..................... 299,182 152,209 143,555 83,328 (c) 678,274
Capital expenditures............. 38,427 12,204 9,542 4,747 (d) 64,920
1999
Revenues from external
customers...................... $254,754 $157,736 $175,533 $ 0 $588,023
Intersegment revenues............ 92,808 42,167 50,030 0 185,005
Depreciation & amortization...... 15,838 10,904 6,252 5,621 (a) 38,615
Income from operations........... 8,061 14,415 6,091 (24,797)(b) 3,770
Total assets..................... 275,748 154,034 114,576 92,823 (c) 637,181
Capital expenditures............. 13,372 6,722 17,272 1,732 (d) 39,098
</TABLE>
- -------------------------
(a) Represents depreciation and amortization expense related to property, plant
and equipment and goodwill carried at the corporate level
(b) Represents corporate expenses and depreciation and amortization expenses
referred to in (a)
(c) Represents property, plant and equipment and goodwill related to certain
acquisitions and other corporate assets
(d) Represents corporate capital expenditures
F-19
<PAGE> 40
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SEGMENT AND GEOGRAPHICAL INFORMATION (CONTINUED)
The table below presents information by geographic area as of and for the
years ended December 31, 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
OTHER CONSOLIDATED
UNITED STATES ITALY COUNTRIES TOTALS
------------- ----- --------------- ------------
<S> <C> <C> <C> <C>
1997
Revenues from external customers............. $535,266 $81,330 $73,535 $690,131
Intersegment revenues........................ 165,568 1,021 3,215 169,804
Long-lived assets............................ 188,591 35,062 29,125 252,778
1998
Revenues from external customers............. $487,174 $79,349 $94,258 $660,781
Intersegment revenues........................ 176,882 3,723 6,162 186,767
Long-lived assets............................ 251,961 35,615 37,607 325,183
1999
Revenues from external customers............. $438,315 $66,829 $82,879 $588,023
Intersegment revenues........................ 175,703 3,425 5,877 185,005
Long-lived assets............................ 246,638 31,355 28,183 306,176
</TABLE>
16. EARNINGS PER SHARE
Earnings (loss) per share for 1997, 1998 and 1999, are as follows (amounts
in thousands, except share and per share data):
<TABLE>
<CAPTION>
NET WEIGHTED- PER SHARE
INCOME (LOSS) AVERAGE SHARES AMOUNT
------------- -------------- ---------
<S> <C> <C> <C>
1997
BASIC EARNINGS PER SHARE................................. $ 25,136 22,581,806 $1.11
Effect of stock options.................................. 0 181,216
-------- ---------- -----
DILUTED EARNINGS PER SHARE............................... $ 25,136 22,763,022 $1.10
======== ========== =====
1998
BASIC EARNINGS PER SHARE................................. $ 8,151 21,505,023 $ .38
Effect of stock options.................................. 0 126,557
-------- ---------- -----
DILUTED EARNINGS PER SHARE............................... $ 8,151 21,631,580 $ .38
======== ========== =====
1999
BASIC AND DILUTED LOSS PER SHARE......................... $(11,436) 20,751,776(a) $(.55)
======== ========== =====
</TABLE>
- -------------------------
(a) Effect of stock options has not been included as they are anti-dilutive.
F-20
<PAGE> 41
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. SUPPLEMENTARY DATA -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(All amounts in thousands, except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED:
------------------------------------------------ YEAR ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 DECEMBER 31
-------- ------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
1998
Net sales........................ $187,428 $181,216 $149,186 $142,951 $660,781
Gross profit..................... 32,496 27,228 19,020 12,385 91,129
Net income (loss)................ 8,302 4,768 417 (5,336) 8,151
Per share amounts:
Basic......................... $ .38 $ .22 $ .02 $ (.25) $ .38
Diluted....................... .38 .22 .02 (.25) .38
1999
Net sales........................ $158,610 $159,045 $135,983 $134,385 $588,023
Gross profit..................... 20,615 21,842 10,159 9,078 61,694
Net income (loss)................ 128 265 (5,864) (5,965) (11,436)
Per share amounts:
Basic......................... $ .01 $ .01 $ (.28) $ (.29) $ (.55)
Diluted....................... .01 .01 (.28) (.29) (.55)
</TABLE>
- -------------------------
Note: The annual earnings (loss) per share amounts do not necessarily agree to
the sum of the quarters as a result of changes in the market prices of the
Company's stock and the application of the treasury stock method.
F-21
<PAGE> 42
TITAN INTERNATIONAL, INC.
SCHEDULE II -- VALUATION RESERVES
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS TO COSTS BALANCE AT END
DESCRIPTION BEGINNING OF YEAR AND EXPENSES DEDUCTIONS OF YEAR
----------- ----------------- ------------------ ---------- --------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Reserve deducted in the balance
sheet from the assets to which it
applies
Allowance for doubtful accounts... $4,924,000 $ 440,000 $(766,000)(a) $4,598,000
========== ========== ========= ==========
Year ended December 31, 1998
Reserve deducted in the balance
sheet from the assets to which it
applies
Allowance for doubtful accounts... $4,598,000 $1,400,000 $ 202,000(b) $6,200,000
========== ========== ========= ==========
Year ended December 31, 1999
Reserve deducted in the balance
sheet from the assets to which it
applies
Allowance for doubtful accounts... $6,200,000 $ 517,000 $(854,000)(c) $5,863,000
========== ========== ========= ==========
</TABLE>
- -------------------------
(a) Net of recoveries of $47,000
(b) Net of recoveries of $350,000 and an addition relating to the acquisition
of FUNSA of $294,000
(c) Net of recoveries of $36,000 and a reduction relating to the acquisition of
FUNSA of $219,000
S-1
<PAGE> 1
EXHIBIT 10.d
TITAN INTERNATIONAL, INC.
TITAN INVESTMENT CORPORATION
TITAN CREDIT CORPORATION
SECOND AMENDMENT TO MULTICURRENCY CREDIT AGREEMENT
Harris Trust and Savings Bank,
as Agent
111 West Monroe Street
Chicago, Illinois 60603
The Banks party to the
Credit Agreement identified
and defined below
Ladies and Gentlemen:
Reference is hereby made to that certain Multicurrency Credit Agreement
dated as of September 17, 1998 (as amended, the "Credit Agreement") by and among
Titan International, Inc., an Illinois corporation (the "Company"), Titan
Investment Corporation, an Illinois corporation ("Titan Investment"), and Titan
Credit Corporation, a Nevada corporation ("Titan Credit"; the Company, Titan
Investment and Titan Credit being hereinafter referred to collectively as the
"Borrowers" and individually as a "Borrower") and each of you (the "Banks")
pursuant to which the Banks currently extend credit to the Borrowers.
Capitalized terms used herein shall have the same meaning herein as such terms
have in the Credit Agreement unless otherwise specified.
The Borrowers have requested that the Banks make certain amendments to
the Credit Agreement. The Required Banks have agreed to accommodate such
requests by the Borrowers on the terms and conditions set forth in this Second
Amendment to Multicurrency Credit Agreement (the "Amendment").
SECTION 1. DECREASE IN COMMITMENTS.
Upon the execution of this Amendment by the Borrowers, the Agent and
the Required Banks, the Commitments for all the Banks shall be reduced to
$175,000,000. Accordingly, upon such execution, the amount of each Bank's
Commitment set forth opposite its name on its signature page to the Credit
Agreement (or, if relevant, on an assignment agreement pursuant to Section 15.12
of the Credit Agreement, as the case may be) shall be supplemented so as to
reflect such Bank's Commitment as follows:
<PAGE> 2
<TABLE>
<CAPTION>
BANK AMOUNT OF COMMITMENT
<S> <C>
Harris Trust and Savings Bank $ 24,500,000.00
Bank One, NA $ 21,000,000.00
Bank of America, N.A. (formerly NationsBank, N.A.) $ 21,000,000.00
Comerica Bank $ 24,500,000.00
SunTrust Bank, Atlanta $ 21,000,000.00
ABN AMRO Bank N.V. $ 21,000,000.00
Michigan National Bank $ 14,000,000.00
The Bank of New York $ 14,000,000.00
Firstar Bank of Milwaukee, N.A. $ 14,000,000.00
----------------
Total $ 175,000,000.00
================
</TABLE>
To further effectuate the foregoing, upon the effectiveness of this Amendment as
hereinafter set forth, Section 1.1 of the Credit Agreement shall be and hereby
is amended by striking the amount "$250,000,000" wherever appearing therein and
substituting therefor the amount "$175,000,000".
SECTION 2. AMENDMENTS.
Upon the effectiveness of this Amendment as hereinafter set forth, the
Credit Agreement shall be and hereby is amended as follows:
Section 2.01. Borrowing Base. Section 1.1 of the Credit Agreement shall be
and hereby is amended by amending and restating the third sentence of such
Section in its entirety to read as follows:
"The sum of the aggregate Original Dollar
Amount of outstanding Loans (whether Committed
Loans or Bid Loans) and L/C Obligations (other
than the Excluded Standby L/C Obligations) shall
not exceed the lesser of (x) the Commitments then
in effect and (y) Borrowing Base as then
determined and computed."
Section 2.02. Maximum L/C Obligations. Section 1.2(a) of the Credit
Agreement shall be amended by striking the first sentence of such Section and
substituting therefor the following:
"Subject to the terms and conditions hereof,
as part of the Revolving Credit, the Agent shall
from time to time issue standby letters of credit
and commercial letters of credit (each a "Letter
of Credit") for the account of any or all of the
Borrowers (whether or not also for the account of
any other Subsidiary of the Company as well) prior
to the Termination Date, in an aggregate undrawn
face amount up to the amount of the L/C Sub-Limit,
provided that (1)
-2-
<PAGE> 3
the aggregate Original Dollar Amount of L/C
Obligations at any time outstanding shall not
exceed the difference between (x) the Commitments
in effect at such time and (y) the aggregate
Original Dollar Amount of Loans (whether Committed
Loans or Bid Loans) then outstanding, and (2) the
aggregate Original Dollar Amount of L/C
Obligations other than the Excluded Standby L/C
Obligations at any time outstanding shall not
exceed the difference between (x) the Borrowing
Base as then determined and computed and (y) the
aggregate Original Dollar Amount of Loans (whether
Committed Loans or Bid Loans) then outstanding."
Section 2.03. Maximum Bid Loans. The first sentence of Section 3.1 of the
Credit Agreement shall be amended and as so amended shall be restated in its
entirety to read as follows:
"Any Borrower may request the Banks to offer
to make uncommitted loans (each a "Bid Loan" and
collectively the "Bid Loans") in U.S. Dollars in
the manner set forth in this Section 3 and in
amounts such that (i) the aggregate Original
Dollar Amount of all outstanding Loans (whether
Committed Loans or Bid Loans) and L/C Obligations
other than the Excluded Standby L/C Obligations
shall not exceed the lesser of (x) the Commitments
then in effect and (y) Borrowing Base as then
determined and computed."
Section 2.04. Default Rate. Section 4.4(b) of the Credit Agreement shall
be amended by deleting the reference to "and deemed application of the Lower
Interest Coverage Period in each case" appearing in the first parenthetical
thereof.
Section 2.05. Letter of Credit Fees. The second sentence of Section
5.2(a) of the Credit Agreement shall be amended by inserting "2% during the
Second Amendment Effective Period and thereafter" before the reference to "the
greater of (x) fifty percent (50%)" appearing therein.
Section 2.06. Fees and Payments. Sections 5 of the Credit Agreement
shall be amended by (i) amending and restating the section heading thereof to
read as follows: "SECTION 5. FEES AND PLACE AND APPLICATION OF PAYMENTS." and
(ii) amending and restating Section 5.6 in its entirety and adding new Sections
5.7 and 5.8, in each case to read as follows:
"Section 5.6. Audit Fees. The Company shall
pay to the Agent for its own use and benefit
charge for audits of the Collateral performed by
the Agent or its agents or representatives in such
amounts as the Agent may from time to time
reasonably request; provided, however, that in the
absence of any Default or Event of Default, (i)
the Company shall not be required to reimburse the
Agent for its costs of conducting more than one
(1) audit in any one (1) calendar year and (ii)
the Company shall not be liable
-3-
<PAGE> 4
during any one calendar year for more than $15,000
in the aggregate for such audits plus reasonable
out-of-pocket costs and expenses.
Section 5.7. Fee Calculations. All fees
payable hereunder shall be computed on the basis
of a year of 365 or 366 days, as applicable, for
the actual number of days elapsed.
Section 5.8. Place and Application of
Payments. All payments of principal of and
interest on the Loans and the Reimbursement
Obligations, and of all other amounts payable by
the Borrowers under this Agreement, shall be made
to the Agent by no later than 12:00 noon (Chicago
time) at the principal office of the Agent in
Chicago, Illinois (or such other location in the
State of Illinois as the Agent may designate to
the Company) or, if such payment is to be made in
an Agreement Currency, no later than 12:00 noon
local time at the place of payment (or such
earlier local time as is necessary for such funds
to be received and transferred to the Agent for
same day value on the day such Obligation is due)
to such office as the Agent has previously
specified in a notice to the Company (acting on
behalf of the Borrowers) for the benefit of the
Person or Persons entitled thereto. Any payments
received after such time shall be deemed to have
been received by the Agent on the next Business
Day. All such payments shall be made (i) in U.S.
Dollars, in immediately available funds at the
place of payment, or (ii) in the case of any Loans
denominated in an Alternative Currency or any
Reimbursement Obligations payable in an Available
Foreign Currency, in such Alternative Currency or
such Available Foreign Currency, as applicable, in
such funds as are then customary for the
settlement of international transactions in such
currency. Any payment by the Borrowers to the
Agent for account of the Banks in accordance with
the terms hereof shall, to the extent of such
payment, discharge the Borrowers' obligation to
make such a payment to the Banks, provided that if
any such payment is rescinded or must otherwise be
restored or returned, the Borrowers' obligations
to the Banks with respect to such payment shall be
reinstated as if such payment had never been made.
All such payments shall be made, in all cases,
without setoff or counterclaim and without
reduction for, and free from, any and all present
or future taxes, levies, imposts, duties, fees,
charges, deductions, withholdings, restrictions or
conditions of any nature imposed by any government
or any political subdivision or taxing authority
thereof (but excluding any taxes imposed or
measured by the net income of any Bank). The Agent
will promptly thereafter (and in any case before
the close of business on the day the Agent
receives such funds, if timely received by the
Agent) cause to be
-4-
<PAGE> 5
distributed like funds relating to the payment of
principal or interest on Committed Loans or fees
ratably to the Banks and like funds relating to
the payment of any other amount payable to any
Bank to such Bank (including without limitation a
Participating Bank's share under Section 1.2(f)
hereof of any collections received on any
Reimbursement Obligation), in each case to be
applied in accordance with the terms of this
Agreement. If the Agent fails to distribute such
payments to any Bank by such times, the Agent
shall pay to such Bank interest on the amount not
paid in respect of each day during the period
commencing on the date such payment was received
by the Agent (or the following Business Day in the
case of payments received after 12:00 noon
(Chicago time)) and ending on but excluding the
date the Agent pays such amount at a rate per
annum equal to (i) if such payment was received by
the Agent on account of an Obligation denominated
in U.S. Dollars, the effective rate charged to the
Agent for Federal Funds transactions with member
banks of the federal reserve system for each day
as determined by the Agent (or in the case of a
day which is not a Business Day, then for the
preceding day) and (ii) if such payment was
received by the Agent on account of an Obligation
denominated in an Agreement Currency, at the
Overnight Foreign Currency Rate.
