AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 2003
NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
NEENAH FOUNDRY COMPANY
(Exact name of registrant as specified in its charter)
<Table>
WISCONSIN 3220 39-1580331
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
2121 BROOKS AVENUE
P.O. BOX 729
NEENAH, WISCONSIN 54957
(920) 725-7000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
WILLIAM M. BARRETT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2121 BROOKS AVENUE
P.O. BOX 729
NEENAH, WISCONSIN 54957
(920) 725-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO AGENT FOR
SERVICE, SHOULD BE SENT TO:
CHRISTIAN O. NAGLER, ESQ.
KIRKLAND & ELLIS LLP
CITIGROUP CENTER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to registered additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER NOTE OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
11% Senior Secured Notes due 2010..... $133,130,000 100% $133,130,000 $10,770.00
- ---------------------------------------------------------------------------------------------------------------------------
Guarantees of 11% Senior Secured Notes
due 2010(2)......................... (3) (3) (3) None
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) See inside facing page for table of additional Registration guarantors.
(3) Pursuant to Rule 457(h), no separate filing fee is payable for the
guarantees of the New Senior Secured Notes being registered.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
ADDITIONAL REGISTRANTS
ADVANCED CAST PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 3321 25-1607691
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
DALTON CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
INDIANA 3321 35-0259770
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
DALTON CORPORATION,
WARSAW MANUFACTURING FACILITY
(Exact name of registrant as specified in its charter)
<Table>
INDIANA 3321 35-2054775
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
DALTON CORPORATION,
STRYKER MACHINING FACILITY CO.
(Exact name of registrant as specified in its charter)
<Table>
OHIO 3599 34-1873080
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
DALTON CORPORATION,
ASHLAND MANUFACTURING FACILITY
(Exact name of registrant as specified in its charter)
<Table>
OHIO 3321 34-1873079
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
DALTON CORPORATION,
KENDALLVILLE MANUFACTURING FACILITY
(Exact name of registrant as specified in its charter)
<Table>
INDIANA 3321 35-2054777
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
DEETER FOUNDRY, INC.
(Exact name of registrant as specified in its charter)
<Table>
NEBRASKA 3321 47-0355148
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
GREGG INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<Table>
CALIFORNIA 3321 95-1498664
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
MERCER FORGE CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 3462 25-1511711
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
A&M SPECIALTIES, INC.
(Exact name of registrant as specified in its charter)
<Table>
PENNSYLVANIA 3599 25-1741756
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
NEENAH TRANSPORT, INC.
(Exact name of registrant as specified in its charter)
<Table>
WISCONSIN 4213 39-1378433
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
CAST ALLOYS, INC.
(Exact name of registrant as specified in its charter)
<Table>
CALIFORNIA 3365 33-0071223
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
BELCHER CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 3321 52-1643193
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
PEERLESS CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
OHIO 3321 52-1644462
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</Table>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND THIS IS NOT AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER AND SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 8, 2003
PROSPECTUS
NEENAH FOUNDRY COMPANY
Offer for all outstanding 11% Senior Secured Notes due 2010 (which we refer
to as the "Old Notes") in aggregate principal amount at maturity of $133,130,000
in exchange for up to $133,130,000 aggregate principal amount at maturity of 11%
Senior Secured Notes due 2010 (which we refer to as the "New Notes") have been
registered under the Securities Act of 1933, as amended.
TERMS OF THE EXCHANGE OFFER
- - Expires 5:00 p.m., New York City time, , 2004, unless extended.
- - The Exchange Offer is not open to holders of Old Notes that are "affiliates"
of Neenah Foundry Company within the meaning of Rule 405 of the Securities Act
of 1933, as amended.
- - Not subject to any condition other than that the exchange offer not violate
applicable law or any interpretation of the staff of the Securities and
Exchange Commission.
- - We can amend or terminate the exchange offer.
- - We will exchange all Old Notes that are validly tendered and not validly
withdrawn.
- - We will not receive any proceeds from the exchange offer.
- - The exchange of notes will not be a taxable exchange for U.S. federal income
tax purposes.
- - You may withdraw tendered Old Notes any time before the expiration of the
exchange offer.
TERMS OF THE NEW NOTES
- - The terms of the New Notes are identical to our outstanding 11% Senior Secured
Notes due 2010 except for transfer restrictions and registration rights.
- - The New Notes will rank pari passu in right of payment with our New Credit
Facility, as defined below, and the associated guarantees, but the liens
securing the New Notes will be subordinated to the liens securing the New
Credit Facility.
- - The New Notes mature on September 30, 2010. The New Notes will bear interest,
which will be payable semi-annually in arrears, at a rate of 11% per annum
payable on each January 1 and July 1, commencing January 1, 2004.
- - After September 30, 2007, we may redeem the New Notes in whole or in part at
any time.
- - Upon a change of control, we may be required to offer to repurchase the New
Notes.
FOR A DISCUSSION OF SPECIFIC RISKS THAT YOU SHOULD CONSIDER BEFORE
TENDERING YOUR OUTSTANDING 11% SENIOR SECURED NOTES DUE 2010 IN THE EXCHANGE
OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 8.
There is no public market for our outstanding 11% Senior Secured Notes due
2010 or the New Notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the New Notes or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is [ ], 2003
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR 11% SENIOR SECURED NOTES DUE
2010.
EACH BROKER-DEALER THAT RECEIVES NEW SECURITIES FOR ITS OWN ACCOUNT
PURSUANT TO THE EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A
PROSPECTUS IN CONNECTION WITH ANY RESALE OF THESE NEW SECURITIES. BY SO
ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A BROKER-DEALER WILL NOT BE DEEMED
TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT.
THIS PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE
USED BY A BROKER-DEALER IN CONNECTION WITH RESALES OF NEW SECURITIES RECEIVED IN
EXCHANGE FOR SECURITIES WHERE THOSE SECURITIES WERE ACQUIRED BY THIS
BROKER-DEALER AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES. WE HAVE AGREED THAT, STARTING ON THE EXPIRATION DATE AND ENDING ON
THE CLOSE OF BUSINESS 180 DAYS AFTER THE EXPIRATION DATE, WE WILL MAKE THIS
PROSPECTUS AVAILABLE TO ANY BROKER-DEALER FOR USE IN CONNECTION WITH ANY SUCH
RESALE. SEE "PLAN OF DISTRIBUTION."
TABLE OF CONTENTS
<Table>
Disclosure Regarding Forward-Looking Statements............. i
Market and Industry Data.................................... i
Prospectus Summary.......................................... 1
Summary Description of the Exchange Offer and New Notes..... 3
Ratio of Earnings to Fixed Charges.......................... 7
Risk Factors................................................ 8
The Exchange Offer.......................................... 16
The Refinancing Transactions................................ 22
Use of Proceeds............................................. 23
Capitalization.............................................. 24
Selected Consolidated Financial Data........................ 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 27
Business.................................................... 35
Management.................................................. 44
Certain Relationships and Related Transactions.............. 48
Security Ownership and Certain Beneficial Owners............ 49
Description of New Credit Facility.......................... 51
Description of the Notes.................................... 53
Book-Entry; Delivery and Form............................... 86
Certain U.S. Federal Income Tax Considerations.............. 88
Plan of Distribution........................................ 88
Legal Matters............................................... 89
Experts..................................................... 89
Available Information....................................... 89
</Table>
As used in this prospectus and unless the context indicated otherwise,
"Notes" refers, collectively, to our "Old Notes," and our "New Notes."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this
prospectus, including, without limitation, statements regarding our future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking statements.
In addition, forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may", "will", "should", "could",
"expect", "intend", "estimate", "anticipate", "believe" or "continue", "plan",
"potential", "predicts" or the negative thereof or variations thereon or similar
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors that may cause our actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by any forward-looking statements. These risks and uncertainties
include, but are not limited to, the following:
- general economic and business conditions, both nationally and in those
areas in which we operate;
- competition;
- changes in our business strategy or plans;
- changes in exchange rates;
- the loss of any of our management or key personnel;
- changes in our policy regarding interest rate and currency movements;
- the availability and cost of raw materials; and
- the availability of capital and trade credit to fund our business.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.
Important factors that could cause actual results to differ materially from
our expectations, or "cautionary statements," are disclosed under "Risk Factors"
and elsewhere in this prospectus, including, without limitation, in conjunction
with the forward-looking statements included in this prospectus. All subsequent
written and oral forward-looking statements attributable to us, or persons
acting on our behalf, are expressly qualified in their entirety by the
cautionary statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results. We will, upon the effectiveness of this prospectus, claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
MARKET AND INDUSTRY DATA
Some of the market and industry data contained in this prospectus are based
on independent industry publications or other publicly available information.
Although we believe that these independent sources are reliable, we have not
independently verified and cannot assure you as to the accuracy or completeness
of this information. As a result, you should be aware that the market and
industry data contained in this prospectus, and our beliefs and estimates based
on such data, may not be reliable.
i
PROSPECTUS SUMMARY
The following summary contains basic information about us and highlights
selected information from the prospectus. It likely does not contain all the
information that is important to you. Because it is a summary, it does not
contain all the information that you should consider before tendering your Old
Notes. We encourage you to read this entire document and the documents to which
we have referred you. As used in this prospectus, except as the context
otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to
Neenah Foundry Company and its subsidiaries, collectively and individually, as
appropriate from the context.
OUR COMPANY
We manufacture and market a wide range of metal castings and forgings for
the heavy municipal market and selected segments of the industrial markets. We
sell our products throughout the continental United States and believe that we
are one of the largest manufacturers of heavy municipal iron castings in the
United States. We began business in 1872 and have built a strong reputation for
producing quality iron castings. Our broad range of heavy municipal iron
castings includes manhole covers and frames, storm sewer frames and grates,
heavy duty airport castings, specialized trench drain castings, specialty flood
control castings and ornamental tree grates. We sell these municipal castings to
state and local government entities, utility companies, precast concrete manhole
structure producers and contractors for both new construction and infrastructure
replacement throughout the United States. In addition, we believe that we are
also a leading manufacturer of a wide range of complex industrial castings,
including castings for the transportation industry, a broad range of castings
for the farm equipment industry and specific components for compressors used in
heating, ventilation and air conditioning, or HVAC, systems.
We have two reportable segments, Castings and Forgings. The Castings
segment is a leading producer of iron and other metal castings for use in heavy
municipal and industrial applications. This segment sells directly to original
equipment manufacturers and to industrial end users. The forgings segment,
operated by Mercer Forge Corporation, hereinafter referred to as Mercer, is a
leading producer of complex-shaped forged components for use in transportation,
railroad, mining and heavy industrial applications. Mercer is also a leading
producer of microalloy forgings. Mercer sells directly to original equipment
manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M
Specialties, Inc., machines forgings and castings for Mercer and other
industrial applications.
Until the mid-1980's, Mercer produced military tank parts, but successfully
converted from a defense contractor to a commercial manufacturer and today is an
important supplier to the heavy duty truck sector. Mercer produces a broad range
of forged components and has developed specialized expertise in forgings of
microalloy steel.
Neenah Foundry Company, which we refer to hereafter as Neenah, a
wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP
Holding Company, which we refer to hereafter respectively as NFC and ACP, is a
corporation organized under the laws of the State of Wisconsin and is the
operating subsidiary of NFC and ACP. The principal executive offices of Neenah
are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number
is (920) 725-7000.
RECENT REORGANIZATION
On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries
filed voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code, as amended, with the United States Bankruptcy Court for the
District of Delaware. By order dated September 26, 2003, the Bankruptcy Court
confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer
to as the Plan of Reorganization.
The Plan of Reorganization resulted in significant changes to our capital
structure. Among other things, the Plan of Reorganization provided for the
repayment in full of our old credit facility, the cancellation of $282.0 million
in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and
1
the elimination of the interests of the former equity owners of our indirect
parent company, ACP. The cash proceeds necessary to consummate the Plan of
Reorganization were provided from the consummation of the New Credit Facility
and the issuance of the Old Notes. The claims and interests of our various
creditors were satisfied as follows:
- our old credit facility was repaid in cash;
- our PIK Note was cancelled and Citicorp Mezzanine III, L.P., the holder
of that note, received Old Notes with a principal amount equal to $13.134
million, and warrants to acquire 3.8 million shares of common stock of
ACP and cash in the amount of $45,400;
- our outstanding 11 1/8% Notes were cancelled and each holder of 11 1/8%
Notes received its pro rata share of (i) $30.0 million in cash, (ii)
$100.0 million in aggregate principal amount of new 13% Senior
Subordinated Notes due 2013 of the Company, (iii) 38 million shares of
common stock of ACP and (iv) rights to acquire for $110 million in cash
in the aggregate, units for up to $119.996 million face amount of Old
Notes and warrants to acquire up to 34.2 million shares of common stock
of ACP;
- the following debt and equity instruments were cancelled without further
consideration: 12% senior subordinated notes issued by ACP, 12% senior
subordinated notes issued by NFC and all equity interests of ACP; and
- the following claims and equity interests passed through our Chapter 11
bankruptcy proceedings unimpaired: all tax claims, intercompany debt,
other secured debt and general unsecured debt and the equity interests of
ACP Holding Company in NFC Castings, Inc., equity interests of NFC
Castings, Inc. in Neenah and equity interests of Neenah in its direct and
indirect subsidiaries.
2
SUMMARY DESCRIPTION OF THE EXCHANGE OFFER AND NEW NOTES
THE EXCHANGE OFFER
Securities Offered............ Up to $133,130,000 aggregate principal amount
at maturity of 11% Senior Notes due 2010. The
terms of the New Notes and the Old Notes are
identical in all material respects, except for
certain transfer restrictions and registration
rights relating to the Old Notes.
The Exchange Offer............ We are offering to exchange the Old Notes for a
like principal amount at maturity of New Notes.
Old Notes may be exchanged only in multiples of
$1,000.
Expiration Date; Withdrawal of
Tender........................ Our exchange offer will expire 5:00 p.m. New
York City time, on , 2004, or a later
time if we choose to extend this exchange
offer. You may withdraw your tender of Old
Notes at any time prior to the expiration date.
All outstanding Old Notes that are validly
tendered and not validly withdrawn will be
exchanged. Any Old Notes not accepted by us for
exchange for any reason will be returned to you
at our expense as promptly as possible after
the expiration or termination of the exchange
offer.
Resales....................... We believe that you can offer for resale,
resell and otherwise transfer the New Notes
without complying with the registration and
prospectus delivery requirements of the
Securities Act if:
- you acquire the New Notes in the ordinary
course of business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the New Notes; and
- you are not an "affiliate" of ours, as
defined in Rule 405 of the Securities Act.
If any of these conditions is not satisfied and
you transfer any New Notes without delivering a
proper prospectus or without qualifying for a
registration exemption, you may incur liability
under the Securities Act. We do not assume or
indemnify you against this liability.
Each broker-dealer acquiring New Notes issued
for its own account in exchange for Old Notes,
which it acquired through market-making
activities or other trading activities, must
acknowledge that it will deliver a proper
prospectus when any New Notes issued in the
exchange offer are transferred. A broker-dealer
may use this prospectus for an offer to resell,
a resale or other retransfer of the New Notes
issued in the exchange offer.
Conditions to the Exchange
Offer......................... Our obligation to accept for exchange, or to
issue the New Notes in exchange for, any Old
Notes is subject to certain customary
conditions relating to compliance with any
applicable law, or any applicable
interpretation by any staff of the Securities
and Exchange Commission, or any order of any
governmental agency or court of law.
3
See "The Exchange Offer -- Conditions to the
Exchange Offer."
Procedures for Tendering Old
Notes......................... The Old Notes were issued as global securities
and were deposited upon issuance with The Bank
of New York. The Bank of New York issued
certificate-less depositary interests in those
outstanding Old Notes, which represent a 100%
interest in those Old Notes, to The Depository
Trust Company.
Beneficial interests in the outstanding Old
Notes, which are held by direct or indirect
participants in The Depository Trust Company,
are shown on, and transfers of the Old Notes
can only be made through, records maintained in
book-entry form by The Depository Trust
Company.
You may tender your outstanding Old Notes by
instructing your broker or bank where you keep
the Old Notes to tender them for you. In some
cases you may asked to submit the BLUE-colored
"Letter of Election and Instructions to Brokers
or Bank" that may accompany this prospectus. By
tendering your old notes you will be deemed to
have acknowledged and agreed to be bound by the
terms set forth under "The Exchange Offer."
A timely confirmation of book-entry transfer of
your outstanding Old Notes into the exchange
agent's account at The Depository Trust
Company, under the procedure described in this
prospectus under the heading "The Exchange
Offer" must be received by the exchange agent
on or before 5:00 pm, New York City time, on
the expiration date.
United States Federal Income
Tax Considerations............ The exchange offer should not result in any
income, gain or loss to the holders of Old
Notes or to us for United States Federal Income
Tax Purposes. See "Certain U.S. Federal Income
Tax Considerations."
Use of Proceeds............... We will not receive any proceeds from the
issuance of the New Notes in the exchange
offer.
The proceeds from the offering of the Old Notes
were used to:
- help satisfy the cash distributions required
by the Plan of Reorganization; and
- fund our ongoing working capital needs.
Exchange Agent................ [ ] is serving as the
exchange agent for the exchange offer.
Shelf Registration
Statement..................... In limited circumstances, holders of Old Notes
may require us to register their Old Notes
under a shelf registration statement.
SUMMARY DESCRIPTION OF THE NEW NOTES
Issuer........................ Neenah Foundry Company
Securities Offered............ $133,130,000 principal amount of 11% Senior
Secured Notes due 2010
Maturity...................... September 30, 2010
4
Interest Rate................. 11% per year (calculated using a 360-day year).
Interest Payment Dates........ Each January 1 and July 1, beginning on January
1, 2004. Interest began to accrue on September
30, 2003.
Ranking....................... The Notes will rank pari passu in right of
payment to the New Credit Facility and the
associated guarantees. The liens securing the
New Notes will be junior to the liens securing
the New Credit Facility and guarantees thereof.
As of November 30, 2003, we estimate that we
and our subsidiaries had approximately $47
million of senior secured debt outstanding
under the New Credit Facility excluding
approximately $45 million that, subject to
certain limitations, we have available to
borrow under our New Credit Facility.
Guarantees.................... All of our domestic subsidiaries will
unconditionally guarantee the Notes on a senior
secured basis. If we cannot make payments
required by the Notes, our guarantor
subsidiaries must make them. The guarantees may
be released under certain circumstances.
Optional Redemption........... On or after September 30, 2007, we may redeem
some or all of the Notes at the redemption
prices listed in the "Description of Notes"
section under the heading "Optional Redemption"
plus accrued and unpaid interest.
Change Of Control Offer....... If a change in control of our company occurs,
we must, subject to certain conditions, give
holders the opportunity to sell their notes to
us at 101% of their face amount plus accrued
and unpaid interest.
We might not be able to pay the required price
for Notes presented to us at the time of a
change of control because:
- we might not have enough funds at the time;
or
- the terms of our New Credit Facility may
prevent us from paying.
Asset Sale Proceeds........... If we or our subsidiaries engage in asset
sales, we generally must first prepay debt
under our New Credit Facility, then either
invest the excess proceeds in our business or
make an offer to purchase a principal amount of
the Notes equal to the excess net cash
proceeds. The purchase price of the Notes will
be 100% of their principal amount plus accrued
and unpaid interest.
Certain Indenture
Provisions.................... The indenture governing the Notes contains
covenants that, among other things, limit our
and our subsidiaries' ability to:
- incur additional debt;
- pay dividends or distributions on our capital
stock or repurchase our capital stock;
- issue preferred stock of subsidiaries;
- make certain investments;
- create liens on our assets to secure debt;
- enter into transactions with affiliates;
5
- merge or consolidate with another company;
- enter into sale and leaseback transactions;
- transfer and sell assets; and
- enter into certain lines of business.
These covenants are subject to a number of
important limitations and exceptions. See
"Description of the Notes -- Certain
Covenants."
Risk Factors.................. See "Risk Factors" for a description of some of
the risks you should consider before exchanging
your Old Notes for New Notes.
Delivery Requirements......... Each broker-dealer that receives new securities
for its own account in exchange for securities,
where those securities were acquired by this
broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus
in connection with any resale of those new
securities. See "Plan of Distribution."
6
RATIO OF EARNINGS TO FIXED CHARGES
<Table>
<Caption>
FOR THE YEARS ENDED SEPTEMBER 30,
--------------------------------------------------
1999 2000 2001 2002 2003
------- ------- -------- -------- --------
Earnings to fixed charge
calculation(1)
Income (loss) from continuing
operations before income
taxes........................... $ 7,029 $10,021 $(17,133) $(11,870) $(31,411)
Fixed charges..................... 41,003 44,898 44,380 44,515 48,407
------- ------- -------- -------- --------
$48,032 $54,919 $ 27,247 $ 32,645 $ 16,996
======= ======= ======== ======== ========
Fixed charges:
Interest expense.................. $40,283 $43,949 $ 43,454 $ 43,466 $ 47,445
Interest portion of rent
expense......................... 720 949 926 1,049 962
------- ------- -------- -------- --------
$41,003 $44,898 $ 44,380 $ 44,515 $ 48,407
======= ======= ======== ======== ========
Ratio of earnings to cover fixed
charges......................... 1.17 1.22 N/A(2) N/A(2) N/A(2)
</Table>
- ---------------
(1) For purposes of the computation, the ratio of earnings to fixed charges has
been calculated by dividing (a) income from continuing operations before
income taxes plus fixed charges by (b) fixed charges. Fixed charges are
equal to interest expense plus the portion of the rent expense estimated to
represent interest.
(2) Earnings were insufficient to cover fixed charges for the years ended
September 30, 2001, 2002 and 2003 by $17.1 million, $11.9 million and $31.4
million, respectively.
7
RISK FACTORS
You should consider carefully all of the information in this prospectus,
including the following risk factors and warnings, before deciding whether to
exchange your Old Notes for the New Notes to be issued in this exchange offer.
Except for the first two risk factors described below, these risk factors apply
to both the Old Notes and the New Notes.
RISKS RELATED TO THE OFFERING
YOU MAY HAVE DIFFICULTY SELLING THE OLD NOTES WHICH YOU DO NOT EXCHANGE, SINCE
OUTSTANDING OLD NOTES WILL CONTINUE TO HAVE RESTRICTIONS ON TRANSFER AND
CANNOT BE SOLD WITHOUT REGISTRATION UNDER SECURITIES LAWS OR EXEMPTIONS FROM
REGISTRATION.
If a large number of outstanding Old Notes are exchanged for New Notes
issued in the exchange offer, it may be difficult for holders of outstanding Old
Notes that are not exchanged in the exchange offer to sell their Old Notes,
since those Old Notes may not be offered or sold unless they are registered or
there are exemptions from registration requirements under the Securities Act of
1933, hereinafter referred to as the Securities Act, or state laws that apply to
them. In addition, if there are only a small number of Old Notes outstanding,
there may not be a very liquid market in those Old Notes. There may be few
investors that will purchase unregistered securities in which there is not a
liquid market. See "The Exchange Offer -- You May Suffer Adverse Consequences if
You Fail to Exchange Outstanding Notes."
In addition, if you do not tender your outstanding Old Notes or if we do
not accept some outstanding Old Notes, those Old Notes will continue to be
subject to the transfer and exchange provisions of the indenture and the
existing transfer restrictions of the Old Notes that are described in the legend
on the Old Notes and in the prospectus relating to the Old Notes.
RESALE RESTRICTIONS -- IF YOU EXCHANGE YOUR OLD NOTES, YOU MAY NOT BE ABLE TO
RESELL THE NEW NOTES YOU RECEIVE IN THE EXCHANGE OFFER WITHOUT REGISTERING
THEM AND DELIVERING A PROSPECTUS.
You may not be able to resell New Notes that you receive in the exchange
offer without registering those New Notes or delivering a prospectus. Based on
interpretations by the Securities and Exchange Commission, hereinafter referred
to as the Commission, in no-action letters, we believe, with respect to New
Notes issued in the exchange offer, that:
- holders who are not "affiliates" of Neenah within the meaning of Rule 405
of the Securities Act;
- holders who acquire their New Notes in the ordinary course of business;
and
- holders who do not engage in, intend to engage in, or have arrangements
to participate in a distribution (within the meaning of the Securities
Act) of the New Notes
do not have to comply with the registration and prospectus delivery requirements
of the Securities Act.
Holders described in the preceding sentence must tell us in writing at our
request that they meet these criteria. Holders that do not meet these criteria
could not rely on interpretations of the Commission in no-action letters and
would have to register the New Notes that they receive in the exchange offer and
deliver a prospectus if they sold the New Notes. In addition, holders that are
broker-dealers may be deemed "underwriters" within the meaning of the Securities
Act in connection with any resale of New Notes acquired in the exchange offer.
Holders that are broker-dealers must acknowledge that they acquired their
outstanding New Notes in market-making activities or other trading activities
and must deliver a prospectus when they resell the New Notes they acquire in the
exchange offer in order not to be deemed an underwriter.
You should review the more detailed discussion in "The Exchange
Offer -- Procedures for Tendering Old Notes and Consequences of Exchanging
Outstanding Old Notes."
8
SERVICING OUR DEBT WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, AND OUR ABILITY
TO GENERATE SUFFICIENT CASH DEPENDS UPON MANY FACTORS, SOME OF WHICH ARE
BEYOND OUR CONTROL.
Our ability to make payments on and refinance our debt and to fund planned
capital expenditures depends on our ability to generate cash flow in the future.
To some extent, this is subject to general economic, financial, competitive,
legislative and regulatory factors and other factors that are beyond our
control. We cannot assure you that our business will continue to generate cash
flow from operations at current levels. If we are unable to generate sufficient
cash flow from operations in the future to service our debt, we may have to
refinance all or a portion of our existing debt or obtain additional financing.
We cannot assure you that any refinancing of this kind would be possible or that
any additional financing could be obtained. The inability to obtain additional
financing could have a material adverse effect on our financial condition and on
our ability to meet our obligations to you under the Notes.
RISK FACTORS RELATED TO THE COMPANY
A RELATIVELY SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF
OUR REVENUES.
Our industrial customer base is highly concentrated. A few large customers
generate the majority of our net sales.
- Sales to our largest customer accounted for approximately 9% of our total
net sales for the fiscal year ended September 30, 2003.
- Sales to our top five customers accounted for approximately 31% of our
total net sales for the six months ended March 31, 2003; and 31% of our
total net sales for the fiscal year ended September 30, 2003.
DECREASES IN DEMAND FOR HEAVY MUNICIPAL TRUCKS; HVAC EQUIPMENT, CONSTRUCTION
OR FARM EQUIPMENT COULD ADVERSELY AFFECT OUR BUSINESS.
Our company has historically experienced moderate to severe cyclicality in
most of our markets, including the truck and farm equipment markets. We cannot
assure you that these major markets will not continue to experience
fluctuations. A downturn in one or more of these markets could reduce demand
for, and prices of, our products. Such a significant downturn in one or more of
these major markets could have a significant negative impact on our
profitability, cash flow and ability to service our indebtedness. Historically,
our heavy municipal business has been less cyclical than our industrial markets.
COMPETITION COULD ADVERSELY AFFECT OUR BUSINESS.
The markets in which we compete are highly competitive and the foundry
industry has significant excess capacity. We cannot assure you that we will be
able to maintain or improve our competitive position in the markets in which we
compete. Competition is based mostly on price, but also on quality of product,
range of capability, level of service and reliability of delivery. We compete
with numerous foreign and domestic foundries. We also compete with several large
domestic manufacturers whose products are made with materials other than ductile
and gray iron, such as steel or aluminum. Industry consolidation over the past
20 years has significantly reduced the number of foundries operating in the
United States. While such consolidation has translated into greater market share
for the remaining foundries, some of these remaining foundries have
significantly greater financial resources than we do. Furthermore, despite the
reduction in the number of operating foundries, lack of demand for castings and
forgings means that the industry remains plagued by overcapacity.
INTERNATIONAL ECONOMIC AND POLITICAL FACTORS COULD AFFECT DEMAND FOR IMPORTS
AND EXPORTS.
Our operations may be affected by actions of foreign governments and global
or regional economic developments. Our markets are affected by fluctuations in
the value of the U.S. dollar as compared to certain foreign currencies. Global
economic events, such as foreign import/export policy or currency fluctuations,
could also affect the level of imports and exports. Foreign subsidies can also
impact the
9
domestic market for iron castings. In addition, foreign trade agreements and
each country's adherence to the terms of such agreements can raise or lower
demand for castings by domestic foundries. National and international boycotts
and embargoes of other countries' or U.S. imports and/or exports together with
the raising or lowering of tariff rates will affect the level of competition
between domestic and foreign foundries. Changes in the value of the U.S. dollar
relative to other currencies will also raise or lower demand for U.S. exports as
well as U.S. demand for foreign produced raw materials and finished good
imports. Such actions or developments could have a material adverse effect on
our business, financial condition and results of operations.
INCREASES IN THE PRICE OF RAW MATERIALS COULD ADVERSELY AFFECT OUR BUSINESS.
The cost of raw materials represents a significant portion of our operating
expenses. Raw materials and utilities prices are subject to fluctuation as a
result of domestic and international events. We have single-source arrangements
with many of our suppliers for the major raw materials that we use. We believe
that these arrangements enable us to purchase raw materials at competitive
prices, but we cannot assure you that we will continue to be able to make such
purchases or that these single-source arrangements will always result in the
most competitive price.
Although the prices of the raw materials we use vary, fluctuations in the
price of scrap metal are the most significant to us. We have arrangements with
most of our industrial customers that enable us to adjust industrial casting
prices to reflect scrap price fluctuations. In periods of rapidly rising or
falling scrap prices, however, these adjustments will lag the current scrap
price because they are generally based on average market prices for prior
periods. Nevertheless, rapidly fluctuating scrap prices may have an adverse or
positive effect on our business, financial condition and results of operations.
OUR BUSINESS COULD SUFFER FROM THE LOSS OF KEY PERSONNEL.
We are dependent on the continued services of our senior management team.
The loss of such key personnel could have a material adverse effect on our
business, financial condition and results of operations. See "Management."
THE SEASONAL NATURE OF OUR BUSINESS COULD HAVE AN ADVERSE EFFECT ON
OPERATIONS.
Our business is seasonal, and our quarterly revenues and profits
historically have been lower during the first and second fiscal quarters of the
year (October through March) and higher during the third and fourth fiscal
quarters (April through September). In addition, our working capital
requirements fluctuate throughout the year. Adverse market or operating
conditions during any seasonal part of the fiscal year could have a material
adverse effect on our business, financial condition and results of operations.
WE FACE THE RISK OF WORK STOPPAGES OR OTHER LABOR DISRUPTIONS.
Although we believe that our relations with our employees and with the
recognized labor unions that represent some of our employees are generally good,
we cannot assure you that we will not be subject to work stoppages or other
labor disruption and, if such events were to occur, that there would not be a
material adverse effect on our business, financial condition and results of
operations. See "Business -- Employees."
THE NATURE OF OUR BUSINESS EXPOSES US TO LIABILITY FOR VIOLATIONS OF
ENVIRONMENTAL, HEALTH AND SAFETY REQUIREMENTS.
Our facilities are subject to numerous federal, state and local laws and
regulations relating to permits to operate and the protection of the environment
and worker health and safety, including:
- those relating to discharges to air, water and land;
- the handling and disposal of solid and hazardous waste;
10
- compliance with regulations governing the installation of equipment;
- the operation of landfills;
- the potential cleanup of properties affected by hazardous substances;
- compliance with regulations published by the U.S. Occupational Safety and
Health Administration, or OSHA; and
- regulations governing workers' compensation laws in the various states in
which we operate.
The risk of environmental liability is inherent in the manufacturing of
casting and forging products. Changes in environmental laws and regulations or
the discovery of previously unknown contamination or other liabilities relating
to our properties and operations could require us to sustain significant
environmental liabilities which could make it difficult to pay the interest or
principal amount of these New Notes when due. In addition, we might incur
significant capital and other costs to comply with increasingly stringent
emission control laws and enforcement policies which could decrease our cash
flow available to service our indebtedness.
Federal, state and local governments could in the future enact laws or
regulations concerning environmental matters that affect our operations or
facilities, increase our costs of operation, or adversely affect the demand for
our services. We cannot predict the effect that such future laws or regulations
could have on our business. Nor can we predict what environmental conditions may
be found to exist at our current or past facilities or at other properties where
we or our predecessors have arranged for the disposal of wastes and the extent
of liability that may result from the discovery of such conditions. It is
possible that such future laws or undiscovered conditions could have a material
adverse effect on our business, financial condition and results of operations.
See "Business Environmental Matters."
Under the Federal Clean Air Act Amendments of 1990, the Environmental
Protection Agency is directed to establish maximum achievable control
technology, or MACT, standards for certain industrial operations that are major
sources of hazardous air pollutants. The iron foundry industry will be required
to implement the MACT emission limits, control technologies or work practices by
October 1, 2006. Although we are not yet able to accurately estimate the costs
to comply with the new MACT standard, the MACT standard, when implemented, and
state laws governing the emission of toxic air pollutants may require that
certain of our facilities incur significant costs for air emission control
equipment, air emission monitoring equipment or process modifications.
We are also subject to the OSHA regulations and workers' compensation laws.
We cannot assure you that claims will not be made against us for work related
illness or injury, or that the further adoption of occupational health and
safety regulations in the United States will not adversely affect our business,
financial condition and results of operations. See "Business -- Environmental
and Other Regulatory Matters." In addition, we are subject to periodic nuisance
complaints from neighbors and members of our community for things like damage to
personal property.
OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to pay the principal of and interest on the New Credit
Facility, the Notes and to finance additional indebtedness when necessary
depends on our financial and operating performance, each of which is subject to
prevailing global and national economic conditions and to financial, business,
legislative, emerging third world competitors and regulatory factors as well as
other factors beyond our control.
There can be no assurance that we will generate sufficient cash flow from
operations or obtain sufficient funding to satisfy all of our debt obligations.
If we are unable to pay our debts, we will be required to pursue one or more
alternative strategies, including refinancing or restructuring indebtedness or
selling additional debt or equity securities. In addition, the ability to borrow
funds under the New Credit Facility in the future will depend on our meeting the
financial covenants set forth under the terms of the New Credit Facility and the
indentures governing the Notes and our 13% Senior Subordinated Notes due 2013
including customary covenants and restrictions. There can be no assurance that
our business will
11
generate cash flow from operations or that future borrowings will be available
under the New Credit Facility in an amount sufficient to enable the payment of
debt obligations or to fund other liquidity needs. As a result, we may need to
refinance all or a portion of our debt on or before maturity. There can be no
assurance, however, that any alternative strategies will be feasible at the time
or prove adequate. Also, some alternative strategies will require the consent of
the new lenders.
FAILURE TO RAISE NECESSARY CAPITAL COULD RESTRICT OUR ABILITY TO OPERATE AND
FURTHER DEVELOP OUR BUSINESS.
We cannot be certain that our capital resources will be sufficient to
enable us to maintain operating profitability. Failure to generate or raise
sufficient funds may require us to delay or abandon some expansion plans or
expenditures, which could harm our business and competitive position.
We expect to meet funding needs through various sources, including existing
cash balances, existing lines of credit, and cash flow from future operations.
Estimated aggregate expenditure requirements include the projected costs of:
- approximately $18.0 million to $24.0 million annually from 2004 through
2007, primarily for necessary maintenance capital expenditures and
selected strategic capital investments required to maintain optimum
operating efficiencies; these projected levels of capital expenditures,
however, exclude the costs associated with complying with MACT, and since
we are subject to MACT, the cost of complying with MACT could raise
actual capital expenditures significantly above these projected levels;
and
- substantial funds required for general corporate, other expenses and
additional funds for working capital fluctuations.
We may choose to meet any additional financial needs by borrowing
additional funds under the New Credit Facility or from other sources. There can
be no assurance, however, that we will have timely access to any additional
financing sources on acceptable terms. Our ability to issue debt securities,
borrow funds from additional lenders and participate in vendor financing
programs will be restricted under the terms of the New Credit Facility and the
indentures governing the Notes and our 13% New Subordinated Notes due 2013.
Furthermore, we cannot be certain that the lenders will waive these restrictions
if additional financing is needed beyond that which is currently permitted.
TERRORIST ATTACKS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, OUR
ABILITY TO RAISE CAPITAL OR OUR FUTURE GROWTH.
The impact that terrorist attacks, such as those carried out on September
11, 2001, may have on our industry in general, and on us in particular, is
unknown at this time. Such attacks, and the uncertainty surrounding them, may
impact our operations in unpredictable ways, including disruptions of rail
lines, highways and fuel supplies and the possibility that our facilities could
be direct targets of, or indirect casualties of, an act of terror. In addition,
war or risk of war may also have an adverse effect on the economy. A decline in
economic activity could adversely affect our revenues or restrict our future
growth. Instability in the financial markets as a result of terrorism or war
could also affect our ability to raise capital. Such attacks may lead to
increased volatility in fuel costs and availability and could affect the results
of operations. In addition, the insurance premiums charged for some or all of
the coverages we currently maintain could increase dramatically, or the
coverages could be unavailable in the future.
BECAUSE OF THE PLAN OF REORGANIZATION, OUR FINANCIAL INFORMATION AFTER OCTOBER
1, 2003 IS NOT COMPARABLE TO OUR FINANCIAL INFORMATION PRIOR THERETO.
As a result of the consummation of the Plan of Reorganization, we are
operating our business under a new capital structure. In addition, we are
subject to the fresh-start reporting rules. Fresh-start reporting requires that,
upon our emergence from Chapter 11 proceedings, we establish a "fair value"
basis for the carrying value of the assets and liabilities of our reorganized
company. Although the effective date of the Plan of Reorganization was October
8, 2003, hereinafter referred to as the Effective Date, due to the
12
immateriality of the results of operations for the period between October 1,
2003 and the Effective Date, we accounted for the consummation of the Plan of
Reorganization as if it had occurred on October 1, 2003 and implemented
fresh-start reporting as of that date. Accordingly, our financial condition and
results of operations after October 1, 2003, the initial date of fresh-start
reporting, is not comparable to the financial condition or results of operations
reflected in the historical financial statements contained in this prospectus.
See "Selected Consolidated Financial Data" and the financial statements and
related footnotes attached hereto.
RISKS RELATING TO OUR INDEBTEDNESS
OUR SUBSTANTIAL INDEBTEDNESS MAY LIMIT CASH FLOW AVAILABLE TO INVEST IN THE
ONGOING NEEDS OF OUR BUSINESS TO GENERATE FUTURE CASH FLOW.
As a result of the Plan of Reorganization, our outstanding debt at November
30, 2003 was approximately $269 million. We may also incur additional debt from
time to time to finance working capital, capital expenditures and other general
corporate purposes. Our substantial indebtedness could have important
consequences to holders of our Notes. For example, it could:
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, reducing the availability of
our cash flow to fund working capital, capital expenditures, research and
development efforts and other general corporate purposes;
- increase the amount of interest expense that we have to pay, because
certain of our borrowings are at variable rates of interest, which, if
interest rates increase, could result in higher interest expense;
- increase our vulnerability to adverse general economic or industry
conditions;
- limit our flexibility in planning for, or reacting to, changes in our
business or the industry in which we operate; or
- place us at a competitive disadvantage compared to our competitors that
have less debt.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Liquidity and Capital Resources -- Contractual
Obligations and Commercial Commitments."
CLAIMS OF HOLDERS OF THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO CLAIMS OF
HOLDERS OF LIENS SECURING OUR NEW CREDIT FACILITY AND THE NOTES.
The Indenture governing the Notes stipulates that the Notes are pari passu
in right of payment to the New Credit Facility and the associated guarantees.
The liens securing the Notes are junior to the liens securing the New Credit
Facility and guarantees thereof. Thus, in the event of any distribution or
payment of our assets in any bankruptcy, liquidation or distribution or similar
proceeding, holders of liens securing the New Credit Agreement will be paid
before the liens securing the Notes. Both the liens securing the Credit
Agreement and the liens securing the Notes will be satisfied before payment is
made on the Notes. If any of these events occur, we cannot assure you that there
would be sufficient assets to pay amounts due on the Notes. Holders of the
Notes, may therefore, receive less, ratably, than holders of our liens securing
the Credit Agreement and Notes.
THE NOTES ARE SECURED BY OUR ASSETS ON A SUBORDINATED BASIS, AND THE LENDERS
UNDER OUR NEW CREDIT FACILITY WILL BE ENTITLED TO REMEDIES AVAILABLE TO A
SECURED LENDER, WHICH GIVES THEM PRIORITY OVER THE NOTE HOLDERS TO COLLECT
AMOUNTS DUE ON OUR DEBT.
The Notes and subsidiary guarantees will be secured by our assets on a
subordinated basis. Our obligations under our credit facility are secured by,
and among other things, a first priority pledge of all of our capital stock,
mortgages upon most of the real property that we own in the United States and by
substantially all of our assets and each of our existing and subsequently
acquired or organized material domestic subsidiaries. If we become insolvent or
are liquidated, or if payment under our credit facility or in respect of any
other secured indebtedness that is senior to the Notes is accelerated, the
lenders under
13
our credit facility or holders of other secured senior indebtedness will be
entitled to exercise the remedies available to a secured lender under applicable
law in addition to any remedies that may be available under documents pertaining
to our credit facility or the other senior debt. Upon the occurrence of any
default under the New Credit Facility, the lenders may be able to prohibit the
payment of the Notes and subsidiary guarantees either by limiting our ability to
access our cash flow or under the subordination provisions contained in the
security documents in respect of the Notes.
WE MAY NOT HAVE SUFFICIENT FUNDS, OR THE ABILITY TO RAISE THE FUNDS NECESSARY
TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE GOVERNING THE
NOTES.
If certain specific kinds of change of control events occur, we will be
required to offer to repurchase all outstanding Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest to the date of repurchase. It
is possible, however, that we will not have sufficient funds at the time of the
change of control to make the required repurchase of the Notes or that
restrictions in our credit facility will not allow those repurchases.
The source of funds for that purchase of Notes will be our available cash
or cash generated from our subsidiaries' operations or other sources, including
borrowing, sales of assets or sales of equity. We cannot assure you that
sufficient funds will be available at the time of any change of control to make
required repurchases of Notes tendered. In addition, the terms of our New Credit
Facility limit our ability to repurchase the Notes. Our future debt agreements
may contain similar restrictions and provisions. If the holders of the Notes
exercise their right to require us to repurchase all of the Notes upon a change
of control, the financial effect of this repurchase could cause a default under
our other debt, even if the change of control itself would not cause a default.
Accordingly, it is possible that we will not have sufficient funds at the time
of the change of control to make the required repurchase of Notes or that
restrictions in our New Credit Facility and the indentures governing the Notes
and our 13% Senior Subordinated Notes due 2013 will not allow such repurchases.
See "Description of Notes -- Change of Control" and "Description of New Credit
Facility" for additional information.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM
GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; and
- was insolvent or rendered insolvent by reason of such incurrence; or
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred.
Generally, however, a guarantor would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or
14
- if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities as they become absolute
and mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of these senior subordinated notes, will not be insolvent, will not
have unreasonably small capital for the business in which it is engaged and will
not have incurred debts beyond its ability to pay such debts as they mature. We
cannot assure you, however, as to what standard a court would apply in making
such determinations or that a court would agree with our conclusions in this
regard.
WE CANNOT ASSURE YOU THAT WE CAN COMPLY WITH OUR COVENANTS.
The terms and conditions of the indenture governing the Notes and our New
Credit Facility impose restrictions that limit, among other things, our ability
to:
- incur additional indebtedness;
- create liens on assets;
- sell assets;
- engage in mergers or consolidations;
- make acquisitions and investments;
- engage in certain transactions with affiliates; and
- make dividends, payments and certain other distributions.
In addition, our New Credit Facility requires us to maintain specified
financial ratios and satisfy certain financial condition tests that may require
that we take action to reduce our debt or to act in a manner contrary to our
business objectives. Events beyond our control, including changes in general
economic and business conditions, may affect our ability to meet those financial
ratios and financial condition tests. We cannot assure you that we will meet
those tests or that the lenders under the New Credit Facility will waive any
failure to meet those tests. A breach of any of these covenants would result in
a default under our New Credit Facility and the indenture. If an event of
default under our New Credit Facility occurs, the lenders could elect to declare
all amounts outstanding thereunder, together with accrued interest, to be
immediately due and payable. In such an event, we cannot assure you that we
would have sufficient assets to pay amounts due on the Notes. As a result, you
may receive less than the full amount you would be otherwise entitled to receive
on the Notes. See "Description of New Credit Facility" and "Description of
Notes" for additional information.
15
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OUTSTANDING NEW NOTES
Pursuant to the Plan of Reorganization, we conducted a rights offering,
whereby holders of the 11 1/8% Notes were given the opportunity to provide up to
$110.0 million additional financing through the purchase of up to $119.996
million face amount of Old Notes and warrants to acquire up to 34.2 million
shares of common stock of ACP. In case holders of the 11 1/8% Notes failed to
subscribe for the full $110.0 million, we also obtained standby commitment
agreements from Mackay Shields LLC, Exis Differential Holdings Ltd., Citicorp
Mezzanine III, L.P., Trust Company of the West and Metropolitan Life Insurance
Company whereby these Standby Purchasers collectively agreed to provide up to
$110.0 million of financing for the Plan of Reorganization by participating in
the rights offering (to the extent that they were holders of the 11 1/8% Notes)
as well as purchasing any and all unsubscribed securities not subscribed for by
the other holders of 11 1/8% Notes. Approximately 94% of the holders of the
11 1/8% Notes participated in the rights offering and the Standby Purchasers
were, therefore, only required to fund the shortfall of approximately $6.4
million. We also offered $13.134 million of Old Notes, warrants to purchase 3.8
million shares of common stock of ACP and $0.05 million to Citicorp Mezzanine
III, L.P. in exchange for surrender of the PIK Note. We issued the Old Notes on
October 8, 2003 and entered into a registration rights agreement with the
Standby Purchasers and Citicorp Mezzanine III, L.P. The registration rights
agreement requires that we register the Old Notes with the Commission and offer
to exchange the registered New Notes for the outstanding Old Notes issued on
October 8, 2003.
We will accept any validly tendered Old Notes that you do not withdraw
before 5:00 p.m., New York City time, on the expiration date. We will issue
$1,000 of principal amount at maturity of New Notes in exchange for each $1,000
principal amount at maturity of your outstanding Old Notes. You may tender some
or all of your Old Notes in the exchange offer.
The form and terms of the New Notes are the same as the form and terms of
the outstanding Old Notes except that:
(1) the New Notes being issued in the exchange offer will be
registered under the Securities Act and will not have legends restricting
their transfer;
(2) the New Notes being issued in the exchange offer will not contain
the registration rights and liquidated damages provisions contained in the
outstanding Old Notes; and
(3) interest on the New Notes will accrue from the last interest date
on which interest was paid on your Old Notes.
Outstanding Old Notes that we accept for exchange will not accrue interest
after we complete the exchange offer.
The exchange offer will expire at 5:00 p.m., New York City time, on
[ ], 2004, unless we extend it. If we extend the exchange offer, we
will issue a notice by press release or other public announcement before 9:00
a.m., New York City time, on the next business day after the previously
scheduled expiration date.
We reserve the right, in our sole discretion:
(1) to extend the exchange offer;
(2) to delay accepting your Old Notes;
(3) to terminate the exchange offer and not accept any Old Notes for
exchange if any of the conditions have not been satisfied; or
(4) to amend the exchange offer in any manner.
16
We will promptly give oral or written notice of any extension, delay,
non-acceptance, termination or amendment. We will also file a post-effective
amendment with the Commission if we amend the terms of the exchange offer.
If we extend the exchange offer, Old Notes that you have previously
tendered will still be subject to the exchange offer and we may accept them. We
will promptly return your Old Notes if we do not accept them for exchange for
any reason without expense to you after the exchange offer expires or
terminates.
PROCEDURES FOR TENDERING OLD NOTES HELD THROUGH BROKERS AND BANKS
Since the Old Notes are represented by global book-entry notes, DTC, as
depositary, or its nominee is treated as the registered holder of the notes and
will be the only entity that can tender your Old Notes for New Notes. Therefore,
to tender notes subject to this exchange offer and to obtain New Notes, you must
instruct the institution where you keep your old notes to tender your notes on
your behalf so that they are received on or prior to the expiration of this
exchange offer.
The BLUE-colored "Letter of Election and Instructions to Broker or Bank"
that may accompany this prospectus may be used by you to give such instructions.
YOU SHOULD CONSULT YOUR ACCOUNT REPRESENTATIVE AT THE BROKER OR BANK WHERE YOU
KEEP YOUR NOTES TO DETERMINE THE PREFERRED PROCEDURE.
IF YOU WISH TO ACCEPT THIS EXCHANGE OFFER, PLEASE INSTRUCT YOUR BROKER OR
ACCOUNT REPRESENTATIVE IN TIME FOR YOUR OLD NOTES TO BE TENDERED BEFORE THE 5:00
PM (NEW YORK CITY TIME) DEADLINE ON , 2004.
You may tender some or all of your Old Notes in this exchange offer.
However, notes may be tendered only in integral multiples of $1,000.
When you tender your outstanding Old Notes and we accept them, the tender
will be a binding agreement between you and us in accordance with the terms and
conditions in this prospectus.
The method of delivery of outstanding Old Notes and all other required
documents to the exchange agent is at your election and risk.
We will decide all questions about the validity, form, eligibility,
acceptance and withdrawal of tendered Old Notes, and our determination will be
final and binding on you. We reserve the absolute right to:
(1) reject any and all tenders of any particular note not properly
tendered;
(2) refuse to accept any Old Note if, in our judgment or the judgment
of our counsel, the acceptance would be unlawful; and
(3) waive any defects or irregularities or conditions of the exchange
offer as to any particular Old Note either before or after the expiration
date. This includes the right to waive the ineligibility of any holder who
seeks to tender Old Notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer will
be final and binding on all parties. You must cure any defects or irregularities
in connection with tenders of Old Notes as we will determine. Neither Neenah,
the exchange agent nor any other person will incur any liability for failure to
notify you of any defect or irregularity with respect to your tender of Old
Notes.
DEEMED REPRESENTATIONS
To participate in the exchange offer, we require that you represent to us
that:
(1) you or any other person acquiring New Notes for your outstanding
Old Notes in the exchange offer is acquiring them in the ordinary course of
business;
17
(2) neither you nor any other person acquiring New Notes in exchange
for your outstanding Old Notes is engaging in or intends to engage in a
distribution of the New Notes issued in the exchange offer;
(3) neither you nor any other person acquiring New Notes in exchange
for your outstanding Old Notes has an arrangement or understanding with any
person to participate in the distribution of New Notes issued in the
exchange offer;
(4) neither you nor any other person acquiring New Notes in exchange
for your outstanding Old Notes is our "affiliate" as defined under Rule 405
of the Securities Act; and
(5) if you or another person acquiring New Notes for your outstanding
Old Notes is a broker-dealer, you will receive New Notes for your own
account, you acquired New Notes as a result of market-making activities or
other trading activities, and you acknowledge that you will deliver a
prospectus in connection with any resale of your New Notes.
BY TENDERING YOUR OLD NOTES YOU ARE DEEMED TO HAVE MADE THESE REPRESENTATIONS.
Broker-dealers who cannot make the representations in item (5) of the
paragraph above cannot use this exchange offer prospectus in connection with
resales of the New Notes issued in the exchange offer.
If you are our "affiliate," as defined under Rule 405 of the Securities
Act, you are a broker-dealer who acquired your outstanding Old Notes in the
initial offering and not as a result of market-making or trading activities, or
if you are engaged in or intend to engage in or have an arrangement or
understanding with any person to participate in a distribution of New Notes
acquired in the exchange offer, you or that person:
(1) may not rely on the applicable interpretations of the staff of the
Commission; and
(2) must comply with the registration and prospectus delivery
requirements of the Securities Act when reselling the New Notes.
PROCEDURES FOR BROKERS AND CUSTODIAN BANKS; DTC ATOP ACCOUNT
In order to accept this exchange offer on behalf of a holder of Old Notes
you must submit or cause your DTC participant to submit an Agent's Message as
described below.
The exchange agent, on our behalf, will seek to establish an Automated
Tender Offer Program ("ATOP") account with respect to the outstanding notes at
DTC promptly after the delivery of this prospectus. Any financial institution
that is a DTC participant, including your broker or bank, may make book-entry
tender of outstanding old notes by causing the book-entry transfer of such notes
into our ATOP account in accordance with DTC's procedures for such transfers.
Concurrently with the delivery of Old Notes, an Agent's Message in connection
with such book-entry transfer must be transmitted by DTC to, and received by,
the exchange agent on or prior to 5:00 pm, New York City Time on the expiration
date. The confirmation of a book-entry transfer into the ATOP account as
described above is referred to herein as a "Book-Entry Confirmation."
The term "Agent's Message" means a message transmitted by the DTC
participants to DTC, and thereafter transmitted by DTC to the exchange agent,
forming a part of the Book-Entry Confirmation which states that DTC has received
an express acknowledgment from the participant in DTC described in such Agent's
Message stating that such participant and beneficial holder agree to be bound by
the terms of this exchange offer.
Each Agent's Message must include the following information:
1. Name of the beneficial owner tendering such notes;
2. Account number of the beneficial owner tendering such notes; and
3. Principal amount of notes tendered by such beneficial owner.
18
BY SENDING AN AGENT'S MESSAGE THE DTC PARTICIPANT IS DEEMED TO HAVE
CERTIFIED THAT THE BENEFICIAL HOLDER FOR WHOM NOTES ARE BEING TENDERED HAS BEEN
PROVIDED WITH A COPY OF THIS PROSPECTUS.
The delivery of notes through DTC, and any transmission of an Agent's
Message through ATOP, is at the election and risk of the person tendering notes.
We will ask the exchange agent to instruct DTC to return those Old Notes, if
any, that were tendered through ATOP but were not accepted by us, to the DTC
participant that tendered such notes on behalf of holders of the notes. Neither
we nor the exchange agent is responsible or liable for the return of such notes
to the tendering DTC participants or to their owners, nor as to the time by
which such return is completed.
ACCEPTANCE OF OUTSTANDING OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES ISSUED
IN THE EXCHANGE OFFER
We will accept validly tendered Old Notes when the conditions to the
exchange offer have been satisfied or we have waived them. We will have accepted
your validly tendered Old Notes when we have given oral or written notice to the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from us. If we do not accept any
tendered Old Notes for exchange because of an invalid tender or other valid
reason, the exchange agent will return the certificates, without expense, to the
tendering holder. If a holder has tendered Old Notes by book-entry transfer, we
will credit the notes to an account maintained with The Depository Trust
Company. We will credit the account at The Depository Trust Company as promptly
as practicable after the exchange offer terminates or expires.
THE AGENT'S MESSAGE MUST BE TRANSMITTED TO EXCHANGE AGENT ON OR BEFORE 5:00
PM, NEW YORK CITY TIME, ON THE EXPIRATION DATE.
WITHDRAWAL RIGHTS
You may withdraw your tender of outstanding notes at any time before 5:00
p.m., New York City time, on the expiration date.
For a withdrawal to be effective, you should contact your bank or broker
where your Old Notes are held and have them send and ATOP notice of withdrawal
so that it is received by the exchange agent before 5:00 p.m., New York City
time, on the expiration date. Such notice of withdrawal must:
(1) specify the name of the person that tendered the Old Notes to be
withdrawn;
(2) identify the Old Notes to be withdrawn, including the CUSIP number
and principal amount at maturity of the Old Notes;
(3) specify the name and number of an account at The Depository Trust
Company to which your withdrawn Old Notes can be credited.
We will decide all questions as to the validity, form and eligibility of
the notices and our determination will be final and binding on all parties. Any
tendered Old Notes that you withdraw will be not be considered to have been
validly tendered. We will return any outstanding Old Notes that have been
tendered but not exchanged, or credit them to The Depository Trust Company
account, as soon as practicable after withdrawal, rejection of tender, or
termination of the exchange offer. You may re-tender properly withdrawn Old
Notes by following one of the procedures described above before the expiration
date.
19
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision herein, we are not required to accept
for exchange, or to issue New Notes in exchange for, any outstanding Old Notes.
We may terminate or amend the exchange offer, if at any time before the
acceptance of outstanding notes:
(1) any federal law, statute, rule or regulation has been adopted or
enacted which, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer;
(2) if any stop order is threatened or in effect with respect to the
registration statement which this prospectus is a part of or the
qualification of the indenture under the Trust Indenture Act of 1939; or
(3) there is a change in the current interpretation by the staff of
the Commission which permits holders who have made the required
representations to us to resell, offer for resale, or otherwise transfer
New Notes issued in the exchange offer without registration of the New
Notes and delivery of a prospectus, as discussed above.
These conditions are for our sole benefit and we may assert or waive them
at any time and for any reason. However, the exchange offer will remain open for
at least five business days following any waiver of the preceding conditions.
Our failure to exercise any of the foregoing rights will not be a waiver of our
rights.
EXCHANGE AGENT
You should direct questions, requests for assistance, and requests for
additional copies of this prospectus and the BLUE-colored "Letter of elections
and Instructions to Brokers or Bank" to the exchange agent at [ ].
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer except for reimbursement of mailing expenses.
We will pay the estimated cash expenses connected with the exchange offer.
We estimate that these expenses will be approximately $[ ].
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the existing
Old Notes, as reflected in our accounting records on the date of exchange.
Accordingly, we will recognize no gain or loss for accounting purposes. The
expenses of the exchange offer will be expensed over the term of the New Notes.
TRANSFER TAXES
If you tender outstanding Old Notes for exchange you will not be obligated
to pay any transfer taxes. However, if you instruct us to register New Notes in
the name of, or request that your Old Notes not tendered or not accepted in the
exchange offer be returned to, a person other than you, you will be responsible
for paying any transfer tax owed.
YOU MAY SUFFER ADVERSE CONSEQUENCES IF YOU FAIL TO EXCHANGE OUTSTANDING OLD
NOTES
If you do not tender your outstanding Old Notes, you will not have any
further registration rights, except for the rights described in the registration
rights agreement and described above, and your Old Notes will continue to be
subject to restrictions on transfer when we complete the exchange offer.
Accordingly, if you do not tender your notes in the exchange offer, your ability
to sell your Old Notes could be adversely affected. Once we have completed the
exchange offer, holders who have not tendered
20
notes will not continue to be entitled to any increase in interest rate that the
indenture provides for if we do not complete the exchange offer.
Holders of the New Notes issued in the exchange offer and Old Notes that
are not tendered in the exchange offer will vote together as a single class
under the indenture governing the Notes.
CONSEQUENCES OF EXCHANGING OUTSTANDING OLD NOTES
If you make the representations that we discuss above, we believe that you
may offer, sell or otherwise transfer the New Notes to another party without
registration of your notes or delivery of a prospectus.
We base our belief on interpretations by the staff of the Commission in
no-action letters issued to third parties. If you cannot make these
representations, you cannot rely on this interpretation by the Commission's
staff and you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a resale of the Old Notes.
A broker-dealer that receives New Notes for its own account in exchange for its
outstanding Old Notes must acknowledge that it acquired as a result of market
making activities or other trading activities and that it will deliver a
prospectus in connection with any resale of the New Notes. Broker-dealers who
can make these representations may use this exchange offer prospectus, as
supplemented or amended, in connection with resales of New Notes issued in the
exchange offer.
However, because the Commission has not issued a no-action letter in
connection with this exchange offer, we cannot be sure that the staff of the
Commission would make a similar determination regarding the exchange offer as it
has made in similar circumstances.
SHELF REGISTRATION
The registration rights agreement also requires that we file a shelf
registration statement if:
(1) we cannot file a registration statement for the exchange offer
because the exchange offer is not permitted by law;
(2) a law or Commission policy prohibits a holder from participating
in the exchange offer;
(3) a holder cannot resell the New Notes it acquires in the exchange
offer without delivering a prospectus and this prospectus is not
appropriate or available for resales by the holder; or
(4) a holder is a broker-dealer and holds notes acquired directly from
us or one of our affiliates.
We will also register the New Notes under the securities laws of
jurisdictions that holders may request before offering or selling notes in a
public offering. We do not intend to register New Notes in any jurisdiction
unless a holder requests that we do so.
Old Notes may be subject to restrictions on transfer until:
(1) a person other than a broker-dealer has exchanged the Old Notes in
the exchange offer;
(2) a broker-dealer has exchanged the Old Notes in the exchange offer
and sells them to a purchaser that receives a prospectus from the broker,
dealer on or before the sale;
(3) the Old Notes are sold under an effective shelf registration
statement that we have filed; or
(4) the Old Notes are sold to the public under Rule 144 of the
Securities Act.
21
THE REFINANCING TRANSACTIONS
In connection with the Plan of Reorganization and concurrently with the
issuance of the Old Notes, we consummated the following refinancing
transactions:
REPAYMENT OF OLD CREDIT FACILITY
We paid in full our obligations under the old credit facility (including
accrued interest) of $148.2 million.
CANCELLATION OF SENIOR SUBORDINATED NOTES
All of our outstanding 11 1/8% Notes (including accrued interest) were
cancelled in exchange for (i) $30.0 million in cash, (ii) $100.0 million in
aggregate principal amount of New Subordinated Notes and (iii) 38 million shares
of common stock of ACP. Each of the holders of the 11 1/8% Notes was also
offered the opportunity to purchase its pro rata share of Old Notes and warrants
to acquire up to 34.2 million shares of the common stock of ACP.
CANCELLATION OF PIK NOTE
Our 14% senior secured paid-in-kind note in an original aggregate principal
amount of $9.9 million (plus accrued and unpaid interest thereon), or PIK Note,
was cancelled in exchange for (i) Old Notes with a principal amount equal to
$13.134 million and warrants to acquire 3.8 million shares of common stock of
ACP and (ii) cash in the amount of $45,400.
CONSUMMATION OF NEW CREDIT FACILITY
We entered into the New Credit Facility with a syndicate of financial
institutions for which Fleet Capital Corporation acts as agent, Fleet
Securities, Inc. acts as arranger, Congress Financial Corporation (Central) acts
individually and as syndication agent and General Electric Capital Corporation
acts individually and as documentation agent. The New Credit Facility is a
five-year facility providing for a term loan of $22.085 million and a revolving
credit facility (with a $5.0 million sublimit for the issuance of letters of
credit) for borrowings of up to $70.0 million, of which $25.027 million was
drawn at the Effective Date. See "Description of New Credit Facility."
ISSUANCE OF OLD NOTES
We conducted a rights offering, whereby holders of the 11 1/8% Notes were
given the opportunity to provide up to $110.0 million of financing through the
purchase of up to $119.996 million face amount of Old Notes and warrants to
acquire up to 34.2 million shares of common stock of ACP. In case holders of the
11 1/8% Notes failed to subscribe for the full $110.0 million, we also obtained
standby commitment agreements from Mackay Shields LLC, Exis Differential
Holdings Ltd., Citicorp Mezzanine III, L.P., Trust Company of the West and
Metropolitan Life Insurance Company whereby these Standby Purchasers
collectively agreed to provide up to the full $110.0 million of financing for
the Plan of Reorganization by participating in the rights offering (to the
extent that they were holders of the 11 1/8% Notes) as well as purchasing any
and all unsubscribed securities not subscribed for by the other holders of
11 1/8% Notes. Approximately 94% of the holders of the 11 1/8% Notes
participated in the rights offering, purchasing approximately $113.0 million
face amount of Old Notes for approximately $103.6 million. The Standby
Purchasers were, therefore, only required to purchase approximately $7.0 million
face amount of Old Notes for approximately $6.4 million.
ISSUANCE OF 13% SENIOR SUBORDINATED NOTES DUE 2013
We issued $100.0 million in aggregate principal amount of 13% (of which 8%
may be paid in kind) senior subordinated notes due September 30, 2013 to the
holders of the 11 1/8% Notes in partial satisfaction
22
of the claims against us. The new subordinated notes are contractually
subordinated to the New Credit Facility and the Old Notes and the liens and
guarantees thereof.
ISSUANCE OF NEW ACP HOLDINGS COMMON STOCK
We issued 38 million shares of common stock in ACP Holding Company to the
holders of the 11 1/8% Notes and 4 million shares to management.
ISSUANCE OF WARRANTS EXERCISABLE FOR COMMON STOCK OF ACP
We issued warrants exercisable for 38 million shares of common stock of ACP
to the holders of the 11 1/8% Notes who participated in the rights offering, the
Standby Purchasers and Citicorp Mezzanine III, L.P., the holder of the PIK Note.
USE OF PROCEEDS
The Old Notes were issued on October 8, 2003 to holders of the 11 1/8%
Notes that participated in the rights offering, certain holders of the 11 1/8%
Notes who agreed to act as standby purchasers and purchase up to $110.0 million
of Old Notes and Citicorp Mezzanine III, L.P., as the holder of the PIK Note. We
received approximately $103.6 million from holders of the 11 1/8% Notes and
approximately $6.4 million from the Standby Purchasers. The net proceeds from
the offering of the Old Notes were used to repay the old credit facility, pay
transaction fees and expenses and for general corporate purposes.
We will not receive any cash proceeds from the issuance of the New Notes in
the exchange offer. In consideration for issuing the New Notes as contemplated
in this prospectus, we will receive existing Old Notes in equal principal amount
at maturity, the terms of which are the same in all material respects to the New
Notes. The Old Notes surrendered in exchange for the New Notes will be retired
or cancelled and not reissued. Accordingly, the issuance of the New Notes will
not result in any increase or decrease in our debt.
23
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of September 30, 2003 on a historical basis and on a pro
forma basis after giving effect to the Plan of Reorganization. The terms of our
Plan of Reorganization are described below in the section captioned
"Business -- Bankruptcy Proceedings." This table should be read in conjunction
with our consolidated financial statements and the related notes to the
consolidated financial statements included elsewhere in this prospectus. All
amounts are presented in thousands.
<Table>
<Caption>
AS OF SEPTEMBER 30, 2003
------------------------
ACTUAL PRO FORMA
---------- -----------
(IN THOUSANDS)
Cash and cash equivalents................................... $ 24,356 $ --
======== ========
Debt:
Senior Bank Facility:
Revolver............................................... $ 29,314 $ 25,027
Term facilities........................................ 118,127 22,085
11% Senior Secured Notes due 2010, net of discount of
$11,692................................................ -- 121,438
13% Senior Subordinated Notes due 2013.................... -- 100,000
11 1/8% Senior Subordinated Notes due 2007................ 282,000 --
PIK Note.................................................. 9,900 --
Capital lease obligations................................. 4,229 4,229
Other debt................................................ 16 --
-------- --------
Total debt................................................ 443,586 272,779
Total stockholder's equity (deficit)........................ (39,016) 5,529
-------- --------
Total capitalization........................................ $404,570 $278,308
======== ========
</Table>
24
SELECTED CONSOLIDATED FINANCIAL DATA
On August 5, 2003, ACP, NFC, Neenah and their domestic wholly-owned
domestic subsidiaries filed for bankruptcy protection and emerged therefrom on
October 8, 2003. Although the Plan of Reorganization became effective on October
8, 2003, due to the immateriality of the results of operations for the period
between October 1, 2003 and the Effective Date, for financial reporting purposes
we recorded the fresh-start adjustments necessitated by the American Institute
of Certified Public Accountants Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code," ("SOP 90-7") on
October 1, 2003.
As a result of our emergence from Chapter 11 bankruptcy and the application
of fresh-start reporting, our consolidated financial statements for the periods
commencing on October 1, 2003 will be referred to as the "Successor Company" and
will not be comparable with any periods prior to October 1, 2003, which are
referred to as the "Predecessor Company" (see Notes 1, 2 and 3 to our
consolidated financial statements). All references to years ending September 30,
2003, 2002, 2000, 2001 and 1999 are to the Predecessor Company. All references
to the periods subsequent to October 1, 2003 are to the Successor Company.
The following table presents our selected historical consolidated financial
data as of and for the year ended September 30, 2003, and for each of the years
in the four-year period ended September 30, 2002 for the Predecessor Company,
derived from audited consolidated financial statements. The selected historical
data should be read in conjunction with the financial statements and the related
notes and other information contained elsewhere in this report, including the
information set forth under the headings "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." All
amounts are presented in thousands.