Anything contained herein to the contrary
notwithstanding, all payments and collections
received in respect of (i) the indebtedness
evidenced by the Notes and Applications, (ii) the
Hedging Liability and (iii) and all proceeds of
the Collateral received, in each instance, by the
Agent or any of the Banks (or their affiliates in
the case of Hedging Liability) after the
occurrence of an Event of Default shall be
remitted to the Agent and distributed as follows:
(a) first, to the payment of any
reasonable outstanding costs and expenses
incurred by the Agent, in monitoring,
verifying, protecting, preserving or enforcing
the Liens on the Collateral, in protecting,
preserving or enforcing rights under the Loan
Documents and in any event including all
reasonable costs and expenses of a character
which the Borrowers have agreed to pay under
Sections 11.5 and 15.15 hereof (such funds to
be retained by the Agent for its own account
unless it has previously been reimbursed for
such costs and expenses by the Banks, in which
event such amounts shall be remitted to the
Banks to reimburse them for payments
theretofore made to the Agent);
-5-
<PAGE> 6
(b) second, to the payment of any
outstanding interest or other fees or
indemnification amounts due under the Notes, the
Applications, the Agent's Fee Letter or this
Agreement other than for principal, ratably as
among the Agent and the Banks in accord with the
amount of such interest and other fees or amounts
owing each;
(c) third, to the payment of the principal
of the Notes, the Hedging Liability and any
liabilities in respect of unpaid drawings under
the Letters of Credit and to the Agent to be held
as collateral security for any undrawn Letters of
Credit (until the Agent is holding an amount of
cash equal to the then outstanding amount of all
such Letters of Credit), the aggregate amount paid
to or held as collateral security for the Banks to
be allocated pro rata as among the Banks in accord
with the then respective aggregate unpaid
principal balances of the Notes or Letters of
Credit (as the case may be) as to which such
payments relate;
(d) fourth, to the Agent and the Banks
ratably in accord with the amounts of other
Obligations owing to each of them (other than
those described above) unless and until all such
indebtedness, obligations and liabilities have
been fully paid and satisfied; and
(e) fifth, to the Company (on behalf of the
Borrowers, whose sole recourse shall be to the
Company for any amount so distributed to the
Company) or whoever else may be lawfully entitled
thereto."
Section 2.07. Collateral. Section 6 of the Credit Agreement shall be
amended and restated in its entirety to read as follows:
"SECTION 6. COLLATERAL.
Section 6.1. Generally. The Obligations and the
Hedging Liability shall at all times be secured by valid,
perfected (subject to the proviso appearing at the end of
this sentence) and enforceable Liens on all right, title and
interest of the Company and each Domestic Subsidiary in (i)
all accounts and accounts receivable and (ii) (to the extent
received in payment on or settlement of any account or
account receivable) all notes and notes receivable, contract
rights, instruments, documents, chattel paper or general
intangibles (but in any event excluding patents, trademarks,
tradenames, copyrights and similar intangibles) and (iii)
all inventory, machinery and equipment (exclusive of
vehicles
-6-
<PAGE> 7
and aircraft), and (iv) all proceeds of all of the
foregoing, in each case whether now owned or hereafter
acquired or arising; provided, however, that: (i) the Lien
of the Agent on Property subject to a Capital Lease or
conditional sale agreement or subject to a purchase money
lien, in each instance to the extent permitted hereby, shall
be subject to the rights of the lessor or lender thereunder,
(ii) until a Default or Event of Default has occurred and is
continuing and thereafter until otherwise required by the
Agent or the Required Banks, Liens on notes, notes
receivable, goods and fixtures need not be perfected
provided that the total value of such property at any one
time not so perfected shall not exceed $1,000,000 in the
aggregate, (iii) Liens need not be granted or perfected on
real estate, including leasehold interests therein, (iv)
Liens need not be granted or perfected on the machinery,
equipment or other fixed assets of Titan Tire Corporation of
Natchez if and so long as and to the extent that such
Subsidiary's title to such Property is the subject of bona
fide dispute regarding Condere Corporation's right to
transfer such Property to such Subsidiary and (v) Liens need
not be granted on any Property of any Immaterial Subsidiary.
The Company acknowledges and agrees that the Liens on the
Collateral shall be granted to the Agent for the benefit of
itself, the Banks and certain Affiliates of the Banks and
shall be valid and perfected first priority Liens subject,
however, to the proviso appearing at the end of the
immediately preceding sentence and the Liens permitted by
subsections (a), (c), (f), (g) and (h) of Section 10.12
hereof (collectively the "Permitted Liens"), in each case
pursuant to one or more Collateral Documents from such
Persons, each in form and substance satisfactory to the
Agent. The Company further agrees that any Subsidiary
required by this Section or Section 6.2 hereof to grant a
Lien on its Property must guarantee the Obligations and
Hedging Liability as contemplated by Section 10.15 hereof,
whether or not such Section would otherwise so require.
Section 6.2. Further Assurances. The Company agrees
that it shall, and shall cause each Domestic Subsidiary to,
from time to time at the request of the Agent or the
Required Banks, execute and deliver such documents and do
such acts and things as the Agent or the Required Banks may
reasonably request in order to provide for or perfect or
protect such Liens on the Collateral. In the event the
Company or any Domestic Subsidiary forms or acquires any
other Domestic Subsidiary (other than any Immaterial
Subsidiary) after the date hereof, the Company shall within
10 Business Days of such formation or acquisition cause such
newly formed or acquired Domestic Subsidiary (other than any
Immaterial Subsidiary) to execute such Collateral Documents
as the Agent may then require, and the Company shall also
deliver to the Agent, or cause such Domestic Subsidiary to
deliver to the
-7-
<PAGE> 8
Agent, at the Company's cost and expense, such other
instruments, documents, certificates and opinions reasonably
required by the Agent in connection therewith."
Section 2.08. Change in Applicable Margin. Section 2.1(c) of the Credit
Agreement shall be amended by amending and restating in its entirety the
definition of "Applicable Margin" appearing therein to read as follows:
"(c) Applicable Margin. With respect to Committed Loans
and the facility fee payable under Section 5.1 hereof, the
"Applicable Margin" shall mean the rate specified for such
Obligation below, subject to quarterly adjustment as
hereinafter provided:
<TABLE>
<CAPTION>
When Following Status Applicable Margin Applicable Margin Applicable
Exists For any Margin For Domestic Rate For Eurocurrency Margin For
Determination Date Loans Is: Loans Is: Facility Fee Is:
<S> <C> <C> <C>
Level I Status 0% .500% .20%
Level II Status 0% .750% .20%
Level III Status 0% 1.000% .20%
Level IV Status 0% 1.250% .20%
Level V Status 0% 1.500% .20%
</TABLE>
provided, however, that all of the foregoing percentages set
forth in the chart above are subject to the following:
(i) on or before the date that is ten (10) Business
Days after the latest date by which the Company is
required to deliver a Compliance Certificate to the Agent
for a given quarterly accounting period pursuant to Section
10.5(b) hereof (each date that is ten Business Days after
the latest date by which the Company is required to deliver
a Compliance Certificate to the Agent being herein referred
to as a "Margin Determination Date"), the Agent shall
determine whether Level I Status, Level II Status, Level III
Status, Level IV Status or Level V Status exists as of the
close of the applicable quarterly accounting period (the
"quarterly test period") and shall also determine the Debt
to Earnings Ratio as of such close, in each case based upon
such Compliance Certificate and the financial statements
delivered to the Agent under Section 10.5 hereof for such
quarterly test period, and shall promptly notify the Company
(acting on behalf of the Borrowers) of such determination
and of any change in the Applicable Margin resulting
therefrom. Any change in the Applicable Margin shall be
effective as of such Margin Determination Date, with such
new Applicable Margin to continue in effect until the next
Margin Determination Date;
-8-
<PAGE> 9
(ii) other than during the Second Amendment Effective
Period, if the Company has not delivered a Compliance
Certificate by the date such Compliance Certificate is
required to have been delivered under Section 10.5 hereof,
but delivers such Compliance Certificate before the next
Margin Determination Date, the Applicable Margin shall be
the Applicable Margin for Level V Status. If the Company
subsequently delivers such late Compliance Certificate
before the next Margin Determination Date, the Applicable
Margin established by such Compliance Certificate shall take
effect from the date ten (10) Business Days after the date
of such delivery and remain effective until such next Margin
Determination Date;
(iii) during the Second Amendment Effective Period,
notwithstanding anything herein to the contrary, other than
upon the occurrence and during the continuance of an Event
of Default, the Applicable Margin for (A) Domestic Rate
Loans shall be 1.00% and (B) Eurocurrency Loans shall be
2.75%; and
(iv) if and so long as any Event of Default has
occurred and is continuing hereunder, other than during the
Second Amendment Effective Period, notwithstanding anything
herein to the contrary, the Applicable Margin shall be 0%
for Domestic Rate Loans and 1.5% for Eurocurrency Loans and
0.20% for the Facility Fee."
Section 2.09. Deleted and Changed Definitions. Section 7.1 of the Credit
Agreement shall be amended by (i) striking the terms "Lower Interest Coverage
Period" and "Calendar Year 1999" appearing therein and (ii) amending and
restating in their entirety the following definitions appearing therein to read
as follows:
"Borrowing Base" means, as of any time it is to be
determined, the sum of:
(a) 85% of the then aggregate outstanding amount
of Eligible Domestic Accounts; plus
(b) 55% of the value (computed at its cost using
the method of inventory valuation applied by the
Borrower in accordance with GAAP which reflects such
cost on the Borrower's books as its net book value, but
in any event after reducing such value as so computed
by the aggregate amount of all reserves for
obsolescence, slow-moving items, shrinkage and all such
other matters as to which GAAP shall from time to time
require reserves to adjust such net book value) of
Eligible Domestic Inventory; plus
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<PAGE> 10
(c) the Fixed Asset Advance (defined elsewhere
herein as $50,000,000); plus
(d) 100% of the aggregate value (but not in any
event in excess of $9,000,000) of all cash and
marketable securities not subject to a Lien (other than
any Lien on the Collateral Documents in favor of the
Agent for the benefit and security of the Obligations
and Hedging Liability), maintained in one or more bank
accounts in the State of Illinois with a Bank and owned
by the Borrowers and each other Domestic Restricted
Subsidiary;
provided that the Borrowing Base shall be computed only as
against and on so much of the assets as are included on the
certificates to be furnished from time to time by the
Company pursuant to Section 10.5(a)(ix) hereof.
"Eligible Domestic Account" means each account receivable of
each Borrower and Domestic Restricted Subsidiary with
respect to which all representations and warranties set
forth in the Collateral Documents are true and correct and
which:
(a) arises out of the sale by such Borrower or
Domestic Subsidiary of finished goods inventory
delivered to and accepted by, or out of the rendition
by such Borrower or Domestic Subsidiary of services
fully performed by such Borrower or Domestic Subsidiary
and accepted by, the account debtor on such account
receivable and such account receivable otherwise
represents a final sale;
(b) the account debtor on such account receivable
is located within the United States of America or, if
such right has arisen out of the sale of such goods
shipped to, or out of the rendition of services to, an
account debtor located in any other country, such right
is secured by a valid and irrevocable letter of credit
pursuant to which such Borrower or Domestic Subsidiary
or its respective transferee may draw on a lender
reasonably acceptable to the Agent for the full amount
thereof;
(c) is the valid, binding and legally enforceable
obligation of the account debtor obligated thereon and
such account debtor is not (i) a Subsidiary or an
Affiliate of the Company or any Subsidiary, (ii) a
director, officer or employee of the Company or any
Subsidiary, (iii) the
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<PAGE> 11
United States of America (provided that accounts
receivable shall not be deemed ineligible solely by
virtue of this clause (iii) to the extent that the
unpaid amount of all such receivables as to which there
has not been compliance with the Assignment of Claims
Act or any such other statute aggregates at no time
more than 20% of the Borrowing Base), or any state or
political subdivision thereof, or any department,
agency or instrumentality of any of the foregoing,
unless such Borrower or Domestic Subsidiary has
complied with the Assignment of Claims Act or any
similar state or local statute, as the case may be, to
the satisfaction of the Agent, (iv) a debtor under any
proceeding under the United States Bankruptcy Code, as
amended, or any other comparable bankruptcy or
insolvency law (unless and to the extent the Agent
approves the eligibility of accounts owing by such a
debtor), or (v) an assignor for the benefit of
creditors;
(d) is not evidenced by an instrument or chattel
paper unless the same has been endorsed and delivered
to the Agent;
(e) is an asset of such Borrower or Domestic
Subsidiary to which it has good and marketable title,
is freely assignable, and is subject to a perfected,
first priority Lien in favor of the Agent free and
clear of any other Liens;
(f) is not owing from an account debtor who is
also a creditor or supplier of such Borrower or
Domestic Subsidiary to which creditor or supplier
$100,000 or more is owed, is not subject to any offset,
counterclaim or other defense with respect thereto (the
account receivable owing by any such creditor or
supplier to be eligible to the extent in excess of any
such contra or setoff) and, with respect to said
account receivable or the contract or purchase order
out of which the same arose, no surety bond was
required or given in connection therewith;
(g) is not unpaid more than ninety (90) days after
the original due date (which must be not more than one
hundred eighty (180) days subsequent to the original
invoice date and which invoice date must be not more
than five (5) days after the relevant shipment date or
the date services were fully performed by such Borrower
or Domestic Subsidiary);
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<PAGE> 12
(h) is not owed by an account debtor who is
obligated on accounts receivable owed to such Borrower
or Domestic Subsidiary more than 15% (but 50% in the
case of: Deere & Company; Caterpillar, Inc.; New
Holland; J. I. Case Co., Inc.; Komatsu Dresser, Inc.;
OTR Wheel; Hercules Tire & Rubber; Intercontinental
Resource, Inc.; AGCO; Midwest Industries; the United
States federal government or any department thereof;
and any other account debtor approved by the Agent) of
the aggregate unpaid balance of which have been past
due for longer than the relevant period specified in
subsection (g) above unless the Agent has approved the
continued eligibility thereof;
(i) would not cause the total accounts receivable
owing from any one account debtor (other than: Deere &
Company; Caterpillar, Inc.; New Holland; J. I. Case
Co., Inc.; Komatsu Dresser, Inc.; OTR Wheel; Hercules
Tire & Rubber; Intercontinental Resource, Inc.; AGCO;
Midwest Industries; the United States federal
government or any department thereof; and any other
account debtor approved by the Agent) and its
Affiliates to exceed 10% of all Eligible Domestic
Accounts; and
(j) does not arise from a sale to an account
debtor on a bill-and-hold, guaranteed sale,
sale-or-return, sale-on-approval, consignment or any
other repurchase or return basis.
"Eligible Domestic Inventory" means all raw materials,
work-in-progress (in an aggregate amount not in excess of
$9,000,000) inventory and finished goods inventory
(including as such, bare rims) of each Borrower and Domestic
Restricted Subsidiary (other than supplies inventory);
provided that in no event shall inventory be deemed Eligible
Domestic Inventory unless all representations and warranties
set forth in the Collateral Documents with respect to such
inventory are true and correct and such inventory:
(a) is an asset of such Borrower or Domestic Subsidiary
to which it has good and marketable title, is freely
assignable, and is subject to a perfected, first priority
Lien in favor of the Agent free and clear of any other Liens
other than the Permitted Liens;
(b) is (i) located at the facilities of such Borrower
or Domestic Subsidiary in the United States or (ii) located
at such other locations as are approved in writing by the
Agent and (1) in the case of facilities not owned by such
Borrower or Domestic
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<PAGE> 13
Subsidiary, to the extent not waived by the Agent, which are
at all times subject to landlord waiver agreements in form
and substance satisfactory to the Agent and (2) as to any
inventory which is on consignment, (x) the relevant
consignee has acknowledged the Agent's prior rights to such
inventory in writing in form and substance satisfactory to
the Agent, (y) the inventory on consignment is reasonably
identifiable as belonging to such Borrower or Domestic
Subsidiary and (z) the Agent otherwise satisfied itself that
the Agent has a first and prior lien on such inventory
(which satisfaction may require the filing of any
consignment financing statements deemed necessary by the
Agent, the provision of notice to the consignee's creditors
of the Agent's prior security interest in such inventory and
waivers from such creditors of their competing liens on or
rights to such inventory);
(c) is not so identified to a contract to sell
that it constitutes an account; and
(d) is not obsolete or slow moving, and is of good
and merchantable quality free from any defects which might
adversely affect the market value thereof.
"Interest Coverage Ratio" means, as of any time
the same is to be determined, the ratio of EBITDA to
Interest Expense in each case for the period of the then
four most recently completed consecutive fiscal quarters of
the Company.