<Table>
<Caption>
FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------
1999(2)(3)(4) 2000(2)(3)(4)(5) 2001(2)(3)(4) 2002(3)(4) 2003(4)
------------- ---------------- ------------- ---------- --------
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $477,353 $488,195 $398,782 $387,707 $375,063
Cost of sales...................... 381,841 391,646 335,264 323,740 321,834
-------- -------- -------- -------- --------
Gross profit....................... 95,512 96,549 63,518 63,967 53,229
Selling, general and administrative
expenses......................... 31,137 33,093 27,587 28,743 26,132
Amortization expense............... 10,958 10,379 10,489 3,829 3,819
Provision for impairment of
assets........................... -- -- -- 74 --
Other expenses (income)(1)......... 7,518 85 (434) 544 195
-------- -------- -------- -------- --------
Operating income................... 45,899 52,992 25,876 30,777 23,083
Interest expense, net.............. 38,870 42,971 43,009 42,647 46,620
Reorganization expense............. -- -- -- -- 7,874
-------- -------- -------- -------- --------
Income (loss) from continuing
operations before taxes.......... 7,029 10,021 (17,133) (11,870) (31,411)
Provision (credit) for income
taxes............................ 4,336 6,094 (4,004) (5,917) (8,541)
-------- -------- -------- -------- --------
Income (loss) from continuing
operations....................... 2,693 3,927 (13,129) (5,953) (22,870)
Loss from discontinued operations,
net of income taxes.............. (4,585) (9,070) (4,325) (41,750) (1,095)
Gain (loss) on sale of discontinued
operations, net of income
taxes............................ -- -- 2,404 -- (1,596)
-------- -------- -------- -------- --------
Net loss........................... $ (1,892) $ (5,143) $(15,050) $(47,703) $(25,561)
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents.......... $ 17,368 $ 19,478 $ 4,346 $ 26,164 $ 24,356
Working capital.................... 83,962 86,080 72,140 65,050 103,683
Total assets....................... 641,702 666,218 626,443 569,388 536,834
Total debt......................... 428,007 449,607 434,077 451,432 439,357
Total stockholder's equity
(deficit)........................ 63,750 58,518 41,939 (12,146) (39,016)
</Table>
25
- ---------------
(1) In 1999, other expenses includes a $6,713 charge related to the closure of
Dalton Corporation's Ashland facility.
(2) On October 2, 2000, we sold all of the issued and outstanding shares of
common stock of Hartley Controls Corporation. The results of the operations
of Hartley Controls Corporation have been reported separately as
discontinued operations for all periods presented.
(3) During the year ended September 30, 2002, we discontinued the operations of
Cast Alloys. The results of Cast Alloys have been reported separately as
discontinued operations for all periods presented.
(4) During the year ended September 30, 2003, we sold substantially all of the
assets of Belcher Corporation. The results of Belcher Corporation have been
reported separately as discontinued operations for all periods presented.
(5) The amounts include the results of Gregg Industries, Inc. subsequent to
November 30, 1999.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and our consolidated financial statements and the
related notes included elsewhere in this prospectus. This prospectus contains,
in addition to historical information, forward-looking statements that include
risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements.
RESULTS OF OPERATIONS
We derive substantially all of our revenue from manufacturing and marketing
a wide range of metal castings and forgings for the heavy municipal market and
selected segments of the industrial markets. We have two reportable segments,
Castings and Forgings. The Castings segment is a leading producer of iron
castings for use in heavy municipal and industrial applications. This segment
sells directly to original equipment manufacturers, hereinafter referred to as
OEMs, as well as to industrial end users. The forgings segment, operated by
Mercer, is a producer of complex-shaped forged components for use in
transportation, railroad, mining and heavy industrial applications. Mercer is
also a producer of microalloy forgings. Mercer sells directly to OEMs, as well
as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines
forgings and castings for Mercer and other industrial applications.
Restructuring charges and certain other expenses, such as income taxes, general
corporate expenses and financing costs, are not allocated between our two
operating segments.
BANKRUPTCY PROCEEDINGS
On August 5, 2003, we, together with ACP, NFC, and all of our wholly-owned
domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of
the United States Bankruptcy Code, as amended, with the United States Bankruptcy
Court for the District of Delaware and submitted to the Bankruptcy Court for
approval the Disclosure Statement for our Amended Prepackaged Joint Chapter 11
Plan of Reorganization, which we call the Plan of Reorganization.
By order dated September 26, 2003, the Bankruptcy Court confirmed the Plan
of Reorganization and the Plan of Reorganization became effective on October 8,
2003. October 8, 2003 is hereinafter referred to as the Effective Date. The Plan
of Reorganization allowed us to emerge from bankruptcy with an improved capital
structure. Because we had arranged to continue paying our trade debt on a timely
basis, we had sufficient trade credit to continue operations in the ordinary
course of business during the pendency of the Chapter 11 proceedings. On the
Effective Date, we entered into a new senior credit facility. See "Liquidity and
Capital Resources -- New Credit Facility" below for further discussion.
The Plan of Reorganization resulted in significant changes to our capital
structure. Among other things, the Plan of Reorganization provided for the
repayment in full of our old credit facility, the cancellation of $282.0 million
in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the
elimination of the interests of the former equity owners of our indirect parent
company, ACP. The cash proceeds necessary to consummate the Plan of
Reorganization were provided from the consummation of the New Credit Facility
and the issuance of the Old Notes. The claims and interests of our various
creditors were satisfied as follows:
- our old credit facility was repaid in cash;
- our PIK Note was cancelled and Citicorp Mezzanine III, L.P., the holder
of that note, received Old Notes with a principal amount equal to $13.134
million, warrants to acquire 3.8 million shares of common stock of ACP
and cash in the amount of $45,400;
- our outstanding 11 1/8% Notes were cancelled and each holder of 11 1/8%
Notes received its pro rata share of (i) $30.0 million in cash, (ii)
$100.0 million in aggregate principal amount of new 13% Senior
Subordinated Notes due 2013 of the Company, (iii) 38 million shares of
common stock of ACP and (iv) rights to acquire for $110 million in cash
in the aggregate, units for up to
27
$119.996 million face amount of Old Notes and warrants to acquire up to
34.2 million shares of common stock of ACP;
- the following debt and equity instruments were cancelled without further
consideration: 12% senior subordinated notes issued by ACP, 12% senior
subordinated notes issued by NFC and all equity interests of ACP; and
- the following claims and equity interests passed through our Chapter 11
bankruptcy proceedings unimpaired: all tax claims, intercompany debt,
other secured debt and general unsecured debt and the equity interests of
ACP Holding Company in NFC Castings, Inc., equity interests of NFC
Castings, Inc. in Neenah and equity interests of Neenah in its direct and
indirect subsidiaries.
As a result of the Plan of Reorganization, significant changes resulted to
our capital structure. See "Business -- Bankruptcy Proceedings." Although the
Plan of Reorganization became effective on October 8, 2003, due to the
immateriality of the results of operations for the period between October 1,
2003 and the Effective Date, for financial reporting purposes we recorded the
fresh-start adjustments necessitated by the American Institute of Certified
Public Accountants Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code," ("SOP 90-7") on October 1, 2003.
Reorganization value is defined by SOP 90-7 as "the fair value of the
entity before considering liabilities and approximates the amount a willing
buyer would pay for the assets of the entity immediately after the
restructuring." Our reorganization value was $290 million and was determined
based on the consideration of many factors and by reliance on various valuation
techniques, including comparable company analysis and discounted cash flow
analyses. The factors considered included, but were not limited to, the
following:
- forecasted operating and cash flow results which gave effect to the
estimated impact of the changes in our capital structure contemplated by
the Plan of Reorganization;
- discounted cash flow analyses using an EBITDA multiple or perpetual
growth rate to determine a terminal value;
- estimated values of our net operating loss carryforwards;
- consideration of market values of comparable companies;
- market share and position; and
- competition and general economic considerations.
As a result of our emergence from Chapter 11 bankruptcy and the application
of fresh-start reporting, our consolidated financial statements for the periods
commencing on October 1, 2003 will be referred to as the "Successor Company" and
will not be comparable with any periods prior to October 1, 2003, which are
referred to as the "Predecessor Company" (see Notes 1, 2 and 3 to our
consolidated financial statements). All references to years ending September 30,
2003, 2002, 2000, 2001 and 1999 are to the Predecessor Company. All references
to the periods subsequent to October 1, 2003 are to the Successor Company.
PREDECESSOR COMPANY FISCAL YEAR ENDED SEPTEMBER 30, 2003 COMPARED TO THE FISCAL
YEAR ENDED SEPTEMBER 30, 2002
Net Sales. Net sales for the year ended September 30, 2003 were $375.1
million, which was $12.6 million or 3.2% lower than the year ended September 30,
2002. The decrease in net sales resulted from a decreased demand for industrial
castings used for the heavy duty truck market. This decrease in demand was
caused by prior year demand being inflated by pre-buying to avoid new engine
emission standards that became effective October 1, 2002.
28
Gross Profit. Gross profit was $53.2 million for the year ended September
30, 2003, which was $10.8 million or 16.9% lower than the year ended September
30, 2002. Gross profit as a percentage of net sales decreased to 14.2% during
the year ended September 30, 2003 from 16.5% for the fiscal year ended September
30, 2002. The decrease in gross margin resulted from lower sales volume noted
above, higher scrap metal prices and price compression in all market segments
due to severe competitive pressures.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended September 30, 2003 were $26.1
million, a decrease of $2.6 million from the $28.7 million for the year ended
September 30, 2002. As a percentage of net sales, selling, general and
administrative expenses decreased to 7.0% for the year ended September 30, 2003
from 7.4% for the fiscal year ended September 30, 2002. The decrease was due to
cost cutting measures undertaken in response to the lower sales volume noted
above.
Amortization of Intangible Assets. Amortization of intangible assets for
the years ended September 30, 2003 and 2002 was $3.8 million.
Other Expenses. Other expenses for the years ended September 30, 2003 and
2002 consist of losses of $0.2 million and $0.5 million, respectively, for the
disposal of long-lived assets in the ordinary course of business.
Operating Income. Operating income was $23.1 million for the year ended
September 30, 2003, a decrease of $7.7 million or 25.0% from the year ended
September 30, 2002. The decrease was caused by the reasons discussed above under
gross profit and was partially offset by lower selling, general and
administrative expenses. As a percentage of net sales, operating income
decreased from 7.9% for the year ended September 30, 2002 to 6.2% for the year
ended September 30, 2003.
Net Interest Expense. Net interest expense increased to $46.6 million for
the year ended September 30, 2003 from $42.6 million for the year ended
September 30, 2002. The increased interest expense resulted from interest
accrued on the CVC PIK Note and an interest premium on our borrowings under our
credit facility in the current year. In addition, $6.3 million of payments to
bondholders in connection with the reorganization were classified as interest
expense. We did not record $5.0 million of contractual interest expense for
interest incurred on the 11 1/8% Notes subsequent to our filing voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code.
Reorganization Expense. We recorded $7.9 million of reorganization
expenses in 2003 which related to professional fees incurred in connection with
the restructuring of our company and our filing for Chapter 11 bankruptcy
protection as well as the write-off of debt issuance costs and premiums related
to the 11 1/8% Notes.
Provision for Income Taxes. The credit for income taxes for the year ended
September 30, 2003 is lower than the amount computed by applying our statutory
rate of 35% to the loss before income taxes principally due to permanent
differences related to the reorganization expenses incurred as noted above.
Loss from Discontinued Operations. During December, 2002, we sold
substantially all of the assets of Belcher. The disposition of Belcher resulted
in a loss of $1,596 net of income taxes, which we recognized in the year ended
September 30, 2003. In accordance with the provisions of Statement of Financial
Accounting Standards No. 144, or SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," the results of operations for Belcher have been
reported as discontinued operations in the statement of operations for all
periods presented.
In January, 2002, management initiated a plan for the discontinuation of
the operations of Cast Alloys, Inc., hereafter referred to as Cast Alloys, by
closing its manufacturing facilities. In accordance with the provisions of SFAS
144, the results of operations for Cast Alloys have been reported as
discontinued operations in the statement of operations for all periods
presented.
29
PREDECESSOR COMPANY FISCAL YEAR ENDED SEPTEMBER 30, 2002 COMPARED TO THE FISCAL
YEAR ENDED SEPTEMBER 30, 2001
Net Sales. Net sales for the year ended September 30, 2002 were $387.7
million, which was $11.1 million or 2.8% lower than the year ended September 30,
2001. The decrease in net sales resulted from weakness in the demand for
industrial castings used for the HVAC market and an overall slowing of demand
for castings in our other major markets.
Gross Profit. Gross profit was $64.0 million for the year ended September
30, 2002, an increase of $5.0 million over the year ended September 30, 2001.
Gross profit as a percentage of net sales increased to 16.5% during the year
ended September 30, 2002 from 15.9% for the fiscal year ended September 30,
2001. Gross profit percentage was positively impacted during the year ended
September 30, 2002 by modest reductions in raw material costs and improved
efficiency in the manufacturing process.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended September 30, 2002 were $28.7
million, an increase of $1.1 million from the $27.6 million for the year ended
September 30, 2001. As a percentage of net sales, selling, general and
administrative expenses increased to 7.4% for the year ended September 30, 2002
from 6.9% for the fiscal year ended September 30, 2001. The increase was due to
increased professional fees paid in conjunction with debt refinancing and other
corporate projects in 2002 and a favorable escrow refund received in 2001 which
did not occur in 2002.
Amortization of Intangible Assets. Amortization of intangible assets for
the year ended September 30, 2002 was $3.8 million, a decrease of $6.7 million
from the $10.5 million for the year ended September 30, 2001. The decrease was
due to the adoption of Statement of Financial Accounting Standards No. 142, or
SFAS 142, as of October 1, 2001. Under SFAS 142, goodwill is no longer amortized
but instead is tested for impairment. Except for the discontinued operations of
Cast Alloys there was no deemed impairment of intangible assets.
Provision for Impairment of Assets. We recognized an impairment charge of
$0.1 million related to a building held for sale during the year ended September
30, 2002.
Other Expenses (Income). Other expenses (income) for the years ended
September 30, 2002 and 2001 consist of losses of $0.5 million and gains of $0.4
million, respectively, for the disposal of long-lived assets in the ordinary
course of business.
Operating Income. Operating income was $30.8 million for the year ended
September 30, 2002, an increase of $4.9 million or 18.9% from the year ended
September 30, 2001. The increase was caused by the $6.7 million decrease in
amortization expense, partially offset by a $1.1 million increase in selling,
general and administrative expenses. As a percentage of net sales, operating
income increased to 7.9% for the year ended September 30, 2002 from 6.5% for the
year ended September 30, 2001.
Net Interest Expense. Net interest expense decreased to $42.6 million for
the year ended September 30, 2002 from $43.0 million for the year ended
September 30, 2001. The decreased interest expense resulted from our principal
debt repayments and lower interest rates on our credit facility, partially
offset by the interest on the higher level of borrowings outstanding on our
revolving credit facility during the year ended September 30, 2002 as compared
to the year ended September 30, 2001.
Provision for Income Taxes. The credit for income taxes for the year ended
September 30, 2002 is higher than the amount computed by applying our statutory
rate of approximately 35% to the loss before income taxes primarily due to
permanent differences related to the discontinuance of Cast Alloys.
Discontinued Operations. On October 2, 2000, we sold the common stock of
Hartley Controls Corporation. The disposition of Hartley Controls Corporation
resulted in a gain of $2.4 million, net of income taxes of $1.6 million, which
was recorded during the year ended September 30, 2001.
30
LIQUIDITY AND CAPITAL RESOURCES
New Credit Facility. In connection with our Chapter 11 filing and
emergence therefrom, we entered into the New Credit Facility with a syndicate of
financial institutions for which Fleet Capital Corporation acts as agent, Fleet
Securities, Inc. acts as arranger, Congress Financial Corporation (Central) acts
individually and as syndication agent and General Electric Capital Corporation
acts individually and as documentation agent. The New Credit Facility has a
five-year maturity and Neenah Foundry Company and all of its active domestic
subsidiaries are the borrowers under the New Credit Facility.
The New Credit Facility consists of a revolving credit facility of up to
$70.0 million (with a $5.0 million sublimit available for letters of credit) and
borrowing base term loans in the aggregate amount of $22.085 million. The New
Credit Facility has a five-year maturity and bears interest at rates based on
the lenders' Base Rate, as defined in the New Credit Facility or an adjusted
rate based on LIBOR. Availability under the New Credit Facility is based on
various advance rates against our accounts receivable and inventory. Amounts
under the revolving credit facility may be borrowed, repaid and reborrowed
subject to the terms of the facility. At October 8, 2003, we had approximately
$25.0 million outstanding under the revolving credit facility and approximately
$22.1 million outstanding under the term loan facility. No portion of the term
loan, once repaid, may be reborrowed. The proceeds of the loan facility on the
Effective Date were utilized to repay a portion of the old credit facility
pursuant to the Plan of Reorganization and other cash distributions.
NFC and the inactive subsidiaries of Neenah jointly and severally guarantee
Neenah's obligations under the New Credit Facility, subject to customary
exceptions for transactions of this type. The borrower's and guarantors'
obligations under the New Credit Facility are secured by a first priority
perfected security interest, subject to customary restrictions, in substantially
all of Neenah's tangible and intangible assets. The Notes, and the guarantees in
respect thereof, are equal in right of payment to the New Credit Facility, and
the guarantees in respect thereof. The liens in respect of the Notes are junior
to the liens securing the New Credit Facility and guarantees thereof.
Voluntary prepayments may be made at any time on the term loan borrowings
or the revolving borrowings upon customary prior notice. Prepayments on the term
loan borrowings may be made at any time without premium or penalty unless a
simultaneous prepayment is being made on the revolving borrowings or if any such
prepayment has been made previously. For the first three years of the New Credit
Facility, prepayments on the revolving borrowings are subject to certain
premiums specified in the New Credit Facility. Mandatory repayments are required
under certain circumstances, including a sale of assets or the issuance of debt
or equity.
The New Credit Facility requires Neenah to observe certain customary
conditions, affirmative covenants and negative covenants including financial
covenants. The New Credit Facility also contains events of default customary for
these types of facilities, including, without limitation, payment defaults,
material misrepresentations, covenant defaults, bankruptcy and a change of
ownership of Neenah Foundry Company, NFC or ACP.
11% Senior Secured Notes due 2010. In connection with Neenah's Chapter 11
filing and emergence therefrom, Neenah issued Senior Secured Notes due 2010 in
the principal amount of $133.1 million, with a coupon rate of 11%. The
obligations under the senior secured notes are pari passu in right of payment to
the New Credit Facility and the associated guarantees. The liens securing the
senior secured notes are junior to the liens securing the New Credit Facility
and guarantees thereof. The senior secured notes are subordinate to the New
Credit Facility. Interest on the senior secured notes is payable on a
semi-annual basis. Neenah's obligations under the notes are guaranteed on a
secured basis by each of its wholly-owned subsidiaries. Subject to the
restrictions in the New Credit Facility, the notes are redeemable at our option
in whole or in part at any time after the fourth anniversary of their issuance,
with not less than 30 days nor more than 60 days notice for an amount to be
determined pursuant to a formula set forth in the indenture governing the notes.
Upon the occurrence of a "change of control" as defined in the indenture
governing the notes, Neenah Foundry Company may be required to make an offer to
purchase the secured notes at 101% of the outstanding principal amount thereof,
plus accrued and unpaid interest up to the
31
purchase date. The secured notes contain customary covenants typical to this
type of financing, such as limitations on (1) indebtedness, (2) restricted
payments, (3) liens, (4) restrictions on distributions from restricted
subsidiaries, (5) sale of assets, (6) affiliate transactions, (7) mergers and
consolidations and (8) lines of business. The secured notes also contain
customary events of default typical to this type of financing, such as (1)
failure to pay principal and/or interest when due, (2) failure to observe
covenants, (3) certain events of bankruptcy, (4) the rendering of certain
judgments or (5) the loss of any guarantee.
13% Senior Subordinated Notes due 2013. In connection with Neenah's
Chapter 11 filing and emergence therefrom, Neenah Foundry Company issued Senior
Subordinated Notes due 2013 in the principal amount of $100.0 million, with a
coupon rate of 13%. The obligations under the senior subordinated notes are
senior to all of Neenah Foundry Company's subordinated unsecured indebtedness
and are subordinate to the New Credit Facility and the senior secured notes.
Interest on the senior subordinated notes is payable on a semi-annual basis.
Five percent of the interest on the senior subordinated notes will be paid in
cash and 8% interest may be paid-in-kind. Neenah Foundry Company's obligations
under the notes are guaranteed on an unsecured basis by each of its wholly-owned
subsidiaries. Subject to the restrictions in the New Credit Facility, the notes
are redeemable at our option in whole or in part at any time, with not less than
30 days nor more than 60 days notice for an amount to be determined pursuant to
a formula set forth in the indenture governing the notes. Upon the occurrence of
a "change of control" as defined in the indenture governing the notes, Neenah
Foundry Company may be required to make an offer to purchase the subordinated
notes at 101% of the outstanding principal amount thereof, plus accrued and
unpaid interest up to the purchase date. The subordinated notes contain
customary covenants typical to this type of financing, such as limitations on
(1) indebtedness, (2) restricted payments, (3) liens, (4) restrictions on
distributions from restricted subsidiaries, (5) sale of assets, (6) affiliate
transactions, (7) mergers and consolidations and (8) lines of business. The
subordinated notes also contain customary events of default typical to this type
of financing, such as, (1) failure to pay principal and/or interest when due,
(2) failure to observe covenants, (3) certain events of bankruptcy, (4) the
rendering of certain judgments or (5) the loss of any guarantee.
Future Capital Needs. Despite our significant decrease in leverage as a
result of the Plan of Reorganization, we are still significantly leveraged and
our ability to meet our debt obligations will depend upon future operating
performance which will be affected by many factors, some of which are beyond our
control. Based on our current level of operations, we anticipate that our
operating cash flows and available credit facilities will be sufficient to fund
our anticipated operational investments, including working capital and capital
expenditure needs, for at least the next twelve months. If, however, we are
unable to service our debt requirements as they become due or are unable to
maintain ongoing compliance with restrictive covenants, we may be forced to
adopt alternative strategies that may include reducing or delaying capital
expenditures, selling assets, restructuring or refinancing indebtedness or
seeking additional equity capital. There can be no assurances that any of these
strategies could be effected on satisfactory terms, if at all.
32
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
Projected payment due dates for the pro forma debt outstanding as of
September 30, 2003 and estimated interest expense are as shown below (in
millions):
<Table>
<Caption>
EXPECTED PAYMENTS DUE BY PERIOD
--------------------------------------------------------
AFTER
TOTAL 2004 2005 2006 2007 2008 2008
------ ----- ------ ----- ----- ----- ------
Long term debt....................... $243.5 $ 3.2 $ 3.2 $ 3.2 $ 3.2 $ 3.2 $227.5
Interest on long term debt........... 235.7 28.6 28.4 28.3 28.1 28.0 94.3
Revolving credit line................ 25.0 1.2 11.1 5.8 6.9 -- --
Interest and fees on revolving credit
line............................... 2.8 1.4 0.8 0.4 0.2 -- --
Operating leases..................... 4.8 1.8 1.4 0.7 0.3 0.2 0.4
Capital lease obligations............ 4.6 2.9 1.7 -- -- -- --
------ ----- ------ ----- ----- ----- ------
Total Contractual Cash
Obligations..................... $516.4 $39.1 $ 46.6 $38.4 $38.7 $31.4 $322.2
====== ===== ====== ===== ===== ===== ======
</Table>
Please see "Executive Compensation -- Equity Incentive Plans" for
discussion of other obligations we have committed to as a result of the Plan of
Reorganization.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that are, in management's view, both
very important to the portrayal of our financial condition and results of
operations and they require management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
Future events and their effects cannot be determined with absolute
certainty. The determination of estimates, therefore, requires the exercise of
judgment. Actual results may differ from those estimates, and such differences
may be material to the financial statements. Our accounting policies are more
fully described in Note 4 to our consolidated financial statements included
herein.
We believe that the most significant accounting estimates inherent in the
preparation of our financial statements include estimates associated with the
evaluation of the recoverability of certain assets including goodwill, other
intangible assets and fixed assets as well as those estimates used in the
determination of reserves related to the allowance for doubtful accounts,
obsolescence, workers compensation and pensions and other post-retirement
benefits. Various assumptions and other factors underlie the determination of
these significant estimates. In addition to assumptions regarding general
economic conditions, the process of determining significant estimates is
fact-specific and accounts for such factors as historical experience, product
mix and, in some cases, actuarial techniques. We constantly reevaluate these
significant factors and make adjustments where facts and circumstances
necessitate. Historically, our actual results have not significantly deviated
from those determined using the estimates described above.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:
- Defined-Benefit Pension Plans. We account for our defined benefit
pension plans in accordance with SFAS No. 87, "Employers' Accounting for
Pensions" which requires that amounts recognized in financial statements
be determined on an actuarial basis. The most significant element in
determining our pension expense in accordance with SFAS 87 is the
expected return on plan assets. We have assumed that the expected
long-term rate of return on plan assets will be 7.50% to 8.50%, depending
on the plan. Over the long term, our pension plan assets have earned in
excess of these rates; therefore, we believe that our assumption of
future returns is reasonable. The plan assets, however, have earned a
rate of return substantially less than these rates in the last two years.
Should this trend continue, our future pension expense would likely
increase. At the end of each year, we determine the discount rate to be
used to discount plan liabilities. In developing this rate,
33
we use the Moody's Average AA Corporate Bonds index. At September 30,
2003, we determined the discount rate to be 6.25%. Changes in discount
rates over the past few years have not materially affected our pension
expense. The net effect of changes in this rate, as well as other changes
in actuarial assumptions and experience, have been deferred as allowed by
SFAS 87. This has had a significant negative effect on our reported net
worth.
- Other Postretirement Benefits. We provide retiree health benefits to
qualified employees under an unfunded plan. We use various actuarial
assumptions including the discount rate and the expected trend in health
care costs and benefit obligations for our retiree health plan.
Consistent with our pension plans, we used a discount rate of 6.25%. In
2003, our assumed healthcare cost trend rate was 9.0% decreasing
gradually to 5.0% in 2010 and then remaining at that level thereafter.
Changes in these rates could materially affect our future operating
results and net worth.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk on our long-term variable interest
rate debt. Currently, our only long-term debt obligations with variable interest
rates are our obligations under the New Credit Facility. We enter into debt
obligations primarily to support general corporate purposes, including capital
expenditures and working capital needs.
INFLATION
Although we cannot accurately anticipate the effect of inflation on our
operations, we believe that inflation has not had, and is not likely in the
foreseeable future to have, a material impact on our results of operations.
34
BUSINESS
OVERVIEW
Neenah, together with its active domestic subsidiaries, manufactures and
markets a wide range of iron castings and forgings for the heavy municipal
market and selected segments of the industrial markets. Neenah began business in
1872 and has built a strong reputation for producing quality iron castings.
Neenah is one of the largest manufacturers of heavy municipal iron castings in
the United States. Neenah's broad range of heavy municipal iron castings
includes manhole covers and frames, storm sewer frames and grates, heavy duty
airport castings, specialized trench drain castings, specialty flood control
castings and ornamental tree grates. Neenah sells these municipal castings
throughout the United States to state and local government entities, utility
companies, precast concrete manhole structure producers and contractors for both
new construction and infrastructure replacement. In addition, Neenah is also a
leading manufacturer of a wide range of complex industrial castings, including
castings for the transportation industry, a broad range of castings for the farm
equipment industry, and specific components for compressors used in HVAC
systems.
BACKGROUND
On April 30, 1997, pursuant to an Agreement and Plan of Reorganization with
NC Merger Company and NFC, Neenah Corporation (the predecessor company) was
acquired by NFC, a holding company and a wholly owned subsidiary of ACP. Prior
to July 1, 1997, Neenah Foundry Company was one of three wholly owned
subsidiaries of Neenah Corporation, a holding company with no significant assets
or operations other than its holdings in the common stock of its three wholly
owned subsidiaries. The other two wholly owned subsidiaries were Neenah
Transport, Inc. and Hartley Controls, an entity that was later sold. On July 1,
1997, Neenah Foundry Company merged with and into Neenah Corporation and the
surviving company changed its name to Neenah Foundry Company.
On March 30, 1998 Neenah acquired all the capital stock of Deeter Foundry,
Inc. for $24.3 million. Since 1945, Deeter Foundry, Inc. has been producing gray
iron castings for the heavy municipal market. The municipal casting product line
of Deeter Foundry, Inc. includes manhole frames and covers, storm sewer inlet
frames, grates and curbs, trench grating and tree grates. Deeter Foundry, Inc.
also produces a wide variety of special application construction castings. These
products are utilized in waste treatment plants, airports, telephone and
electrical construction projects.
On April 3, 1998, Neenah acquired all the capital stock of Mercer Forge
Corporation for $47.0 million in cash. Founded in 1954, Mercer Forge Corporation
produces complex-shaped forged components for use in transportation, railroad,
mining and heavy industrial applications. Mercer Forge Corporation is also a
producer of microalloy forgings.
On September 8, 1998 Neenah acquired all the capital stock of Dalton
Corporation for $102.0 million in cash. Dalton Corporation manufactures and
sells gray iron castings for refrigeration systems, air conditioners, heavy
equipment, engines, gear boxes, stationary transmissions, heavy duty truck
transmissions and other automotive parts.
On September 8, 1998, the capital stock of Advanced Cast Products, an
entity held by ACP prior to the time ACP acquired its interest in NFC, was
contributed to Neenah by ACP. Advanced Cast Products is an independent
manufacturer of ductile iron castings that are produced through both traditional
casting methods and through Advanced Cast Products' Evapcast lost foam casting
process. Advanced Cast Products' production capabilities also include a range of
finishing operations including austempering and machining. Advanced Cast
Products sells its products primarily to companies in the heavy truck,
construction equipment, railroad, mining and automotive industries.
On December 31, 1998, Neenah purchased Cast Alloys, Inc. a manufacturer of
investment-cast titanium and stainless steel golf clubheads, for $40.1 million
in cash. Neenah discontinued the operations of Cast Alloys, Inc. in January
2002.
35
On November 30, 1999, Neenah purchased Gregg Industries, Inc., a
manufacturer of gray and ductile iron castings, for $22.9 million in cash. We
sold all of the issued and outstanding shares of common stock of Hartley
Controls Corporation on October 2, 2000. On August 8, 2002, we sold
substantially all of the assets of Peerless Corporation. We sold substantially
all of the assets of Belcher Corporation on December 27, 2002.
BANKRUPTCY PROCEEDINGS
Beginning in 2000, several trends converged to create an extremely
difficult operating environment for Neenah. First, there were dramatic cyclical
declines in some of Neenah's most important markets -- including trucks,
railroad, construction and agriculture equipment. Second, there was a major
inventory adjustment by manufacturers in the residential segment of the HVAC
equipment industry, resulting in fewer orders for Dalton's HVAC castings. Third,
domestic foundries have been suffering from underutilized capacity,
significantly increased foreign competition, continued price reduction pressure
from customers and other competitors, and increased costs associated with
heightened safety and environmental regulations. These factors have caused and
continue to cause a substantial number of foundries to cease operations or file
for bankruptcy protection over the past several years.
Beginning in May 2000, we took aggressive steps to offset the impact of the
decline in sales and earnings and improve cash flow in the difficult market
environment: William Barrett was appointed as the new chief executive officer of
NFC; Hartley Controls was sold in September 2000 for $5.0 million in total
proceeds; other excess assets were sold for $5.3 million in late 2001; the
operations of Cast Alloys, Inc. were discontinued in January 2002; substantially
all of the assets of Advanced Cast Product's subsidiary Peerless Corporation
were sold for $0.3 million in August 2002; and the assets of Belcher
Corporation, a subsidiary of Advanced Cast Products, were sold in December 2002.
Furthermore, management also implemented a significant reduction in the number
of employees, a significant reduction in capital expenditures and selected price
increases. In January 2003, we engaged Houlihan Lokey Howard & Zukin Capital to
assist in the formulation and evaluation of various options for a restructuring,
reorganization, or other strategic alternatives. Our board of directors
considered a broad range of out-of-court and in-court strategic alternatives
potentially available to us as well as several strategic alternatives.
Despite these steps, the credit rating agencies began to downgrade our
outstanding debt obligations in early 2000. Our 11 1/8% Notes became highly
illiquid and traded infrequently. According to data obtained from Telerate, the
price of the notes fell from a trailing 12 month high of $57.50 in June 2002 to
a trailing 12 month low of $30.00 in late December 2002. The trailing six month
average price as of June 23, 2003 was approximately $38.60. As of May 2003,
Neenah was not in compliance with the March 31, 2003 EBITDA covenant of its old
credit facility and lacked sufficient liquidity to make the then-due interest
payment on the 11 1/8% Notes and maintain the liquidity covenants under the old
credit facility.
On May 1, 2003 we launched both an exchange offer for the 11 1/8% Notes and
the pre-petition solicitation of acceptances of the plan of reorganization in
accordance with section 1126(b) of the Bankruptcy Code. The exchange offer,
which was to be completed outside of Bankruptcy Court, did not result in the
requisite percentage of 11 1/8% Notes tendered and both the exchange offer and
the solicitation of acceptances for the May 1, 2003 plan of reorganization were
allowed to expire.
On July 1, 2003 we launched a pre-petition solicitation of acceptances with
respect to an alternative joint plan of reorganization that was ultimately
approved. Having received sufficient votes to approve the plan of
reorganization, we together with ACP, NFC and all of our wholly-owned domestic
subsidiaries filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code, as amended, with the United States Bankruptcy Court for
the District of Delaware on August 5, 2003. On that same date we submitted to
the Bankruptcy Court our Amended Prepackaged Joint Plan of Reorganization, which
we refer to as the Plan of Reorganization, and the Disclosure Statement that we
used to solicit votes for that plan.
At the time of the Chapter 11 bankruptcy filing, we had approximately $157
million of existing senior debt under our old credit facility and $282 million
of principal and accrued and unpaid interest under our
36
11 1/8% Notes. We negotiated the continued use of our own cash collateral with
our senior lenders, thereby enabling us to utilize our own cash to conduct
business operations during the pendency of the Chapter 11 filing.
Pursuant to the Plan of Reorganization, we conducted a rights offering,
whereby holders of the 11 1/8% Notes were given the opportunity to provide up to
$110 million additional financing through the purchase of up to $119.996 million
face amount of Old Notes and warrants to acquire up to 34.2 million shares of
common stock of ACP. In case holders of the 11 1/8% Notes failed to subscribe
for the full $110.0 million, we also obtained standby commitment agreements from
Mackay Shields LLC, Exis Differential Holdings Ltd., Citicorp Mezzanine III,
L.P., Trust Company of the West and Metropolitan Life Insurance Company whereby
these Standby Purchasers collectively agreed to provide up to $110.0 million of
financing for the Plan of Reorganization by participating in the rights offering
(to the extent that they were holders of the 11 1/8% Notes) as well as
purchasing any and all unsubscribed securities not subscribed for by the other
holders of 11 1/8% Notes. Approximately 94% of the holders of the 11 1/8% Notes
participated in the rights offering and the Standby Purchasers were, therefore,
only required to fund the shortfall of approximately $6.4 million.
By order dated September 26, 2003, the Bankruptcy Court confirmed the Plan
of Reorganization and the Plan of Reorganization became effective on October 8,
2003. October 8, 2003 is hereinafter referred to as the Effective Date. The Plan
of Reorganization allowed us to emerge from bankruptcy with an improved capital
structure and, because we had arranged to continue paying our trade debt on a
timely basis during the pendency of the Chapter 11 case, at the time of
emergence, we had sufficient trade credit to continue operations in the ordinary
course of business.
The Plan of Reorganization resulted in significant changes to our capital
structure. Among other things, the Plan of Reorganization provided for the
repayment in full of our old credit facility, the cancellation of $282.0 million
in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the
elimination of the interests of the former equity owners of our indirect parent
company, ACP. The cash proceeds necessary to consummate the Plan of
Reorganization were provided from the consummation of the New Credit Facility
and the issuance of the Old Notes. The claims and interests of our various
creditors were satisfied as follows:
- our old credit facility was repaid in cash;
- our PIK Note was cancelled and Citicorp Mezzanine III, L.P., the holder
of that note, received Old Notes with a principal amount equal to $13.134
million, warrants to acquire 3.8 million shares of common stock of ACP
and cash in the amount of $45,400;
- our outstanding 11 1/8% Notes were cancelled and each holder of 11 1/8%
Notes received its pro rata share of (i) $30.0 million in cash, (ii)
$100.0 million in aggregate principal amount of new 13% Senior
Subordinated Notes due 2013 of the Company, (iii) 38 million shares of
common stock of ACP and (iv) rights to acquire for $110 million in cash
in the aggregate, units for up to $119.996 million face amount of Old
Notes and warrants to acquire up to 34.2 million shares of common stock
of ACP;
- the following debt and equity instruments were cancelled without further
consideration: 12% senior subordinated notes issued by ACP, 12% senior
subordinated notes issued by NFC and all equity interests of ACP; and
- the following claims and equity interests passed through our Chapter 11
bankruptcy proceedings unimpaired: all tax claims, intercompany debt,
other secured debt and general unsecured debt and the equity interests of
ACP Holding Company in NFC Castings, Inc., equity interests of NFC
Castings, Inc. in Neenah and equity interests of Neenah in its direct and
indirect subsidiaries.
37
BUSINESS SEGMENTS -- OVERVIEW
1. Castings Segment
We are a leading producer of iron castings for use in heavy municipal and
industrial applications. This segment sells directly to tier-one suppliers, as
well as to other industrial end users.
(a) Products, Customers and Markets
The castings segment provides a variety of products to both the heavy
municipal and industrial markets. Sales to the heavy municipal market are
comprised of storm and sanitary sewer castings, manhole covers and frames and
storm sewer frames and grates. Sales also include heavy airport castings,
specialized trench drain castings, specialty flood control castings and
ornamental tree grates. Customers for these products include state and local
government entities, utility companies, precast concrete structure producers and
contractors. Sales to the industrial market are comprised of differential
carriers and casings, transmission, gear and axle housings, yokes, planting and
harvesting equipment parts and compressor components. Customers for these
products include medium and heavy-duty truck, farm equipment and HVAC
manufacturers.
(i) Heavy Municipal
Our broad heavy municipal product line consists of two general categories
of castings, "standard" and "specialty" castings. Standard castings principally
consist of storm and sanitary sewer castings that are consistent with
pre-existing dimensional and strength specifications established by local
authorities. Standard castings are generally higher volume items that are
routinely used in new construction and infrastructure replacement. Specialty
castings are generally lower volume products which include heavy-duty airport
castings, trench drain castings, flood control castings, special manhole and
inlet castings and ornamental tree grates. These specialty items are frequently
selected and/or specified from our municipal product catalog and tree grate
catalog, which together encompass over 4,400 standard and specialty patterns.
For many of these specialty products, we believe that we are the only
manufacturer with existing patterns to produce such a particular casting,
although a competing manufacturer could elect to make the investment in patterns
or equipment necessary to produce a similar casting. We hold a number of patents
and trademarks related to their heavy municipal product line.
We sell our municipal castings to state and local government entities,
utility companies, pre-cast concrete manhole structure producers and contractors
for both new construction and infrastructure replacement. Our active municipal
customers generally make purchase decisions based on a number of criteria,
including acceptability of the product per local specification, quality,
service, price and the customer's relationship with the foundry.
During the 70 years that we have participated in the municipal market, we
have emphasized sales and marketing and believe that we have built a strong
reputation for customer service. We believe that we are one of the leaders in
U.S. heavy municipal casting production and that we have strong name
recognition. We have one of the largest sales and marketing force of any foundry
serving the heavy municipal market. Our dedicated sales force works out of
regional sales offices to market municipal castings to contractors and state and
local governmental entities throughout the United States. We operate a number of
regional distribution and sales centers throughout the United States. We believe
that this regional approach enhances our knowledge of local specifications and
our position in the heavy municipal market.
(ii) Industrial
Industrial castings have increased in complexity and are generally produced
in higher numbers than municipal castings. Complexity in the industrial market
is determined by the intricacy of a casting's shape, the thinness of its walls
and the amount of processing by a customer required before a part is suitable
for use. OEMs and their first tier suppliers have been demanding higher
complexity parts principally to reduce labor costs in their own production
processes by using fewer parts to manufacture the same finished product or
assembly and by using parts that require less preparation before being
considered a finished product.
38
We primarily sell our industrial castings to a limited number of customers
with whom we have established close working relationships. These customers base
their purchasing decisions on, among other things, our technical ability, price,
service, quality assurance systems, facility capabilities and reputation. Our
assistance in product engineering plays an important role in winning bids for
industrial castings. For the average industrial casting, 12 to 18 months
typically elapse between the design phase and full production. The product life
cycle of a typical industrial casting is quite long. Although the patterns for
industrial castings are owned by the customer and not the foundry as is the case
with the patterns for municipal castings, industrial patterns are not readily
transferable to other foundries without, in most cases, significant additional
investment. Foundries, including our company, generally do not design industrial
castings. Nevertheless, a close working relationship between the foundry and the
customer during a product launch is critical to reduce potential production
problems and minimize the customer's risk of incurring lost sales or damage to
its reputation due to a delayed launch. Involvement by a foundry early in the
design process generally increases the likelihood that the customer will design
a casting within the manufacturing capabilities of such foundry and also
improves the likelihood that such foundry will be awarded the casting for full
production.
We estimate that we have historically retained approximately 90% of the
castings that we have been awarded throughout the product life cycle, which is
typical for the industry. We believe industrial customers will continue to seek
out a foundry with a strong reputation for performance that is capable of
providing a cost-effective combination of manufacturing technology and quality.
Our strategy is to augment our relationships with existing customers by
participating in the development and production of more complex industrial
castings, while seeking out selected new customers who would value our
performance reputation, technical ability and high level of quality and service.
We employ a dedicated industrial casting sales force at all of our
subsidiary locations, with the exception of Deeter. Our sales force supports
ongoing customer relationships, as well as working with customers' engineers and
procurement representatives and our engineers, manufacturing management and
quality assurance representatives throughout all stages of the production
process to ensure that the final product consistently meets or exceeds the
specifications of our customers. This team approach, consisting of sales,
marketing, manufacturing, engineering and quality assurance efforts is an
integral part of our marketing strategy.
(b) Manufacturing Process
Our foundries manufacture gray and ductile iron and cast it into intricate
shapes according to customer metallurgical and dimensional specifications. We
continually invest in the improvement of process controls and product
performance and believe that these investments and our significant experience in
the industry have made us one of the most efficient manufacturers of industrial
and heavy municipal casting products.
The casting process involves using metal, wood or urethane patterns to make
an impression of a desired shape in a mold made primarily of sand. Cores, also
made primarily of sand, are used to make the internal cavities and openings in a
casting. Once the casting impression is made in the mold, the cores are set into
the mold and the mold is closed. Molten metal is then poured into the mold,
which fills the mold cavity and takes on the shape of the desired casting. Once
the iron has solidified and cooled, the mold sand is separated from the casting
and the sand is recycled. The selection of the appropriate casting method,
pattern, core-making equipment and sand, and other raw materials depends on the
final product and its complexity, specifications and function as well as the
intended production volumes. Because the casting process involves many critical
variables, such as choice of raw materials, design and production of tooling,
iron chemistry and metallurgy and core and molding sand properties, it is
important to monitor the process parameters closely to ensure dimensional
precision and metallurgical consistency. We continually seek out ways to expand
the capabilities of existing technology to improve our manufacturing processes.
We also achieve productivity gains by improving upon the individual steps
of the casting process such as reducing the amount of time required to make a
pattern change or to produce a different casting product. Such time reductions
enable us to produce castings in medium volume quantities on high volume,
39
cost-effective molding equipment. Additionally, our extensive effort in real
time process controls permits us to produce a consistent, dimensionally accurate
casting, which saves time and effort in the final processing stages of
production. This dimensional accuracy contributes significantly to our
manufacturing efficiency.
Continual testing and monitoring of the manufacturing process is important
to maintain product quality. We, therefore, have adopted sophisticated quality
assurance techniques and policies for our manufacturing operations. During and
after the casting process, we perform numerous tests, including tensile,
proof-load, radiography, ultrasonic, magnetic particle and chemical analysis. We
utilize statistical process controls to measure and control significant process
variables and casting dimensions. We document the results of this testing in
metallurgical certifications that are sometimes included with each shipment to
our industrial customers. We strive to maintain systems that provide for
continual improvement of operations and personnel, emphasize defect prevention,
safety and reduce variation and waste in all areas.
(c) Raw Materials
The primary raw materials used to manufacture ductile and gray iron
castings are steel scrap, pig iron, metallurgical coke and silica sand. While
there are multiple suppliers for each of these commodities, we have generally
elected to maintain single-source arrangements with our suppliers for most of
these major raw materials except pig iron. Due to long standing relationships
with each of our suppliers, we believe that we will continue to be able to
secure the proper amount and type of raw materials at competitive prices.
Although the prices of the raw materials used vary, fluctuations in the
price of scrap metal are the most significant to us. We have arrangements with
most of our industrial customers that enable us to adjust industrial casting
prices to reflect scrap price fluctuations. In periods of rapidly rising or
falling scrap prices, these adjustments will lag the current scrap price because
they are generally based on average market prices for prior periods. Such prior
periods vary by customer, but are generally no longer than six months. Castings
are sometimes sold to the heavy municipal market on a bid basis and after a bid
is won the price for the municipal casting generally cannot be adjusted for
increases in the prices of raw materials. In most cases, however, we believe
that we have compensated for rises in scrap prices in prior periods by
implementing higher municipal casting unit prices in subsequent bids. Rapidly
fluctuating scrap prices may, however, have an adverse or positive effect on our
business, financial condition and results of operations.
(d) Seasonality
We have historically experienced moderate cyclicality in the heavy
municipal market as sales of municipal products are influenced by, among other
things, public spending. There is generally not a large backlog of business in
the municipal market due to the nature of the market. In the industrial market,
we experience cyclicality in sales resulting from fluctuations in our markets,
including the medium and heavy-duty truck and the farm equipment markets, which
are subject to general economic trends.
We experience seasonality in our municipal business where sales tend to be
higher during the construction season, which occurs during the warmer months,
generally the third and fourth quarters of our fiscal year. We attempt to
maintain level production throughout the year in anticipation of such
seasonality and therefore do not experience significant production volume
fluctuations. We build inventory in anticipation of the construction season.
This inventory build-up has a negative impact on working capital and increases
our liquidity needs during the second quarter. We have not historically
experienced significant seasonality in industrial casting sales.
(e) Competition
The markets for our products are highly competitive. Competition is based
mainly on price, but also on quality of product, range of capability, level of
service and reliability of delivery. We compete with numerous domestic
foundries, as well as with a number of foreign iron foundries. We also compete
with several large domestic manufacturers whose products are made with materials
other than ductile and gray iron, such as steel or aluminum. Industry
consolidation over the past 20 years has resulted in a significant
40
reduction in the number of foundries and a rise in the share of production by
larger foundries, some of which have significantly greater financial resources
than do we. Competition from foreign foundries has had an ongoing presence in
the heavy municipal market and continues to be a factor, primarily in the
western and eastern United States, due in part to costs associated with
transportation.
2. Forgings Segment
Our forgings segment, operated by Mercer Forge Corporation, or Mercer,
producers complex-shaped forged components for use in transportation, railroad,
mining and heavy industrial applications. Mercer also produces of microalloy
forgings. Mercer sells directly to OEMs, as well as to industrial end users.
Mercer's subsidiary, A&M, machines forgings and castings for Mercer and other
industrial applications. Until the mid-1980's, Mercer produced military tank
parts, but successfully converted from a defense contractor to a commercial
manufacturer. Mercer produces approximately 500 individually forged components
and has developed specialized expertise in forgings of microalloy steel.
(a) Products, Customers and Markets
Mercer manufactures its products to customer specification with typical
production runs of 1,000 or more units. Mercer currently operates mechanical
press lines, from 1,300 tons to 4,000 tons. Key markets for Mercer include truck
and automotive parts, railroad equipment and general industrial machinery.
Mercer's in-house sales organization sells directly to end users and OEMs.
A key element of Mercer's sales strategy is its ability to develop strong
customer relationships through responsive engineering capability, dependable
quality and just-in-time delivery performance.
Demand for forged products closely follows the general business cycles of
the various market segments and the demand level for capital goods. While there
is a more consistent base level of demand for the replacement parts portion of
the business, the strongest expansions in the forging industry coincide with the
periods of industrial segment economic growth. Mercer's largest industry
segment, the heavy truck segment, is extremely weak. Mercer's other market
segments are also showing weakness following general economic slowdowns in those
industrial areas. Management attributes this to normal industrial cycles in
these markets and adjustments to overbuilds in inventory levels as well as high
energy costs.
(b) Manufacturing Process
Forgings and castings (together with a third process, fabrication) are the
principal commercial metal working processes. In forging, metal is pressed,
pounded or squeezed under great pressure, with or without the use of heat, into
parts that retain the metal's original grain flow, imparting high strength,
ductility and resistance properties.
Forging itself usually entails one of four principal processes: impression
die; open die; cold; and seamless rolled ring forging. Impression die forging,
commonly referred to as "closed die" forging, is the principal process employed
by Mercer, and involves bringing two or more dies containing "impressions" of
the part shape together under extreme pressure, causing the forging stock to
take the desired shape. Because the metal flow is restricted by the die, this
process can yield more complex shapes and closer tolerances than the "open die"
forging process. Impression die forging is used to produce products such as
military and off-highway track and drive train parts; automotive and truck drive
train and suspension parts; railroad engine, coupling and suspension parts;
military ordinance parts and other items where close tolerances are required.
Once a rough forging is produced, regardless of the forging process, it
must generally still be machined. This process, known as "finishing" or
"conversion," smooths the component's exterior and mating surfaces and adds any
required specification, such as groves, threads and bolt holes. The finishing
process can contribute significantly to the value of the end product, in
particular in certain custom situations where high value specialized machining
is required. Machining can be performed either in-house by the forger, by a
machine shop which performs this process exclusively or by the end-user.
41
An internal staff of engineers designs products to meet customer
specifications incorporating computer assisted design work stations for tooling
design. Because its forged products are inherently less expensive and stronger,
Mercer has been successful in replacing certain cast parts previously supplied
by third party foundries. Management believes that Mercer is an industry leader
in forging techniques using microalloy steel which produces parts which are
lighter and stronger than those forged from conventional carbon steel.
(c) Raw Materials
The principal raw materials used in Mercer's products are carbon and
microalloy steel. Mercer purchases substantially all of its carbon steel from
four principal sources. While Mercer has never suffered an interruption of
materials supply, management believes that, in the event of any disruption from
any individual source, adequate alternative sources of supply are available
within the immediate vicinity.
(d) Seasonality
Mercer has experienced moderate cyclicality in sales resulting from
fluctuations in the medium and heavy-duty truck market and the heavy industrial
market, which are subject to general economic trends. Mercer's current backlog
of industrial market business is smaller than there would be in a stronger, more
typical market.
(e) Competition
Mercer competes primarily in a highly fragmented industry which includes
several dozen other press forgers and hammer forge shops. Hammer shops cannot
typically match press forgers for high volume, single component manufacturing or
close tolerance production. Competition in the forging industry has also
historically been determined both by product and geography, with a large number
of relatively small forgers across the country carving out their own product and
customer niches. In addition, most end users manufacture some forgings
internally, often maintaining a critical minimum level of production in-house
and contracting out the balance. The primary basis of competition in the forging
industry is price, but engineering, quality and dependability are also
important, particularly with respect to building and maintaining customer
relationships. Some of Mercer's competitors have significantly greater resources
than Mercer. There can be no assurance that Mercer will be able to maintain or
improve its competitive position in the markets in which it competes.
INTELLECTUAL PROPERTY
We have registered, and are in the process of registering, various
trademarks and service marks with the U.S. Patent and Trademark Office.
EMPLOYEES
As of September 30, 2003 we had approximately 2,776 full time employees, of
whom 2,255 were hourly employees and 521 were salaried employees. Nearly all of
the hourly employees at Neenah, Dalton, Advanced Cast Products, Inc. and Mercer
are members of either the United Steelworkers of America or the Glass, Molders,
Pottery, Plastics and Allied Workers International Union. We negotiate a
collective bargaining agreement with these employees every three to five years.
The current agreements expire as follows: Neenah, December 2006; Dalton-Warsaw,
April 2005; Dalton-Kendallville, June 2004; Advanced Cast Products,
Inc.-Meadville, October 2005; and Mercer, June 2004. All employees at Deeter and
Gregg are non-union. We believe that we have good relationships with our
employees.
GOVERNMENT REGULATION
Our facilities are subject to federal, state and local laws and regulations
relating to the protection of the environment and worker health and safety,
including those relating to discharges to air, water and land, the handling and
disposal of solid and hazardous waste and the cleanup of properties affected by
hazardous substances. Such laws include the Federal Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability
42
Act of 1980 and OSHA. We believe that each of our operations are currently in
substantial compliance with applicable environmental laws, and that we have no
liabilities arising under such environmental laws that would have a material
adverse effect on our operations, financial condition or competitive position.
Some risk of environmental liability and other cost, however, is inherent in
each of our businesses. Any of our businesses might in the future incur
significant costs to meet current or more stringent compliance, cleanup or other
obligations pursuant to environmental requirements. Such costs may include
expenditures related to remediation of historical releases of hazardous
substances or clean-up of physical structures prior to decommissioning.
Under the Federal Clean Air Act Amendments of 1990, the Environmental
Protection Agency is directed to establish MACT standards for certain industrial
operations that are major sources of hazardous air pollutants. The iron foundry
industry will be required to implement the MACT emission limits, control
technologies or work practices by October 1, 2006. Although we are not yet able
to accurately estimate the costs to comply with the new MACT standard, the MACT
standard, when implemented, and state laws governing the emission of toxic air
pollutants may require that certain of our facilities incur significant costs
for air emission control equipment, air emission monitoring equipment or process
modifications.
Compliance Impacts
Dalton's Warsaw facility was issued a National Pollutant Discharge
Elimination System ("NPDES") permit in 2000 that limits the level of chlorine
and the temperature of its non-contact cooling water permitted to be discharged
to a waterway by the year 2003. Although the chlorine is already in the water
when purchased from the city, Dalton is responsible for eliminating the
chlorine. Dalton has several alternatives to meet the chlorine discharge permit
requirements by 2003 and is currently implementing a system to lower the
chlorine levels of its cooling water. The cost of implementing this system will
not be material. Dalton believes the system will be tested and operational
before the 2003 deadline.
PROPERTIES
We maintain the following manufacturing, machining and office facilities.
We own all of the facilities except Mercer's machining facility, which we lease.
<Table>
<Caption>
ENTITY LOCATION PURPOSE
- ------ -------- -------
Neenah Foundry Company.............. Neenah, WI 2 manufacturing facilities
Office facility
Dalton Corporation.................. Warsaw, IN Manufacturing and office facilities
Kendallville, IN Manufacturing facility
Stryker, OH Machining facility
Advanced Cast Products, Inc. ....... Meadville, PA Manufacturing and office facility
Mercer Forge Corporation............ Mercer, PA Manufacturing and office facility
Sharon, PA Machining facility
Deeter Foundry, Inc. ............... Lincoln, NE Manufacturing and office facility
Gregg Industries, Inc. ............. El Monte, CA Manufacturing and office facility
</Table>
In addition to the facilities above, we operate thirteen distribution and
sales centers. We own six of those properties and lease seven of them. The
principal equipment at the facilities consists of molding machines, presses,
machining equipment, welding, grinding and painting equipment. We regard our
plant and equipment as well maintained and adequate for our needs.
LEGAL PROCEEDINGS
We are involved in routine litigation incidental to our business. Such
litigation is not, in our opinion, likely to have a material adverse effect on
our financial condition or results of operations.
43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information as of October 8, 2003, with
respect to the persons who are members of the Board of Directors of ACP and our
executive officers.
<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------
William M. Barrett................... 56 President, Chief Executive Officer and Director
Gary W. LaChey....................... 57 Corporate Vice President -- Finance, Treasurer,
Secretary, Chief Financial Officer and Director
Phillip C. Zehner.................... 62 Vice President, Assistant Secretary and Assistant
Treasurer of Neenah Foundry Company
Joseph L. DeRita..................... 65 Division President, Dalton Corporation
Joseph Varkoly....................... 41 Vice President -- Business Development, Advanced Cast
Products, Inc.
Benjamin C. Duster, IV, Esq. ........ 48 Director
Andrew Booke Cohen................... 32 Director
Michael J. Farrell................... 53 Director
Jeffrey G. Marshall.................. 59 Director
</Table>
Mr. Barrett has served as our President and Chief Executive Officer since
May 2000. Mr. Barrett joined us in 1992 serving as General Sales
Manager -- Industrial Castings until May 1, 1997. Mr. Barrett was Vice President
and General Manager from May 1, 1997 to September 30, 1998 and President from
October 1, 1998 to April 30, 2000. From 1985 to 1992, Mr. Barrett was the Vice
President -- Sales for Harvard Industries Cast Products Group. Mr. Barrett has
also been one of our directors since May 2000.
Mr. LaChey has served as our Corporate Vice President -- Finance since June
2000. Mr. LaChey was appointed a director in January 2003. Mr. LaChey joined us
in 1971 and has served in a variety of positions of increasing responsibility in
the finance department. Mr. LaChey was most recently Vice President -- Finance,
Treasurer and Secretary.
Mr. Zehner has served as our Vice President, Assistant Secretary and
Assistant Treasurer since June 2000. Mr. Zehner joined the Company in 1974,
serving in a variety of positions of increasing responsibility in the finance
department.
Mr. DeRita has served as Division President of the Dalton Corporation since
1999. He joined Newnam Manufacturing in 1989 and became the Vice
President -- Sales when the Dalton Corporation acquired Newnam Manufacturing in
1992. Prior to joining our company, Mr. DeRita was the Manager of Engineering
and Maintenance at Erie Malleable, the same position he held previously at Zurn
Industries.
Mr. Varkoly has served as the Vice President -- Business Development of
Advanced Cast Products, Inc. since March 2000. Prior to joining our company in
2000, he served as the Director -- Finance of Betzdearborn, Inc. Previously, he
was a Manager for Performance Improvement Management Consulting with Ernst &
Young LLP and the Business Development Manager of FMC Corporation.
Mr. Duster has served as a director since October 2003. Mr. Duster is
currently Chairman of the Board of Algoma Steel, Inc., a Toronto Stock Exchange
listed integrated steel manufacturer based in Canada. Mr. Duster is also a
principal in Masson & Company, a financial restructuring advisory and turn-
around management firm based in New York.
Mr. Cohen has served as a director since October 2003. Mr. Cohen is
currently an analyst at SAC Capital Advisors, LLC. Previously, Mr. Cohen spent
six years in the investment banking division of Morgan Stanley. Mr. Cohen
received his BA and MBA degrees from the University of Pennsylvania.
Mr. Marshall has served as a director since October 2003. Mr. Marshall is
currently the Chairman of Smith Marshall, a subsidiary of the NextMedia Company
Limited. Previously, he was the President and
44
Chief Executive Officer of Aluma Enterprises, Inc., a construction technology
company, for six years. Prior to joining Aluma Enterprises, Inc., Mr. Marshall
successively held the positions of President and Chief Executive Officer at
Marshall Steel Limited, Marshall Drummond McCall Inc. and the Ontario Clean
Water Agency.
Mr. Farrell has served as a director since February 2003. Mr. Farrell is
currently the President of Farrell & Co., a merchant banking firm specializing
in heavy manufacturing companies, and the Chief Executive Officer of Standard
Steel, LLC. Mr. Farrell has also served in executive capacities for MK Rail
Corporation, Motor Coils Manufacturing Co. and Season-ALL Industries. Mr.
Farrell currently also serves as a director of C-Cor.net Corp. and Federated
Investors, Inc. Mr. Farrell is a certified public accountant.
BOARD COMPOSITION
The Board of Directors of ACP, the ultimate parent company of Neenah
Foundry Company consists of five directors. ACP's Amended and Restated Bylaws
permits the holders of a majority of the shares of common stock of ACP then
entitled to vote at an election of directors, to remove any director or the
entire board of directors at any time, with or without cause. Under ACP's
Amended and Restated Bylaws, vacancies on the Board of Directors may be filled
by the affirmative vote of a majority of the holders of ACP's outstanding stock
entitled to vote thereon.
DIRECTOR COMPENSATION
Subject to certain limitations, each member of the Board of Directors of
ACP who is not an officer of ACP shall be entitled to receive annual
compensation for their services in the amount $40,000, payable in cash quarterly
in four equal installments, and are entitled to receive reimbursement by ACP for
all reasonable out-of-pocket expenses, including, without limitation, travel
expenses, incurred by such director in connection with the performance of such
director's duties. In addition, each member of the Board of Directors that is
not an officer of our company shall be paid a fee of $1,000 for in person
attendance at annual, regular, special and adjourned meetings of the Board of
the Directors of the company or committee meetings of the Board of the Directors
of the company. On the Effective Date, we issued 200,000 shares of common stock
representing 0.25% of the Company's Common Stock on a fully-diluted basis as of
the Effective Date to our outside directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of ACP's Board of
Directors are Andrew Booke Cohen and Benjamin C. Duster, IV, Esq.. The current
members of the Audit Committee of ACP's Board of Directors are Michael J.
Farrell and Jeffrey G. Marshall.
During fiscal 2003, no executive officer of ACP:
- served as a member of the compensation committee or other board committee
performing similar functions or, in the absence of any such committee,
the board of directors, of another entity, one of whose executive
officers served on ACP's Compensation Committee;
- served as a director of another entity, one of whose executive officers
served on ACP's Compensation Committee; or
- served as a member of the compensation committee or other board committee
performing similar functions or, in the absence of any such committee,
the board of directors, of another entity, one of whose executive
officers served as a director of ACP.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Amended and Restated Bylaws of ACP which became effective on October 8,
2003, provide that, to the extent permitted by the Delaware General Corporate
Law, or DGCL, it will indemnify its current and former directors and officers
against all expenses actually and reasonably incurred by them as a result
45
of their being threatened with or otherwise involved in any action, suit or
proceeding by virtue of the fact that they are or were an officer or director of
ACP. ACP, however, is not required to indemnify an officer or director for an
action, suit or proceeding commenced by that officer or director unless it
authorized that director or officer to commence the action, suit or proceeding.
The Amended and Restated Bylaws of ACP also provide that ACP shall advance
expenses incurred by any person it is obligated to indemnify, upon presentation
of appropriate documentation.
Furthermore, the Amended and Restated Bylaws of ACP provide that ACP may
purchase and maintain insurance on behalf of its directors and officers against
any liability, expense or loss, whether or not it would otherwise have the power
to indemnify such person under its Amended and Restated Bylaws or the DGCL.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted for directors, officers and controlling persons of ACP pursuant
to the foregoing provisions, or otherwise, ACP has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following summarizes, for the year
indicated, the principal components of compensation for our Chief Executive
Officer and our other four highest compensated executive officers (collectively,
the "named executive officers"). The compensation set forth below fully reflects
compensation for work performed on our behalf.
<Table>
<Caption>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- -----------------------
OTHER RESTRICTED SECURITIES
FISCAL ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS OPTIONS PAYOUTS COMPENSATION
--------------------------- ------ ------- ------- --------------- ---------- ---------- ------- ------------
William M. Barrett........... 2003 342,704 59,617 38,685 -- -- -- --
President and Chief
Executive 2002 306,254 -- 35,684 -- -- 35,684 --
Officer and Director 2001 275,000 -- 33,048 -- -- 33,048 --
Gary W. LaChey............... 2003 234,996 45,526 38,143 -- -- -- --
Corporate Vice President -- 2002 219,374 -- 35,110 -- -- 35,110 --
Finance, Treasurer,
Secretary, 2001 208,334 -- 33,680 -- -- 33,680 --
Chief Financial Officer and
Director
Joe Varkoly.................. 2003 177,000 117,600 36,257 -- -- -- --
Vice President -- Business 2002 170,250 -- 25,290 -- -- -- --
Development, Advanced Cast 2001 163,331 31,318 13,349 -- -- -- --
Products, Inc.
Phillip C. Zehner............ 2003 133,250 32,998 35,498 -- -- -- --
Vice President, Assistant 2002 129,000 19,124 32,701 -- -- 32,701 --
Secretary and Assistant 2001 125,800 26,312 30,902 -- -- 30,902 --
Treasurer
Joseph L. DeRita............. 2003 235,000 -- 29,635 -- -- -- --
Division President, Dalton 2002 224,000 -- 18,015 -- -- 18,015 --
Corporation 2001 224,000 -- 19,182 -- -- 19,182 --
</Table>
- ---------------
(1) The named officers have participated in our voluntary profit sharing
contributions or matching 401(k) contributions and excess benefit programs.
The aggregate payments made by the Company pursuant to such employee
benefits programs are listed on the above table as "Other Annual
Compensation."
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with certain members of our
management. The employment agreements delineate the salary and subsequent
potential annual increases, health (subject to
46
satisfying insurability requirements), 401(k) and other benefits that the named
employees are entitled to receive. Non-competition and non-solicitation
agreements will be signed as part of the employment agreements, which will apply
during a period of three years for our chief executive officer and two years for
the chief financial officer and other members of management of the Company, in
each case, after termination. We have executed employment agreements with the
following executives: John Andrews, William M. Barrett, Joseph L. DeRita, Frank
C. Headington, Timothy Koller, Gary W. LaChey, William Martin, Steve Shaffer and
Joseph Varkoly.
2003 MANAGEMENT ANNUAL INCENTIVE PLAN
Under the 2003 Management Annual Incentive Plan, members of management and
certain other specified employees will receive annual performance awards if the
Company achieves certain EBITDA targets set by the board of director of the
Company at the beginning of each fiscal year. The bonus paid will equal (i) 50%
of the target bonus amount for each individual should the Company reach 85% of
the EBITDA target, (ii) 100% of the target bonus on reaching 100% of the target
EBITDA and (iii) 200% of the target bonus on reaching 120% of the target EBITDA.
Target bonuses range from 2.0% to 35.0% of base salary depending upon job
responsibility. The bonus will be payable within ten business days of the
approval of the Company's audited financial statements by the board of
directors.
In addition, a one time aggregate incremental $450,000 emergence bonus was
paid to certain members of management upon the Effective Date.
For 2004 and beyond, the executives and certain other specified employees
will receive annual performance awards upon achieving certain milestones,
including EBITDA targets, debt reduction targets and other certain criteria as
determined from time to time by the compensation committee of the board of
directors of Reorganized Neenah. Target bonus as a percentage of salary for each
member of management will be consistent with historical levels. Target levels,
timing of payments and other terms and conditions of the annual incentive plan
will be determined by the Company's compensation committee.
2003 MANAGEMENT EQUITY INCENTIVE PLAN
Under the 2003 Management Equity Incentive Plan which was established on
the Effective Date, certain members of management received restricted shares
which represented 5% of common stock of ACP on a fully diluted basis as of the
Effective Date. The 4,000,000 restricted shares issued pursuant to the 2003
Management Equity Incentive Plan were 25% vested upon grant and the balance will
vest on an annual straight-line basis over the ensuing three years subject to
acceleration on a Change of Control, as defined in the 2003 Management Equity
Incentive Plan, termination (other than for Cause) or an event that triggers
tag-along or drag-along rights described below. The 2003 Management Equity
Incentive Plan also provides that a pool of options for an additional 5% of
common stock of ACP be reserved for future grants as determined by the
compensation committee of the new board of directors of ACP. The 2003 Management
Equity Incentive Plan provides certain members of management with certain
tag-along and drag-along rights with respect to any transaction involving a sale
of 50% or more of the equity of the Company on a fully diluted basis, or a sale
of substantially all of the assets, or a merger or other transaction having
similar effect in a single transaction or a series of transactions to the same
party and anti-dilution protection.
2003 SEVERANCE AND CHANGE OF CONTROL PLAN
Under our 2003 Severance and Change of Control Plan, the executives with
whom we have executed employment agreements, shall be entitled to receive
Severance Payments, as defined in the 2003 Severance and Change of Control Plan,
if the Company terminates his or her employment without cause or if he or she
terminates his or her employment with cause and a Change of Control Payment if a
participating executive's employment is terminated or the executive resigns from
employment for Good Reason within 180 days of a Change of Control, as such terms
are defined in the 2003 Severance and Change of Control Plan.
47
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH ACP HOLDINGS
ACP Holdings is the parent company of NFC Castings, Inc., and thus ACP
Holdings indirectly owns 100% of the Common Stock of the Company. William M.
Barrett, who serves as the President and Chief Executive Officer of the Company,
currently serves as President and Chief Executive Officer of ACP Holdings.
RELATIONSHIP WITH THE STANDBY PURCHASERS
As a result of the standby purchase agreements that we entered into with
the Standby Purchasers, we gave certain of the Standby Purchasers the right to
name members to our board of directors. Mackay Shields LLC may designate two
members of our board of directors and Citicorp Venture Capital, Ltd. and Trust
Company of the West may each designate one member of our board of directors.