"Loan Documents" means this Agreement and all
exhibits hereto, the Notes, the Applications, the Letters of
Credit, the Agent's Fee Letter, the Collateral Documents and
each Guarantee Agreement delivered to the Agent pursuant to
Sections 9.1 or 10.15 hereof, as applicable.
"Temporary Add-Back" shall mean $0.
"Termination Date" means December 1, 2002 or such
earlier date on which the Commitments are terminated in
whole pursuant to Sections 4.6, 4.7, 11.2 or 11.3 hereof.
Section 2.10. New Definitions. Section 7.1 of the Credit Agreement
shall be amended by inserting in the appropriate alphabetical locations the
definitions of the following terms:
"Capital Expenditures" means with reference to any
period, the aggregate amount of all expenditures (whether
paid in cash or accrued as a liability, but without
duplication) by the Company and its Subsidiaries during that
period which, in
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<PAGE> 14
accordance with GAAP consistently applied, are capital
expenditures.
"Collateral" means all properties, rights, interests and
privileges from time to time subject to the Liens granted to the
Agent, or any security trustee therefor, by the Collateral
Documents.
"Collateral Documents" means the Security Agreement, and all
other pledge agreements, assignments, financing statements and
other documents as shall from time to time secure or relate to
the Obligations, the Hedging Liability or any part thereof.
"Domestic Restricted Subsidiary" means each Domestic
Subsidiary which is not an Unrestricted Subsidiary.
"Hedging Liability" is defined in the Security Agreement.
"Immaterial Subsidiary" means any Subsidiary which has no
assets or earnings since the most recently completed fiscal year
of the Company other than as the result of a transaction
prohibited by this Agreement.
"Permitted Liens" is defined in Section 6.1 hereof. "Second
Amendment Effective Date" means the date of the Second Amendment
to this Agreement.
"Second Amendment Effective Period" means the period from
and including the Second Amendment Effective Date to but not
including the Margin Determination Date set with respect to the
first quarterly test period in the Company's fiscal year 2001.
"Security Agreement" means that certain Security Agreement
dated as of even date herewith among the Company and its Domestic
Restricted Subsidiaries (other than Immaterial Subsidiaries) and
the Agent, as the same may be amended, modified, supplemented or
restated from time to time.
Section 2.11. Subsidiaries. Section 8.2 of the Credit Agreement shall be
amended by amending and restating the penultimate sentence thereof to read as
follows: "As of the Second Amendment Effective Date, the Company has designated
(i) Titan Wheel Corporation of South Carolina and FUNSA as the sole Unrestricted
Subsidiaries and (ii) Nieman's Ltd., DICO Inc., Titan Wheel Corporation of Ohio,
Titan Wheel Corporation of Nevada and Titan Transportation, Inc. as the sole
Immaterial Subsidiaries."
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<PAGE> 15
Section 2.12. Authority and Validity. Section 8.3 of the Credit
Agreement shall be amended by (i) inserting "grant to the Agent the Liens
described in the Collateral Documents executed by the Company" immediately after
the first comma appearing therein and (ii) except for the first reference to
"Guarantor" deleting each reference to "Guarantor" appearing therein and
inserting "Subsidiary party thereto" in lieu thereof and (iii) inserting "other
than Liens granted in favor of the Agent pursuant to the Collateral Documents"
immediately before the period at the end thereof.
Section 2.13. Insurance. Section 10.4 of the Credit Agreement shall be
amended by inserting the following sentence immediately prior to the last
sentence thereof: "The Company shall in any event maintain, and cause each
Domestic Restricted Subsidiary party to a Collateral Document to maintain,
insurance on that portion of the Collateral consisting of inventory, machinery
and equipment, to the extent required by the Collateral Documents."
Section 2.14. Borrowing Base Certificate. Section 10.5(a)(ix) of the
Credit Agreement shall be amended and restated in its entirety to read as
follows:
"(ix) within 30 days after the end of each monthly
accounting period of the Company (commencing with the
monthly accounting period ending on or about November 30,
1999), a written certificate signed by the Company's
President or Vice President-Finance showing in reasonable
detail the (A) computation of the Borrowing Base as of the
close of such monthly accounting period and (B) accounts
receivable aging at a minimum classifying accounts
receivable as unpaid within 30 days, within 60 days or over
60 days, such certificate to be in form and substance
reasonably acceptable to the Agent and the Required Banks."
Section 2.15. Inspection. Section 10.5(e) of the Credit Agreement shall
be amended by inserting "(such inspections including the right to conduct field
audits of the Collateral, including without limitation a field audit which shall
be conducted by the Agent or its representative(s) by no later than March 31,
2000)" immediately prior to the fifth comma appearing therein.
Section 2.16. Minimum EBITDA. Section 10.6 of the Credit Agreement shall
be amended and restated as so amended shall be restated to read as follows:
"Section 10.6. Minimum EBITDA. The Company shall not
permit its EBITDA for (i) the fiscal quarter of the Company
ending on or about December 31, 1999 to be less than
$5,000,000 and (ii) any period commencing on January 1, 2000
and ending on the last day of any fiscal quarter of the
Company ending on or about any date set forth below, to be
less than the amount set forth for such period below:
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<PAGE> 16
<TABLE>
<CAPTION>
FOR PERIOD COMMENCING
1/1/2000 AND ENDING ON
LAST DAY OF FISCAL EBITDA FOR SUCH PERIOD
QUARTER ENDING ON OR ABOUT SHALL NOT BE LESS THAN
<S> <C>
3/31/2000 $14,000,000
6/30/2000 $31,000,000
9/30/2000 $45,000,000
12/31/2000 $59,000,000"
</TABLE>
The Company is not required by this Section to maintain any
minimum EBITDA for any period (x) prior to the fiscal quarter
of the Company ending on or about December 31, 1999 or (y)
after December 31, 2000."
Section 2.17. Interest Coverage Ratio and Debt to Earnings Ratio.
Sections 10.8 and 10.9 of the Credit Agreement shall each be amended and
restated and as so amended shall be restated to read as follows:
"Section 10.8. Interest Coverage Ratio. The Company
will not permit its Interest Coverage Ratio for the four
fiscal quarters of the Company ended on the last day of any
fiscal quarter of the Company set forth below, to be less than
the amount set forth for such date below:
<TABLE>
<CAPTION>
INTEREST COVERAGE RATIO FOR RELEVANT
AS OF LAST DAY OF PERIOD SHALL BE AT LEAST
<S> <C>
First fiscal quarter of fiscal year 2000 1.50 to 1.0
Second fiscal quarter of fiscal year 1.50 to 1.0
2000
Third fiscal quarter of fiscal year 2000 1.75 to 1.0
Each fiscal quarter thereafter 2.00 to 1.0
</TABLE>
Section 10.9. Debt to Earnings Ratio. The Company
will not permit its Debt to Earnings Ratio to exceed 5.0 to
1.0 as of the last day of any fiscal quarter of the Company
(commencing with its fiscal quarter ending March 31, 2001)."
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<PAGE> 17
Section 2.18. Acquisitions. Subsection (k) in Section 10.10 of the
Credit Agreement shall be amended and restated and as so amended shall be
restated to read as follows:
"(k) acquisitions of all or substantially all of the
assets or business of any other Person or division thereof, or
of all or substantially all the Voting Stock of a Person, so
long as (i) no Default or Event of Default exists or would
exist after giving effect to such acquisition, (ii) the Board
of Directors or other governing body of such Person whose
Property or Voting Stock is being so acquired has approved the
terms of such acquisition, (iii) the Company can demonstrate
that on a pro forma basis after giving effect to such
acquisition it will continue to comply through the term of
this Agreement with all the terms and conditions of the Loan
Documents, (iv) the Company has provided to the Banks such
financial and other information regarding the Person whose
Property or Voting Stock is being so acquired, including
historical financial statements, and a description of such
Person, as the Agent or the Required Banks have reasonably
requested and (v) the aggregate consideration paid for all
such acquisitions (and in any event (1) including as such
consideration, any Debt assumed or incurred as a result of
such acquisition and (2) excluding as such consideration, any
equity securities issued by the Company or any Subsidiary as
consideration for such acquisition) during the period from and
including the Second Amendment Effective Date to and including
December 31, 2000, when aggregated with the aggregate amount
of all Restricted Equity Payments made during such period
permitted under clause (y) in Section 10.13 hereof, does not
exceed $5,000,000 except to the extent otherwise approved in
writing by the Required Banks;"
Section 2.19. Indebtedness. Section 10.11(f) of the Credit Agreement
shall be amended and restated in its entirety to read as follows:
"(f) Subordinated Debt in a principal amount not in
excess of the sum of (i) the principal amount of Subordinated
Debt issued and outstanding on the Second Amendment Effective
Date to the extent described on Schedule 10.11(f) hereto plus
(ii) $10,000,000;"
Section 2.20. Liens. Section 10.12 of the Credit Agreement shall be
amended by (i) deleting the reference to "and" appearing at the end of
subsection (m) thereof, (ii) deleting the period at the end of subsection (n)
thereof and inserting "; and" in its place and (iii) adding a new proviso (o)
thereto which shall be stated to read as follows: "(o) Liens granted in favor of
the Agent for the benefit of the Agent, the Banks and certain Affiliates of the
Banks pursuant to the Collateral Documents."
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<PAGE> 18
Section 2.21. Restricted Equity Payments. Section 10.13 of the Credit
Agreement shall be amended and restated and so amended shall be restated to read
as follows:
"Section 10.13. Dividends and Certain Other
Restricted Payments. (a) Restricted Equity Payments. The
Company will not during any calendar year (i) declare or pay
any dividends on or make any other distributions in respect of
any class of its capital stock or any warrant to acquire any
such capital stock (other than dividends payable solely in its
capital stock) or (ii) directly or indirectly or through any
Subsidiary purchase, redeem or otherwise acquire or retire any
of its capital stock or any warrant to acquire any such
capital stock (except out of the proceeds of, or in exchange
for, a substantially concurrent issue and sale of its capital
stock) (each such non-excepted declaration or payment of any
dividend, purchase, redemption, acquisition, retirement and
distribution in respect to any such capital stock being herein
collectively called a "Restricted Equity Payment") if at the
time of such Restricted Equity Payment or immediately after
giving effect thereto, (x) any Event of Default or Default
shall occur or be continuing, (y) the amount of such
non-excepted purchases, redemptions, retirements and
distributions in respect to capital stock which are made
during the period from and including the Second Amendment
Effective Date to and including December 31, 2000, when
aggregated with the aggregate consideration paid for all
acquisitions closed during such period permitted under
subsection (k) and calculated in accordance therewith to
Section 10.10 hereof, would exceed $5,000,000 or (z) the
amount of all Restricted Equity Payments made since the date
hereof would exceed 50% of Consolidated Net Income for the
period (taken as a single accounting period) commencing on the
date hereof and terminating at the last fiscal quarter
preceding the date of the Restricted Equity Payment at issue
(provided that this clause (z) shall only apply on or after
January 1, 2001). Notwithstanding the foregoing, this Section
shall not apply to nor prohibit any (x) Permitted Company
Redemption on or after January 1, 2002 or (y) payment in any
one calendar quarter of a cash dividend aggregating not more
than $500,000 in respect of the Company's common stock if at
the time thereof and immediately after giving effect thereto,
no Event of Default or Default shall occur or be continuing."
Section 2.22. Mergers, Consolidations, Leases and Sales. Section
10.14(a) of the Credit Agreement shall be amended and restated in its entirety
to read as follows:
"Section 10.14. Mergers, Consolidations, Leases and
Sales. (a) The Company will not, and will not permit any
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<PAGE> 19
Subsidiary to, sell, transfer, of or otherwise dispose of all
or any part of its property, assets or business, or in any
event sell or discount (with or without recourse) any of its
notes or accounts receivable or be or become liable as lessee
of any property theretofore owned by the Company or any
Subsidiary; provided, however, that this Section shall not
apply to nor prohibit:
(i) the sale by the Company or any Subsidiary of
assets no longer used or useful in the conduct of their
respective businesses or from selling or leasing inventory in
the ordinary course of their respective businesses;
(ii) the transfer of any such assets to a Subsidiary
of the Company or a Wholly-owned Subsidiary in exchange for
all issued and outstanding securities or as an additional
contribution to capital thereof;
(iii) the sale of delinquent notes or accounts
receivable in the ordinary course of business for purposes of
collection only (and not for the purpose of any bulk sale or
securitization transaction); or
(iv) the sale or other disposition of assets of the
Company and its Subsidiaries provided the aggregate fair
market value of such assets so sold or disposed on a
cumulative basis on and after September 30, 1999 does not
exceed $75,000,000.
The Banks hereby irrevocably authorize the Agent, at its
option and in its discretion, to release, so long as no
Default or Event of Default has occurred and is continuing at
the time of such release, any Lien granted to or held by the
Agent upon Collateral (i) upon termination of the Commitments
and payment in full of all Loans and all other Obligations and
(ii) constituting property sold or to be sold or disposed of
as part of or in connection with any sale or disposition
permitted in this Section 10.14(a)."
Section 2.23. Double Negative Pledge. Section 10.27 of the Credit
Agreement shall be amended by deleting the last sentence thereof.
Section 2.24. Capital Expenditures. Section 10 of the Credit Agreement
shall be amended by adding a new Section 10.28 at the end thereof which Section
10.28 shall be stated to read as follows:
"Section 10.28. Capital Expenditures. The Company
shall not permit, during each fiscal year of the Company
(commencing with the fiscal year ending December 31, 2000),
the
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<PAGE> 20
aggregate Capital Expenditures for the Company and its
Subsidiaries to exceed the Maximum Permitted Amount for such
period. For purposes of this Section 10.28 "Maximum Permitted
Amount" shall mean $36,000,000; provided, however, that the
Maximum Permitted Amount shall be increased by the amount, if
any, by which the Maximum Permitted Amount for the immediately
preceding fiscal year, computed without giving effect to this
proviso, exceeds the actual Capital Expenditures expended by
the Company and its Subsidiaries for such preceding fiscal
year."
Section 2.25. Events of Default. Section 11.1 shall be amended by (i)
inserting "or of any provision in any Loan Document dealing with the use,
disposition or remittance of the proceeds of Collateral or requiring the
maintenance of issuance thereon" immediately prior to the semicolon appearing at
the end of subsection (b) thereof and (ii) inserting "or of any other Loan
Document" immediately after the reference to "provision hereof" appearing in
subsection (c) thereof, (iii) deleting the references to "herein" and "hereto"
appearing in subsection (d) thereof and inserting "in the Loan Documents" and
"thereto" respectively in lieu thereof and (iv) deleting the references to
"guarantee of any Obligations" and "guarantee" appearing in subsection (h) and
inserting "Loan Document" in lieu thereof.
Section 2.26. Action by Agents. Section 13.3 of the Credit Agreement
shall be amended by inserting the following two sentences immediately at the end
thereof:
"The Agent shall not, without the consent of each Bank,
release all or substantially all of the Collateral. Upon the
occurrence of an Event of Default, the Agent shall take such
action to enforce its Lien on the Collateral and to preserve
and protect the Collateral as may be directed by the Required
Banks."
Section 2.27. Liability of Agent. Section 13.5 of the Credit Agreement
shall be amended by (i) deleting the references to "herewith" and "this
Agreement" appearing therein and inserting "with the Loan Documents" and "the
Loan Documents" in lieu thereof and (ii) amending and restating subsection (iv)
of the second sentence thereof to read as follows:
"(iv) the validity, effectiveness, genuineness,
enforceability, perfection, value, worth or collectibility
hereof or of any other Loan Document or of any other documents
or writing furnished in connection with any Loan Document or
of any Collateral; and the Agent makes no representation of
any kind or character with respect to any such matter
mentioned in this sentence."
Section 2.28. Guaranty of Hedging Liability. Section 14.1 of the Credit
Agreement shall be amended by striking the phrase "indebtedness of the Borrowers
evidenced by or arising out of the Loan Documents" and substituting therefor the
phrase "indebtedness of the Borrowers evidenced by or arising out of the Loan
Documents and any Hedging Liability."