48
SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information known to us with respect to the
beneficial ownership of the common stock of ACP as of October 8, 2003:
- each person or entity who owns of record or beneficially more than 5% or
more of any class of our voting securities;
- each of the named executive officers of our Company;
- each director of ACP; and
- all directors and named executive officers as a group.
<Table>
<Caption>
SHARES BENEFICIALLY OWNED
-------------------------
NAME OF BENEFICIAL OWNER(1)(2)(3) NUMBER PERCENTAGE
- --------------------------------- ----------- -----------
Mackay Shields LLC(4)....................................... 19,834,492 24.8%
Exis Differential Holdings Ltd.(5).......................... 90,644 *
Citicorp Mezzanine III, L.P.(6)............................. 11,890,846 14.9%
Trust Company of the West(7)................................ 6,206,107 7.8%
Metropolitan Life Insurance Company(8)...................... 217,547 *
William M. Barrett(9)....................................... 1,250,000 1.6%
Gary W. LaChey(10).......................................... 955,882 1.2%
Joseph L. DeRita(11)........................................ 404,412 *
Joe Varkoly(12)............................................. 220,587 *
Benjamin C. Duster, IV, Esq. ............................... 0 *
Andrew Brooke Cohen......................................... 0 *
Michael J. Farrell.......................................... 0 *
Jeffrey G. Marshall......................................... 0 *
All executive officers and directors as a group (13
persons).................................................. 2,830,881 3.6%
</Table>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, the business address of each person named in
the table above is c/o Neenah Foundry Company, 2121 Brooks Avenue, Neenah,
Wisconsin 54957.
(2) As used in this table, a beneficial owner of a security includes any person
who, directly or indirectly, through contract, arrangement, understanding,
relationship or otherwise has or shares (1) the power to vote, or direct
the voting of, such security or (2) investing power which includes the
power to dispose, or to direct the disposition of, such security. In
addition, a person is deemed to be the beneficial owner of a security if
that person has the right to acquire beneficial ownership of such security
within 60 days of October 8, 2003. Except as otherwise noted, the persons
and entities listed on this table have sole voting and investment power
with respect to all of the shares of common stock owned by them.
Calculations are based on a total of 80,000,000 shares of common stock
outstanding as of October 8, 2003.
(3) Includes the following number of shares issuable upon conversion of
warrants exercisable within 60 days of October 8, 2003: (1) 9,879,031
warrants by Mackay Shields LLC; (2) 90,644 warrants by Exis Differential
Holdings Ltd.; 7,848,293 warrants by Citicorp Mezzanine III, L.P.;
3,113,554 warrants by Trust Company of the West and (3) 217,547 warrants by
Metropolitan Life Insurance Company.
(4) The address for Mackay Shields LLC is 9 West 57th Street, 33rd Floor, New
York, NY 10019.
(5) The address for Exis Differential Holdings Ltd. is 767 Third Avenue, New
York, NY 10017.
49
(6) Citicorp Mezzanine III, L.P. received 4,096,665 warrants for being a
Standby Purchaser and 3,751,628 warrants in exchange for cancellation of
the PIK Note. The address for Citicorp Mezzanine III, L.P. is 399 Park
Avenue, 14th Floor, New York, NY 10043.
(7) [Includes shares held by TCW Shared Opportunity Fund II, L.P., Shared
Opportunity Fund IIB LLC, TCW Shared Opportunity Fund IV, L.P., TCW Shared
Opportunity Fund IVB, L.P., AIMCO CDO, Series 2000-A, TCW High Income
Partners, Ltd. and TCW High Income Partners II, Ltd. The Trust Company of
the West is the ultimate beneficial holder of these shares.] The address
for Trust Company of the West is 11100 Santa Monica Boulevard, Suite 2000,
Los Angeles, CA 90025.
(8) The address for Metropolitan Life Insurance Company is 10 Park Avenue,
Morristown, NJ 07962.
(9) Includes 937,500 unvested shares of common stock. One-third of the unvested
shares shall vest on a cumulative basis on each anniversary of the
Effective Date, if as of such date, Mr. Barrett is still in our employ.
(10) Includes 716,912 unvested shares of common stock. One-third of the unvested
shares shall vest on a cumulative basis on each anniversary of the
Effective Date, if as of such date, Mr. LaChey is still in our employ.
(11) Includes 303,309 unvested shares of common stock. One-third of the unvested
shares shall vest on a cumulative basis on each anniversary of the
Effective Date, if as of such date, Mr. DeRita is still in our employ.
(12) Includes 165,440 unvested shares of common stock. One-third of the unvested
shares shall vest on a cumulative basis on each anniversary of the
Effective Date, if as of such date, Mr. Varkoly is still in our employ.
50
DESCRIPTION OF NEW CREDIT FACILITY
STRUCTURE
The New Credit Facility has a 5-year maturity and provides for a revolving
credit line of up to $70 million (with a $5.0 million sublimit available for
letters of credit), and a term loan of $22.085 million. Availability under the
New Credit Facility is based on various advance rates against a borrowing base
consisting of Neenah's accounts receivable, inventory and property, plant and
equipment. The New Credit Facility is secured by a first priority, perfected
security interest in substantially all of Neenah's tangible and intangible
assets.
Capitalized terms used in this section and not defined herein are defined
in the credit agreement governing the New Credit Facility, that we hereinafter
refer to as the Credit Agreement.
INTEREST RATES AND FEES
Interest on borrowings under the New Credit Facility accrues daily with
reference to the base rate , hereinafter referred to as the Base Rate, plus the
applicable interest margin; however the Company may elect that all or a portion
of the borrowings under the facility bear interest at the Adjusted LIBOR Rate
plus the applicable interest margin. The Base Rate is defined as the higher of
(i) the prime rate for commercial loans announced or quoted by Fleet National
Bank in effect on such day and (ii) the federal funds rate in effect on such
date, plus 1/2%. The Adjusted LIBOR Rate is defined as the rate offered for
deposits in U.S. dollars for a period of time comparable to the applicable
interest period which appears on the Telerate page 3730.
The New Credit Facility contains provisions under which commitment fees and
interest rates are adjusted in increments based on the ratio, hereinafter
referred to as the Fixed Charge Coverage Ratio, of consolidated EBITDA to
interest expense and scheduled principal payments on our outstanding debt which
are each adjusted in accordance with the Credit Agreement.
Outstanding principal balances under the New Credit Facility will accrue
interest at the base rate or the LIBOR rate, as applicable as applicable, plus
in each case, the margin applicable to such advances shall be determined as set
forth in the following table.
APPLICABLE MARGIN FOR ADJUSTMENT DATES THROUGH AND INCLUDING SEPTEMBER 30, 2004:
<Table>
<Caption>
BASE RATE BASE RATE LIBOR LIBOR
REVOLVING TERM REVOLVING TERM UNUSED
FIXED CHARGE COVERAGE RATIO PORTION PORTION PORTION PORTION LINE FEE
- --------------------------- --------- --------- --------- ------- --------
Less than 1.15 to 1.00........................ 1.50% 2.00% 3.00% 3.50% 0.500%
Greater than or equal to 1.15 to 1.00 and less
than 1.40 to 1.00........................... 1.25% 1.75% 2.75% 3.25% 0.500%
Greater than or equal to 1.40 to 1.00 and less
than 1.65 to 1.00........................... 1.00% 1.50% 2.50% 3.00% 0.375%
Greater than or equal to 1.65 to 1.00......... 0.75% 1.25% 2.25% 2.75% 0.375%
</Table>
APPLICABLE MARGIN FOR ADJUSTMENT DATES ON AND AFTER DECEMBER 31, 2004:
<Table>
<Caption>
BASE RATE BASE RATE LIBOR LIBOR
REVOLVING TERM REVOLVING TERM UNUSED
FIXED CHARGE COVERAGE RATIO PORTION PORTION PORTION PORTION LINE FEE
- --------------------------- --------- --------- --------- ------- --------
Less than 1.20 to 1.00........................ 1.50% 2.00% 3.00% 3.50% 0.500%
Greater than or equal to 1.20 to 1.00 and less
than 1.40 to 1.00........................... 1.25% 1.75% 2.75% 3.25% 0.500%
Greater than or equal to 1.40 to 1.00 and less
than 1.65 to 1.00........................... 1.00% 1.50% 2.50% 3.00% 0.375%
Greater than or equal to 1.65 to 1.00......... 0.75% 1.25% 2.25% 2.75% 0.375%
</Table>
51
The initial Applicable Margin for the Base Rate Revolving Portion, the Base
Rate Term Portion, the LIBOR Revolving Portion, the LIBOR Term Portion and the
Unused Line Fee is 1.25%, 1.75%, 2.75%, 3.25% and 5.00% respectively.
We have agreed to pay certain fees with respect to the New Credit Facility
including (i) fees on the unused commitments of lenders equal to the Applicable
Margin for the Unused Line Fee, (ii) letter of credit fees on the aggregate face
amount of outstanding letters of credit equal to the then applicable borrowing
margin for LIBOR Revolving Portions and a fronting fee of 0.125% per annum on
the face amount of outstanding letters of credit and an issuing bank fee for the
bank issuing a letter of credit, and (iii) agent, arrangement and other similar
fees.
SECURITY AND GUARANTEES
NFC and the inactive subsidiaries of Neenah jointly and severally guarantee
Neenah's obligations under the New Credit Facility. Our obligations under the
New Credit Facility are secured by a first priority security interest in all or
substantially all of the assets of each borrower and each guarantor. The Notes,
and the guarantees in respect thereof, are equal in right of payment to the New
Credit Facility, and the guarantees in respect thereof. The liens in respect of
the Notes are junior to the liens securing the New Credit Facility and
guarantees thereof.
COVENANTS
The New Credit Facility requires Neenah to observe certain customary
conditions, affirmative covenants and negative covenants (including financial
covenants).
MATURITY AND AMORTIZATION
The term loan advanced under the New Credit Facility is repayable in equal
consecutive quarterly installments, based on a seven-year straight line
amortization rate, and the remaining outstanding principal is repaid at
maturity, which is from October 8, 2008. There is no cash flow sweep mechanism
that would require additional principal repayments on the term loan.
PREPAYMENTS
Optional Prepayments. Optional prepayments are permitted under the New
Credit Facility, including the right to reduce the commitments under the
revolving loan facility, subject to (i) a 1% fee based on the amount of the
underlying commitments terminated during the first year following October 8,
2003 and (ii) a 0.50% fee based on the amount of the underlying commitments
terminated during the second or third year following the Effective Date.
Mandatory Prepayments. Mandatory prepayments are required as follows: (i)
50% of the net proceeds from the issuance of debt or equity to non-affiliates;
(ii) 100% of the net proceeds received from the sale or disposition of all or
any part of the assets other than: (A) sales in the ordinary course of business,
(B) permitted sales to be agreed, subject to the reinvestment of the net
proceeds thereof (or the commitment to reinvest) within 180 days, (C) other
sales not in the ordinary course of business not to exceed in any fiscal year an
amount to be agreed and (D) assets secured by purchase money security interest;
(iii) 100% of insurance proceeds not reinvested or not committed to reinvestment
within 180 days with such commitment reinvestment to occur within 360 days from
when the insurance proceeds are received and (iv) 100% of the proceeds from tax
refunds, indemnity payments of pension plan reversions actually received.
COSTS AND EXPENSES
Neenah paid and shall pay all reasonable costs and expenses of the
administrative agent (including all reasonable fees, expenses and disbursements
of outside counsel and other professional advisors retained by the
administrative agent) in connection with the preparation, execution and delivery
of the definitive credit documentation and the funding of all loans in
connection therewith.
52
DESCRIPTION OF THE NOTES
The New Notes will be issued under an Indenture, dated October 8, 2003 (the
"Indenture"), among the Company, the Subsidiary Guarantors and The Bank of New
York, as trustee (the "Trustee"). The following summary of certain provisions of
the Indenture, the Collateral Documents and the Lien Subordination Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), and to all of the provisions of the Indenture, the
Collateral Documents and the Lien Subordination Agreement, including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the Trust Indenture Act, as in effect on the date of
the Indenture.
The definitions of certain capitalized terms used in this description are
set forth below under "Certain Definitions." References in this "Description of
the Notes" section to the "Company" mean only Neenah Foundry Company and not any
of its subsidiaries.
GENERAL
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Company has
appointed the Trustee to serve as registrar and paying agent under the Indenture
at its offices in New York, New York. No service charge will be made for any
registration of transfer or exchange of the Notes, except for any tax or other
governmental charge that may be imposed in connection therewith.
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes being offered hereby are limited to $133,130,000 million
aggregate principal amount and will mature on September 30, 2010. Subject to
compliance with the covenant described under "-- Certain Covenants -- Limitation
on the Incurrence of Indebtedness and Issuance of Disqualified Stock," the
Company may issue Additional Notes from time to time in the future. Any
Additional Notes will be part of the same issue as the Notes being issued in
this offering and will vote on all matters as one class with the Notes being
issued in this offering. For purposes of this "Description of the Notes," except
for the covenants described under "-- Certain Covenants -- Limitations on
Indebtedness," references to the Notes include Additional Notes, if any. Cash
interest on the Notes will accrue at a rate of 11% per annum and will be payable
semiannually in arrears on January 1 and July 1, of each year (each, and
"Interest Payment Date"), commencing January 1, 2004, to the holders of record
of Notes by 10:00 a.m. New York City time on that date. Interest will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
RANKING
The Notes will be:
- general secured obligations of the Company;
- secured by second-priority Liens on and security interests in the assets
of the Company that secure Obligations under the Credit Agreement and
other First Priority Claims other than the exceptions described under the
caption "-- Collateral" below;
- equal in right of payment with all existing and future senior
Indebtedness of the Company; and
- senior in right of payment to any existing and future subordinated
Indebtedness of the Company.
Pursuant to the Collateral Documents and the Lien Subordination Agreement,
the Liens securing the Notes under the Collateral Documents are second in
priority to any and all Liens at any time granted to secure the Priority Lien
Obligations, which include Indebtedness and other Obligations under the Credit
Agreement. As of November 30, 2003 we have approximately $47 million of
Indebtedness outstanding under the Credit Agreement, with approximately $45
million in additional revolving loan capacity. Such amounts are, or would be,
secured by Priority Liens on the Collateral. In addition, under the Indenture,
53
the Company also may incur additional Indebtedness secured by first-priority
Liens or second-priority Liens as described below under "-- Certain
Covenants -- Limitation on Additional Indebtedness" and "-- Certain
Covenants -- Limitation on Liens." The Collateral securing the Notes is subject
to control by creditors with first-priority Liens. If there is an Event of
Default, the value of the Collateral may not be sufficient to repay both the
first-priority creditors and the Holders of the Notes, as described below under
"-- Collateral."
GUARANTEES OF THE NOTES
The Indenture provides that each of the Subsidiary Guarantors will
unconditionally guarantee on a joint and several basis all of the Company's
Obligations under the New Notes, including its obligations to pay principal,
premium, if any, and interest with respect to the New Notes.
Each Guarantee will be:
- a general secured obligation of the Guarantor;
- secured by a Note Lien on and security interest in the assets of the
Guarantor that secure Obligations under the Credit Agreement and other
first Priority Lien Obligations other than the exceptions described under
the caption "-- Collateral" below;
- equal in right of payment with all existing and future senior
Indebtedness of the Subsidiary Guarantors; and
- senior in right of payment to existing and future subordinated
Indebtedness of the Subsidiary Guarantors.
The obligations of each Subsidiary Guarantor will not be discharged except
by complete performance of the Obligations contained in the Notes and Indenture.
Each Guarantor that makes a payment or distribution under a Subsidiary Guarantee
shall be entitled to seek contribution from each non-paying Subsidiary Guarantor
so long as the exercise of such right does not impair the rights of Holders
under the Subsidiary Guarantees.
The Company shall cause each Restricted Subsidiary issuing a Subsidiary
Guarantee after the date of the Indenture to execute and deliver to the Trustee
a supplemental indenture and the applicable documents and certificates required
by the Indenture, pursuant to which such Restricted Subsidiary shall become a
party to the Indenture and thereby (1) unconditionally guarantee all of the
Company's Obligations under the Notes and the Indenture on the terms set forth
therein and (2) grant a security interest in the Collateral owned by such
Restricted Subsidiary on the terms set forth in the Collateral Documents.
Thereafter, such Restricted Subsidiary shall (unless released in accordance with
the terms of the Indenture) be a Subsidiary Guarantor for all purposes of the
Indenture.
The Indenture provides that if the Notes thereunder are defeased in
accordance with the terms of the Indenture, all of the assets of a Subsidiary
Guarantee sold or disposed of in a transaction that complies with the Indenture
or the Company designates a Subsidiary Guarantor to be an Unrestricted
Subsidiary in a transaction that complies with the Indenture, then such
Subsidiary Guarantor (in the event of a sale or other disposition of all of the
Equity Interests of such Subsidiary Guarantor) or the corporation acquiring such
assets (in the event of a sale or other disposition of all or substantially all
of the assets of such Subsidiary Guarantor) shall be released and discharged of
its Subsidiary Guarantee obligations under the Indenture and the Notes.
COLLATERAL
The Notes and Guarantees will be secured by Note Liens, granted by the
Company and the Subsidiary Guarantors on the Collateral of the Company and each
Subsidiary Guarantor (whether now owned or hereafter arising or acquired) to the
extent such assets secure the Priority Lien Obligations and to the extent that a
Note Lien is able to be granted or perfected therein.
54
From and after the Issue Date, if the Company any Subsidiary Guarantor or
Restricted Domestic Subsidiary creates any additional security interest in any
property or asset to secure any Priority Lien Obligations or any other
Obligations that are secured equally and ratably with the Notes by a Note Lien
upon the Collateral, it must concurrently grant a Note Lien (subject to Priority
Liens and Permitted Liens) upon such property or asset as security for the
Notes.
The Company, the Subsidiary Guarantors and the Trustee, on its own behalf
and as Trustee, entered into Collateral Documents defining the terms of the
Liens securing the Note Obligations. These security interests will secure the
payment and performance when due of all of the Obligations of the Company and
the Subsidiary Guarantors under the Notes, the Indenture, the Subsidiary
Guarantees and the Collateral Documents, as provided in the Collateral
Documents.
The Collateral was pledged to the Trustee, as Collateral Agent for its
benefit and the benefit of the Trustee and the Holders. The Note Liens are
subject and subordinate to the Priority Liens, and no payment or other
distributions from (or with respect to) any realization upon the Collateral may
be made on account of the Note Liens until the Priority Lien Obligations are
discharged. The Priority Liens are also subject to Permitted Liens, including
those granted to third parties on or prior to the Issue Date. The Persons
holding such Liens may have rights and remedies with respect to the property
subject to such Lien that, if exercised, could adversely affect the value of the
Collateral or the ability of the Trustee to realize or foreclose on the
Collateral.
The Note Liens are second in priority to any and all Liens at any time
granted to secure Priority Lien Obligations. Priority Lien Obligations include
the Obligations under the Credit Agreement. In addition, other Indebtedness of
the Company and the Restricted Subsidiaries that is secured by a Lien permitted
pursuant to the covenant described under the caption "-- Certain
Covenants -- Limitation on Liens" and, that is designated by the Company upon
incurrence may be secured equally and ratably with the Notes by the
second-priority security interests in the Collateral.
The Trustee, the Credit Agent, the Company and the Subsidiary Guarantors
entered into the Loan Subordination Agreement. Pursuant to the terms of the Loan
Subordination Agreement, prior to the discharge of Priority Liens, the holders
of Priority Liens will determine the time and method by which the Liens on the
Collateral will be enforced by the Trustee. If the Notes become due and payable
prior to the final stated maturity thereof for any reason or are not paid in
full at the final stated maturity thereof and after any applicable grace period
has expired, pursuant to the provisions of the Loan Subordination Agreement, the
Trustee, on behalf of the holders of Priority Liens thereunder, will have the
exclusive right to foreclose (or decline to foreclose) upon (or otherwise
exercise (or decline to exercise) remedies in respect of) the Collateral.
Following the discharge of the Priority Liens, the Trustee will have the right
to foreclose upon the Collateral in accordance with instructions from the
holders of a majority in aggregate principal amount of Note Obligations and
other second-lien Obligations, if any, or, in the absence of such instructions,
in such manner as the Trustee deems appropriate in its absolute discretion. The
Trustee will not be permitted to enforce the Liens even if an Event of Default
has occurred and the Notes have been accelerated except (a) in any insolvency or
liquidation proceeding, as necessary to file a claim or statement of interest
with respect to the Notes or (b) as necessary to take any action not adverse to
the Priority Liens in order to preserve or protect its rights in the Note Liens.
As a result, while any Priority Liens are outstanding, neither the Trustee nor
the Holders will be able to force a sale of the Collateral or otherwise exercise
remedies normally available to secured creditors without the concurrence of the
holders of the Priority Liens or Agent under the Credit Agreement. The Lien
Subordination Agreement does not require the holders of Priority Lien
Obligations to marshal assets or to satisfy any obligations owed to them first
from collateral pledged to them which constitutes Excluded Collateral even if
the other collateral available to them would have satisfied their claims and
left Collateral available to benefit the Holders. In addition, the Collateral
Documents will generally provide that, so long as the Credit Agreement is in
effect the lenders thereunder may change, waive, modify or vary the Collateral
Documents without the consent of the Trustee or the Holders of the Notes, unless
such change, waiver or modification materially adversely affects the rights of
the Holders and not the other secured creditors in a like or similar manner or
would result in the impairment of any second-priority Lien other than in
55
accordance with the Indenture. After the discharge of the Priority Liens, the
Trustee will distribute all cash proceeds (after payment of the costs of
enforcement and collateral administration) from any realization upon the
Collateral received by it under the Collateral Documents for the ratable benefit
of the Holders and other second-lien Obligations. Future holders of Priority
Liens and of other second-lien Obligations, or their respective agents, will be
required to become a party to the Lien Subordination Agreement.
Whether prior to or after the discharge of the Priority Lien Obligations,
the Company and the Subsidiary Guarantors will be entitled to releases of assets
included in the Collateral from the Note Liens under any one or more of the
following circumstances:
(1) to enable us to consummate asset dispositions permitted or not
prohibited under the covenant described below under the caption "-- Certain
Covenants -- Limitation on Asset Sales";
(2) if all of the Equity Interests of any of our Subsidiary Guarantors
that are pledged to the Trustee, as Collateral Agent, are released or if
any Subsidiary Guarantor is released from its Subsidiary Guarantee, that
Subsidiary Guarantor's assets will also be released; or
(3) as described under "Modification and Waiver" below.
The Note Lien on all Collateral also will be released upon (1) payment in full
of the principal of, accrued and unpaid interest, if any, on the Notes and all
other Obligations under the Indenture, the Subsidiary Guarantees and the
Collateral Documents that are due and payable at or prior to the time such
principal and accrued and unpaid interest, if any, are paid, (2) a satisfaction
and discharge of the Indenture as described below under the caption
"-- Satisfaction and Discharge" and (3) a Legal Defeasance or Covenant
Defeasance as described below under the caption "-- Legal Defeasance and
Covenant Defeasance."
If the Company incurs obligations under the Credit Agreement or other
Priority Lien Obligations which are secured by assets of the Company or its
Restricted Subsidiaries of the type constituting Collateral, then the Notes will
be secured at such time by a Note Lien on the collateral securing such Priority
Lien Obligations, to the same extent provided by the Collateral Documents.
At any time that the holders of Note Liens are entitled to direct the
disposition or other actions with respect to the Collateral, the holders of a
majority in aggregate principal amount of such Note Obligations shall be
entitled to direct such disposition or action.
The holders of the Priority Liens will receive all proceeds from any
realization on the Collateral until the Priority Lien Obligations are fully
discharged. Proceeds realized by the Trustee, as Collateral Agent from the
Collateral will be applied:
- first, to amounts owing to the holders of the Priority Liens in
accordance with the terms of the Priority Lien Security Documents;
- second, to amounts owing to the Trustee, as Collateral Agent, in
accordance with the terms of the Collateral Documents;
- third, to amounts owing to the Trustee in its capacity as such in
accordance with the terms of the Indenture and to any Trustee acting on
behalf of holders of second-lien Obligations in accordance with the terms
of the documentation governing such Other Second Lien Obligations;
- fourth, to amounts owing to the Holders in accordance with the terms of
the Indenture and holders of Other Second Lien Obligations, pro rata
based on the aggregate principal amount of each such holder's
Obligations; and
- fifth, to the Company and/or other persons entitled thereto.
Subject to the terms of the Collateral Documents, the Company and each
Subsidiary Guarantor will have the right to remain in possession and retain
exclusive control of the Collateral securing the Notes (other than any
securities constituting part of the Collateral and deposited with the Trustee in
accordance
56
with the provisions of the Collateral Documents and other than as set forth in
the Collateral Documents), to freely operate the Collateral and to collect,
invest and dispose of any income therefrom.
To the extent that third parties enjoy Liens permitted by the Collateral
Documents and the Indenture, such third parties will have rights and remedies
with respect to the Collateral subject to such Liens that, if exercised could
adversely affect the value of the Collateral or the ability of the Trustee to
realize or foreclose on the Collateral on behalf of holders of Note Obligations.
Further, no appraisals of any of the Collateral have been prepared by or on
behalf of the Company in connection with the issuance of the Notes. There can be
no assurance that the proceeds from the sale of the Collateral remaining after
the satisfaction of all Obligations owed to the holders of the Priority Lien
Obligations or the holders of other Liens which have priority over or rank pari
passu with the Note Liens would be sufficient to satisfy the Obligations owed to
the Holders. By its nature, some or all of the Collateral will be illiquid and
may have no readily ascertainable market value. Accordingly, there can be no
assurance that the Collateral can be sold in a short period of time, if salable.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after September 30, 2007, at the Redemption Prices
(expressed as a percentage of principal amount) set forth below, with respect to
the indicated Redemption Date plus accrued and unpaid interest thereon, if any,
to, but excluding the Redemption Date, if redeemed during the 12-month period
beginning on September 30, of the years indicated below:
<Table>
<Caption>
REDEMPTION
YEAR PRICE
- ---- ----------
2007........................................................ 105.500%
2008........................................................ 104.125%
2009 and thereafter......................................... 102.750%
</Table>
The Company may acquire Notes by means other than a redemption, whether by
tender offer, open market purchases, negotiated transactions or otherwise, in
accordance with applicable securities laws, so long as such acquisition does not
otherwise violate the terms of the Indenture.
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the Trustee in compliance with the requirements of any applicable
depository, legal and national securities exchange or automated quotation
system, if any, on which the Notes are listed or, if the Notes are not then
listed on a national securities exchange, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate; provided, however, that
no Notes of a principal amount of $1,000 or less shall be redeemed in part.
Notice of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before a Redemption Date to the Trustee and each Holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. On and after
the Redemption Date, interest will cease to accrue on Notes or portions thereof
called for redemption as long as the Company has deposited with the paying agent
for the Notes funds in satisfaction of the applicable redemption price pursuant
to the Indenture.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
In the event that a Change of Control occurs, each Holder shall have the
right, at such Holder's option, subject to the terms and conditions of the
Indenture, to require the Company to repurchase all or any part of such Holder's
Notes (provided, that the principal amount of such Notes must be $1,000 or an
integral multiple thereof) on a date to be established by the Company (the
"Change of Control Payment Date") after the occurrence of such Change of
Control, at a cash price (the "Change of Control
57
Repurchase Price") equal to 101% of the aggregate principal amount thereof,
together with accrued and unpaid interest thereon to, but excluding, the Change
of Control Payment Date.
If a Change of Control were to occur, it would constitute an event of
default under the terms of the current Credit Agreement, which, if not waived,
would result in an Event of Default under the Indenture.
In the event that, pursuant to the terms of the Indenture, the Company
shall be required to commence an offer to purchase Notes (the "Change of Control
Offer"), the Company will comply with the terms of the Indenture and all
applicable tender offer laws and regulations and any violation of the provisions
of the Indenture relating to such Change of Control Offer occurring as a result
of such compliance shall not be deemed an Event of Default or an event that,
with the passing of time or giving of notice, or both, would constitute an Event
of Default.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
CERTAIN COVENANTS
Limitation on Incurrence of Indebtedness and Issuance of Disqualified
Stock. The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to (collectively,
"incur" and, correlatively, "incurred" and "incurrence") any Indebtedness
(including, without limitation, Acquired Debt), and the Company shall not issue
any Disqualified Stock and shall not permit any of its Restricted Subsidiaries
to issue any preferred stock; provided, however, that the Company and its
Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) if
after giving effect to the incurrence of such Indebtedness and the application
of the proceeds thereof, the Consolidated Coverage Ratio of the Company and its
Restricted Subsidiaries (on a consolidated basis) would not exceed 2.00 to 1.00.
The foregoing limitations shall not apply to:
(i) Indebtedness incurred by the Company and its Restricted
Subsidiaries under the Credit Agreement in an aggregate principal amount at
the time incurred equal to the greater of (i) $102 million and (ii) the
Borrowing Base Amount;
(ii) Indebtedness represented by the Senior Subordinated Notes;
(iii) additional Indebtedness incurred by the Company in respect of
Capital Lease Obligations or Purchase Money Obligations in an aggregate
principal amount not to exceed $10,000,000 at any time outstanding;
(iv) Indebtedness represented by the Notes and the Indenture;
(v) Hedging Obligations incurred by the Company pursuant to agreements
or other arrangements designed to protect the Company against fluctuations
in interest rates and/or currency exchange rates resulting from its
borrowings under the Credit Agreement;
(vi) additional unsecured Indebtedness which is subordinate in right
of payment to the Notes, not to exceed $5,000,000 at any time outstanding;
(vii) Indebtedness of the Company to any of its Wholly Owned
Subsidiaries that is a Restricted Subsidiary, and Indebtedness of any
Wholly Owned Subsidiary of the Company that is a Restricted Subsidiary to
the Company or any of its Wholly Owned Subsidiaries that is a Restricted
Subsidiary (the Indebtedness incurred pursuant to this clause (vii) being
hereinafter referred to as "Intercompany Indebtedness"); provided that in
the case of Intercompany Indebtedness of the Company (other than
Intercompany Indebtedness pursuant to the Credit Agreement) such
obligations shall be unsecured and subordinated in all respects to the
Company's obligations pursuant to the Notes; provided, further, that an
incurrence of Indebtedness shall be deemed to have occurred upon (a) any
sale or other disposition of Intercompany Indebtedness to a Person other
than the Company
58
or any of its Restricted Subsidiaries, (b) any sale or other disposition of
Equity Interests of any Restricted Subsidiary of the Company which holds
Intercompany Indebtedness such that such Restricted Subsidiary ceases to be
a Restricted Subsidiary after such sale or other disposition or (c)
designation of a Restricted Subsidiary as an Unrestricted Subsidiary;
(viii) the incurrence by the Company of Indebtedness issued in
exchange for, or the proceeds of which are used to extend, refinance,
renew, replace, defease or refund Indebtedness incurred pursuant to the
Consolidated Coverage Ratio test set forth in the first paragraph of this
covenant or pursuant to clauses (i), (ii) or (iv) of this covenant in whole
or in part (the "Refinancing Indebtedness"); provided, however, that (A)
(i) the aggregate principal amount of any Refinancing Indebtedness (other
than a Credit Agreement Refinancing Indebtedness) shall not exceed the
aggregate principal amount of Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded, and (ii) the aggregate principal
amount of any Credit Agreement Refinancing Indebtedness may exceed the
aggregate principal amount of the Indebtedness incurred under the Credit
Agreement so extended, refinanced, renewed, replaced, defeased or refunded
only to the extent permitted under Clause (i) of this caption "-- Certain
Covenants -- Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock"; (B) the Refinancing Indebtedness shall have a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (C) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is pari passu with or
subordinated in right of payment to the Notes, the Refinancing Indebtedness
shall be pari passu with or subordinated, as the case may be, in right of
payment to the Notes on terms at least as favorable to the Holders of Notes
as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded (any such
extension, refinancing, renewal, replacement, defeasance or refunding being
referred to as a "Permitted Refinancing");
(ix) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities, or obligations in respect of
purchase price adjustments, in connection with the acquisition or
disposition of any business, assets or Subsidiary of the Company permitted
under the Indenture;
(x) Indebtedness of the Company or a Restricted Subsidiary owed to any
Person in connection with liability insurance provided by such Person to
the Company or such Restricted Subsidiary, pursuant to reimbursement or
indemnification obligations to such Person, in each case incurred in the
ordinary course of business;
(xi) Guarantees of Indebtedness permitted to be incurred under the
Indenture;
(xii) Indebtedness in respect of performance bonds; and
(xiii) Indebtedness not included in paragraphs (i) through (xii) above
which does not exceed at any time, in the aggregate, $2,000,000.
Limitation on Restricted Payments. The Company shall not, and shall not
permit any of its Restricted Subsidiaries to, directly or indirectly:
(a)
(i) declare or pay any dividend or make any distribution on account of
Equity Interests, other than
(A) dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company; or
(B) dividends or distributions payable to the Company or a Wholly
Owned Subsidiary of the Company that is a Restricted Subsidiary;
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company (other than any such Equity Interests owned
by the Company or a Wholly Owned Subsidiary of the Company that is a
Restricted Subsidiary);
59
(iii) purchase, redeem, repay, defease or otherwise acquire or retire
for value any Indebtedness that is subordinated in right of payment to the
Notes except (i) for regularly scheduled payments of interest when due or
payment of principal at maturity thereof, (ii) as permitted under
"-- Certain Covenants -- Asset Sales" below, and (iii) as permitted or
required under the Senior Subordinated Notes Indenture;
(iv) make any Investment (other than a Permitted Investment);
(all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments");
unless, at the time of and after giving effect to such Restricted
Payment:
(A) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(B) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Consolidated Coverage Ratio test set forth under
"-- Certain Covenants -- Limitation on the Incurrence of Indebtedness
and Issuance of Disqualified Stock"; and
(C) such Restricted Payment (the amount of any such payment, if
other than cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a
resolution in an Officers' Certificate delivered to the Trustee),
together with the aggregate of all other Restricted Payments made by the
Company and its Restricted Subsidiaries after the date of the Indenture
(including Restricted Payments permitted by the next succeeding
paragraph, except as set forth therein), shall not exceed the sum of (w)
50% of the Consolidated Net Income of the Company for the period (taken
as one accounting period) commencing on the first day of the Company's
first fiscal quarter beginning after the initial issuance of the Notes
and ending on the last day of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, 100% of such deficit as a negative number),
plus (x) 100% of the aggregate net cash proceeds received by the Company
from the issuance or sale since the date of initial issuance of the
Notes of Equity Interests of the Company or of debt securities of the
Company that have been converted into such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a Subsidiary
of the Company and other than Disqualified Stock or debt securities that
have been converted into Disqualified Stock), plus (y) the aggregate
cash received by the Company as capital contributions to the Company
after the date of initial issuance of the Notes (other than from a
Subsidiary), plus (z) any cash received by the Company after the date of
initial issuance of the Notes as a dividend or distribution from any of
its Unrestricted Subsidiaries or from the sale of any of its
Unrestricted Subsidiaries less the cost of disposition and taxes, if any
(but in each case excluding any such amounts included in Consolidated
Net Income).
(b) The foregoing provisions shall not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company, or the defeasance, redemption or
repurchase of subordinated Indebtedness in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of Equity Interests of the Company (other than any
Disqualified Stock) or out of the net proceeds of a substantially
concurrent cash capital contribution received by the Company; provided that
the amount of any such proceeds that are utilized for any such redemption,
repurchase,
60
retirement, defeasance or other acquisition shall be excluded from Clause
(C)(x) above this section "-- Certain Covenants -- Limitation on Restricted
Payments";
(iii) the repayment, defeasance, redemption or repurchase of
subordinated Indebtedness with the net proceeds from an incurrence of
Refinancing Indebtedness in a Permitted Refinancing;
(iv) the repayment, defeasance, redemption or repurchase of Senior
Subordinated Notes for an aggregate purchase price of $15,000,000 or less;
(v) any Investment made with the proceeds of a substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of
Capital Stock of the Company (other than Disqualified Stock); provided,
however, the proceeds of such sale shall not be (and have not been)
included in Clause (C) above this section "-- Certain
Covenants -- Limitation on Restricted Payments";
(vi) other restricted payments of up to $5,000,000 in the aggregate;
or
(vii) the payment of a dividend or distribution by the Company and its
Subsidiaries, directly or indirectly, to ACP Holding in an amount
sufficient to permit ACP Holding to pay its consolidated, combined or
unitary United States federal, state and local tax liabilities relating to
the business of the Company and its Subsidiaries, provided that ACP Holding
applies the amount of such dividend or distribution for such purpose at
such time;
(viii) upon the occurrence of a Change of Control within 60 days of
the completion of the offer to repurchase the Notes pursuant to "-- Offer
to Purchase upon Change to Control, any purchase, retirement, redemption or
other acquisition of subordinated Obligations permitted to be incurred
pursuant to the Indenture (including the Senior Subordinated Notes) and
only to the extent necessary to comply with the covenants and other
provisions of such subordinated Obligations;
(ix) payments by the Company to NFC Castings or ACP Holding not to
exceed an amount necessary to permit NFC Castings or ACP Holding to (A)
make payments in respect to its indemnification obligations owing to
directors, officers, or other Persons under NFC Castings' or ACP Holding's
charter or by-laws or pursuant to written agreements with any such Person,
(B) make payments in respect of its other operational expenses (other than
taxes) incurred in the ordinary course of business, or (C) make payments in
respect of indemnification obligations and costs and expenses incurred by
ACP Holding in connection with any offering of common stock of ACP Holding;
or
(x) distributions by the Company and the Restricted Subsidiaries in
amounts necessary to permit such Person to repurchase securities of such
Person from employees of such Person upon the termination of their
employment, so long as the aggregate cash amount of all such Distributions
by all such Persons, measured at the time when made, does not exceed
$250,000 in any fiscal year of the Company.
provided, further, however, that at the time of, and after giving effect
to, any Restricted Payment permitted under clauses (i), (ii), (iii), (vi),
(viii) and (x) above no Default or Event of Default shall have occurred and be
continuing; provided, further, that the Restricted Payments described in clauses
(vii) and (ix), shall not be counted in computing the aggregate amount of all
Restricted Payments made pursuant to the Indenture.
For purposes of the foregoing calculations, the amount of any Investment
that constitutes a Restricted Payment shall be equal to the greater of (i) the
net book value of such Investment and (ii) the fair market value of such
Investment (in each case as certified by a resolution of the independent
directors of the Company if the book value or fair market value of such
investment exceeds $1,000,000).
Limitation on Liens. The Company shall not, and shall not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Liens on any asset now owned or acquired after the
date of the Indenture or any income or profits therefrom or assign or convey any
right to receive income therefrom, except Permitted Liens; provided, that, in
the case of Permitted
61
Liens securing Indebtedness that is expressly subordinate or junior in right of
payment to the Notes or a Subsidiary Guarantee, the Notes or such Subsidiary
Guarantee is secured by a Lien on such property, assets or proceeds that is
senior in priority to such Liens, and further provided, that in the case of
Permitted Liens securing Indebtedness under the Credit Agreement a Note Lien is
created in favor of the Holders of the Notes.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company shall not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries (a) on its Capital Stock or (b) with
respect to any other interest or participation in, or measured by, its
profits;
(ii) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries;
(iii) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(iv) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries;
except for such encumbrances or restrictions existing under or by reason of (a)
the agreements evidencing the Senior Indebtedness and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of those agreements; provided that they are not
materially more restrictive than the similar restrictions contained in those
agreements on the date of the Indenture, (b) the Indenture, the Notes, the
Senior Subordinated Notes Indenture, the Senior Subordinated Notes and the
Collateral Documents, (c) applicable law, (d) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, (e) customary nonassignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (f) Purchase Money Obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iv) above on the property so acquired, (g)
Refinancing Indebtedness; provided that the restrictions contained in the
agreements governing such Refinancing Indebtedness are no more restrictive with
respect to the provisions set forth in clauses (i), (ii), (iii) and (iv) above
than those contained in the agreements governing the Indebtedness being
refinanced; (h) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary pending
its sale or other disposition; or (i) restrictions on cash or other deposits or
net worth imposed by customers or suppliers under contracts entered into in the
ordinary course of business.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit, cause, or suffer any Restricted Subsidiary of the Company to,
directly or indirectly, sell, lease, license, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless:
(i) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable arms' length transaction by the Company
or such Restricted Subsidiary with an unrelated Person; and
(ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction involving aggregate payments in excess of $500,000, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above
and such Affiliate Transaction is approved by a majority of the
disinterested members, if any, of the Board of Directors and (b) with
respect to any Affiliate Transaction involving aggregate payments in excess
of
62
$20,000,000, an opinion as to the fairness to the Company or such
Restricted Subsidiary from a financial point of view issued by a nationally
recognized independent financial advisor;
provided, however, that the foregoing limitations shall not apply to (i) any
reasonable fees, advances and compensation (including incentive compensation)
provided to, and indemnity provided on behalf of, officers, directors and
employees of NFC Castings, ACP Holding, the Company and its Restricted
Subsidiaries as determined in good faith by the Board of Directors of the
Company, (ii) transactions between or among the Company and its Wholly Owned
Subsidiaries that are Restricted Subsidiaries, (iii) Restricted Payments
permitted under "Limitation on Restricted Payments", (iv) payment of principal
of, and interest on, the Notes or the Senior Subordinated Notes held by
Affiliates, (v) payment of the Commitment Fee, (vi) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors; (vii) transactions pursuant
to agreements entered into or in effect on the date of the Indenture, including
amendments thereto entered into after the date of the Indenture, provided that
(A) the terms of any such amendment are not, in the aggregate, less favorable to
the Company or such Restricted Subsidiary than the terms of such agreement prior
to such amendment and (B) the transactions contemplated by such amendment are
otherwise permitted by the Indenture (viii) Intercompany Indebtedness permitted
to be incurred under "-- Certain Covenants -- Limitation on the Incurrence of
Indebtedness and Issuance of Disqualified Stock" or (ix) non-exclusive licenses
of intellectual property among the Company and the Restricted Subsidiaries or
among the Restricted Subsidiaries.
Limitation on Lines of Business. The Company shall not, and shall not
permit any Restricted Subsidiary to, engage in any business other than a Related
Business.
Sale and Leaseback Transactions. The Company shall not, and shall not
permit any Restricted Subsidiary to, enter into any sale and leaseback
transaction; provided, however, that the Company or any Restricted Subsidiary
may enter into a sale and leaseback transaction if:
(a) the Company or that Restricted Subsidiary, as applicable, could
have (i) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Consolidated
Coverage Ratio test set forth in "-- Certain Covenants -- Limitation on the
Incurrence of Indebtedness and Issuance of Disqualified Stock" and (ii)
created a Lien on such property securing Attributable Debt pursuant to the
provisions set forth in "Limitation on Liens";
(b) the net cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to
the Trustee, of the property that is the subject of that sale and leaseback
transaction; provided that no Officers' Certificate need be provided if the
fair market value of such sale and leaseback transaction, is determined in
good faith by the Board of Directors to be less than $1,000,000; and
(c) the transfer of assets in such sale and leaseback transaction is
permitted by, and the Company or such Restricted Subsidiary applies the
proceeds of such transaction in compliance with, the provisions of
"-- Certain Covenants -- Asset Sales".
Future Guarantors. The Company shall cause each Person that (a) becomes a
Domestic Restricted Subsidiary following the date of the Indenture and
(b) guarantees any Indebtedness of the Company or any Subsidiary thereof to
execute and deliver to the Trustee a Subsidiary Guarantee at the time such
Person becomes obligated under any such Guarantee.
Payments for Consent. Neither the Company, nor any of the Company's
Subsidiaries, shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or agreed to be
63
paid to all holders of the Notes which so consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Asset Sales. Neither the Company nor any of its Restricted Subsidiaries
shall engage in any Asset Sale, unless:
(i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value (evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee) of the assets
sold or otherwise disposed of; and
(ii) at least 20% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of Cash or Cash
Equivalents; provided, however, that if the Fair Market Value of the assets
sold or otherwise disposed of exceeds $10,000,000, at least 75% of the
consideration therefor received by the Company or such Restricted
Subsidiaries is in the form of Cash or Cash Equivalents;
provided, further, however, that the amount of (a) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet or in
the notes thereto) of the Company or such Restricted Subsidiary (other than
liabilities that are by their terms subordinated in right of payment to the
Notes) that are assumed by the transferee of any such assets and (b) any notes
or other obligations received by the Company or such Restricted Subsidiary from
such transferee that are converted within 60 days by the Company or such
Restricted Subsidiary into cash (to the extent of the cash so received), shall
be deemed to be cash for purposes of clause (ii) above.
Within 180 days after the receipt of the Net Proceeds from an Asset Sale,
the Company shall apply the Net Proceeds from such Asset Sale first, to repay or
reduce the Term Loan, and to the extent such Indebtedness is paid in full, to
repay the Revolver (but shall not permanently reduce the commitment thereunder).
Pending the final application of any such Net Proceeds, the Company may invest
such Net Proceeds in any manner that is not prohibited by this Indenture. Any
Net Proceeds from the Asset Sale that are not applied as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate cumulative amount of Excess Proceeds exceeds $5,000,000,
the Company shall make an offer to all Holders of Notes to purchase the maximum
principal amount of Notes that may be purchased with the Excess Proceeds, at an
offer price in cash in an amount equal to 100% of the principal amount thereof
plus accrued and unpaid interest thereon to the date of purchase, in accordance
with the procedures set forth in this section "-- Certain Covenants -- Asset
Sales" (an "Asset Sale Offer"). To the extent that the aggregate principal
amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use such deficiency (i) for general corporate purposes
in any manner not prohibited by the Indenture (including the repayment,
redemption or repurchase of Senior Subordinated Notes to the extent permitted
under Clause b(iv) of "-- Certain Covenants -- Limitation on Restricted
Payments" or (ii) within 60 days of the completion of an Asset Sale Offer, to
purchase, retire, redeem or otherwise acquire subordinated Obligations permitted
to be incurred pursuant to the Indenture (including the Senior Subordinated
Notes) and only to the extent necessary to comply with the covenants and other
provisions of such subordinated Obligations.
If the aggregate principal amount of Notes surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
In the event that the Company shall be required to commence an Asset Sale
Offer to all Holders to purchase Notes pursuant to this section "-- Certain
Covenants -- Asset Sales", it shall follow the procedures specified below.
The Asset Sale Offer shall be commenced within 30 days following the first
date on which the Company has cumulative Excess Proceeds of at least $5,000,000
and remain open for a period of at least
64
30 and not more than 40 days, except to the extent that a longer period is
required by applicable law (the "Repurchase Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Repurchase Date"),
the Company shall purchase the principal amount of Notes required to be
purchased pursuant to this section "-- Certain Covenants -- Asset Sales" hereof
(the "Repurchase Price") or, if Notes having an aggregate principal amount less
than the amount of Excess Proceeds subject to such Asset Sale Offer have been
tendered, all Notes tendered in response to the Asset Sale Offer. Payment for
any Notes so purchased shall be made in the same manner as interest payments are
made.
If the Repurchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send, by
first class mail, a notice to the Trustee or to each of the Holders, with a copy
to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this section
"-- Certain Covenants -- Asset Sales" and the length of time the Asset Sale
Offer shall remain open;
(b) the Asset Sale Offer, the Repurchase Price and the Repurchase
Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Repurchase Date;
(e) that Holders electing to have a Note purchased pursuant to a Asset
Sale Offer may only elect to have all of such Note purchased and may not
elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three days before the Asset Sale Purchase
Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Repurchase Offer Period, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note the Holder delivered for purchase
and a statement that such Holder is withdrawing his election to have such
Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Repurchase Price, the Trustee shall select the Notes to
be purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Trustee so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered (or transferred by book-entry transfer).
The Company, the Depositary or the Paying Agent, as the case may be, shall
promptly (but in any case not later than five days after the Repurchase Date)
mail or deliver to each tendering Holder an amount equal to the purchase price
of the Notes tendered by such Holder and accepted by the Company for purchase,
and the Company shall promptly issue a new Note, and the Trustee, upon written
order from the Company shall authenticate and mail or deliver such new Note to
such Holder, in a principal amount
65
equal to any unpurchased portion of the Note surrendered. Any Note not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Asset Sale Offer
on the Repurchase Date.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws, rules and regulations thereunder to
the extent such laws, rules and regulations are applicable in connection with
the repurchase of Notes pursuant to Asset Sale Offer.
Calculation of Original Issue Discount. The Company shall file with the
Trustee promptly at the end of each calendar year (i) a written notice
specifying the amount of original issue discount (including daily rates and
accrual periods) accrued on Outstanding Notes as of the end of such year and
(ii) such other specific information relating to such original issue discount as
may then be relevant under the Code from time to time.
EVENTS OF DEFAULT
Under the Indenture, an "Event of Default," means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) failure to pay any installment of interest on any of the Notes as
and when the same becomes due and payable, and the continuance of such
failure for a period of 30 days, whether or not such payment is prohibited
by the Indenture;
(b) failure to pay all or any part of the principal of the Notes when
and as the same become due and payable at maturity, redemption, repurchase
or otherwise, whether or not such payment is prohibited by the Indenture;
(c) failure by the Company to comply with the provisions set forth in
"-- Certain Covenants -- Asset Sales" or "Limitation on Merger,
Consolidation or Sale of Assets";
(d) failure by the Company or any Restricted Subsidiary to observe or
perform any covenant or agreement contained in the Notes, the Indenture
(other than a default in the performance of any covenant or agreement which
is specifically dealt with elsewhere in this section "Events of Default")
or the Collateral Documents, and continuance of such failure for a period
of 30 days after there has been given, by registered or certified mail, to
the Company by the Trustee, or to the Company and the Trustee by Holders of
at least 25% in aggregate principal amount of the then outstanding Notes, a
written notice specifying such failure, requesting it to be remedied and
stating that such notice is a "Notice of Default";
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of such Indebtedness when due and prior to the
expiration of the grace period provided in such Indebtedness (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case described in clauses (a) and (b) of
this subsection (e), the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5,000,000 or more;
(f) failure of the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $5,000,000, which judgments
have not been paid, stayed, bonded or discharged for a period (during which
execution shall not be effectively stayed) of 60 days (or, in the
66
case of any such final judgment which provides for payment over time, which
shall so remain unstayed, unbonded or undischarged beyond any applicable
payment date provided therein);
(g) a decree, judgment, or order by a court of competent jurisdiction
shall have been entered adjudging the Company or any of its Restricted
Subsidiaries as bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization of the Company or any of its Restricted
Subsidiaries under any bankruptcy or similar law, and such decree,
judgment, or order shall have continued undischarged and unstayed for a
period of 60 days; or a decree or order of a court of competent
jurisdiction over the appointment of a receiver, liquidator, trustee, or
assignee in bankruptcy or insolvency of the Company, any of its Restricted
Subsidiaries, or of the property of any such Person, or for the winding up
or liquidation of the affairs of any such Person, shall have been entered,
and such decree, judgment, or order shall have remained in force
undischarged and unstayed for a period of 60 days; or
(h) the Company or any of its Restricted Subsidiaries shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent to the
filing of a bankruptcy proceeding against it, or shall file a petition or
answer or consent seeking reorganization under any bankruptcy or similar
law or similar statute, or shall consent to the filing of any such
petition, or shall consent to the appointment of a Custodian, receiver,
liquidator, trustee, or assignee in bankruptcy or insolvency of it or any
of its assets or property, or shall make a general assignment for the
benefit of creditors; or take any corporate action in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing;
(i) any Subsidiary Guaranty relating to the Notes ceases to be in full
force and effect (other than in accordance with the terms of such
Subsidiary Guaranty), or any Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty relating to the Notes; or
(j) the security interest under the Collateral Documents shall, at any
time, cease to be in full force and effect for any reason other than the
satisfaction in full of all Obligations under the Indenture and discharge
of the Indenture or any security interest created under the Indenture or
under the Collateral Documents shall be declared invalid or unenforceable
or the Company or any Restricted Subsidiary shall assert, in any pleading
in any court of competent jurisdiction, that any such security interest is
invalid or unenforceable.
Notwithstanding the 30-day period and notice requirement contained in
Section 6.1(d) above, with respect to a default under "Offer to Purchase Upon
Change of Control", the 30-day period referred to above shall be deemed to have
begun as of the date the Change of Control notice is required to be sent in the
event that the Company has not complied with the provisions of "Offer to
Purchase Upon Change of Control" and the Trustee or Holders of at least 25% in
principal amount of the outstanding Notes thereafter give the Notice of Default
referred to above to the Company and, if applicable, the Trustee; provided,
however, that if the breach or default is a result of a default in the payment
when due of the Repurchase Price on the Repurchase Date, such Event of Default
shall be deemed, for purposes of this section "Events of Default" to arise no
later than on the last Repurchase Date.
The occurrence of any of the following is as an "Event of Default" under
the Indenture:
(a) failure to pay principal of (or premium, if any, on) any Note when
due at stated maturity, upon acceleration, redemption, optional redemption,
required repurchase or otherwise;
(b) failure to pay any interest on any Note when due, continued for 30
days or more;
(c) failure to perform or comply with any of the provisions described
under "-- Certain Covenants -- Certain Covenants -- Asset Sales" and "Offer
to Purchase upon Change of Control" above;
(d) failure to perform any other covenant, warranty or agreement of
the Company under the Indenture, the Collateral Documents or the Notes or
of the Subsidiary Guarantors under the Indenture, the Collateral Documents
or the Guarantees continued for 30 days or more after written
67
notice to the Company by the Trustee or Holders of at least 25% in
aggregate principal amount of the outstanding Notes;
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of such Indebtedness when due and prior to the
expiration of the grace period provided in such Indebtedness (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case described in clauses (a) and (b) of
this subsection (e), the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5,000,000 or more;
(f) failure of the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $5,000,000, which judgments
have not been paid, stayed, bonded or discharged for a period (during which
execution shall not be effectively stayed) of 60 days (or, in the case of
any such final judgment which provides for payment over time, which shall
so remain unstayed, unbonded or undischarged beyond any applicable payment
date provided therein);
(g) a decree, judgment, or order by a court of competent jurisdiction
shall have been entered adjudging the Company or any of its Restricted
Subsidiaries as bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization of the Company or any of its Restricted
Subsidiaries under any bankruptcy or similar law, and such decree,
judgment, or order shall have continued undischarged and unstayed for a
period of 60 days; or a decree or order of a court of competent
jurisdiction over the appointment of a receiver, liquidator, trustee, or
assignee in bankruptcy or insolvency of the Company, any of its Restricted
Subsidiaries, or of the property of any such Person, or for the winding up
or liquidation of the affairs of any such Person, shall have been entered,
and such decree, judgment, or order shall have remained in force
undischarged and unstayed for a period of 60 days; or
(h) the Company or any of its Restricted Subsidiaries shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent to the
filing of a bankruptcy proceeding against it, or shall file a petition or
answer or consent seeking reorganization under any bankruptcy or similar
law or similar statute, or shall consent to the filing of any such
petition, or shall consent to the appointment of a Custodian, receiver,
liquidator, trustee, or assignee in bankruptcy or insolvency of it or any
of its assets or property, or shall make a general assignment for the
benefit of creditors; or take any corporate action in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing;
(i) any Subsidiary Guaranty relating to the Notes ceases to be in full
force and effect (other than in accordance with the terms of such
Subsidiary Guaranty), or any Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty relating to the Notes; or
(j) the security interest under the Collateral Documents shall, at any
time, cease to be in full force and effect for any reason other than the
satisfaction in full of all Obligations under the Indenture and discharge
of the Indenture or any security interest created hereunder or under the
Collateral Documents shall be declared invalid or unenforceable or the
Company or any Restricted Subsidiary shall assert, in any pleading in any
court of competent jurisdiction, that any such security interest is invalid
or unenforceable.
Notwithstanding the 30-day period and notice requirement above, with
respect to a default under "Offer to Purchase Upon Change of Control", the
30-day period shall be deemed to have begun as of the date the Change of Control
notice is required to be sent in the event that the Company has not complied
with the provisions of "Offer to Purchase Upon Change of Control" and the
Trustee or Holders of at least 25% in principal amount of the outstanding Notes
thereafter give the Notice of Default to the Company
68
and, if applicable, the Trustee; provided, however, that if the breach or
default is a result of a default in the payment when due of the Repurchase Price
on the Repurchase Date, such Event of Default shall be deemed, to arise no later
than on the last Repurchase Date.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any obligations
of the Company or any of its Affiliates under the Notes or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect,
except as to surviving rights of registration of transfer or exchange of the
Notes, as to all Notes issued when:
(a) either:
(i) the Company delivers to the Trustee all outstanding Notes for
cancellation; or
(ii) all outstanding Notes have become due and payable, whether at
maturity or on a specified redemption date as a result of the mailing of
a notice of redemption pursuant to the section "-- Optional Redemption,"
(b) the Company irrevocably deposits with the Trustee money sufficient
to pay at maturity or upon redemption all outstanding Notes, including
interest and premium thereon to maturity or such redemption date, and if in
either case the Company pays all other sums payable under the Indenture by
the Company, and
(c) if the Notes have been called for redemption and the redemption
date has not occurred, the Company delivers to the Trustee an Opinion of
Counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
actions and will be subject to federal income tax on the same amounts, in
the same manner and at the same time as would have been the case if such
actions had not occurred, then this Indenture shall cease to be of further
effect except for,
(i) the Company's claim to deposits unclaimed after two years,
certain reporting obligations, and amounts owed to the Trustee, and
(ii) if the Notes have been called for redemption and the
redemption date has not occurred, the Company's obligation to pay the
redemption price on such redemption date.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, provided that no Default or Event of Default has occurred
and is continuing or would arise therefrom (or, with respect to a Default or
Event of Default from bankruptcy or insolvency events, occurs at any time on or
prior to the 91st calendar day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
91st day)) under the Indenture, terminate its and the Subsidiary Guarantors'
substantive obligations in respect of the Notes (except for its obligations to
pay the principal of (and premium, if any, on) and the interest on the Notes and
the Subsidiary Guarantors' Guarantee thereof) ("Covenant Defeasance") by:
(1) depositing with the Trustee, under the terms of an irrevocable
trust agreement, cash in United States dollars, non-callable government
securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
certified public accountants, to pay all remaining principal of (and
premium, if any, on) and interest on such Notes;
69
(2) delivering to the Trustee either an Opinion of Counsel from
nationally recognized tax counsel reasonably acceptable to the Trustee
confirming that the Holders of the Notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such deposit and
termination of obligations; and
(3) complying with certain other requirements set forth in the
Indenture.
In addition, the Company may, provided that no Default or Event of Default
has occurred and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default from bankruptcy or insolvency events, occurs at any
time on or prior to the 91st calendar day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until after
such 91st day)) under the Indenture, terminate all of its and the Subsidiary
Guarantors' substantive obligations in respect of the Notes (including its
obligations to pay the principal of (and premium, if any, on) and interest on
the Notes and the Subsidiary Guarantors' Guarantee thereof) ("Legal Defeasance")
by:
(1) depositing with the Trustee, under the terms of an irrevocable
trust agreement, cash in United States dollars, non-callable government
securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
certified public accountants, to pay all remaining principal of (and
premium, if any, on) and interest on such Notes;
(2) delivering to the Trustee either an Opinion of Counsel from
nationally recognized tax counsel reasonably acceptable to the Trustee
confirming that the Holders of the Notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such deposit and
termination of obligations; and
(3) complying with certain other requirements set forth in the
Indenture.]
GOVERNING LAW
The Indenture, the Collateral Documents (other than certain Collateral
Documents relating to Foreign Restricted Subsidiaries), the Notes and the
Guarantees will be governed by the laws of the State of New York without regard
to principles of conflicts of laws.
MODIFICATION AND WAIVER
Supplements and amendments of the Indenture and the Notes (and, subject to
the terms of the Intercreditor Agreement, the Collateral Documents) may be made
by the Company, the Subsidiary Guarantors, and the Trustee with the consent of
the Holders of a majority in aggregate principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for the Notes); provided, however, that:
(1) no such modification or amendment to the Indenture, the Collateral
Documents or the Notes may, without the consent of the Holder of each Note
affected thereby:
(a) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Note or alter the optional or mandatory redemption provisions (other
than provisions relating to the covenants described in "-- Certain
Covenants -- Asset Sales" and "Offer to Purchase Upon Change of Control"
above) or reduce the prices at which the Company shall offer to purchase
such Notes pursuant to such sections;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal
of or interest on, or redemption payment with respect to, any Note
(other than a Default in the payment of an
70
amount due as a result of an acceleration if the Holders of Notes
rescind such acceleration pursuant to Section 6.2);
(e) make any Note payable in money other than that stated in the
Note;
(f) make any change in the provisions of the Indenture relating to
waiver of past defaults or to the rights of Holders to receive payments
of principal of, or interest on the Notes or to this clause (f);
(g) waive a redemption payment with respect to any Note;
(h) release all or substantially all of the Collateral from the
Lien of the Indenture or the Collateral Documents (except in accordance
with the provisions hereof or thereof); or
(i) make any change in the foregoing amendment and waiver
provisions.
Without the consent of any Holder, the Company, the Subsidiary Guarantors
and the Trustee may amend the Indenture, the Collateral Documents and the Notes
to: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for
uncertificated Notes in addition to or in place of certificated Notes; (3) to
provide for the assumption of the Company's or a Subsidiary Guarantor's
Obligations to Holders in the case of a merger or consolidation; (4) to make any
change that would provide any additional rights or benefits to the Holders of
the Notes or that does not adversely affect the legal rights of any Holder of
the Notes; (5) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the TIA; (6) to make,
complete or confirm any grant of Collateral permitted or required by the
Indenture or any release of Collateral that becomes effective as set forth in
the Indenture; (7) to enter into additional or supplemental Collateral
Documents; (8) to provide for the issuance of Additional Notes in accordance
with the limitations set forth in the Indenture as of October 8, 2003; or (9) to
allow any Subsidiary Guarantor to execute a supplemental indenture and/or a
Subsidiary Guarantee with respect to the Notes.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
and the Subsidiary Guarantors with certain restrictive provisions of the
Indenture and, subject to the terms of the Intercreditor Agreement and the
Collateral Documents. Subject to certain rights of the Trustee, as provided in
the Indenture, the Holders of a majority in aggregate principal amount of the
Notes, on behalf of all Holders, may waive any past default under the Indenture
(including any such waiver obtained in connection with a tender offer or
exchange offer for the Notes), except a default in the payment of principal,
premium or interest or a default arising from failure to purchase any Notes
tendered pursuant to a Change of Control Offer, or a default in respect of a
provision that under the Indenture cannot be modified or amended without the
consent of the Holder of each Note that is affected.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, any Guarantor or any other obligor upon the
Notes, to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claim as security or otherwise.
The Trustee is permitted to engage in other transactions with the Company or an
Affiliate of the Company; provided, however, that if it acquires any conflicting
interest (as defined in the Indenture or in the Trust Indenture Act), it must
eliminate such conflict or resign.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACP Holding" means ACP Holding Company, a Delaware corporation.
"Acquired Debt" means, with respect to any specified Person: (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Additional Notes" means any Notes (other than Initial Notes and Exchange
Notes and Notes issued under certain sections of the Indenture) issued under the
Indenture in accordance with the terms of the Indenture, as part of the same
series as the Initial Notes or as an additional series.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities (or the
equivalents) of a Person shall be deemed to be control.
"Applicable Procedures" means, with respect to any transfer, redemption or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Clearstream that apply to such
transfer, redemption or exchange.
"Asset Sale" means any sale, transfer or other disposition (including,
without limitation, by merger, consolidation or sale-and-leaseback transaction)
of (i) shares of Capital Stock of a Subsidiary of the Company (other than
directors' qualifying shares), including any issuance of such Capital Stock, or
(ii) property or assets of the Company or any Restricted Subsidiary of the
Company other than in the ordinary course of business; provided, however, that
an Asset Sale shall not include (a) any sale, transfer or other disposition of
shares of Capital Stock, property or assets by a Restricted Subsidiary of the
Company to the Company or to any Restricted Subsidiary that is a Wholly Owned
Subsidiary of the Company, (b) any sale, transfer or other disposition of
defaulted receivables for collection, (c) any sales, transfers or other
dispositions that do not involve aggregate consideration in excess of $2,500,000
in any fiscal year, (d) the grant in the ordinary course of business of any
license of patents, trademarks, registrations therefor and other similar
intellectual property, (e) any Lien (or foreclosure thereon) securing
Indebtedness to the extent that such Lien is granted in compliance with the
Indenture, (f) any Restricted Payment or Permitted Investment permitted by the
Indenture, (g) any disposition of assets or property to the extent such assets
are obsolete, worn-out or no longer useful in the Company's or any Restricted
Subsidiary's business, (h) the sale, lease, conveyance or other disposition of
all or substantially all of the assets of the Company as permitted by Article V
of the Indenture, (i) any disposition that constitutes a Change of Control, (j)
any transaction or series of transactions pertaining to sales, transfers or
other dispositions of properties or assets of the Company or any Restricted
Subsidiary in connection with closures of plants for a purchase price not
exceeding 10% of the total consolidated assets of the Company as reflected on
its consolidated balance sheet as of the Company's fiscal year end immediately
preceding the first sale of such property or assets, (k) the disposition of any
Investment in Cash Equivalents, (l) sales, leases and other dispositions of the
Non-Core Fixed Assets; or (m) so long as no Event of Default exists, sales,
leases and other dispositions of fixed assets that are worn, scrap, excess,
damaged or obsolete, the net proceeds of which are used to prepay the
outstanding principal amount of the Term Loan
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or the Revolver (regardless of whether the corresponding revolving commitment
thereunder is reduced in connection therewith).
"Asset Sale Offer" means an offer made by the Company when the aggregate
cumulative amount of Excess Proceeds exceeds $5.0 million to all Holders of
Notes to purchase the maximum principal amount of Notes that may be purchased
with the Excess Proceeds at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest thereon to the
date of purchase in accordance with the terms of the Indenture.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the obligation of the lessee for net
rental payments during the remaining term of the lease included in such sale and
leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended.
"Bankruptcy Law" means title 11, U.S. Code, or any similar federal, state
or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the board of directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such Person.
"Borrowing Base Amount" means, as to the Company and its Restricted
Subsidiaries, the sum of (x) 65% of the gross value of Inventory plus (y) 85% of
the gross value of Receivables, in each case, determined on a consolidated basis
in accordance with GAAP, as reflected in the most recent quarterly consolidated
financial statements delivered pursuant to Section 4.7 of the Indenture.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means (i) any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, (ii) in the
case of a partnership, partnership interests (whether general or limited) and
(iii) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash" means such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and private
debts.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than twelve
months from the date of acquisition, (iii) certificates of deposit and
Eurodollar time deposits with maturities of twelve months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding twelve months
and overnight bank deposits, in each case with any domestic commercial bank
having capital and surplus in excess of $500,000,000, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Corporation and in each case maturing within
nine months after the date of acquisition and (vi) shares of any money market
mutual fund, or similar fund, in each case having assets in excess of
$500,000,000, which invests solely in investments of the types described in
clauses (i) through (v) above.
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"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of ACP Holding, NFC Castings or the Company and the
Restricted Subsidiaries, taken as a whole, to any "person" (as that term is
used in Section 13(d)(3) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution
of NFC Castings or ACP Holding (or any other direct or indirect parent of
the Company) or the Company;
(3) the consummation of any transaction, as a result of which any
"person" (as referenced in clause (2) above), other than the Permitted
Holders, becomes the Beneficial Owner, directly or indirectly, of, in the
aggregate, more than 50% of the total voting power of the Voting Stock of
the Company, NFC Castings or ACP Holding, whether as a result of issuance
of securities of NFC Castings or ACP Holding (or any other direct or
indirect parent of the Company) or the Company, any merger, consolidation,
liquidation or dissolution of NFC Castings or ACP Holding (or any other
direct or indirect parent of the Company) or the Company or otherwise,
provided, however, that the Permitted Holders Beneficially Own, directly or
indirectly, less than such "person"; or
(4) the first day on which a majority of the members of the Board of
Directors of any of the Company, NFC Castings or ACP Holding are not
Continuing Directors;
provided, however, for purposes of clause (3), the Permitted Holders shall be
deemed to Beneficially Own any Voting Stock of a Person held by any other Person
(the "parent entity") so long as the Permitted Holders Beneficially Own,
directly or indirectly, in the aggregate a majority of the voting power of the
Voting Stock of the parent entity.
"Change of Control Offer" shall have the meaning specified above in
"-- Offer to Purchase upon Change of Control."