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<PAGE> 21
Section 2.29. Legal Fees, Other Costs and Indemnification. Section 15.15
of the Credit Agreement shall be amended by (i) inserting the following sentence
prior to the end of the first sentence thereof: "together with any fees and
charges suffered or incurred by the Agent in connection with collateral filing
fees and lien searches".
Section 2.30 Entire Agreement and Construction. Section 15.19 of the
Credit Agreement shall be amended by (i) adding "and Construction" in the
Section heading thereof and (ii) adding the following sentence at the end
thereof:
"Nothing contained herein shall be deemed or construed to
permit any act or omission which is prohibited by the terms of
any Collateral Document, the covenants and agreements
contained herein being in addition to and not in substitution
for the covenants and agreements thereby contained in the
Collateral Documents. By virtue of a Bank's execution of this
Agreement or an Assignment Agreement, as the case may be, any
Affiliate of such Bank with whom the Borrower has entered into
an agreement creating Hedging Liability shall be deemed a Bank
party hereto for purpose of any reference in a Loan Document
to the parties for whom the Agent is acting, it being
understood and agreed that the rights and benefits of such
Affiliate under the Loan Documents consist exclusively of such
Affiliate's right to share in payments and collections out of
the Collateral and the Guarantee Agreements as more fully set
forth in other provisions hereof."
Section 2.31. Compliance Certificate. Schedule I to Exhibit H of the
Credit Agreement shall be amended and restated in its entirety to read as set
forth on Annex I hereto.
Section 2.32. Security Agreement. The Credit Agreement shall be amended
by adding (in the appropriate location) a new Exhibit M thereto which shall be
stated to read as set forth on Annex II hereto.
Section 2.33. Subsidiaries Schedule. Schedule 8.2 of the Credit
Agreement shall be amended and restated in its entirety to read as set forth on
Annex III hereto.
Section 2.34. Subordinated Debt Schedule. The Credit Agreement shall be
amended by adding (in the appropriate location) a new Schedule 10.11(f) thereto
which shall be stated to read as set forth on Annex IV hereto.
SECTION 3. RELEASE OF GUARANTIES.
The Borrowers hereby represent that the following subsidiaries are
Immaterial Subsidiaries (collectively, the "Shell Guarantors"): Nieman's Ltd.;
Dico Inc. and Titan Wheel Corporation of Ohio. Such subsidiaries are not
required by Section 10.15 of the Credit Agreement to execute and deliver
Guarantee Agreements. Accordingly, the Company has requested the Agent release
the Shell Guarantors from their Guarantee Agreements, as permitted
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<PAGE> 22
by Section 15.13 of the Credit Agreement. Accordingly, upon the effectiveness of
this Amendment as hereinafter set forth, the Guarantee Agreements of the Shell
Guarantors shall be released and terminated and thus of no further force and
effect.
SECTION 4. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
(a) The Borrowers, the Agent and the Required Banks shall
have accepted this Amendment in the spaces provided for that purpose
below.
(b) The Guarantors shall have accepted this Amendment in the
spaces provided for that purpose below.
(c) The Agent shall have received (i) for the ratable account
of each of the Banks signatory hereto a fee equal to the lesser of
0.375% of the Commitments and $656,250 in consideration of each such
Bank's execution of this Amendment and (ii) the fees agreed to between
the Agent and the Company as set forth in that certain Fee Letter dated
as of October 19, 1999.
(d) The Agent shall have received, with a sufficient number
of copies for each Bank (which the Agent shall properly distribute to
each Bank), a Borrowing Base certificate complying with Section
10.5(a)(ix) of the Credit Agreement after giving effect to this
Amendment showing the computation of the Borrowing Base as of October
31, 1999.
(e) The Agent shall have received the Security Agreement duly
executed by the Borrowers and the Domestic Subsidiaries party thereto,
together with UCC financing statements to be filed against each such
Borrower and each such Domestic Subsidiary, as debtor, in favor of the
Agent, as secured party.
(f) The Agent shall have received evidence of insurance
required to be maintained under the Loan Documents, naming the Agent as
loss payee.
(g) The Agent shall have received financing statement, tax
and judgment lien search results against the Property (exclusive of
real estate) of each Borrower and each Domestic Subsidiary (other than
any Immaterial Subsidiary) evidencing the absence of Liens on its
Property except as permitted by Section 10.12 hereof.
(h) The Agent shall have received a Guarantee Agreement,
together with the supporting documentation contemplated by Section
10.15 of the Credit Agreement, from each of Titan Tire Corporation of
Texas and Titan Tire Corporation of Natchez.
-22-
<PAGE> 23
(i) The Borrowers and the Guarantors shall be in full
compliance with the terms of the Loan Documents and no Event of Default
or Default shall have occurred or be continuing after giving effect to
this Amendment.
(j) The Company shall have paid all reasonable out-of-pocket
costs and expenses (including attorneys' fees) incurred by the Agent in
connection with the preparation, execution and delivery hereof and the
documents and transactions contemplated hereby.
(k) All other legal matters incident to the execution and
delivery hereof contemplated hereby and to the transactions
contemplated hereby shall be satisfactory to the Agent, the Required
Banks and their respective counsel; and the Agent shall have received,
for the account of the Banks, an opinion of the Borrowers' counsel with
respect to this Amendment and the Collateral Documents, such opinion to
be in form and substance reasonably acceptable to the Agent and the
Required Banks.
Upon the satisfaction of the foregoing conditions precedent, this Amendment
shall take effect as of its date below.
SECTION 5. REPRESENTATIONS REAFFIRMED.
In order to induce the Agent and the Required Banks to execute and
deliver this Amendment, each Borrower hereby represents to the Agent and the
Banks that immediately after giving effect to this Amendment, each of the
representations and warranties by such Borrower set forth in Section 8 of the
Credit Agreement as amended hereby (except those representations that relate
expressly to an earlier date) are and shall be true and correct (except that the
representations contained in Section 8.4 shall be deemed to refer to the most
recent financial statements of the Borrower delivered to the Banks pursuant to
Section 10.5 of the Credit Agreement) and that such Borrower and the
Subsidiaries are and shall be in full compliance with the terms of the Credit
Agreement as so amended and the Loan Documents and that no Event of Default or
Default shall be continuing or shall result after giving effect to this
Amendment.
SECTION 6. MISCELLANEOUS.
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so
executed shall be an original but all of which shall constitute one and the same
instrument. Except as specifically waived or amended hereby, all of the terms
and conditions of the Credit Agreement shall stand and remain unchanged and in
full force and effect. No reference to this Amendment need be made in any note,
instrument or other document making reference to the Credit Agreement, any
reference to the Credit Agreement in any such note, instrument or other document
(including, without limitation, the Loan Documents) to be deemed to be a
reference to the Credit Agreement as amended hereby.
-23-
<PAGE> 24
THIS INSTRUMENT SHALL BE CONSTRUED AND GOVERNED BY AND IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS (WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS).
[SIGNATURE PAGES TO FOLLOW]
-24-
<PAGE> 25
IN WITNESS WHEREOF, the Borrowers, the Guarantors and the Required
Banks have executed and delivered this Amendment as of the day and year below
written.
Dated as of this 22nd day of December, 1999.
TITAN INTERNATIONAL, INC.
By /s/ Maurice M. Taylor, Jr.
----------------------------
Its President & CEO
TITAN INVESTMENT CORPORATION
By /s/ Maurice M. Taylor, Jr.
----------------------------
Its President & CEO
TITAN CREDIT CORPORATION
By /s/ Maurice M. Taylor, Jr.
----------------------------
Its President & CEO
-25-
<PAGE> 26
Each of the undersigned consents to the above Amendment and
acknowledges and agrees that all of its obligations under Section 14 of the
Credit Agreement and under each relevant Guarantee Agreement dated as of
September 17, 1998 (collectively, the "Guaranty") remain in full force and
effect for the benefit and security of, among other things, the Credit Agreement
as modified hereby. Each of the undersigned further acknowledges and agrees that
all references in the Guaranty to the Credit Agreement shall be deemed a
reference to the Credit Agreement as amended hereby. Each of the undersigned
agrees to execute and deliver any and all instruments or documents as may be
required by the Agent or the Required Banks to confirm any of the foregoing.
Each of the undersigned agrees that its consent to this Amendment is not
required and that its consent to any further amendments of the Credit Agreement
shall not be required as a result of this consent having been obtained.
TITAN DISTRIBUTION, INC.
By /s/ Maurice M. Taylor, Jr.
---------------------------
Its President & CEO
TITAN WHEEL CORPORATION (to be known as
Titan Marketing Services, Inc.)
By /s/ Maurice M. Taylor, Jr.
---------------------------
Its President & CEO
TITAN WHEEL CORPORATION OF ILLINOIS
By /s/ Maurice M. Taylor, Jr.
---------------------------
Its President & CEO
TITAN WHEEL CORPORATION OF IOWA
By /s/ Maurice M. Taylor, Jr.
---------------------------
Its President & CEO
TITAN WHEEL CORPORATION OF WISCONSIN
By /s/ Maurice M. Taylor, Jr.
---------------------------
Its President & CEO
-26-
<PAGE> 27
TITAN WHEEL CORPORATION OF VIRGINIA
By /s/ Maurice M. Taylor, Jr.
---------------------------
Its President & CEO
TITAN TIRE CORPORATION
By /s/ Maurice M. Taylor, Jr.
---------------------------
Its President & CEO
TITAN TIRE CORPORATION OF TENNESSEE
By /s/ Maurice M. Taylor, Jr.
---------------------------
Its President & CEO
AUTOMOTIVE WHEELS, INC.
By /s/ Maurice M. Taylor, Jr.
---------------------------
Its President & CEO
DYNEER CORPORATION
By /s/ Maurice M. Taylor, Jr.
---------------------------
Its President & CEO
-27-
<PAGE> 28
Accepted and agreed to.
HARRIS TRUST AND SAVINGS BANK, in its
individual capacity as a Bank and as
Agent
By /s/ James H. Colley
---------------------
Its Vice President
BANK ONE, NA (formerly known as The First
National Bank of Chicago)
By /s/ Ty Miller
---------------------
Its Vice President
BANK OF AMERICA, N.A. (formerly known as
NationsBank, N.A.)
By /s/ Steve Ahrenholz
---------------------
Its Principal
COMERICA BANK
By /s/ Jeffrey E. Peck
---------------------
Its Vice President
SUNTRUST BANK, ATLANTA
By
Its
----------------------------------
ABN AMRO BANK N.V.
By /s/ David C. Sagers
---------------------
Its Vice President
By /s/ John M. Ellenwood
----------------------
Its Group Vice President
MICHIGAN NATIONAL BANK
By /s/ Ralph P. Binggeser
-----------------------
Its Relationship Manager
THE BANK OF NEW YORK
By /s/ John M. Lokay, Jr
----------------------
Its Vice President
FIRSTAR BANK OF MILWAUKEE, N.A.
By /s/ John R. Falb
---------------------
Its Vice President
-28-
<PAGE> 29
ANNEX I
SCHEDULE I
TITAN INTERNATIONAL, INC.
COMPLIANCE CALCULATIONS FOR SEPTEMBER 17, 1998 CREDIT AGREEMENT
CALCULATIONS AS OF , 19
--------------- --
================================================================================
<TABLE>
<S><C>
A. MINIMUM EBITDA (SECTION 10.6)(1)
1. Consolidated Net Income
as defined $
----------
2. Amounts deducted in arriving
at Consolidated Net Income
in respect of
(a) Interest Expense $
----------------
(b) Federal, foreign, state and local
income tax expense $
----------------
(c) Depreciation and amortization $
----------------
3. Sum of Lines 1, 2(a),
2(b) and 2(c) ("EBITDA") $
----------
4. Line 3 must be greater than or equal to:
</TABLE>
<TABLE>
<CAPTION>
FROM AND INCLUDING TO AND INCLUDING
<S> <C> <C>
10/1/1999 12/31/1999 $ 5,000,000
1/1/2000 3/31/2000 $14,000,000
1/1/2000 6/30/2000 $31,000,000
1/1/2000 9/30/2000 $45,000,000
1/1/2000 12/31/2000 $59,000,000
</TABLE>
- -------------------------------
(1) Only applicable for calculation of compliance during fourth fiscal
quarter 1999 and fiscal year 2000.
-29-
<PAGE> 30
<TABLE>
<S><C>
5. Company is in compliance?
(Circle yes or no) Yes/No
========
B. MINIMUM TANGIBLE NET WORTH (SECTION 10.7)
1. $135,000,000 $135,000,000
2. Consolidated Net Income for each
fiscal year (commencing with the
year beginning on 1/1/98) $
----------------
3. 50% of Line 2 amount $
----------
4. Cash proceeds of public offering
(net of expenses as set forth
in Section 10.7) $
----------------
5. 75% of Line 4 amount $
-----------
6. Sums of Lines 1, 3 and 5
("Required Amount") $
-----------
7. Tangible Net Worth $
-----------
8. As set forth in Section 10.7,
Tangible Net Worth (Line 7) must
not be less than the Required
Amount (Line 6). Company is in
compliance? (Circle yes or no) Yes/No
========
C. INTEREST COVERAGE (SECTION 10.8)(2)
1. EBITDA (from Line A3 above) $
---------
2. Interest Expense as defined $
---------
</TABLE>
- --------------------------------
(2) Not applicable until March 31, 2000.
-30-
<PAGE> 31
<TABLE>
<S><C>
3. Ratio of EBITDA (Line 1) to
Interest Expense (Line 2)
("Interest Coverage Ratio") :1
===========
4. As listed in Section 10.8,
the Interest Coverage Ratio
must not be less than :1
===========
5. Company is in compliance?
(Circle yes or no) Yes/No
===========
D. TOTAL FUNDED DEBT TO EBITDA (SECTION 10.9)(3)
1. Total Funded Debt as defined $
----------
2. EBITDA (from Line A3 above) $
----------
3. Ratio of Total Funded Debt
(Line 1) to EBITDA (Line 2) :1
===========
4. As listed in Section 10.9,
the Line 3 Ratio must not
be more than 5.0:1
===========
5. Company is in compliance?
(Circle yes or no) Yes/No
===========
E. INVESTMENTS, LOANS, ADVANCES AND GUARANTIES (SECTION 10.10)
1. Investments, loans, advances and
guaranties not prohibited by
Section 10.10 $
----------
2. Company is in compliance?
(Circle yes or no) Yes/No
===========
F. INDEBTEDNESS (SECTION 10.11)
1. Indebtedness in respect of
judgments and awards
which have not been stayed
or appealed in accordance
with Section 10.11(d) $
===========
</TABLE>
- --------------------------------------
(3) Not applicable from and including Second Amendment Effective Date to
and including March 31, 2001
-31-
<PAGE> 32
<TABLE>
<S><C>
2. Is the amount of
Indebtedness listed
in Line 1 above in excess
of $4,000,000
(Circle yes or no) Yes/No
===========
3. Subordinated Debt
of the Company outstanding $
===========
4. Is the outstanding Subordinated
Debt of the Company
less than $125,000,000
(Circle yes or no) Yes/No
===========
5. Indebtedness outstanding
pursuant to Section 10.11(i) $
===========
6. Is the Indebtedness outstanding
pursuant to Section 10.11(i) in
excess of $75,000,000
(Circle yes or no) Yes/No
===========
</TABLE>
G. DIVIDENDS AND CERTAIN OTHER RESTRICTED EQUITY PAYMENTS
(SECTION 10.13)
<TABLE>
<S> <C>
1. Check either (a) or (b)
(a) The Company has not made any
Restricted Equity Payments (as defined
in Section 10.13) during the
period covered by this
Certificate
----------
1(a)
(b) The Company has made Restricted
Equity Payments during the period
covered by this Certificate
----------
1(b)
(i) Enter the aggregate amount of
such Restricted Equity Payments $
----------
1(b)(i)
</TABLE>
-32-
<PAGE> 33
<TABLE>
<S><C>
2. If Line 1(b) is checked, complete the following:
(a) After making the Restricted Payments
referred to above, no Default or Event
of Default has occurred or is continuing
(Check either True or False)
----------- -----------
True *False
(b) Consolidated Net Income for the
period commencing 9/17/98 and
terminating at the last fiscal quarter
preceding the date of such
Restricted Payments $
----------
2(b)
(c) 50% Line 2(b) amount $
----------
2(c)
(d) Aggregate amount of the Restricted
Payments (shown on Line 1(b)(i))
does not exceed the amount shown
on Line 2(c). (Check either
True or False)
----------- -----------
True *False
</TABLE>
* If this item is checked, the Company has defaulted in its observance of
the covenant set forth in Section 10.13 and triggered an Event of
Default under Section 11.1(b).
<TABLE>
<S> <C>
H. CAPITAL EXPENDITURES (SECTION 10.28)
1. Capital Expenditures for the relevant year $
----------
H1
2. Capital Expenditures for preceding year $
----------
H2
3. Amount (if any) by which $36,000,000
exceeds Line 2 $
----------
H3
4. Line H1 must not exceed sum of
$36,000,000 plus Line H3: $
----------
H4
5. Company is in compliance? Yes/No
==========
</TABLE>
-33-
<PAGE> 34
ANNEX II
EXHIBIT M
SECURITY AGREEMENT
This Security Agreement (the "Agreement") is dated as of December ,
1999, by and among Titan International, Inc., an Illinois corporation (the
"Company"), Titan Investment and Titan Credit (the Company, Titan Investment and
Titan Credit being hereinafter referred to collectively as the "Borrowers" and
individually as a "Borrower"), and the other parties executing this Agreement
under the heading "Debtors" (the Borrowers and such other parties, along with
any parties who execute and deliver to the Agent an agreement substantially in
the form attached hereto as Schedule E, being hereinafter referred to
collectively as the "Debtors" and individually as a "Debtor"), each with its
mailing address c/o the Company at 2701 Spruce Street, Quincy, Illinois 62301,
and Harris Trust and Savings Bank, an Illinois banking corporation ("HTSB"),
with its mailing address at 111 West Monroe Street, Chicago, Illinois 60603,
acting as administrative agent hereunder for the Secured Creditors hereinafter
identified and defined (HTSB acting as such administrative agent and any
successor or successors to HTSB acting in such capacity being hereinafter
referred to as the "Agent");
PRELIMINARY STATEMENTS
A. The Borrowers and HTSB, individually and as Agent, have entered
into a Multicurrency Credit Agreement dated as of September 17, 1998 (such
Multicurrency Credit Agreement as the same may be amended or modified from time
to time, including amendments and restatements thereof in its entirety, being
hereinafter referred to as the "Credit Agreement"), pursuant to which HTSB and
such other banks and financial institutions from time to time party to the
Credit Agreement (HTSB, in its individual capacity, and such other banks and
financial institutions being hereinafter referred to collectively as the
"Lenders" and individually as a "Lender") have agreed, subject to certain terms
and conditions, to extend credit and make certain other financial accommodations
available to the Borrowers.
B. Each Borrower and the other Debtors may from time to time enter
into one or more agreements or financial agreements (collectively, the "Hedging
Agreements") with respect to, among other things, interest rate exchange, swap,
cap, collar, floor or other similar agreements and agreements and one or more
foreign currency contracts, currency swap contracts or other similar agreements
and agreements with one or more of the Lenders party to the Credit Agreement, or
their affiliates, for the purpose of hedging or otherwise protecting against
interest rate and foreign currency exposure (the obligation of each such
Borrower or Debtor in respect of such Hedging Agreements being hereinafter
referred to as the "Hedging Liability"). The Agent, the Lenders and such
affiliates of the Lenders being hereinafter referred to collectively as the
"Secured Creditors" and individually as a "Secured Creditor".
C. As a condition to extending, and continuing to extend, credit to
the Borrowers under the Credit Agreement or entering into any Hedging Agreement,
the Secured Creditors have
<PAGE> 35
required, among other things, that each Debtor grant to the Agent for the
benefit of the Secured Creditors a lien on and security interest in the personal
property of such Debtor described herein subject to the terms and conditions
hereof.
D. The Company owns, directly or indirectly, equity interests in
each other Debtor and the Company provides each other Debtor with financial,
management, administrative, and technical support which enables such Debtor to
conduct its business in an orderly and efficient manner in the ordinary course.
E. Each Debtor will benefit, directly or indirectly, from credit and
other financial accommodations extended by the Secured Creditors to the
Borrowers.
NOW, THEREFORE, for and in consideration of the execution and delivery
by the Secured Creditors of the Credit Agreement, and other good and valuable
consideration, receipt whereof is hereby acknowledged, the parties hereto hereby
agree as follows:
Section 1. Terms defined in Credit Agreement. All capitalized terms
used herein without definition shall have the same meanings herein as such terms
have in the Credit Agreement. The term "Debtor" and "Debtors" as used herein
shall mean and include the Debtors collectively and also each individually, with
all grants, representations, warranties and covenants of and by the Debtors, or
any of them, herein contained to constitute joint and several grants,
representations, warranties and covenants of and by the Debtors; provided,
however, that unless the context in which the same is used shall otherwise
require, any grant, representation, warranty or covenant contained herein
related to the Collateral shall be made by each Debtor only with respect to the
Collateral owned by it or represented by such Debtor as owned by it.
Section 2. Grant of Security Interest in the Collateral; Obligations
Secured. (a) Each Debtor hereby grants to the Agent for the benefit of the
Secured Creditors a lien on and security interest in, and right of set-off
against, and acknowledges and agrees that the Agent has and shall continue to
have for the benefit of the Secured Creditors a continuing lien on and security
interest in, and right of set-off against, any and all right, title and interest
of each Debtor, whether now owned or existing or hereafter created, acquired or
arising, in and to the following:
(i) Receivables. All Receivables, whether now owned or
existing or hereafter created, acquired or arising, and however
evidenced or acquired, or in which such Debtor now has or hereafter
acquires any rights (the term "Receivables" means and includes (x) all
accounts, accounts receivable, any right of such Debtor to payment for
goods sold or leased or for services rendered, whether or not earned by
performance, and all other forms of obligations owing to any Debtor,
(y) (to the extent received in connection with the payment or
settlement of any such account, account receivable, right to payment or
obligation) all instruments, notes, drafts, acceptances, documents and
chattel paper, and (z) all of any Debtor's rights to any merchandise or
other goods (including without limitation any returned or repossessed
goods and the right of stoppage in transit) which is represented by,
arises from or is related to any of the foregoing);
-2-
<PAGE> 36
(ii) General Intangibles. All General Intangibles, whether
now owned or existing or hereafter created, acquired or arising, or in
which such Debtor now has or hereafter acquires any rights (the term
"General Intangibles" means and includes (x) all contract rights and
(y) (to the extent received in payment on or settlement of any
Receivable) other general intangibles);
(iii) Inventory. All Inventory, whether now owned or existing
or hereafter created, acquired or arising, or in which such Debtor now
has or hereafter acquires any rights and all documents of title at any
time evidencing or representing any part thereof (the term "Inventory"
means and includes all inventory and other goods which are held for
sale or lease or are to be furnished under contracts of service or
consumed in any Debtor's business, all goods which are raw materials,
work-in-process, finished goods, materials or supplies of every kind
and nature, in each case used or usable in connection with the
acquisition, manufacture, processing, supply, servicing, storing,
packing, shipping, advertising, selling, leasing or furnishing of such
goods, and any constituents or ingredients thereof, and all goods which
are returned or repossessed goods);
(iv) Equipment. All Equipment, whether now owned or existing
or hereafter created, acquired or arising, or in which such Debtor now
has or hereafter acquires any rights (the term "Equipment" means and
includes all equipment and other machinery (exclusive of vehicles and
aircraft) and all other goods now or hereafter used or usable in
connection with such Debtor's business, together with all parts,
accessories and attachments relating to any of the foregoing);
(v) Records. All supporting evidence and documents relating
to any of the above-described property, including, without limitation,
computer programs, disks, tapes and related electronic data processing
media, and all rights of such Debtor to retrieve the same from third
parties, written applications, credit information, account cards,
payment records, correspondence, delivery and installation
certificates, invoice copies, delivery receipts, notes and other
evidences of indebtedness, insurance certificates and the like,
together with all books of account, ledgers and cabinets in which the
same are reflected or maintained, all whether now existing or hereafter
arising;
(vi) Accessions and Additions. All accessions and
additions to and substitutions and replacements of any and all of the
foregoing, whether now existing or hereafter arising; and
(vii) Proceeds and Products. All proceeds and products of
the foregoing and all insurance of the foregoing and proceeds thereof,
whether now existing or hereafter arising;
all of the foregoing being herein sometimes referred to as the "Collateral";
provided, however, that Collateral shall neither mean nor include (i) patents,
trademarks, tradenames, copyrights and similar intellectual property, (ii)
vehicles and aircraft and (iii) equipment or other fixed assets of Titan Tire
Corporation of Natchez if and so long as and to the extent that such
Subsidiary's title to such Property is the subject of bona fide dispute
regarding Condere Corporation's right to
-3-
<PAGE> 37
transfer such Property to such Subsidiary. All terms which are used herein which
are defined in the Uniform Commercial Code of the State of Illinois ("UCC")
shall have the same meanings herein as such terms are defined in the UCC, unless
this Agreement shall otherwise specifically provide.
(b) This Agreement is made and given to secure, and shall secure, the
prompt payment and performance when due of (i) any and all indebtedness,
obligations and liabilities of the Debtors, and of any of them individually, to
the Secured Creditors, and to any of them individually, under or in connection
with or evidenced by the Credit Agreement or any other Loan Document, including,
without limitation all obligations evidenced by the Notes of the Borrowers
heretofore or hereafter issued under the Credit Agreement, all obligations of
the Borrowers to reimburse the Secured Creditors for the amount of all drawings
on all Letters of Credit issued pursuant to the Credit Agreement and all other
obligations of the Borrowers under any and all applications for Letters of
Credit, all obligations of the Debtors, and of any of them individually, arising
under or in connection with or otherwise evidenced by Hedging Agreements with
any one or more of the Secured Creditors or their affiliates with respect to any
Hedging Liability, and all obligations of the Debtors, and of any of them
individually, arising under any guaranty issued by it relating to the foregoing
or any part thereof, in each case whether now existing or hereafter arising (and
whether arising before or after the filing of a petition in bankruptcy and
including all interest accrued after the petition date), due or to become due,
direct or indirect, absolute or contingent, and howsoever evidenced, held or
acquired and (ii) any and all expenses and charges, legal or otherwise, suffered
or incurred by the Secured Creditors, and any of them individually, in
collecting or enforcing any of such indebtedness, obligations and liabilities or
in realizing on or protecting or preserving any security therefor, including,
without limitation, the lien and security interest granted hereby (all of the
indebtedness, obligations, liabilities, expenses and charges described above
being hereinafter referred to as the "Obligations"). Notwithstanding anything in
this Agreement to the contrary, the right of recovery against any Debtor under
this Agreement (other than the Borrowers to which this limitation shall not
apply) shall not exceed $1.00 less than the lowest amount which would render
such Debtor's obligations under this Agreement void or voidable under applicable
law, including fraudulent conveyance law.
Section 3. Covenants, Agreements, Representations and Warranties. The
Debtors hereby covenant and agree with, and represent and warrant to, the
Secured Creditors that:
(a) Each Debtor is duly organized, validly existing and in
good standing under the laws of the state of its incorporation or
organization, is the sole and lawful owner of the Collateral granted by
it hereunder and has the power and authority to enter into this
Agreement and to perform each and all of the matters and things herein
provided for. Each Debtor's Federal tax identification number is set
forth under its name under Column 1 on Schedule A.
(b) Each Debtor's respective chief executive office is at
the location listed under Column 2 on Schedule A attached hereto
opposite such Debtor's name; and such Debtor has no other executive
offices or places of business other than those listed under Column 3 on
Schedule A attached hereto opposite such Debtor's name. The Collateral
-4-
<PAGE> 38
owned or leased by each Debtor is and shall remain in such Debtor's
possession or control at the locations listed under Columns 2 and 3 on
Schedule A attached hereto opposite such Debtor's name (collectively
for each Debtor, the "Permitted Collateral Locations"), except for (i)
Collateral which in the ordinary course of such Debtor's business is in
transit between Permitted Collateral Locations and (ii) Collateral
aggregating less than $1,000,000 in fair market value outstanding at
any one time. If for any reason any Collateral is at any time kept or
located at a location other than a Permitted Collateral Location, the
Agent shall nevertheless have and retain a lien on and security
interest therein. No Debtor shall move its chief executive office or
maintain a place of business at a location other than those specified
under Columns 2 or 3 on Schedule A or permit any Collateral to be
located at a location other than a Permitted Collateral Location, in
each case without first providing the Agent at least 30 days prior
written notice of the Debtor's intent to do so; provided that each
Debtor shall at all times maintain its chief executive office, places
of business, and Permitted Collateral Locations in the United States of
America and, with respect to any new chief executive office or place of
business or location of Collateral, such Debtor shall have taken all
action reasonably requested by the Agent to maintain the lien and
security interest of the Agent in the Collateral at all times fully
perfected and in full force and effect.
(c) The Collateral and every part thereof is and shall be
free and clear of all security interests, liens (including, without
limitation, mechanics', laborers' and statutory liens), attachments,
levies and encumbrances of every kind, nature and description and
whether voluntary or involuntary, except for the lien and security
interest of the Agent therein and other Liens permitted by Section
10.12 of the Credit Agreement (herein, the "Permitted Liens"). Each
Debtor shall warrant and defend the Collateral against any claims and
demands of all persons at any time claiming the same or any interest in
the Collateral adverse to any of the Secured Creditors.
(d) Each Debtor will promptly pay when due all taxes,
assessments and governmental charges and levies upon or against it or
its Collateral, in each case before the same become delinquent and
before penalties accrue thereon, unless and to the extent that the same
are being contested in good faith by appropriate proceedings which
prevent attachment of any Lien resulting therefrom to, foreclosure on
or other realization upon any Collateral and preclude interference with
the operation of its business in the ordinary course and such Debtor
shall have established adequate reserves therefor.
(e) Each Debtor agrees it will not waste or destroy the
Collateral or any part thereof and will not be negligent in the care or
use of any Collateral. Each Debtor agrees it will not use, manufacture,
sell or distribute any Collateral in violation of any statute,
ordinance or other governmental requirement. Each Debtor will perform
in all material respects its obligations under any contract or other
agreement constituting part of the Collateral, it being understood and
agreed that the Secured Creditors have no responsibility to perform
such obligations.
(f) Subject to Sections 4(d), 5(a), 6(b), 6(c), and 7(c)
hereof and the terms of the Credit Agreement (including, without
limitation, Section 10.14 thereof), each Debtor
-5-
<PAGE> 39
agrees it will not, without the Agent's prior written consent, sell,
assign, mortgage, lease, or otherwise dispose of the Collateral or any
interest therein.
(g) Each Debtor will insure its Collateral which is
insurable against such risks and hazards as other companies similarly
situated insure against, and including in any event loss or damage by
fire, theft, burglary, pilferage, and loss in transit, in amounts and
under policies containing loss payable clauses to the Agent as its
interest may appear (and, if the Agent requests, naming the Agent as
additional insureds therein) by insurers reasonably acceptable to the
Agent. All premiums on such insurance shall be paid by the Debtors and
the policies of such insurance (or certificates therefor) delivered to
the Agent. All insurance required hereby shall provide that any loss
shall be payable notwithstanding any act or negligence of the relevant
Debtor, shall provide that no cancellation thereof shall be effective
until at least 30 days after receipt by the relevant Debtor and the
Agent of written notice thereof, and shall be reasonably satisfactory
to the Agent in all other respects. In case of any material loss,
damage to or destruction of the Collateral or any part thereof, the
relevant Debtor shall promptly give written notice thereof to the Agent
generally describing the nature and extent of such damage or
destruction. In case of any loss, damage to or destruction of the
Collateral or any part thereof, the relevant Debtor, whether or not the
insurance proceeds, if any, received on account of such damage or
destruction shall be sufficient for that purpose, at such Debtor's cost
and expense, will promptly repair or replace the Collateral so lost,
damaged or destroyed, except to the extent such Collateral is not
necessary to the conduct of such Debtor's business in the ordinary
course. Each Debtor hereby authorizes the Agent, at the Agent's option,
to adjust, compromise and settle any losses under any insurance
afforded at any time after the occurrence and during the continuation
of any Default or Event of Default, and such Debtor does hereby
irrevocably constitute the Agent, its officers, agents and attorneys,
as such Debtor's attorneys-in-fact, with full power and authority after
the occurrence and during the continuation of any Default or Event of
Default to effect such adjustment, compromise and/or settlement and to
endorse any drafts drawn by an insurer of the Collateral or any part
thereof and to do everything necessary to carry out such purposes and
to receive and receipt for any unearned premiums due under policies of
such insurance. Unless the Agent elects to adjust, compromise or settle
losses as aforesaid, any adjustment, compromise and/or settlement of
any losses under any insurance shall be made by the relevant Debtor
subject to final approval of the Agent (regardless of whether or not an
Event of Default shall have occurred) in the case of losses exceeding
$10,000,000. All insurance proceeds shall be subject to the lien and
security interest of the Agent hereunder.