"Change of Control Payment Date" shall have the meaning specified above in
"-- Offer to Purchase upon Change of Control."
"Change of Control Put Date" shall have the meaning specified above in
"-- Offer to Purchase upon Change of Control."
"Change of Control Repurchase Price" shall have the meaning specified above
in "-- Offer to Purchase upon Change of Control."
"Clearstream" means Clearstream Banking S.A. and any successor thereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means all of the property in which the Company or any
Restricted Subsidiary now or hereafter has rights or the power to pledge or
transfer a security interest to secure all Obligations under the Notes, pursuant
to the Collateral Documents, including all of the assets that are subject to
Priority Liens.
"Collateral Documents" means each security agreement among the Trustee (on
behalf of the Noteholders), and each of the Company, the Restricted Subsidiaries
and each stock pledge, deed of trust and mortgage executed by the Company or any
Restricted Subsidiary creating a lien that secures the Notes and the Subsidiary
Guarantees and each collateral assignment of any other documents creating a Lien
that, after giving effect to such collateral assignment, secures the Notes or
any Subsidiary Guarantee each, as may be amended, supplemented or otherwise
modified from time to time.
"Commitment Fee" means the Commitment Fee payable to the Permitted Holders
pursuant to the Standby Funding Commitment Letters, dated June 30, 2003, between
the Company and each of the Permitted Holders.
74
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement entered into by the Company or
any of its Restricted Subsidiaries designed to protect the Company or any of its
Restricted Subsidiaries against fluctuations in the price of commodities
actually used in the ordinary course of business of the Company and its
Restricted Subsidiaries each, as may be amended, supplemented or otherwise
modified from time to time.
"Common Stock" means, with respect to any Person, Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Company" means Neenah Foundry Company until a successor replaces it
pursuant to the Indenture, and thereafter means such successor.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that
(1) if the Company or any Restricted Subsidiary has incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an incurrence of Indebtedness,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness
and the application of the proceeds thereof as if such Indebtedness had
been incurred on the first day of such period and the discharge of any
other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period (except that in the case of
Indebtedness to finance seasonal fluctuations in working capital needs
incurred under a revolving credit or similar arrangement, the amount
thereof shall be deemed to be the average daily balance of such
Indebtedness during such four quarter period);
(2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have disposed of any assets constituting all or
substantially all of the assets of an operating unit of a business (a
"Disposal"), (x) the EBITDA for such period shall be reduced by an amount
equal to the EBITDA (if positive) directly attributable to the assets which
are the subject of such Disposal for such period or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for such
period and (y) Consolidated Interest Expense for such period shall be
reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in
connection with such Disposal for such period (or, if the Capital Stock of
any Restricted Subsidiary is sold, the Consolidated Interest Expense for
such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale);
(3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made under the Indenture, which constitutes all or
substantially all of the assets of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the incurrence of any
Indebtedness in connection therewith) as if such Investment or acquisition
occurred on the first day of such period; and
(4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning
75
of such period) shall have made any Disposal or any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (2) or (3) above if made by the Company or a Restricted Subsidiary
during such period, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Disposal, Investment or acquisition of assets occurred on the first day of
such period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating thereto
and the amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term as at the date of determination in excess of 12 months). If any
Indebtedness bears, at the option of the Company or a Restricted Subsidiary, a
fixed or floating rate of interest and is being given pro forma effect, then (i)
if any interest had accrued on such Indebtedness prior to the date of
determination, the interest expense on such Indebtedness shall be computed by
applying a fixed or floating rate of interest as selected by the Company or such
Restricted Subsidiary for the interest period immediately preceding such
determination or (ii) if no interest accrued on such Indebtedness prior to the
date of determination, the interest expense on such Indebtedness shall be
computed by applying, at the option of the Company or such Restricted
Subsidiary, either a fixed or floating rate. If any Indebtedness which is being
given pro forma effect was incurred under a revolving credit facility that was
in effect throughout the applicable period, the interest expense on such
Indebtedness shall be computed based upon the average daily balance of such
Indebtedness during the applicable period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate consolidated interest, whether expensed or capitalized,
paid, accrued or scheduled to be paid or accrued, of such Person and its
Restricted Subsidiaries for such period (including (i) amortization of original
issue discount and deferred financing costs and non-cash interest payments and
accruals, (ii) the interest portion of all deferred payment obligations,
calculated in accordance with the effective interest method, and (iii) the
interest component of any payments associated with Capital Lease Obligations and
net payments (if any) pursuant to Hedging Obligations, in each case, to the
extent attributable to such period, but excluding (x) commissions, discounts and
other fees and charges incurred with respect to letters of credit and bankers'
acceptances financing and (y) any interest expense on Indebtedness of another
Person that is Guaranteed by such Person or secured by a Lien on assets of such
Person) determined in accordance with GAAP. Consolidated Interest Expense of the
Company shall not include any prepayment premiums or amortization of original
issue discount or deferred financing costs, to the extent such amounts are
incurred as a result of the prepayment on the date of the Indenture of any
Indebtedness of the Company with the proceeds of the Notes.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP,
adjusted to exclude (only to the extent included and without duplication): (i)
all gains which are extraordinary or are non-recurring (including any gain from
the sale or other disposition of assets outside the ordinary course of business
or from the issuance or sale of Capital Stock); (ii) all gains resulting from
currency or hedging transactions; (iii) the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the date of such
acquisition; (iv) depreciation, amortization or other expenses recorded as a
result of the application of purchase accounting in accordance with Statements
of Financial Accounting Standards Nos. 141 and 142; and (v) the cumulative
effect of a change in accounting principles; provided that (a) the Net Income of
any Person that is not a Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of cash
dividends or cash distributions actually paid to the referent Person or a Wholly
Owned Subsidiary thereof that is a Restricted Subsidiary and (b) the Net
76
Income of any Person that is an Unrestricted Subsidiary shall be included only
to the extent of the amount of cash dividends or cash distributions paid to the
referent Person or a Restricted Subsidiary thereof.
"Covenant Defeasance" shall have the meaning specified above in "Legal
Defeasance and Covenant Defeasance".
"Credit Agreement" means the Credit Agreement, dated October 8, 2003, among
the Company, certain of the Subsidiary Guarantors party thereto, the lenders
from time to time party to such agreement, Fleet Capital Corporation, as Agent
and Fleet Securities, Inc., as Arranger, including any related notes, collateral
documents, letters of credit and documentation and guarantees and any
appendices, exhibits or schedules to any of the foregoing, as well as any and
all of such agreements (and any other agreements that refinance any and all such
agreements in accordance with the provisions of clause (viii) under "Limitation
on the Incurrence of Indebtedness and Issuance of Disqualified Stock", as may be
amended, restated, modified or supplemented from time to time, or renewed,
refunded, refinanced, restructured, replaced, repaid or extended from time to
time (including increases in principal amount) in accordance with the provisions
of whether with the original agents and lenders or with other agents or lenders.
"Credit Agreement Refinancing Indebtedness" means Indebtedness issued in
exchange for, or the proceeds of which are used to extend, refinance, renew,
replace, defease or refund Indebtedness incurred pursuant to the Credit
Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Restricted Subsidiaries in the ordinary course of business
against fluctuation in the values of the currencies of the countries (other than
the United States) in which the Company or its Restricted Subsidiaries conduct
business each, as may be amended, supplemented or otherwise modified from time
to time.
"Default" means any event or condition that is, or with the passage of time
or the giving of notice, or both, would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
or is convertible or exchangeable for Indebtedness at the option of the holder
thereof, in whole or in part, on or prior to 90 days after the Stated Maturity
of the Notes; provided that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Notes shall not constitute Disqualified Stock if (i) the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are no more favorable to the holders of such Capital Stock than the provisions
in favor of Holders of Notes set forth under "-- Certain Covenants -- Asset
Sales" and "Offer to Purchase Upon Change of Control", as the case may be, (ii)
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to
"-- Certain Covenants -- Asset Sales" and "Offer to Purchase Upon Change of
Control" and (iii) such Capital Stock is redeemable within 90 days of the "asset
sale" or "change of control" events applicable to such Capital Stock.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary other than
(a) a Foreign Restricted Subsidiary or (b) a Subsidiary of a Foreign Restricted
Subsidiary.
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"EBITDA" means, for any period, an amount equal to, for the Company and its
consolidated Restricted Subsidiaries:
(a) the sum of Consolidated Net Income for such period, plus the
following to the extent reducing Consolidated Net Income for such period:
(1) the provision for taxes based on income or profits or utilized
in computing net loss,
(2) Consolidated Interest Expense,
(3) depreciation,
(4) amortization of intangibles, and
(5) any other non-cash items (other than any such non-cash item to
the extent that it represents an accrual of, or reserve for, cash
expenditures in any future period), minus
(b) all non-cash items increasing Consolidated Net Income for such
period (other than any such non-cash item to the extent that it will result
in the receipt of cash payments in any future period).
Notwithstanding the foregoing clause (a), the provision for taxes and the
depreciation, amortization and non-cash items of a Restricted Subsidiary shall
be added to Consolidated Net Income to compute EBITDA only to the extent (and in
the same proportion) that the net income of such Restricted Subsidiary was
included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Restricted Subsidiary or its shareholders.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" shall have the meaning specified above in "-- Events of
Default."
"Excess Proceeds" shall have the meaning specified above in "-- Certain
Covenants -- Asset Sales."
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"Exchange Notes" means Notes registered under the Securities Act to be
exchanged for Notes not so registered, pursuant to and as set forth in the
Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided, that, the Fair Market Value of
any such asset or assets shall be determined by the Board of Directors of the
Company, acting in good faith and by unanimous resolution, and which
determination shall be evidenced by an Officers' Certificate delivered to the
Trustee.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary which is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect in the United States on the date of the
Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters
78
of credit and reimbursement agreements in respect thereof), of all or any part
of any Indebtedness as may be amended, supplemented or otherwise modified from
time to time.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) Interest Rate Agreements, (ii) Currency Agreements and
(iii) Commodity Agreements.
"Holder" or "Noteholder" means the person in whose name a Note is
registered on the Registrar's books.
"Indebtedness" means, with respect to any Person, without duplication, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or bankers'
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether or
not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee of any Indebtedness of such Person or any
other Person.
"Indenture" means the Indenture governing the Company's 11% Senior Secured
Notes due 2010, as amended or supplemented from time to time in accordance with
its terms.
"Intercompany Indebtedness" shall have the meaning specified above in
"-- Certain Covenants -- Limitations on the Incurrence of Indebtedness and
Issuance of Disqualified Stock.
"Interest Payment Date" means the stated due date of an installment of
interest on the Notes.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement entered into by the Company or any of its Restricted Subsidiaries
designed to protect the Company or any of its Restricted Subsidiaries in the
ordinary course of business against fluctuations in interest rates each, as may
be amended, supplemented or otherwise modified from time to time.
"Inventory" means, with respect to the Company and its Restricted
Subsidiaries, the consolidated inventory of the Company, determined at the lower
of cost or market in accordance with GAAP.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Issue Date" means October 8, 2003.
"Legal Defeasance" shall have the meaning specified above in "Legal
Defeasance and Covenant Defeasance."
"Lenders" means, at any time, the parties to the Credit Agreement then
holding (or committed to provide) loans, letters of credit or other extensions
of credit that constitute (or when provided will constitute) Indebtedness
secured by a Priority Lien outstanding under the Credit Agreement.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.)
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"Lien Subordination Agreement" means that certain Lien Subordination
Agreement, dated October 8, 2003, by and among the Company, the Restricted
Subsidiaries, the Trustee (on behalf of the Noteholders) and the Agent under the
Credit Agreement, as amended (including any amendments and restatements
thereof), supplemented or otherwise modified from time to time.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any sale of assets (including, without
limitation, dispositions pursuant to sale/leaseback transactions) or (b) the
disposition of any securities or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries, and (ii) any extraordinary gain
(but not loss), together with any related provision for taxes on such
extraordinary gain (but not loss).
"Net Proceeds" means the aggregate amount of consideration received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale in
the form of cash or Cash Equivalents (including, without limitation, any cash
received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof, amounts required to be applied to the
repayment of Indebtedness secured by a Lien on the asset or assets (including
Equity Interests) the subject of such Asset Sale and any reserve for adjustment
in respect of the sale price of such asset or assets.
"NFC Castings" means NFC Castings, Inc., a Delaware corporation.
"Non-Core Fixed Assets" shall have the meaning specified in the Credit
Agreement as in effect on October 8, 2003.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as guarantor or otherwise),
or (c) constitutes the lender; (ii) no default with respect to which (including
any rights that the holders thereof may have to take enforcement action against
an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both)
any holder of any other Indebtedness of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Note Lien" means a Lien granted pursuant to the Collateral Documents as
security for the Note Obligations and subordinated and subject to the rights and
remedies of the holders of the Priority Liens in accordance with the terms of
the Collateral Documents and the Lien Subordination Agreement.
"Note Obligations" means the Obligations under the Notes (including,
without limitation, any Additional Notes), the Subsidiary Guarantees and all
other Obligations of the Company or any Restricted Subsidiary under the
Indenture, the Notes (including without limitation, any Additional Notes), the
Subsidiary Guarantees and the Collateral Documents.
"Notice of Default" shall have the meaning specified above in "-- Events of
Default."
"Obligations" means with respect to any Indebtedness, the principal of, and
interest on (such interest on such Indebtedness, wherever referred to in the
Indenture, is deemed to include interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law in accordance with and
at the rate (including any rate applicable upon any default or event of default,
to the extent lawful) specified in any document evidencing such Indebtedness,
whether or not the claim for such interest is allowed as a claim after such
filing in any proceeding under such bankruptcy law) and other amounts,
including, but
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not limited to, penalties, fees, indemnifications, reimbursements, damages and
other liabilities payable under the documentation governing any Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by (i) the Chief Executive Officer or President and (ii) the Chief
Financial Officer or chief accounting officer of such Person.
"Opinion of Counsel" means a written opinion from legal counsel which
complies with the requirements of the Indenture.
"Original Issue Date" of any Note (or portion thereof) means the earlier of
(a) the date of such Note or (b) the date of any Note (or portion thereof) for
which such Note was issued (directly or indirectly) on registration of transfer,
exchange or substitution.
"Payment Default" shall have the meaning specified above in "-- Events of
Default."
"Permitted Holders" means each of MacKay Shields LLC, Citicorp Mezzanine
III, L.P., Metropolitan Life Insurance Company, Exis Differential Holdings,
Ltd., TCW Shared Opportunity Fund II, L.P., Shared Opportunity Fund IIB LLC, TCW
Shared Opportunity Fund IV, L.P., TCW Shared Opportunity Fund IVB, L.P., AIMCO
CDO, Series 2000-A, TCW High Income Partners, Ltd. and TCW High Income Partners
II, Ltd. and its Related Persons and Affiliates.
"Permitted Investments" means (i) any Investment in the Company or in a
Restricted Subsidiary; (ii) any Investment in Cash Equivalents; (iii)
Investments by the Company or any Restricted Subsidiary of the Company in a
Person, if as a result of such Investment (a) such Person becomes a Wholly Owned
Subsidiary of the Company that is a Restricted Subsidiary or (b) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Subsidiary of the Company that is a Restricted Subsidiary; (iv) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made in compliance with Section 4.20; (v) any Investment
solely in exchange for the issuance of Equity Interests (other than Disqualified
Stock) of the Company; (vi) any Investments received in compromise of
obligations of such persons incurred in the ordinary course of trade creditors
or customers that were incurred in the ordinary course of business, including
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of any trade creditor or customer; and (vii)
Investments existing on October 8, 2003.
"Permitted Liens" means (i) Liens in favor of the Company or a Restricted
Subsidiary; (ii) Liens securing Senior Indebtedness of the Company or a
Restricted Subsidiary that was permitted to be incurred pursuant to the
Indenture (i) at the time incurred; (iii) Liens on property of a Person existing
at the time such Person is merged into, consolidated with or otherwise acquired
by the Company or any Restricted Subsidiary of the Company, provided that such
Liens were not created in contemplation of such merger, consolidation or
acquisition and do not extend to any assets other than those of the Person
merged into or consolidated with Company or such Restricted Subsidiary; (iv)
Liens on property existing at the time of acquisition thereof by the Company or
any Restricted Subsidiary of the Company; provided that such Liens were not
created in contemplation of such acquisition and do not extend to any other
assets of the Company or any Restricted Subsidiary of the Company; (v) Liens on
the property of the Company or any Restricted Subsidiary Incurred in the
ordinary course of business to secure performance of obligations with respect to
statutory or regulatory requirements, performance or return-of-money bonds,
surety bonds or other obligations of a like nature and incurred in a manner
consistent with industry practice, in each case which are not Incurred in
connection with the borrowing of money, the obtaining of advances or credit or
the payment of the deferred purchase price of property and which do not in the
aggregate impair in any material respect the use of property in the operation of
the business of the Company and the Restricted Subsidiaries taken as a whole;
(vi) Liens existing on the date of the Indenture; (vii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have
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been made therefor; (viii) Liens in good faith in the ordinary course of
business with respect to amounts not yet delinquent or being contested in good
faith by appropriate proceedings if a reserve or other appropriate provisions,
if any, shall be required by GAAP shall have been made therefor; (ix) zoning
restrictions, easements, licenses, covenants, reservations, restrictions on the
use of real property or minor irregularities of title incident thereto that do
not, in the aggregate, materially detract from the value of the property or the
assets of the Company or of any Restricted Subsidiary or impair the use of such
property in the operation of the Company's or any Restricted Subsidiary's
business; (x) judgment Liens to the extent that such judgments do not cause or
constitute an Event of Default; (xi) Liens to secure the payment of all or a
part of the purchase price of property or assets acquired or constructed in the
ordinary course of business on or after the date of the Indenture, provided that
(a) such property or assets are used in the same or a similar line of business
as the Company or the applicable Restricted Subsidiary was engaged in on the
date of the Indenture, (b) at the time of incurrence of any such Lien, the
aggregate principal amount of the obligations secured by such Lien shall not
exceed the cost of the assets or property (or portions thereof) so acquired or
constructed, (c) each such Lien shall encumber only the assets or property (or
portions thereof) so acquired or constructed and shall attach to such property
within 120 days of the purchase or construction thereof and (d) any Indebtedness
secured by such Lien shall have been permitted to be incurred under Section
4.11; (xii) precautionary filings of any financial statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction made in connection
with Capital Lease Obligations permitted to be incurred under the terms of the
Indenture; and (xiii) Note Liens; (xiv) Liens permitted by the Collateral
Documents, including, without limitation, Priority Liens; (xv) Liens incurred in
the ordinary course of business securing assets having a fair market value not
in excess of $500,000 in the aggregate; (xvi) Liens to secure permitted
Refinancing Indebtedness incurred to refinance existing Indebtedness or
permitted Refinancing Indebtedness which is secured by Liens permitted by this
clause (xvi); provided, that such Liens do not extend to any categories of
assets other than the categories of assets securing existing Indebtedness as of
the date of the Indenture; (xvii) Liens securing reimbursement obligations with
respect to commercial letters of credit which encumber documents and other
property relating to such letters of credit and products and proceeds thereof;
(xviii) Liens incurred in the ordinary course of business in connection with (a)
worker's compensation, social security, unemployment insurance and other like
laws or (b) sales contracts, leases, statutory obligations, work in progress
advances and other similar obligations not incurred in connection with the
borrowing of money or the payment of the deferred purchase price of property;
(xix) Liens in favor of customs and revenues authorities which secure payment of
customs duties in connection with the importation of inventory; (xx) Liens on
insurance policies and the proceeds thereof securing the financing of the
premiums with respect thereto; (xxi) Liens consisting of rights of set-off of a
customary nature or banker's liens on amounts on deposit in accounts, whether
arising by contract or operation of law, incurred in the ordinary course of
business; and (xxii) leases or subleases granted to others that do not
materially interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries.
"Permitted Refinancing" shall have the meaning specified above in
"-- Limitation on the Incurrence of Indebtedness and Issuance of Disqualified
Stock."
"Person" or "person" means an individual, limited or general partnership,
corporation, limited liability company, association, unincorporated
organization, trust, joint stock company or joint venture, or a government or
any agency or political subdivision thereof.
"Priority Lien Documents" means the Credit Agreement, the Priority Lien
Collateral Documents and, in connection with or pursuant to any of the
foregoing, all other agreements, certificates or documents executed by the
Company or any Restricted Subsidiary and delivered to the trustee, agent or
representative acting for the lenders party to the Credit Agreement each, as may
be amended, supplemented or otherwise modified from time to time.
"Priority Lien Obligations" means the Indebtedness evidenced by the Credit
Agreement and all other Obligations of the Company or any Restricted Subsidiary
thereunder or under the Priority Lien Documents in respect of the Credit
Agreement.
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"Priority Lien Collateral Documents" means one or more security agreements,
pledge agreements, collateral assignments, mortgages, deed of trust or other
grants or transfers for security executed and delivered by the Company or any
Restricted Subsidiary creating a Lien upon property owned or to be acquired by
the Company or such Restricted Subsidiary in favor of any lenders party to the
Credit Agreement, or any trustee, agent or representative acting for any such
holders, as security for any Priority Lien Obligations each, as may be amended,
supplemented or otherwise modified from time to time.
"Priority Liens" means the first priority Liens granted with respect to the
Collateral by the Company and the Restricted Subsidiaries pursuant to the Credit
Agreement securing the Priority Lien Obligations of the Company and the
Restricted Subsidiaries under such Credit Agreement.
"principal" of any Indebtedness means the principal of such Indebtedness
plus, without duplication, any applicable premium, if any, on such Indebtedness.
"property" means any right or interest in or to property or assets of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchase Money Obligations" of any Person means any obligations of such
Person or any of its Restricted Subsidiaries to any seller or any other Person
incurred or assumed in connection with the purchase of real or personal property
or in the Capital Stock of a Person owning such real or personal property to be
used in the business of such Person or any of its subsidiaries within 180 days
of such incurrence or assumption.
"Qualified Stock" means any Capital Stock of the Company that is not
Disqualified Stock.
"Receivables" means the consolidated trade receivables of the Company, net
of allowance for doubtful accounts, as determined in accordance with GAAP.
"Record Date" means a Record Date specified in the Notes whether or not
such Record Date is a Business Day.
"Redemption Date" means, when used with respect to any Note to be redeemed,
the date fixed for such redemption pursuant to the terms of the Indenture and
the Note.
"Redemption Price" means, when used with respect to any Note to be
redeemed, the redemption price for such redemption pursuant to the terms of the
Note, which shall include, without duplication, in each case, accrued and unpaid
interest, if any, to and including the Redemption Date.
"Refinancing Indebtedness" shall have the meaning specified above in
"-- Certain Covenants -- Limitation on the Incurrence of Indebtedness and
Issuance of Disqualified Stock."
"Registration Rights Agreement" means that certain Registration Rights
Agreement, dated as of the date of the Indenture, between the Company and the
other parties thereto, as such agreement may be amended, modified or
supplemented from time to time in accordance with the terms thereof.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of the Company and its
Restricted Subsidiaries on October 8, 2003.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Common Stock of such Person
(or, in the case of a Person that is not a corporation, 5% or more of the equity
interests in such Person) or (b) 5% or more of the combined voting power of the
Voting Stock of such Person.
"Representative" means any trustee, agent to representative (if any) for
Senior Indebtedness.
"Repurchase Date" shall have the meaning specified above in "-- Certain
Covenants--Asset Sales."
"Repurchase Offer Period" shall have the meaning specified above in
"-- Certain Covenants -- Asset Sales."
"Repurchase Price" shall have the meaning specified above in "-- Certain
Covenants -- Asset Sales."
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"Restricted Investment" means an Investment other than a Permitted
Investment. With respect to Unrestricted Subsidiaries or Restricted
Subsidiaries, the amount of Restricted Investments shall be calculated as the
greater of (i) the book value of assets contributed by the Company or a
Restricted Subsidiary or (ii) the Fair Market Value of the assets contributed by
the Company or a Restricted Subsidiary (as certified by a resolution of
independent directors of the Company.
"Restricted Payment" shall have the meaning specified above in "Certain
Covenants -- Limitation on Restricted Payments."
"Restricted Subsidiary" means (i) any Subsidiary of the Company (other than
a Subsidiary that is also a Subsidiary of an Unrestricted Subsidiary) organized
or acquired after the date of the Indenture, unless such Subsidiary shall have
been designated as an Unrestricted Subsidiary by resolution of the Board of
Directors as provided in and in compliance with the definition of "Unrestricted
Subsidiary" and (ii) any Unrestricted Subsidiary which is designated as a
Restricted Subsidiary by the Board of Directors of the Company; provided that
immediately after giving effect to the designation referred to in clause (ii),
no Default or Event of Default shall have occurred and be continuing and the
Company could incur at least $1.00 of additional Indebtedness under the terms of
the Indenture. The Company shall evidence any such designation to the Trustee by
promptly filing with the Trustee an Officers' Certificate certifying that such
designation has been made and stating that such designation complies with the
requirements of the immediately preceding sentence.
"Revolver" means the revolving credit facility extended to the Company as
part of the New Credit Facility under the Credit Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Senior Indebtedness" means, with respect to the Company and Restricted
Subsidiaries, the Obligations of the Company and the Restricted Subsidiaries
under the Credit Agreement.
"Senior Subordinated Notes" means the Company's 13% Senior Subordinated
Notes due 2013, issued pursuant to the Senior Subordinated Notes Indenture, and
any securities issued in exchange or in substitution therefor.
"Senior Subordinated Notes Indenture" means an Indenture, dated October 8,
2003, among the Company, the Subsidiary Guarantors party thereto and The Bank of
New York, as trustee, relating to the Senior Subordinated Notes, as may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof.
"Stated Maturity," when used with respect to any Note, means September 30,
2010.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person or a combination
thereof and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Persons or one or more Subsidiaries
of such Person or any combination thereof.
"Subsidiary Guarantee" means a guarantee on the terms set forth in the
Indenture by a Subsidiary Guarantor of the Company's obligations with respect to
the Notes.
"Subsidiary Guarantor" means each Domestic Restricted Subsidiary and any
other Person that becomes a Subsidiary Guarantor pursuant to the provisions of
the Indenture or who otherwise exercises and delivers supplemental indenture to
the Trustee providing for a Subsidiary Guarantee.
"Term Loan" means the term loan made to the Company and certain of the
Restricted Subsidiaries as part of the New Credit Facility under the Credit
Agreement.
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"TIA" means the Trust Indenture Act of 1939, as amended and in effect on
the date of the execution of the Indenture unless otherwise specified herein.
"Trustee" means the party named as such in the Indenture until a successor
replaces it in accordance with the provisions of the Indenture and thereafter
means such successor. At the Issue Date, the Trustee was The Bank of New York, a
New York corporation.
"Unrestricted Subsidiary" means, until such time as any of the following
shall be designated as a Restricted Subsidiary of the Company by the Board of
Directors of the Company as provided in and in compliance with the definition of
"Restricted Subsidiary," (i) any Subsidiary of the Company or of a Restricted
Subsidiary of the Company organized or acquired after the date of the Indenture
that is designated concurrently with its organization or acquisition as an
Unrestricted Subsidiary by resolution of the Board of Directors of the Company,
(ii) any Subsidiary of any Unrestricted Subsidiary and (iii) any Restricted
Subsidiary of the Company that is designated as an Unrestricted Subsidiary by
resolution of the Board of Directors of the Company, provided that (a)
immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing, (b) any such designation shall be
deemed, at the election of the Company at the time of such designation, to be
either (but not both) (x) the making of a Restricted Payment at the time of such
designation in an amount equal to the Investment in such Subsidiary subject to
the restrictions contained in the Indenture or (y) the making of an Asset Sale
at the time of such designation in an amount equal to the Investment in such
Subsidiary subject to the restrictions contained in the Indenture, and (c) such
Subsidiary or any of its Subsidiaries does not own any Capital Stock or
Indebtedness of, or own or hold any Lien on any property of, the Company or any
other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be
so designated. A Person may be designated as an Unrestricted Subsidiary only if
and for so long as such Person (i) has no Indebtedness other than Non-Recourse
Debt; (ii) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe
for additional Equity Interests or (b) to make any payment to maintain or
preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; and (iii) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries. The Company shall evidence
any designation pursuant to clause (i) or (iii) of the first sentence hereof to
the Trustee by filing with the Trustee within 45 days of such designation an
Officers' Certificate certifying that such designation has been made and, in the
case of clause (iii) of the first sentence hereof, the related election of the
Company in respect thereof.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers,
general partners or trustees of any Person (irrespective of whether or not, at
the time, Capital Stock of any other class or classes shall have, or might have,
voting power by reasons of the happening of any contingency) or, with respect to
a partnership (whether general or limited), any general partner interest in such
partnership.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall be at the time be beneficially
owned by such Person either directly or indirectly through Wholly Owned
Subsidiaries.
85
BOOK-ENTRY; DELIVERY AND FORM
THE GLOBAL NOTES
The certificates representing the new notes will be issued in fully
registered form. Except as described below, the new notes will be initially
represented by one or more global notes in fully registered form without
interest coupons. The global notes will be deposited with, or on behalf of DTC
and registered in the name of Cede & Co., as nominee of DTC, or will remain in
the custody of the trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the trustee.
Ownership of beneficial interests in each global note will be limited to
persons who have accounts with DTC, which we refer to as DTC participants, or
persons who hold interests through DTC participants. We expect that under
procedures established by DTC, ownership of beneficial interests in each global
note will be shown on, and transfer of ownership of those interests will be
effected only through, records maintained by DTC, with respect to interests of
DTC participants, and the records of DTC participants, with respect to other
owners of beneficial interests in the global note.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC set forth below
are controlled by that settlement system and may be changed at any time. We
undertake no obligation to update you regarding changes in these operations and
procedures and urge investors to contact DTC or its participants directly to
discuss these matters.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State of
New York;
- a banking organization within the meaning of the New York State Banking
Law;
- a member of the Federal Reserve System;
- a clearing corporation within the meaning of the Uniform Commercial Code;
and
- a clearing agency registered under Section 17A of the Exchange Act.
DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions between its participants
through electronic book-entry changes to the accounts of its participants,
thereby eliminating the need for physical transfer and delivery of certificates.
DTC's participants include securities brokers and dealers, including the initial
purchasers; banks and trust companies; clearing corporations and other
organizations. Indirect access to DTC's system is also available to others such
as banks, brokers, dealers and trust companies; these indirect participants
clear through or maintain a custodial relationship with a DTC participant,
either directly or indirectly. Investors who are not DTC participants may
beneficially own (securities held by or on behalf of DTC only through DTC
participants or indirect participants in DTC
We expect that pursuant to procedures established by DTC:
- Upon issuance of the global notes, DTC we will credit the respective
principal amounts of the new notes represented by the global notes to the
accounts of persons who have accounts with DTC. Ownership of beneficial
interest in the global notes will be limited to persons who have accounts
with DTC, who are referred to as participants, or persons who hold
interests through participants.
- Ownership of the beneficial interests in the new notes will be shown on,
and the transfer of ownership thereof will be effected only through,
records maintained by DTC, with respect to the interests of participants,
and the records of participants and the indirect participants, with
respect to the interests of persons other than participants.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of those securities in definitive form.
Accordingly, the ability to transfer interests in the new notes
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represented by a global note to these persons may be limited. In addition,
because DTC can act only on behalf of its participants, who in turn act on
behalf of persons who hold interests though participants, the ability of a
person having an interest in new notes represented by a global note to pledge or
transfer that interest to persons or entities that do not participate in DTC's
system, or to otherwise take actions in respect of that interest, may be
affected by the lack of a physical definitive security in respect of that
interest.
So long as DTC's nominee is the registered owner of a global note, that
nominee will be considered the sole owner or holder of the new notes represented
by that global note for all purposes under the indenture. Except as provided
below, owners of beneficial interests in a global note:
- will not be entitled to have notes represented by the global note
registered in their names;
- will not receive or be entitled to receive physical, certificated new
notes and
- will not be considered the owners or holders of the new notes under the
indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the trustee under the indenture.
As a result, each investor who owns a beneficial interest in a global note
must rely on the procedures of DTC to exercise any rights of a holder of new
notes under the indenture, and, if the investor is not a participant or an
indirect participant in DTC, on the procedures of the DTC participant through
which the investor owns its interest. We understand that under existing industry
practice, in the event that we request any action of holders of new notes, or a
holder of the notes that is an owner of a beneficial interest in a global note
desires to take any action that DTC, as the holder of the global note, is
entitled to take, DTC would authorize the participants to take action and the
participants would authorize holders of the notes owning through the
participants to take action or would otherwise act upon the instruction of those
holders of the new notes. Neither we nor the trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to those new notes.
Payments of principal, premium and interest with respect to the notes
represented by a global note will be made by the trustee to DTC's nominee as the
registered holder of the global note. Neither we nor the trustee will have any
responsibility or liability for the payment of amounts to owners of beneficial
interests in a global note, for any aspect of the records relating to or
payments made on account of those interests by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to those interests.
Payments by participants and indirect participants in DTC to the owners of
beneficial interests in a global note will be governed by standing instructions
and customary industry practice and will be the responsibility of those
participants or indirect participants and DTC.
Transfers between participants in DTC will be effected under DTC's
procedures and will be settled in same-day funds. Transfers between participants
in Euroclear or Clearstream will be effected in the ordinary way under the rules
and operating procedures of those systems.
CERTIFICATED NEW NOTES
New notes in physical, certificated form will be issued and delivered to
each person that DTC identifies as a beneficial owner of the related new notes
only if:
- DTC notifies us at any time that it is unwilling or unable to continue as
depositary for the global notes and a successor depositary is not
appointed within 90 days,
- DTC ceases to be registered as a clearing agency under the Exchange Act
and a successor depositary is not appointed within 90 days,
87
- we, at our option, notify the trustee that we elect to cause the issuance
of certificated new notes; or
- certain other events provided in the indenture should occur.
Neither we nor the trustee will be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related new notes and each such person may conclusively rely on, and will be
protected in relying on, instructions from DTC for all purposes, inducting with
respect to the registration and delivery, and the respective principal amounts,
of the new notes to be issued.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice as of the date hereof. The
Internal Revenue Service may take a contrary view, and no ruling from the
Service has been or will be sought. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could alter or modify the
following statements and conditions. Any such changes or interpretations may or
may not be retroactive and could affect the tax consequences to holders, whose
tax consequences could be different from the following statements and
conditions. Some holders, including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States, may be subject
to special rules not discussed below. We recommend that each holder consult his
own tax advisor as to the particular tax consequences of exchanging such
holder's Old Notes for New Notes, including the applicability and effect of any
state, local or non-U.S. tax law.