(h) Each Debtor will at all times allow the Secured
Creditors and their respective representatives free access to and right
of inspection of the Collateral at such reasonable times and intervals
as the Agent or any other Secured Creditor may designate and, in the
absence of any existing Default or Event of Default, with reasonable
prior written notice to the relevant Debtor and without unreasonable
interference with the Debtor's conduct of its business in the ordinary
course.
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(i) If any Collateral is in the possession or control of
any agents or processors of a Debtor and the Agent so requests, such
Debtor agrees to notify such agents or processors in writing of the
Agent's security interest therein and instruct them to hold all such
Collateral for the Agent's account and subject to the Agent's
instructions. Each Debtor will, upon the request of the Agent,
authorize and instruct all bailees and any other parties, if any, at
any time processing, labeling, packaging, holding, storing, shipping or
transferring all or any part of the Collateral to permit the Secured
Creditors and their respective representatives to examine and inspect
any of the Collateral then in such party's possession and to verify
from such party's own books and records any information concerning the
Collateral or any part thereof which the Secured Creditors or their
respective representatives may seek to verify. As to any premises not
owned by a Debtor wherein any of the Collateral is located, if any,
such Debtor shall, upon the Agent's request, cause each party having
any right, title or interest in, or lien on, any of such premises to
enter into an agreement (any such agreement to contain a legal
description of such premises) whereby such party disclaims any right,
title and interest in, and lien on, the Collateral, allowing the
removal of such Collateral by the Agent or its agents or
representatives and otherwise in form and substance reasonably
acceptable to the Agent; provided, however, that no such agreement need
be obtained with respect to any one location wherein the value of such
Collateral as to which such agreement has not been obtained aggregates
less than $1,000,000 at any one time.
(j) Upon the Agent's reasonable request, each Debtor agrees
from time to time to deliver to the Agent such evidence of the
existence, identity and location of its Collateral and of its
availability as collateral security pursuant hereto, in each case as
such Secured Creditor may reasonably request. The Agent shall have the
right to verify all or any part of the Collateral in any manner, and
through any medium, which the Agent considers appropriate and
reasonable, and each Debtor agrees to furnish all assistance and
information, and perform any acts, which the Agent may require in
connection therewith.
(k) Each Debtor will comply in all material respects with
the terms and conditions of any and all leases, easements, right-of-way
agreements and other agreements binding upon such Debtor or affecting
the Collateral, in each case which cover the premises wherein the
Collateral is located, and any orders, ordinances, laws or statutes of
any city, state or other governmental entity, department or agency
having jurisdiction with respect to such premises or the conduct of
business thereon.
(l) Since the date occurring five (5) years prior to the
date hereof, no Debtor has invoiced Receivables or otherwise transacted
business, and does not invoice Receivables or otherwise transact
business, under any trade names other than its name set forth on its
signature page to this Agreement or names containing "Titan Wheel" or
names (which are no longer used) associated with any immaterial,
discontinued businesses or as otherwise set forth on Schedule B hereto.
Each Debtor agrees it will not change its name or transact business
under any other trade name, in each case without first giving the Agent
at least 30 days prior written notice of its intent to do so.
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(m) Each Debtor agrees to execute and deliver to the Agent
such further agreements, assignments, instruments and documents, and to
do all such other things, as the Agent may reasonably deem necessary or
appropriate to assure the Agent its lien and security interest
hereunder, including without limitation, executing such financing
statements or other instruments and documents as the Agent may from
time to time reasonably require to comply with the UCC and any other
applicable law. Each Debtor hereby agrees that a carbon, photographic
or other reproduction of this Agreement or any such financing statement
is sufficient for filing as a financing statement or effective
financing statement by the Agent without prior notice thereof to such
Debtor wherever the Agent deems necessary or desirable to perfect or
protect the security interest granted hereby. In the event for any
reason the law of any jurisdiction other than Illinois becomes or is
applicable to the Collateral or any part thereof, or to any of the
Obligations, each Debtor agrees to execute and deliver all such
instruments and documents and to do all such other things as the Agent
deems necessary or appropriate to preserve, protect and enforce the
security interest of the Agent under the law of such other
jurisdiction.
(n) On failure of a Debtor to perform any of the covenants
and agreements herein contained, the Agent may, at its option, perform
the same and in so doing may expend such sums as the Agent deems
advisable in the performance thereof, including, without limitation,
the payment of any insurance premiums, the payment of any taxes, liens
and encumbrances, expenditures made in defending against any adverse
claims, and all other expenditures which the Agent may be compelled to
make by operation of law or which the Agent may make by agreement or
otherwise for the protection of the security hereof. All such sums and
amounts so expended shall be repayable by such Debtor immediately upon
demand, shall constitute additional Obligations secured hereunder, and
shall bear interest from the date said amounts are expended at the rate
per annum (computed on the basis of a year of 360 days and actual days
elapsed) determined by adding 2% to the Domestic Rate from time to time
in effect plus the Applicable Margin for Domestic Rate Loans under the
Revolving Credit, with any change in such rate per annum as so
determined by reason of a change in such Domestic Rate to be effective
on the date of such change in said Domestic Rate (such rate per annum
as so determined being hereinafter referred to as the "Default Rate").
No such performance of any covenant or agreement by the Agent on behalf
of a Debtor, and no such advancement or expenditure therefor, shall
relieve any Debtor of any default under the terms of this Agreement or
in any way obligate any Secured Creditor to take any further or future
action with respect thereto. The Agent in making any payment hereby
authorized may do so according to any bill, statement or estimate
procured from the appropriate public office or holder of the claim to
be discharged without inquiry into the accuracy of such bill, statement
or estimate or into the validity of any tax assessment, sale,
forfeiture, tax lien or title or claim. The Agent in performing any act
hereunder shall be the sole judge of whether the relevant Debtor is
required to perform the same under the terms of this Agreement. The
Agent is hereby authorized to charge any depository or other account of
any Debtor maintained with any Secured Creditor for the amount of such
sums and amounts so expended.
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Section 4. Special Provisions Re: Receivables. (a) As of the
time any Receivable becomes subject to the security interest provided for hereby
and at all times thereafter, each Debtor shall be deemed to have warranted as to
each and all of its Receivables that all warranties of such Debtor set forth in
this Agreement are true and correct with respect to each such Receivable; that
each of its Receivable and all papers and documents relating thereto are genuine
and in all respects what they purport to be; that each of its Receivable is
valid and existing and, if such Receivable is an account, arises out of a
bonafide sale or lease of goods sold or leased and delivered by such Debtor to,
or in the process of being delivered to, or out of and for services theretofore
actually rendered by such Debtor to, the account debtor named therein; and,
except as disclosed to the Agent in writing, that no surety bond was required or
given in connection with such Receivable or the contracts or purchase orders out
of which the same arose.
(b) To the extent any Receivables or other item of Collateral is
evidenced by an instrument or chattel paper, each Debtor shall cause such
instrument to be pledged and delivered to the Agent; provided, however, that,
prior to the existence of a Default or Event of Default and thereafter until
otherwise required by the Agent, a Debtor shall not be required to deliver any
such instrument or chattel paper if and only so long as the aggregate unpaid
principal balance of all such instruments and chattel paper held by the Debtors
and not delivered to the Agent under the Collateral Documents is less than
$1,000,000 at any one time outstanding.
(c) If any Receivable arises out of a contract with the United States
of America or any of its departments, agencies or instrumentalities, the
relevant Debtor agrees to, at the request of the Agent, execute whatever
instruments and documents are required by the Agent in order that such
Receivable shall be assigned to the Agent and that proper notice of such
assignment shall be given under the federal Assignment of Claims Act (or any
successor statute) or any similar statute relating to the assignment of such
Receivables; provided, however, that no such instruments and documents need be
executed so long as no Default or Event of Default has occurred and is
continuing.
(d) Unless and until an Event of Default hereunder occurs and is
continuing, any merchandise or other goods which are returned by a customer or
account debtor or otherwise recovered may be resold by the relevant Debtor in
the ordinary course of its business as presently conducted in accordance with
Section 6(b) hereof; upon the occurrence and during the continuation of any
Event of Default hereunder, such merchandise and other goods shall be set aside
at the request of the Agent and held by such Debtor as trustee for the Secured
Creditors and shall remain part of the Collateral. Unless and until an Event of
Default hereunder occurs and is continuing, the relevant Debtor may settle and
adjust disputes and claims with its customers and account debtors, handle
returns and recoveries and grant discounts, credits and allowances in the
ordinary course of its business as presently conducted for amounts and on terms
which such Debtor in good faith considers advisable. Upon the occurrence and
during the continuation of any Event of Default hereunder, at the request of the
Agent, each Debtor shall notify the Agent promptly of all returns and recoveries
and at the Agent's request deliver any such merchandise or other goods to the
Agent. Upon the occurrence and during the continuation of any Event of Default
hereunder, at the Agent's request, each Debtor shall also notify the Agent
promptly of all disputes and claims and settle or adjust them at no expense to
the Secured Creditors hereunder, but no discount, credit or allowance other than
on normal trade terms in the ordinary course of
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business as presently conducted shall be granted to any customer or account
debtor and no returns of merchandise or other goods shall be accepted by any
Debtor without the Agent's consent. The Agent may, at all times upon the
occurrence and during the continuation of any Event of Default hereunder, settle
or adjust disputes and claims directly with customers or account debtors for
amounts and upon terms which the Agent considers advisable.
Section 5. Collection of Receivables. (a) Except as otherwise
provided in this Agreement, each Debtor shall make collection of all of its
Receivables and may use the same to carry on its business in accordance with
sound business practice and otherwise subject to the terms hereof.
(b) Upon the occurrence and during the continuation of any Default
or Event of Default, whether or not the Agent has exercised any or all of its
rights under the other provisions of this Section 5, upon the Agent's request,
each Debtor hereby agrees that:
(i) all instruments and chattel paper at any time
constituting part of the Receivables (including any postdated checks)
shall, upon receipt by such Debtor, be immediately endorsed to and
deposited with Agent; and
(ii) such Debtor shall instruct all of its customers and
account debtors to remit all payments in respect of its Receivables to
a lockbox or lockboxes under the sole custody and control of Agent and
which are maintained at post offices selected by the Agent.
(c) Upon the occurrence and during the continuation of any Event
of Default hereunder, whether or not the Agent has exercised any or all of its
rights under the other provisions of this Section 5, the Agent or its designee
may notify the relevant Debtor's customers and account debtors at any time that
Receivables have been assigned to the Agent or of the Agent's security interest
therein, and either in its own name, or such Debtor's name, or both, demand,
collect (including, without limitation, through a lockbox analogous to that
described in Section 5(b)(ii) hereof), receive, receipt for, sue for, compound
and give acquittance for any or all amounts due or to become due on Receivables,
and in the Agent's discretion file any claim or take any other action or
proceeding which the Agent may deem necessary or appropriate to protect and
realize upon the security interest of the Agent in the Receivables.
(d) Any proceeds of Receivables or other Collateral transmitted to
or otherwise received by the Agent pursuant to any of the provisions of Sections
5(b) or 5(c) hereof may be handled and administered by the Agent in and through
a remittance account or accounts maintained at the Agent or by the Agent at a
commercial bank or banks selected by the Agent (collectively the "Depositary
Banks" and individually a "Depositary Bank"), and each Debtor acknowledges that
the maintenance of such remittance accounts by the Agent is solely for the
Agent's convenience and that the Debtors do not have any right, title or
interest in such remittance accounts or any amounts at any time standing to the
credit thereof. In the absence of any Default or Event of Default, the proceeds
of Receivables and such other Collateral shall be made available to the relevant
Debtor in accordance with Section 6.1 of the Credit Agreement; and during the
existence of any Default or Event of Default, the Agent may apply all or any
part of any proceeds of
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Receivables or other Collateral received by it from any source to the payment of
the Obligations (whether or not then due and payable), such applications to be
made in such amounts, in such manner and order and at such intervals as the
Agent may from time to time in its discretion determine in accordance with the
terms of the Credit Agreement. The Agent need not apply or give credit for any
item included in proceeds of Receivables or other Collateral until the
Depositary Bank has received final payment therefor at its office in cash or
final solvent credits current at the site of deposit acceptable to the Agent and
the Depositary Bank as such. However, if the Agent does permit credit to be
given for any item prior to a Depositary Bank receiving final payment therefor
and such Depositary Bank fails to receive such final payment or an item is
charged back to the Agent or any Depositary Bank for any reason, the Agent may
at its election in either instance charge the amount of such item back against
any such remittance accounts or any depository account of any Debtor maintained
with any Secured Creditor, together with interest thereon at the Default Rate.
Concurrently with each transmission of any proceeds of Receivables or other
Collateral to any such remittance account, upon the Agent's request, the
relevant Debtor shall furnish the Agent with a report in such form as Agent
shall reasonably require identifying the particular Receivable or such other
Collateral from which the same arises or relates. Each Debtor hereby indemnifies
the Secured Creditors from and against all liabilities, damages, losses,
actions, claims, judgments, and all reasonable costs, expenses, charges and
attorneys' fees suffered or incurred by any Secured Creditor because of the
maintenance of the foregoing arrangements; provided, however, that no Debtor
shall be required to indemnify any Secured Creditor for any of the foregoing to
the extent they arise solely from the gross negligence or willful misconduct of
the person seeking to be indemnified.
Section 6. Special Provisions Re: Inventory. (a) Each Debtor
shall at its own cost and expense maintain, keep and preserve its Inventory in
good and merchantable condition and keep and preserve its Equipment in good
repair, working order and condition, ordinary wear and tear excepted, and,
without limiting the foregoing, make all necessary and proper repairs,
replacements and additions to its Equipment so that the efficiency thereof shall
be fully preserved and maintained.
(b) Each Debtor may, until an Event of Default has occurred and is
continuing and thereafter until otherwise notified by the Agent, use, consume,
sell and lease the Inventory in the ordinary course of its business, but a sale
in the ordinary course of business shall not under any circumstance include any
transfer or sale in satisfaction, partial or complete, of a debt owing by such
Debtor.
(c) As of the time any Inventory of a Debtor becomes subject to the
security interest provided for hereby and at all times thereafter, such Debtor
shall be deemed to have warranted as to any and all of such Inventory that all
warranties of such Debtor set forth in this Agreement are true and correct with
respect to such Inventory; that all of such Inventory is located at a location
permitted by Section 3(b) hereof. The Debtors warrant and agree that the amount
of Inventory on consignment to any other person or entity will not exceed
$9,000,000 in the aggregate without the Agent's prior written consent.
(d) If any of the Inventory is at any time evidenced by a document
of title, such document shall be promptly delivered by the relevant Debtor to
the Agent.
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Section 7. Special Provisions Re: Equipment. (a) Each Debtor
may, until an Event of Default has occurred and is continuing and thereafter
until otherwise notified by the Agent, sell Equipment to the extent permitted by
Section 10.14 of the Credit Agreement.
(b) As of the time any Equipment of a Debtor becomes subject to the
security interest provided for hereby and at all times thereafter, such Debtor
shall be deemed to have warranted as to any and all of such Equipment that all
warranties of such Debtor set forth in this Agreement are true and correct with
respect to such Equipment and that all of such Equipment is located at a
location set forth pursuant to Section 3(b) hereof.
(c) Except for (i) Equipment from time to time located on real
estate owned by any Debtor, (ii) Equipment from time to time located on the real
estate described on Schedule C attached hereto, (iii) Equipment located
elsewhere as hereafter disclosed to the Agent in writing and (iv) Equipment
aggregating less than $9,000,000 in value, none of the Equipment is or will be
attached to real estate in such a manner that the same may become a fixture.
Section 8. Power of Attorney. In addition to any other powers of
attorney contained herein, each Debtor hereby appoints the Agent, its nominee,
or any other person whom the Agent may designate as such Debtor's
attorney-in-fact, with full power during the existence of any Default or Event
of Default to sign such Debtor's name on verifications of accounts and other
Collateral; to send requests for verification of Collateral to such Debtor's
customers, account debtors and other obligors; to endorse such Debtor's name on
any checks, notes, acceptances, money orders, drafts and any other forms of
payment or security that may come into the Agent's possession; to endorse the
Collateral in blank or to the order of the Agent or its nominee; to sign such
Debtor's name on any invoice or bill of lading relating to any Collateral, on
claims to enforce collection of any Collateral, on notices to and drafts against
customers and account debtors and other obligors, on schedules and assignments
of Collateral, on notices of assignment and on public records; to notify the
post office authorities to change the address for delivery of such Debtor's mail
to an address designated by the Agent; to receive, open and dispose of all mail
addressed to such Debtor; and to do all things necessary to carry out this
Agreement. Each Debtor hereby ratifies and approves all acts of any such
attorney and agrees that neither the Agent nor any such attorney will be liable
for any acts or omissions nor for any error of judgment or mistake of fact or
law other than such person's gross negligence or willful misconduct. The Agent
may file one or more financing statements and/or effective financing statements
disclosing its security interest in any or all of the Collateral without any
Debtor's signature appearing thereon, and each Debtor also hereby grants the
Agent a power of attorney to execute any such financing statements and/or
effective financing statements, or amendments and supplements to financing
statements and/or effective financing statements, on behalf of such Debtor
without notice thereof to any Debtor. The foregoing powers of attorney, being
coupled with an interest, are irrevocable until the Obligations have been fully
paid and satisfied and the commitments of the Lenders to extend credit to or for
the account of the Borrowers under the Credit Agreement have expired or
otherwise terminated; provided, however, that the Agent agrees, as a covenant to
each Debtor, not to exercise the powers of attorney set forth in this Section 8
unless a Default or Event of Default exists.
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Section 9. Defaults and Remedies. (a) The occurrence of any event or
the existence of any condition which is specified as an "Event of Default" under
the Credit Agreement shall constitute an "Event of Default" hereunder.
(b) Upon the occurrence and during the continuation of any Event of
Default, the Agent shall have, in addition to all other rights provided herein
or by law, the rights and remedies of a secured party under the UCC (regardless
of whether the UCC is the law of the jurisdiction where the rights or remedies
are asserted and regardless of whether the UCC applies to the affected
Collateral), and further the Agent may, without demand and, to the extent
permitted by applicable law, without advertisement, notice, hearing or process
of law, all of which each Debtor hereby waives to the extent permitted by
applicable law, at any time or times, sell and deliver any or all Collateral
held by or for it at public or private sale, at any securities exchange or
broker's board or at any Secured Creditor's office or elsewhere, for cash, upon
credit or otherwise, at such prices and upon such terms as the Agent deems
advisable, in its sole discretion. In the exercise of any such remedies, the
Agent may sell the Collateral as a unit even though the sales price thereof may
be in excess of the amount remaining unpaid on the Obligations. Also, if less
than all the Collateral is sold, the Agent shall have no duty to marshal or
apportion the part of the Collateral so sold as between the Debtors, or any of
them, but may sell and deliver any or all of the Collateral without regard to
which of the Debtors are the owners thereof. In addition to all other sums due
any Secured Creditor hereunder, each Debtor shall pay the Secured Creditors all
costs and expenses incurred by the Secured Creditors, including reasonable
attorneys' fees and court costs, in obtaining, liquidating or enforcing payment
of Collateral or the Obligations or in the prosecution or defense of any action
or proceeding by or against any Secured Creditor or any Debtor concerning any
matter arising out of or connected with this Agreement or the Collateral or the
Obligations, including, without limitation, any of the foregoing arising in,
arising under or related to a case under the United States Bankruptcy Code (or
any successor statute). Any requirement of reasonable notice shall be met if
such notice is personally served on or mailed, postage prepaid, to the Debtors
in accordance with Section 14(b) hereof at least 10 days before the time of sale
or other event giving rise to the requirement of such notice; provided, however,
no notification need be given to a Debtor if such Debtor has signed, after an
Event of Default hereunder has occurred, a statement renouncing any right to
notification of sale or other intended disposition. The Agent shall not be
obligated to make any sale or other disposition of the Collateral regardless of
notice having been given. To the extent permitted by applicable law, any Secured
Creditor may be the purchaser at any such sale. Each Debtor hereby waives all of
its rights of redemption from and after any such sale. The Agent may postpone or
cause the postponement of the sale of all or any portion of the Collateral by
announcement at the time and place of such sale, and such sale may, without
further notice, be made at the time and place to which the sale was postponed or
the Agent may further postpone such sale by announcement made at such time and
place. In the event any of the Collateral shall constitute restricted securities
within the meaning of any applicable securities laws, any disposition thereof in
compliance with such laws shall not render the disposition commercially
unreasonable.
(c) Without in any way limiting the foregoing, upon the occurrence and
during the continuation of any Event of Default hereunder, the Agent shall have
the right, in addition to all other rights provided herein or by law, to take
physical possession of any and all of the Collateral
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and anything found therein, the right for that purpose to enter without legal
process any premises where the Collateral may be found (provided such entry be
done lawfully), and the right to maintain such possession on the relevant
Debtor's premises (each Debtor hereby agreeing, to the extent it may lawfully do
so, to lease such premises without cost or expense to the Agent or its designee
if the Agent so requests) or to remove the Collateral or any part thereof to
such other places as the Agent may desire. Upon the occurrence and during the
continuation of any Event of Default hereunder, the Agent shall have the right
to exercise any and all rights with respect to deposit accounts of each Debtor
maintained with any Secured Creditor, including, without limitation, the right
to collect, withdraw and receive all amounts due or to become due or payable
under each such deposit account. Upon the occurrence and during the continuation
of any Event of Default hereunder, each Debtor shall, upon the Agent's demand,
assemble the Collateral and make it available to the Agent at a place reasonably
designated by the Agent. If the Agent exercises its right to take possession of
the Collateral, each Debtor shall also at its expense perform any and all other
steps requested by the Agent to preserve and protect the security interest
hereby granted in the Collateral, such as placing and maintaining signs
indicating the security interest of the Agent, appointing overseers for the
Collateral and maintaining Collateral records.
(d) Without in any way limiting the foregoing, each Debtor hereby
grants to the Secured Creditors a royalty-free irrevocable license and right to
use all of such Debtor's patents, patent applications, patent licenses,
trademarks, trademark registrations, trademark licenses, trade names, trade
styles, and similar intangibles in connection with any foreclosure or other
realization by the Agent or the Secured Creditors on all or any part of the
Collateral to the extent permitted by law. The license and right granted the
Secured Creditors hereby shall be without any royalty or fee or charge
whatsoever.
(e) Failure by the Agent to exercise any right, remedy or option under
this Agreement or any other agreement between any Debtor and the Agent or
provided by law, or delay by the Agent in exercising the same, shall not operate
as a waiver; and no waiver shall be effective unless it is in writing, signed by
the party against whom such waiver is sought to be enforced and then only to the
extent specifically stated. Neither any Secured Creditor, nor any party acting
as attorney for any Secured Creditor, shall be liable hereunder for any acts or
omissions or for any error of judgment or mistake of fact or law other than
their gross negligence or willful misconduct. The rights and remedies of the
Secured Creditors under this Agreement shall be cumulative and not exclusive of
any other right or remedy which any Secured Creditor may have.
Section 10. Application of Proceeds. The proceeds and avails of the
Collateral at any time received by the Agent upon the occurrence and during the
continuation of any Event of Default shall, when received by the Agent in cash
or its equivalent, be applied by the Agent in reduction of, or held as
collateral security for, the Obligations in accordance with the terms of the
Credit Agreement. The Debtors shall remain liable to the Secured Creditors for
any deficiency. Any surplus remaining after the full payment and satisfaction of
the Obligations shall be returned to the Company, as agent for the Debtors, or
to whomsoever the Agent reasonably determines is lawfully entitled thereto.
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Section 11. Continuing Agreement. This Agreement shall be a continuing
agreement in every respect and shall remain in full force and effect until all
of the Obligations, both for principal and interest, have been fully paid and
satisfied and the commitments of the Lenders to extend credit to or for the
account of the Borrowers under the Credit Agreement have expired or otherwise
terminated. Upon such termination of this Agreement, the Agent shall, upon the
request and at the expense of the Debtors, forthwith release its security
interest hereunder.
Section 12. Primary Security; Obligations Absolute. The lien and
security interest herein created and provided for stand as direct and primary
security for the Obligations of the Borrowers arising under or otherwise
relating to the Credit Agreement as well as for any of the other Obligations
secured hereby. No application of any sums received by the Secured Creditors in
respect of the Collateral or any disposition thereof to the reduction of the
Obligations or any part thereof shall in any manner entitle any Debtor to any
right, title or interest in or to the Obligations or any collateral or security
therefor, whether by subrogation or otherwise, unless and until all Obligations
have been fully paid and satisfied and all agreements of the Secured Creditors
to extend credit to or for the account of the Borrowers under the Credit
Agreement have expired or otherwise terminated. Each Debtor acknowledges that
the lien and security interest hereby created and provided are absolute and
unconditional and shall not in any manner be affected or impaired by any acts of
omissions whatsoever of any Secured Creditor or any other holder of any
Obligations, and without limiting the generality of the foregoing, the lien and
security interest hereof shall not be impaired by any acceptance by the Secured
Creditors or any other holder of any Obligations of any other security for or
guarantors upon any of the Obligations or by any failure, neglect or omission on
the part of any Secured Creditor or any other holder of any Obligations to
realize upon or protect any of the Obligations or any collateral or security
therefor (including, without limitation, impairment of collateral or failure to
perfect security interest in collateral). The lien and security interest hereof
shall not in any manner be impaired or affected by (and the Secured Creditors,
without notice to anyone, except to the extent the Credit Agreement shall
otherwise provide, are hereby authorized to make from time to time) any sale,
pledge, surrender, compromise, settlement, release, renewal, extension,
indulgence, alteration, substitution, exchange, change in, modification or
disposition of any of the Obligations or of any collateral or security therefor,
or of any guaranty thereof, or of any instrument or agreement setting forth the
terms and conditions pertaining to any of the foregoing. The Secured Creditors
may at their discretion at any time grant credit to the Borrowers or any of them
without notice to the other Debtors in such amounts and on such terms as the
Secured Creditors may elect (all of such to constitute additional Obligations
hereby secured) without in any manner impairing the lien and security interest
created and provided for herein. In order to realize hereon and to exercise the
rights granted the Secured Creditors hereunder and under applicable law, there
shall be no obligation on the part of any Secured Creditor or any other holder
of any Obligations at any time to first resort for payment to the Borrowers or
to any other Debtor or to any guaranty of the Obligations or any portion thereof
or to resort to any other collateral, security, property, liens or any other
rights or remedies whatsoever, and the Secured Creditors shall have the right to
enforce this Agreement against any Debtor or any of its Collateral irrespective
of whether or not other proceedings or steps seeking resort to or realization
upon or from any of the foregoing are pending.
-15-
<PAGE> 49
Section 13. The Agent. In acting under or by virtue of this Agreement,
the Agent shall be entitled to all the rights, authority, privileges and
immunities provided in the Credit Agreement, all of which provisions of said
Credit Agreement (including, without limitation, Section 13 thereof) are
incorporated by reference herein with the same force and effect as if set forth
herein in their entirety. The Agent hereby disclaims any representation or
warranty to the other Secured Creditors or any other holders of the Obligations
concerning the perfection of the liens and security interests granted hereunder
or in the value of any of the Collateral.
Section 14. Miscellaneous. (a) This Agreement cannot be changed or
terminated orally. This Agreement shall create a continuing lien on and security
interest in the Collateral and shall be binding upon each Debtor, its successors
and assigns and shall inure, together with the rights and remedies of the
Secured Creditors hereunder, to the benefit of the Secured Creditors and their
successors and permitted assigns; provided, however, that no Debtor may assign
its rights or delegate its duties hereunder without the Agent's prior written
consent. Without limiting the generality of the foregoing, and subject to the
provisions of the Credit Agreement, any Lender may assign or otherwise transfer
any indebtedness held by it secured by this Agreement to any other person, and
such other person shall thereupon become vested with all the benefits in respect
thereof granted to such Lender herein or otherwise.
(b) All communications provided for herein shall be in writing, except
as otherwise specifically provided for hereinabove, and shall be deemed to have
been given or made, if to any Debtor when given to the Borrowers in accordance
with Section 15.8 of the Credit Agreement, or if to any Secured Creditor, when
given to such party in accordance with Section 15.8 of the Credit Agreement.
(c) No Lender shall have the right to institute any suit, action or
proceeding in equity or at law for the foreclosure or other realization upon any
Collateral subject to this Agreement or for the execution of any trust or power
hereof or for the appointment of a receiver, or for the enforcement of any other
remedy under or upon this Agreement; it being understood and intended that no
one or more of the Lenders shall have any right in any manner whatsoever to
affect, disturb or prejudice the lien and security interest of this Agreement by
its or their action or to enforce any right hereunder, and that all proceedings
at law or in equity shall be instituted, had and maintained by the Agent in the
manner herein provided for the benefit of the Secured Creditors.
(d) In the event that any provision hereof shall be deemed to be
invalid or unenforceable by reason of the operation of any law or by reason of
the interpretation placed thereon by any court, this Agreement shall be
construed as not containing such provision, but only as to such jurisdictions
where such law or interpretation is operative, and the invalidity or
unenforceability of such provision shall not affect the validity of any
remaining provisions hereof, and any and all other provisions hereof which are
otherwise lawful and valid shall remain in full force and effect. Without
limiting the generality of the foregoing, in the event that this Agreement shall
be deemed to be invalid or otherwise unenforceable with respect to any Debtor,
such invalidity or unenforceability shall not affect the validity of this
Agreement with respect to the other Debtors.
-16-
<PAGE> 50
(e) In the event the Secured Creditors shall at any time in their
discretion permit a substitution of Debtors hereunder or a party shall wish to
become a Debtor hereunder, such substituted or additional Debtor shall, upon
executing an agreement in the form attached hereto as Schedule D, become a party
hereto and be bound by all the terms and conditions hereof to the same extent as
though such Debtor had originally executed this Agreement and, in the case of a
substitution, in lieu of the Debtor being replaced. Any such agreement shall
contain information as to such Debtor necessary to update Schedules A, B, and C
hereto with respect to it. No such substitution shall be effective absent the
written consent of Agent nor shall it in any manner affect the obligations of
the other Debtors hereunder.
(f) This Agreement shall be deemed to have been made in the State of
Illinois and shall be governed by, and construed in accordance with, the laws of
the State of Illinois. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning of any
provision hereof.
(g) Each Debtor hereby submits to the non-exclusive jurisdiction of the
United States District Court for the Northern District of Illinois and of any
Illinois state court sitting in Cook County, Illinois for purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. Each Debtor irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
form. EACH DEBTOR AND, BY ACCEPTING THE BENEFITS OF THIS AGREEMENT, EACH SECURED
CREDITOR HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
(h) This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterpart signature pages, each
constituting an original, but all together one and the same agreement.
[SIGNATURE PAGES TO FOLLOW]
-17-
<PAGE> 51
IN WITNESS WHEREOF, each Debtor has caused this Agreement to be duly
executed and delivered as of the date first above written.
"DEBTORS"
TITAN INTERNATIONAL, INC.
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
TITAN INVESTMENT CORPORATION
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
TITAN CREDIT CORPORATION
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
TITAN DISTRIBUTION, INC.
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
TITAN WHEEL CORPORATION (to be known as Titan Marketing
Services, Inc.)
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
TITAN TIRE CORPORATION OF TEXAS
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
TITAN TIRE CORPORATION OF NATCHEZ
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
-18-
<PAGE> 52
TITAN WHEEL CORPORATION OF ILLINOIS
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
TITAN WHEEL CORPORATION OF IOWA
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
TITAN WHEEL CORPORATION OF WISCONSIN
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
TITAN WHEEL CORPORATION OF VIRGINIA
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
TITAN TIRE CORPORATION
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
TITAN TIRE CORPORATION OF TENNESSEE
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
AUTOMOTIVE WHEELS, INC.
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
DYNEER CORPORATION
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
TITAN LOGISTICS, INC.
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
-19-
<PAGE> 53
Accepted and agreed to in Chicago, Illinois, as of the date first above
written.
HARRIS TRUST AND SAVINGS BANK, as Agent
By
Name:
-------------------------------------------------
Title:
------------------------------------------------
-20-
<PAGE> 54
SCHEDULE A
LOCATIONS
<TABLE>
<CAPTION>
COLUMN 1 COLUMN 2 COLUMN 3
<S> <C> <C>
NAME OF DEBTOR (AND FEDERAL TAX I.D. CHIEF EXECUTIVE OFFICE ADDITIONAL PLACES OF BUSINESS
NUMBER)
Titan International, Inc. 2701 Spruce Street None
Tax ID #36-3228472 Quincy, Illinois 62301
Titan Investment Corporation 2701 Spruce Street None
Tax ID #37-1330978 Quincy, Illinois 62301
Titan Credit Corporation 2701 Spruce Street None
Tax ID #36-4160676 Quincy, Illinois 62301
Titan Distribution, Inc. 2701 Spruce Street 5440 E. Francis, Suite B
Tax ID #42-1444713 Quincy, Illinois 62301 Ontario, California 91761-3603
1201 Old Hopewell Road
Suite 9
Tampa, Florida 33619
1360 Joe Frank Harris Parkway
Cartersville, Georgia 30120
2140 Academy Avenue Extension
Dublin, Georgia 31021
6000 Horizon West Parkway
Grovetown, Georgia 30813
2345 E. Market Street
Des Moines, Iowa 50317
21840 Protecta Drive
Elkhart, Indiana 46516
1441 Nitterhouse Drive
Chambersburg, Pennsylvania 17201
908 Fountain Parkway
Grand Prairie, Texas 75050
Titan Wheel Corporation 2701 Spruce Street None
Tax ID #37-1337195 Quincy, Illinois 62301
</TABLE>
<PAGE> 55
<TABLE>
<S> <C> <C>
Titan Tire Corporation of 6700 Paredes Line Road None
Texas Brownsville, Texas 78521
Tax ID #74-2851521
Titan Tire Corporation of 89 Kelly Avenue None
Natchez Natchez, Mississippi 39120
Tax ID #64-0898897
Titan Wheel Corporation of 2701 Spruce Street 601 N. Main Street
Illinois Quincy, Illinois 62301 East Peoria, Illinois 61611
Tax ID #39-1909552
Titan Wheel Corporation of 455 S. Blue Grass Road None
Iowa Walcott, Iowa 52773
Tax ID #39-1909552
Titan Wheel Corporation of 250 Weil Drive P.O. Box 50, R.R. #1
Wisconsin Slinger, Wisconsin 53086 Ventura, Iowa
Tax ID #39-1904676
Titan Wheel Corporation of 227 Allison Gap Road None
Virginia Saltville, Virginia 24370
Tax ID #54-1688395
Titan Tire Corporation 2701 Spruce Street 2345 E. Market Street
Tax ID #42-1424945 Quincy, Illinois 62301 Des Moines, Iowa 50317
Titan Tire Corporation of 520 J.D. Yarnell Industrial Parkway None
Tennessee Clinton, Tennessee 37716
Tax ID #86-0575076
Automotive Wheels, Inc. 5440 E. Francis, Suite B None
Tax ID #33-0540312 Ontario, California 91761-3603
Dyneer Corporation 2701 Spruce Street None
Tax ID #06-1174283 Quincy, Illinois 62301
Titan Logistics, Inc. 2111 Last Chance Road None
Tax ID #88-0413307 Elko, Nevada 89801
</TABLE>
-2-
<PAGE> 56
SCHEDULE B
TRADE NAMES
NONE
<PAGE> 57
SCHEDULE C
FIXTURE LOCATIONS
NONE
<PAGE> 58
SCHEDULE D
ASSUMPTION AND SUPPLEMENTAL SECURITY AGREEMENT
THIS AGREEMENT dated as of this day of from [NEW DEBTOR],
a CORPORATION/LIMITED LIABILITY COMPANY/PARTNERSHIP (the "New Debtor"),
to Harris Trust and Savings Bank ("HTSB"), as agent for the Secured Creditors
(defined in the Security Agreement hereinafter identified and defined) (HTSB
acting as such agent and any successor or successors to HTSB in such capacity
being hereinafter referred to as the "Agent");
PRELIMINARY STATEMENTS
A. Titan International, Inc., an Illinois corporation (the "Company"),
Titan Investment and Titan Credit (the Company, Titan Investment and Titan
Credit being hereinafter referred to collectively as the "Borrowers" and
individually as a "Borrower") and certain other parties have executed and
delivered to the Agent that certain Security Agreement dated as of
, 1999 (such Security Agreement, as the same may from time to time
be amended, modified, or restated, including supplements thereto which add
additional parties as Debtors thereunder, being hereinafter referred to as the
"Security Agreement"), pursuant to which such parties (the "Existing Debtors")
have granted to the Agent for the benefit of the Secured Creditors a lien on and
security interest in each such Existing Debtor's Collateral (as such term is
defined in the Security Agreement) to secure the Obligations (as such term is
defined in the Security Agreement).
B. The Borrowers provide the New Debtor with substantial financial,
managerial, administrative, and technical support and the New Debtor will
directly and substantially benefit from credit and other financial
accommodations extended and to be extended by the Secured Creditors to the
Borrowers.
NOW, THEREFORE, FOR VALUE RECEIVED, and in consideration of advances
made or to be made, or credit accommodations given or to be given, to the
Borrowers by the Secured Creditors from time to time, the New Debtor hereby
agrees as follows:
1. The New Debtor acknowledges and agrees that it shall become a
"Debtor" party to the Security Agreement effective upon the date the New
Debtor's execution of this Agreement and the delivery of this Agreement to the
Agent, and that upon such execution and delivery, all references in the Security
Agreement to the terms "Debtor" or "Debtors" shall be deemed to include the New
Debtor. Without limiting the generality of the foregoing, the New Debtor hereby
repeats and reaffirms all grants (including the grant of a lien and security
interest), covenants, agreements, representations and warranties contained in
the Security Agreement as amended hereby, each and all of which are and shall
remain applicable to the Collateral from time to time owned by the New Debtor or
in which the New Debtor from time to time has any rights. Without limiting the
foregoing, in order to secure payment of the Obligations, whether now existing
or hereafter arising, the New Debtor does hereby grant to the Agent for the
benefit
<PAGE> 59
of itself and the other Secured Creditors, and hereby agrees that the Agent has
and shall continue to have for the benefit of itself and the other Secured
Creditors a continuing lien on and security interest in, among other things, all
of the New Debtor's Collateral (as such term is defined in the Security
Agreement), including, without limitation, all of the New Debtor's Receivables,
General Intangibles, Inventory, Equipment, and all of the other Collateral
described in Section 2 of the Security Agreement, each and all of such granting
clauses being incorporated herein by reference with the same force and effect as
if set forth in their entirety except that all references in such clauses to the
Existing Debtors or any of them shall be deemed to include references to the New
Debtor. Nothing contained herein shall in any manner impair the priority of the
liens and security interests heretofore granted in favor of the Agent under the
Security Agreement.
2. Schedules A (Locations), B (Trade Names), and C (Real Estate) to
the Security Agreement shall be supplemented by the information stated below
with respect to the New Debtor:
SUPPLEMENT TO SCHEDULE A
<TABLE>
<S><C>
NAME OF DEBTOR (AND ADDITIONAL PLACES
FEDERAL TAX I.D. NUMBER) CHIEF EXECUTIVE OFFICE OF BUSINESS
- ------------------------ ------------------------ ------------------------
- ------------------------ ------------------------ ------------------------
SUPPLEMENT TO SCHEDULE B
NAME OF DEBTOR TRADE NAMES OF SUCH DEBTOR
- -------------------------------------------- ---------------------------------------------
SUPPLEMENT TO SCHEDULE C
FIXTURE LOCATIONS
--------------------------------
--------------------------------
</TABLE>
3. The New Debtor hereby acknowledges and agrees that the Obligations
are secured by all of the Collateral according to, and otherwise on and subject
to, the terms and conditions of the Security Agreement to the same extent and
with the same force and effect as if the New Debtor had originally been one of
the Existing Debtors under the Security Agreement and had originally executed
the same as such an Existing Debtor.
4. All capitalized terms used in this Agreement without definition
shall have the same meaning herein as such terms have in the Security Agreement,
except that any reference to the
-2-
<PAGE> 60
term "Debtor" or "Debtors" and any provision of the Security Agreement providing
meaning to such term shall be deemed a reference to the Existing Debtors and the
New Debtor. Except as specifically modified hereby, all of the terms and
conditions of the Security Agreement shall stand and remain unchanged and in
full force and effect.
5. The New Debtor agrees to execute and deliver such further
instruments and documents and do such further acts and things as the Agent may
deem necessary or proper to carry out more effectively the purposes of this
Agreement.
6. No reference to this Agreement need be made in the Security
Agreement or in any other document or instrument making reference to the
Security Agreement, any reference to the Security Agreement in any of such to be
deemed a reference to the Security Agreement as modified hereby.
7. This Agreement shall be governed by and construed in accordance
with the State of Illinois (without regard to principles of conflicts of law).
[NEW DEBTOR]
By
Name
---------------------------------
Title
---------------------------------
Accepted and agreed to as of the date first above written.
HARRIS TRUST AND SAVINGS BANK, as Agent
By
Name
---------------------------------
Title
---------------------------------
-3-
<PAGE> 61
ANNEX III
SCHEDULE 8.2
SUBSIDIARIES OF TITAN INTERNATIONAL, INC.
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION PERCENTAGE OF OWNERSHIP
<S> <C> <C>
Automotive Wheels, Inc. California 100% - Non-operational, leasing
building and equipment to 3rd
party
Titan Credit Corporation Nevada 100%
Titan Distribution, Inc. Illinois 100%
Titan Transportation, Inc. Illinois 100%
Dyneer Corporation Delaware 100% - Holding Company
DICO Inc. Delaware 100% by Dyneer Corporation
Non-operational
Titan Wheel Corporation Illinois 100% - Holding Company
Titan Wheel Corporation Illinois 100% by Titan Wheel
of Illinois Corporation (formerly a division
of Titan International, Inc.)
Titan Wheel Corporation Iowa 100% by Titan Wheel
of Iowa Corporation (formerly a division
of Titan International, Inc.)
Titan Wheel Corporation Ohio 100% by Titan Wheel Corporation
of Ohio
Titan Wheel Corporation South Carolina 100% by Titan Wheel
of South Carolina Corporation (formerly a division
of Titan International, Inc.)
</TABLE>
<PAGE> 62
<TABLE>
<S> <C> <C>
Titan Wheel Corporation Wisconsin 100% by Titan Wheel
of Wisconsin Corporation (formerly under
Dico, Inc.)
Titan Wheel Corporation Virginia 100% by Titan Wheel
of Virginia Corporation (formerly T.D.
Wheel Company of Virginia)
Titan Wheel Corporation Nevada 100% by Titan Wheel
of Nevada Corporation of Virginia
(formerly T.D. Wheel, Inc.)
Titan Investment Corporation Illinois 100%
Titan Tire Corporation Illinois 100% by Titan Investment
Corporation
Titan Tire Corporation Ohio 100% by Titan Investment
of Ohio Corporation
Titan Tire Corporation Delaware 100% by Titan Investment
of Tennessee Corporation (formerly Dico Tire,
Inc.)
Titan Tire Corporation Texas 100% by Titan Investment
of Texas Corporation
Titan Tire Corporation of Natchez Mississippi 100%
Titan Wheel & Tire Foreign Sales Barbados 100%
Corporation
Titan International Australia 100%
Australia, PTY, Ltd.
FUNSA Uruguay 81%
Titan Luxemburg, Sarl. Luxenburg 100%
Dyneer Holdings, Ltd. Republic of Ireland 100% by Titan Luxemburg, Sarl.
(Ireland Resident)
Bengower Republic of Ireland (Cayman 100% by Dyneer Holdings, Ltd.
Resident)
</TABLE>
-2-
<PAGE> 63
<TABLE>
<S> <C> <C>
Titan Financial Services Republic of Ireland 99% by Bengower
of Ireland, Ltd. (Ireland Resident)
Titan Europe Limited United Kingdom 100% by Titan Luxemburg, Sarl.
Titan Siria Officine Meccaniche SpA Italy 100% by Titan Europe Limited
Sirmac Officine Italy 100% by Titan Europe Limited
Meccaniche SpA
Titan Distribution (UK), United Kingdom 100% by Titan Europe Limited
Limited (formerly Titan Wheel
International, Ltd.)
Titan Germany, GmbH Germany 100% by Titan Europe, Limited
Titan France SA France 97% by Titan Europe, Limited
Titan Steel Wheels, Ltd. United Kingdom 100% (by Titan Europe,
Limited)
Titan Steel Wheels United Kingdom 100% by Titan Steel Wheels Ltd.
Exports Limited
</TABLE>
-3-
<PAGE> 64
ANNEX IV
SCHEDULE 10.11 (f)
SUBORDINATED DEBT
<TABLE>
<CAPTION>
DESCRIPTION LOCATION ($U.S. DOLLARS)
- ----------- -------- ---------------
<S> <C> <C>
Senior Subordinated Notes Corporate $ 150,000,000
PATC Note Des Moines, IA 19,743,000
Total $ 169,743,000
===============
</TABLE>
<PAGE> 1
EXHIBIT 21
TITAN INTERNATIONAL, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICITON OF
NAME INCORPORATION
---- -------------
<S> <C>
Dyneer Corporation Delaware
Titan Italia, S.p.A. Italy
Titan Steel Wheels, Limited United Kingdom
Titan Tire Corporation Illinois
Titan Tire Corporation of Tennessee Delaware
Titan Tire Corporation of Texas Texas
Titan Wheel Corporation of Illinois Illinois
Titan Wheel Corporation of Iowa Iowa
Titan Wheel Corporation of South Carolina South Carolina
Titan Wheel Corporation of Wisconsin Wisconsin
</TABLE>
E-1
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-71788 and No. 33-80306) and the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-61743) of
Titan International, Inc. of our report dated February 21, 2000, appearing on
page F-1 of this Annual Report on Form 10-K. We also consent to the reference to
us under the heading "Selected Financial Data" in such Form 10-K. However, it
should be noted that PricewaterhouseCoopers LLP has not prepared or certified
such "Selected Financial Data."
PRICEWATERHOUSECOOPERS LLP
St. Louis, Missouri
March 24, 2000
E-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,606
<SECURITIES> 0
<RECEIVABLES> 103,320
<ALLOWANCES> 5,863
<INVENTORY> 133,365
<CURRENT-ASSETS> 279,078
<PP&E> 422,932
<DEPRECIATION> 155,883
<TOTAL-ASSETS> 637,181
<CURRENT-LIABILITIES> 108,295
<BONDS> 255,521
0
0
<COMMON> 27
<OTHER-SE> 228,839
<TOTAL-LIABILITY-AND-EQUITY> 637,181
<SALES> 588,023
<TOTAL-REVENUES> 588,023
<CGS> 526,329
<TOTAL-COSTS> 526,329
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,603
<INCOME-PRETAX> (18,445)
<INCOME-TAX> (7,009)
<INCOME-CONTINUING> (11,436)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,436)
<EPS-BASIC> (.55)
<EPS-DILUTED> (.55)
</TABLE>