The exchange of the Old Notes for New Notes pursuant to the exchange offer
should not be treated as an "exchange" for federal income tax purposes because
the New Notes should not be considered to differ materially in kind or extent
from the Old Notes. Rather, the New Notes received by a holder should be treated
as a continuation of the Old Notes in the hands of such holder. As a result,
there should be no federal income tax consequences to holders exchanging Old
Notes for New Notes pursuant to the exchange offer.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new securities for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of these new securities. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of new securities received in
exchange for securities where those securities were acquired as a result of
market-making activities or other trading activities. We and the subsidiary
guarantors have agreed that, starting on the expiration date and ending on the
close of business 180 days after the expiration date, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 2004, all
dealers effecting transactions in the new securities may be required to deliver
a prospectus.
We will not receive any proceeds from any sale of new securities by
broker-dealers. New securities received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new securities. Any
broker-dealer that resells new securities that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such new securities may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of new securities and any commissions or concessions
88
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. By acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date, we and the Subsidiary
Guarantors will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents. We have agreed to pay all expenses incident to the exchange
offer (including the expenses of one counsel for the holders of the securities)
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the securities (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain matters relating to Wisconsin law will be passed upon for us by
Foley & Lardner, Milwaukee, Wisconsin. Certain matters relating to New York law
will be passed upon for us by Kirkland & Ellis LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedule of our Predecessor Company, Neenah Foundry
Company, at September 30, 2002 and 2003, and for each of the three years in the
period ended September 30, 2003, as set forth in their reports. We have included
our financial statements and schedule in this prospectus and elsewhere in this
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
AVAILABLE INFORMATION
Under the terms of the indenture, we agree that, whether or not required by
the rules and regulations of the Commission, so long as any Notes are
outstanding, we will furnish to the trustee and the holders of Notes (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K, if we were
required to file such Forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" that describes our financial
condition and results of operations and our consolidated subsidiaries and, with
respect to the annual information only, a report thereon by our certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if we were required to file such
reports. In addition, whether or not required by the rules and regulations of
the Commission, we will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. Information filed with the Commission may be
read and copied by the public at the Public Reference Room of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains an Internet site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. In addition, we
have agreed that, for so long as any Notes remain outstanding, we will furnish
to the holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Under the indenture governing the Notes we are required to file with the
trustee annual, quarterly and other reports after we file these reports with the
Securities and Exchange Commission. Annual reports delivered to the trustee and
the holders of New Notes will contain financial information that has been
examined and reported upon, with an opinion expressed by an independent public
accountant. We will also furnish such other reports as may be required by law.
89
Information contained in this prospectus contains "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," or "anticipates" or the
negative thereof or other similar terminology, or by discussions of strategy.
Our actual results could differ materially from those anticipated by such
forward-looking statements as a result of factors described in the "Risk
Factors" beginning on page 9 and elsewhere in this prospectus.
The market and industry data presented in this prospectus are based upon
third-party data. While we believe that such estimates are reasonable and
reliable, estimates cannot always be verified by information available from
independent sources. Accordingly, readers are cautioned not to place undue
reliance on such market share data.
90
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of September 30, 2003 and
2002...................................................... F-3
Consolidated Statements of Operations for the years ended
September 30, 2003, 2002 and 2001......................... F-5
Consolidated Statements of Changes in Stockholder's Equity
(Deficit) for the years ended September 30, 2003, 2002 and
2001...................................................... F-6
Consolidated Statements of Cash Flows for the years ended
September 30, 2003, 2002 and 2001......................... F-7
Notes to Consolidated Financial Statements.................. F-9
</Table>
F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Neenah Foundry Company
We have audited the accompanying consolidated balance sheets of Neenah
Foundry Company (the Company) as of September 30, 2003 and 2002, and the related
consolidated statements of operations, changes in stockholder's equity (deficit)
and cash flows for each of the three years in the period ended September 30,
2003. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company at September 30, 2003 and 2002, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 2003, in conformity with accounting principles generally accepted
in the United States.
As discussed in Note 1 to the consolidated financial statements, effective
October 8, 2003, the Company was reorganized under a plan of reorganization
confirmed by the United States Bankruptcy Court, District of Delaware. In
connection with its reorganization, the Company will apply fresh start
accounting in the first quarter of fiscal 2004.
As discussed in Note 7 to the consolidated financial statements, effective
October 1, 2001, the Company changed its method of accounting for goodwill.
ERNST
& YOUNG LLP
Milwaukee, Wisconsin
November 10, 2003
F-2
NEENAH FOUNDRY COMPANY
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
PRO FORMA
UNAUDITED
REORGANIZED
COMPANY SEPTEMBER 30
SEPTEMBER 30, -------------------
2003(A) 2003 2002
------------- -------- --------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents................................ $ -- $ 24,356 $ 26,164
Accounts receivable, less allowance for doubtful accounts
of $2,375 in 2003 and $1,062 in 2002.................. 56,333 56,333 56,453
Inventories.............................................. 59,459 56,555 51,267
Refundable income taxes.................................. -- -- 14,850
Deferred income taxes.................................... 2,497 4,059 2,659
Other current assets..................................... 8,113 8,113 5,769
Current assets of discontinued operations................ 423 423 4,423
-------- -------- --------
Total current assets....................................... 126,825 149,839 161,585
Property, plant and equipment:
Land..................................................... 6,271 6,036 6,076
Buildings and improvements............................... 15,286 27,854 27,530
Machinery and equipment.................................. 52,025 222,778 210,457
Patterns................................................. 9,978 29,928 28,881
Construction in progress................................. 2,394 3,200 5,811
-------- -------- --------
85,954 289,796 278,755
Less accumulated depreciation............................ -- 126,827 105,190
-------- -------- --------
85,954 162,969 173,565
Deferred financing costs, net of accumulated amortization
of $4,761 in 2003 and $8,340 in 2002..................... 2,980 1,393 6,656
Identifiable intangible assets, net of accumulated
amortization of $21,935 in 2003 and $18,116 in 2002...... 83,436 33,354 37,173
Goodwill, net.............................................. 78,573 180,214 180,214
Other assets............................................... 6,532 9,065 6,365
Non-current assets of discontinued operations.............. -- -- 3,830
-------- -------- --------
171,521 224,026 234,238
-------- -------- --------
$384,300 $536,834 $569,388
======== ======== ========
</Table>
F-3
<Table>
<Caption>
PRO FORMA
UNAUDITED
REORGANIZED
COMPANY SEPTEMBER 30
SEPTEMBER 30, -------------------
2003(A) 2003 2002
------------- -------- --------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities not subject to compromise:
Accounts payable......................................... $ 31,585 $ 26,285 $ 22,591
Accrued wages and employee benefits...................... 11,307 11,307 12,658
Accrued interest......................................... -- -- 13,733
Other accrued liabilities................................ 5,918 5,918 2,880
Current portion of long-term debt........................ -- -- 40,917
Current portion of capital lease obligations............. 2,646 2,646 2,353
Current liabilities of discontinued operations........... -- -- 1,403
-------- -------- --------
Total current liabilities not subject to compromise........ 51,456 46,156 96,535
Long-term liabilities subject to compromise................ -- 465,540 --
Long-term debt............................................. 268,550 -- 410,515
Capital lease obligations.................................. 1,583 1,583 4,816
Deferred income taxes...................................... 25,275 33,804 43,886
Postretirement benefit obligations......................... 10,319 7,271 6,696
Other liabilities.......................................... 21,588 21,496 18,654
Non-current liabilities of discontinued operations......... -- -- 432
-------- -------- --------
Total liabilities.......................................... 378,771 575,850 581,534
Commitments and contingencies
Stockholder's equity (deficit):
Preferred stock, par value $100 per share; 3,000 shares
authorized; no shares issued or outstanding........... -- -- --
Common stock, Class A (voting), par value $100 per share;
1,000 shares authorized, issued and outstanding....... 100 100 100
Common stock, Class B (nonvoting), par value $100 per
share; 10,000 shares authorized; no shares issued or
outstanding........................................... -- -- --
Additional paid-in capital -- warrants................... 602 -- --
Capital in excess of par value........................... 4,827 51,317 51,317
Accumulated deficit...................................... -- (81,124) (55,563)
Accumulated other comprehensive loss..................... -- (9,309) (8,000)
-------- -------- --------
Total stockholder's equity (deficit)....................... 5,529 (39,016) (12,146)
-------- -------- --------
$384,300 $536,834 $569,388
======== ======== ========
</Table>
- ---------------
(a) As discussed in Note 3, the Company emerged from bankruptcy on October 8,
2003 and will be required to adopt the fresh start accounting provisions of
SOP 90-7 in the first quarter of fiscal 2004. The pro forma balances reflect
what the September 30, 2003 balances would have been had the Company applied
fresh start accounting as of September 30, 2003.
See accompanying notes.
F-4
NEENAH FOUNDRY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30
------------------------------
2003 2002 2001
-------- -------- --------
(IN THOUSANDS)
Net sales................................................... $375,063 $387,707 $398,782
Cost of sales............................................... 321,834 323,740 335,264
-------- -------- --------
Gross profit................................................ 53,229 63,967 63,518
Selling, general and administrative expenses................ 26,132 28,743 27,587
Amortization expense........................................ 3,819 3,829 10,489
Provision for impairment of assets.......................... -- 74 --
(Gain) loss on disposal of property, plant and equipment.... 195 544 (434)
-------- -------- --------
Operating income............................................ 23,083 30,777 25,876
Other income (expense):
Interest expense (contractual interest expense was $52,460
in 2003)............................................... (47,445) (43,466) (43,454)
Interest income........................................... 825 819 445
Reorganization expense.................................... (7,874) -- --
-------- -------- --------
Loss from continuing operations before income taxes......... (31,411) (11,870) (17,133)
Credit for income taxes..................................... (8,541) (5,917) (4,004)
-------- -------- --------
Loss from continuing operations............................. (22,870) (5,953) (13,129)
Discontinued operations:
Loss from discontinued operations, net of income taxes of
$(590) in 2003, $(22,947) in 2002 and $(2,463) in
2001................................................... (1,095) (41,750) (4,325)
Gain (loss) on sale of discontinued operations, net of
income taxes of $(860) in 2003 and $1,603 in 2001...... (1,596) -- 2,404
-------- -------- --------
Net loss.................................................... $(25,561) $(47,703) $(15,050)
======== ======== ========
</Table>
See accompanying notes.
F-5
NEENAH FOUNDRY COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
<Table>
<Caption>
RETAINED ACCUMULATED
COMMON STOCK CAPITAL IN EARNINGS OTHER
PREFERRED ----------------- EXCESS OF (ACCUMULATED COMPREHENSIVE
STOCK CLASS A CLASS B PAR VALUE DEFICIT) LOSS TOTAL
--------- ------- ------- ---------- ------------ ------------- --------
(IN THOUSANDS)
Balance at September 30,
2000.................... $ -- $100 $ -- $51,317 $ 7,190 $ (89) $ 58,518
Components of
comprehensive loss:
Net loss.............. -- -- -- -- (15,050) -- (15,050)
Pension liability
adjustment, net of
tax effect of
$1,018.............. -- -- -- -- -- (1,529) (1,529)
--------
Total comprehensive
loss.................. (16,579)
----- ---- ----- ------- -------- ------- --------
Balance at September 30,
2001.................... -- 100 -- 51,317 (7,860) (1,618) 41,939
Components of
comprehensive loss:
Net loss.............. -- -- -- -- (47,703) -- (47,703)
Pension liability
adjustment, net of
tax effect of
$4,255.............. -- -- -- -- -- (6,382) (6,382)
--------
Total comprehensive
loss.................. (54,085)
----- ---- ----- ------- -------- ------- --------
Balance at September 30,
2002.................... -- 100 -- 51,317 (55,563) (8,000) (12,146)
Components of
comprehensive loss:
Net loss.............. -- -- -- -- (25,561) -- (25,561)
Pension liability
adjustment, net of
tax effect of
$952................ -- -- -- -- -- (1,309) (1,309)
--------
Total comprehensive
loss.................. (26,870)
----- ---- ----- ------- -------- ------- --------
Balance at September 30,
2003.................... $ -- $100 $ -- $51,317 $(81,124) $(9,309) $(39,016)
===== ==== ===== ======= ======== ======= ========
</Table>
See accompanying notes.
F-6
NEENAH FOUNDRY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30
------------------------------
2003 2002 2001
-------- -------- --------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net loss.................................................... $(25,561) $(47,703) $(15,050)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Noncash reorganization expenses........................ 1,464 -- --
Provision for obsolete inventories..................... 424 240 248
Lower of cost or market inventory adjustment........... 1,228 -- --
Provision for impairment of assets..................... -- 36,533 --
Depreciation........................................... 22,530 25,532 29,636
Amortization of identifiable intangible assets and
goodwill............................................. 3,819 3,947 11,638
Amortization of deferred financing costs and premium on
notes................................................ 2,242 1,392 1,222
(Gain) loss on sale of discontinued operations......... 2,456 -- (4,007)
(Gain) loss on disposal of property, plant and
equipment............................................ 195 559 (337)
Deferred income taxes.................................. (10,337) (10,650) (1,630)
Changes in operating assets and liabilities:
Accounts receivable.................................. 966 10,275 2,145
Inventories.......................................... (6,995) 19,559 (7,405)
Other current assets................................. (3,047) 1,043 45
Accounts payable..................................... 3,184 (7,118) (474)
Accrued liabilities.................................. 11,856 (2,983) (3,911)
Income taxes......................................... 18,122 (14,104) (2,152)
Postretirement benefit obligations................... 575 351 379
Other liabilities.................................... (119) (437) (1,060)
-------- -------- --------
Net cash provided by operating activities................... 23,002 16,436 9,287
INVESTING ACTIVITIES
Proceeds from disposition of business, net of fees.......... 648 -- 5,190
Purchase of property, plant and equipment................... (11,900) (9,055) (16,882)
Proceeds from sale of property, plant and equipment......... 40 323 2,859
Other....................................................... (105) (621) 2,373
-------- -------- --------
Net cash used in investing activities....................... (11,317) (9,353) (6,460)
FINANCING ACTIVITIES
Proceeds from long-term debt................................ $ 815 $ 33,400 $ 5,000
Payments on long-term debt and capital lease obligations.... (13,017) (17,807) (22,053)
Debt issuance costs......................................... (1,291) (858) (906)
-------- -------- --------
Net cash provided by (used in) financing activities......... (13,493) 14,735 (17,959)
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ (1,808) 21,818 (15,132)
Cash and cash equivalents at beginning of year.............. 26,164 4,346 19,478
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 24,356 $ 26,164 $ 4,346
======== ======== ========
Supplemental disclosures of cash flows information:
Interest paid............................................. $ 34,995 $ 44,340 $ 47,428
Income taxes refunded..................................... (18,032) (4,080) (1,253)
</Table>
F-7
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(In Thousands)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Neenah Foundry Company (Neenah), together with its subsidiaries (the
Company), manufactures gray and ductile iron castings and forged components for
sale to industrial and municipal customers. Industrial castings are
custom-engineered and are produced for customers in several industries,
including the medium and heavy-duty truck components, farm equipment, heating,
ventilation and air-conditioning industries. Municipal castings include manhole
covers and frames, storm sewer frames and grates, tree grates and specialty
castings for a variety of applications and are sold principally to state and
local government entities, utilities and contractors. The Company's sales
generally are unsecured.
The Company is a wholly owned subsidiary of NFC Castings, Inc., which is a
wholly owned subsidiary of ACP Holding Company. Neenah has the following
subsidiaries, all of which are wholly owned: Deeter Foundry, Inc. (Deeter);
Mercer Forge Corporation and subsidiaries (Mercer); Dalton Corporation and
subsidiaries (Dalton); Advanced Cast Products, Inc. and subsidiaries (ACP);
Gregg Industries, Inc. (Gregg); Neenah Transport, Inc. (Transport) and Cast
Alloys, Inc. (Cast Alloys), which is inactive. Deeter manufactures gray iron
castings for the municipal market and special application construction castings.
Mercer manufactures forged components for use in transportation, railroad,
mining and heavy industrial applications and microalloy forgings for use by
original equipment manufacturers and industrial end users. Dalton manufactures
gray iron castings for refrigeration systems, air conditioners, heavy equipment,
engines, gear boxes, stationary transmissions, heavy-duty truck transmissions
and other automotive parts. ACP manufactures ductile and malleable iron castings
for use in various industrial segments, including heavy truck, construction
equipment, railroad, mining and automotive. Gregg manufactures gray and ductile
iron castings for industrial and commercial use. Transport is a common and
contract carrier licensed to operate in the continental United States. The
majority of Transport's revenues are derived from transport services provided to
the Company.
As further discussed in Note 2, on August 5, 2003 (the Petition Date), the
Company filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code (the Bankruptcy Code) with the United States Bankruptcy
Court, District of Delaware (the Bankruptcy Court). Accordingly, the
accompanying consolidated financial statements have been prepared in accordance
with the American Institute of Certified Public Accountants Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code," (SOP 90-7) and on a going concern basis which contemplates
continuity of operations, realization of assets and liquidation of liabilities
in the ordinary course of business. In accordance with SOP 90-7, the financial
statements for the periods presented distinguish transactions and events that
are directly associated with the reorganization from the ongoing operations of
the Company.
On October 8, 2003 (the Effective Date), the Company emerged from the
Bankruptcy Court proceedings pursuant to the terms of its plan of reorganization
(the Plan of Reorganization). As discussed in Note 3, the Company will implement
fresh start accounting under the provisions of SOP 90-7 in the first quarter of
fiscal 2004. Under the fresh start accounting provisions of SOP 90-7, the fair
value of the reorganized Company will be allocated to its assets and
liabilities, and its accumulated deficit will be eliminated. As discussed in the
Pro Forma column on the accompanying balance sheet and in Note 3, the
implementation of fresh start accounting will result in a substantial reduction
in the carrying value of the Company's long-lived assets, including property,
plant and equipment and intangible assets, and long-term liabilities. As a
result, the historical financial statements will not be comparable to financial
statements of the Company published for periods following the implementation of
fresh start accounting.
F-8
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. REORGANIZATION
THE CHAPTER 11 PETITION AND PLAN OF REORGANIZATION
On August 5, 2003, the Company filed for protection under Chapter 11 of the
Bankruptcy Code in the Bankruptcy Court. On September 26, 2003, the Bankruptcy
Court confirmed the Company's Plan of Reorganization, and, on October 8, 2003,
the Company consummated the Plan of Reorganization and emerged from its Chapter
11 reorganization proceedings with a significantly restructured balance sheet.
During the period immediately preceding and after the filing of the
Company's Chapter 11 petition, the Company met with a committee of lenders under
the secured credit facility (the Pre-Petition Credit Facility), an informal
committee of unsecured creditors that represented holders of the senior
subordinated notes and potential investors to discuss potential restructuring
transactions that could be implemented to reorganize the Company's capital
structure. These discussions led to an agreement with the lenders under the
Pre-Petition Credit Facility regarding the terms of a Plan of Reorganization.
The Plan of Reorganization was filed on August 5, 2003, encompassing information
that had been previously distributed to and approved by creditors of the Company
eligible to vote in the reorganization.
The consummation of the Plan of Reorganization resulted in the $147,441 of
loans under the Pre-Petition Credit Facility being terminated through payment in
full with cash using proceeds from the Second Secured Notes and the New Credit
Facility.
The Plan of Reorganization also resulted in the cancellation of all of the
Company's Pre-Petition Senior Subordinated Notes in exchange for the following:
- $30,000 in cash;
- $100,000 in aggregate principal amount of New Senior Subordinated Notes;
- Shares representing 47.5% of the issued and outstanding shares of New
Common Stock in ACP Holding Company on a fully diluted basis as of
October 8, 2003, other than shares of restricted stock granted pursuant
to the Management Equity Incentive Plan of ACP Holding Company; and
- Rights to acquire, for $110,000 in cash in the aggregate, units for up to
$119,996 face amount of Second Secured Notes and warrants to acquire up
to 42.81% of the new ACP Holding Company Common Stock on a fully diluted
basis as of October 8, 2003. The warrants have an exercise price of $0.01
per share and will expire 10 years from the date of issuance.
In addition, under the Plan of Reorganization, the PIK Note was cancelled
and the holder received Second Secured Notes with a principal amount equal to
$13,134 and warrants to acquire up to 4.69% of the new ACP Holding Company
Common Stock on a fully diluted basis as of October 8, 2003 and cash of $45.
ACCOUNTING IMPACT OF CHAPTER 11 FILING
In accordance with SOP 90-7, liabilities subject to compromise reflected in
the accompanying consolidated balance sheet were recorded at the amount allowed
on pre-petition claims in the Chapter 11 proceedings. Other obligations that are
not subject to compromise have retained their historical balance sheet
classifications and amounts.
F-9
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Liabilities subject to compromise consist of the following as of September
30, 2003:
<Table>
Senior Subordinated Notes................................... $282,000
Credit Facility............................................. 147,441
PIK Note.................................................... 9,900
Accrued interest............................................ 26,183
Other debt.................................................. 16
--------
$465,540
========
</Table>
In order to record its debt instruments at the amount allowed by the
Bankruptcy Court in accordance with SOP 90-7, as of the Petition Date, the
Company wrote off all of its debt issuance costs and premiums related to the
Pre-Petition Senior Subordinated Notes (collectively the Deferred Financing
Fees) as a component of reorganization expense in the accompanying consolidated
statement of operations. Reorganization expense also includes professional fees
incurred in connection with the Chapter 11 proceedings. Reorganization expenses
for the year ended September 30, 2003 consist of the following:
<Table>
Deferred Financing Fees..................................... $1,464
Professional fees........................................... 6,410
------
Total reorganization expense................................ $7,874
======
</Table>
Under SOP 90-7, the Company was required to accrue interest expense during
the Chapter 11 proceedings only to the extent that such interest was expected to
be paid pursuant to the proceedings. Under the Plan of Reorganization, there
were no cash payments of interest on the outstanding Senior Subordinated Notes.
Therefore, the Company ceased accruing interest on the Senior Subordinated Notes
as of the Petition Date. The contractual interest amount parenthetically
disclosed on the accompanying consolidated statement of operations represents
the interest expense that would have been accrued under the Senior Subordinated
Notes had the Company not ceased accruing interest as described above.
3. FRESH START ACCOUNTING
The Company will adopt the fresh start accounting provisions (fresh start)
of SOP 90-7 during the first quarter of fiscal 2004. Under SOP 90-7, the
implementation of fresh start reporting is triggered, in part, by the emergence
of the Company from its Chapter 11 proceedings. Although the effective date of
the Plan of Reorganization was October 8, 2003, the Company plans to account for
the consummation of the Plan of Reorganization as if it had occurred on October
1, 2003 and implement fresh start reporting as of that date. Fresh start
requires that the Company adjust the historical cost of its assets and
liabilities to their fair value. The fair value of the reorganized Company, or
the reorganization value, of approximately $290,000 was determined by an
independent party based on multiples of earnings before interest, income taxes,
depreciation and amortization (EBITDA) and discounted future cash flows under
the Company's financial projections.
F-10
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fresh start requires that the reorganization value be allocated to the
entity's net assets in conformity with procedures specified by Statement of
Financial Accounting Standards No. 141, "Business Combinations" (SFAS No. 141).
The Company engaged an independent appraiser to assist in the allocation of the
reorganization value to the reorganized Company's assets and liabilities by
determining the fair market value of its property, plant and equipment and
intangible assets. This valuation is preliminary and adjustments may be required
once the final valuation is complete. A reconciliation of the adjustments to be
recorded in connection with the debt restructuring and the adoption of fresh
start accounting are as follows:
<Table>
<Caption>
PREDECESSOR REORGANIZED
NEENAH NEENAH
FOUNDRY FOUNDRY
COMPANY COMPANY
SEPTEMBER 30, DEBT FRESH START SEPTEMBER 30,
2003 RESTRUCTURING ADJUSTMENTS(D) 2003
------------- ------------- -------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.............. $ 24,356 $ (24,356) $ $ --
Accounts receivable, net............... 56,333 -- -- 56,333
Inventories............................ 56,555 -- 2,904 59,459
Deferred income taxes.................. 4,059 -- (1,562) 2,497
Other current assets................... 8,113 -- -- 8,113
Current assets of discontinued
operations.......................... 423 -- -- 423
-------- --------- --------- --------
Total current assets..................... 149,839 (24,356) 1,342 126,825
Property, plant and equipment:
Land................................... 6,036 -- 235 6,271
Buildings and improvements............. 27,854 -- (12,568) 15,286
Machinery and equipment................ 222,778 -- (170,753) 52,025
Patterns............................... 29,928 -- (19,950) 9,978
Construction in progress............... 3,200 -- (806) 2,394
-------- --------- --------- --------
289,796 -- (203,842) 85,954
Less accumulated depreciation.......... 126,827 -- (126,827) --
-------- --------- --------- --------
162,969 -- (77,015) 85,954
Deferred financing costs, net............ 1,393 1,587 -- 2,980
Identifiable intangible assets, net...... 33,354 -- 50,082 83,436
Goodwill, net............................ 180,214 (101,641) 78,573
Other assets............................. 9,065 -- (2,533) 6,532
-------- --------- --------- --------
224,026 1,587 (54,092) 171,521
-------- --------- --------- --------
$536,834 $ (22,769) $(129,765) $384,300
======== ========= ========= ========
</Table>
F-11
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
PREDECESSOR REORGANIZED
NEENAH NEENAH
FOUNDRY FOUNDRY
COMPANY COMPANY
SEPTEMBER 30, DEBT FRESH START SEPTEMBER 30,
2003 RESTRUCTURING ADJUSTMENTS(D) 2003
------------- ------------- -------------- -------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities not subject to
compromise:
Accounts payable.................... $ 26,285 $ 5,300 $ -- $ 31,585
Accrued wages and employee
benefits.......................... 11,307 -- -- 11,307
Other accrued liabilities........... 5,918 -- -- 5,918
Current portion of capital lease
obligations....................... 2,646 -- -- 2,646
-------- --------- --------- --------
Total current liabilities not subject to
compromise............................. 46,156 5,300 -- 51,456
Long-term liabilities subject to
compromise............................. 465,540 (465,540)(a) -- --
Long-term debt........................... -- 268,550(b) -- 268,550
Capital lease obligations................ 1,583 -- -- 1,583
Deferred income taxes.................... 33,804 -- (8,529) 25,275
Postretirement benefit obligations....... 7,271 -- 3,048 10,319
Other liabilities........................ 21,496 -- 92 21,588
-------- --------- --------- --------
Total liabilities........................ 575,850 (191,690) (5,389) 378,771
Commitments and contingencies
Stockholder's equity (deficit):
Preferred stock........................ -- -- -- --
Predecessor Neenah common stock........ 100 (100)(a) -- --
Reorganized Neenah common stock........ -- 100(c) -- 100
Additional paid-in capital --
warrants............................ -- 602(c) -- 602
Capital in excess of par value......... 51,317 -- (46,490) 4,827
Accumulated deficit.................... (81,124) -- 81,124 --
Accumulated other comprehensive loss... (9,309) -- 9,309 --
-------- --------- --------- --------
Total stockholder's equity (deficit)..... (39,016) 602 43,943 5,529
-------- --------- --------- --------
$536,834 $(191,088) $ 38,554 $384,300
======== ========= ========= ========
</Table>
- ---------------
a. To record the discharge of pre-petition indebtedness, including $26,183 of
accrued interest and the elimination of Predecessor Neenah's common stock.
b. Record borrowings of $47,112 on the New Credit Facility, the issuance of
$100,000 New Senior Subordinated Notes and the issuance of $121,438 (net of
discount of $11,692) of Second Secured Notes.
c. To record the issuance of common stock in Reorganized Neenah and detachable
warrants issued with the Second Secured Notes.
d. To adjust the carrying value of assets, liabilities and stockholder's equity
to fair value, in accordance with fresh start accounting.
F-12
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Neenah and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying value,
which approximates fair value, of cash equivalents, which consist entirely of
repurchase agreements, totaled $21,850 and $25,500 at September 30, 2003 and
2002, respectively.
ACCOUNTS RECEIVABLE
The Company evaluates the collectibility of its accounts and notes
receivable based on a number of factors. For larger accounts, an allowance for
doubtful accounts is recorded based on the applicable parties' ability and
likelihood to pay based on management's review of the facts. For all other
accounts, the Company recognizes an allowance based on length of time the
receivable is past due based on historical experience.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of
inventories for Neenah and Dalton is determined on the last-in, first-out (LIFO)
method for substantially all inventories except supplies, for which cost is
determined on the first-in, first-out (FIFO) method. The cost of inventories for
Deeter, Mercer, ACP and Gregg is determined on the FIFO method. LIFO inventories
comprise 49% and 47% of total inventories at September 30, 2003 and 2002,
respectively. If the FIFO method of inventory valuation had been used by all
companies, inventories would have been approximately $2,623 and $1,458 higher
than reported at September 30, 2003 and 2002, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation for
financial reporting purposes is provided over the estimated useful lives (7 to
40 years) of the respective assets using the straight-line method.
DEFERRED FINANCING COSTS
Costs incurred to obtain long-term financing are amortized using the
effective interest method over the term of the related debt.
IDENTIFIABLE INTANGIBLE ASSETS
Identifiable intangible assets are amortized on a straight-line basis over
the estimated useful lives of 10 to 40 years.
F-13
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL
Effective October 1, 2001, goodwill is no longer amortized but is subject
to an annual test for impairment. Prior to October 1, 2001, goodwill was
amortized on a straight-line basis over 15 to 40 years.
IMPAIRMENT OF LONG-LIVED ASSETS
Property, plant and equipment and identifiable intangible assets are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the sum of the expected
undiscounted cash flows is less than the carrying value of the related asset or
group of assets, a loss is recognized for the difference between the fair value
and carrying value of the asset or group of assets. Such analyses necessarily
involve significant judgment.
REVENUE RECOGNITION
Revenues are recognized upon shipment of product, which generally
corresponds with the transfer of title.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in cost of sales.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs for
continuing operations amounted to $445, $587 and $615 for the years ended
September 30, 2003, 2002 and 2001, respectively.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of the Company's assets and liabilities
and are measured using currently enacted tax rates and laws.
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, notes receivable and investment in
preferred stock (see Note 5), accounts payable and capital lease obligations
approximate fair value. At September 30, 2003, long-term debt is included in the
accompanying consolidated balance sheet as a liability subject to compromise. At
September 30, 2002, the fair value of the Company's $451,432 of long-term debt
was $285,052. The fair value of the Senior Subordinated Notes at September 30,
2002 with a face value of $282,000 was based on quoted market prices.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51," which expands upon and strengthens existing
accounting guidance concerning when a company should include in its financial
statements the assets, liabilities and activities of another entity. A Variable
Interest Entity
F-14
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
("VIE") does not share economic risk and reward through typical equity ownership
arrangements. Instead, contractual or other relationships re-distribute economic
risks and rewards among equity holders and other parties. Once an entity is
determined to be a VIE, the party with the controlling financial interest, the
primary beneficiary, is required to consolidate it. FIN 46 also requires
disclosures about VIEs that a company is not required to consolidate but in
which it has a significant variable interest. The adoption of applicable
provisions of FIN 46 in 2003 did not have a material impact on the Company's
results of operations or financial position. The Company does not expect the
adoption of the remaining provisions related to FIN 46 to have a material impact
on the Company's results of operations or financial position.
5. DISCONTINUED OPERATIONS
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The Company adopted SFAS No. 144
as of October 1, 2001.
During the year ended September 30, 2002, the Company identified indicators
of impairment at its Belcher Corporation (Belcher) foundry, which was held for
use at that date. Belcher is a wholly-owned subsidiary of Advanced Cast
Products, Inc. In accordance with SFAS No. 144, because the net book value of
the foundry's long-lived assets exceeded the sum of the undiscounted cash flows
expected to be realized from the respective assets, the Company recognized an
impairment charge of $5,379 to adjust the carrying value of the foundry's
long-lived assets to fair value.
On December 27, 2002, the Company sold substantially all of the assets of
Belcher for cash of $648 (net of fees and escrow deposits), a $1,500 note
receivable and $1,000 of preferred stock of the buyer. The cost method is used
to account for the Company's investment in preferred stock as the Company does
not have the ability to exercise significant influence over the investee's
operations and financial policies. At September 30, 2003, the cost of the
preferred stock approximates fair value. The disposition of Belcher resulted in
a loss of $1,596, net of taxes of $860. Included in the loss on disposal is a
curtailment loss on Belcher's defined benefit pension plan of $367, net of taxes
of $198, which was retained by the Company. In accordance with the provisions of
SFAS No. 144, the results of operations of Belcher have been reported as
discontinued operations in the consolidated statements of operations for all
periods presented.
Revenues for Belcher, which was previously included in the Castings
segment, for the years ended September 30, 2003, 2002 and 2001 were $3,186,
$17,511 and $18,125, respectively. Interest allocated to Belcher of $139, $485
and $533 for the years ended September 30, 2003, 2002 and 2001, respectively,
was based on the purchase price of Belcher in relation to the purchase price of
all other acquisitions funded by additional Company borrowings.
Customer actions and the significant deterioration of the U.S. economy
during the quarter ended December 31, 2001, had a dramatic effect on the
operations of Cast Alloys. This resulted in a significant reduction in sales,
operating profits and cash flows of Cast Alloys for the three months ended
December 31, 2001. Based on these factors, a goodwill impairment charge of
$10,668 was recognized during the three months ended December 31, 2001, related
to the decline in fair value of the Cast Alloys reporting unit, which was
included in the Castings segment.
These events also had a significant impact on the value of Cast Alloys'
property, plant and equipment and long-lived assets with finite lives. Due to
the existing impairment indicators, management assessed the recoverability of
these fixed assets and long-lived assets. As the expected undiscounted cash
flows were less than the carrying value of the related assets, an impairment
charge of $20,412 was recognized for the difference between the fair value and
carrying value of such assets during the year ended September 30, 2002.
In January 2002, management initiated a plan for discontinuing the
operations of Cast Alloys by closing its manufacturing facilities. Severance
costs of approximately $2,200 associated with this plan were
F-15
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized during the three months ended March 31, 2002. All employees of Cast
Alloys were terminated by April 2002. In accordance with the provisions of SFAS
No. 144, the results of operations of Cast Alloys have been reported as
discontinued operations in the consolidated statements of operations for all
periods presented. Previously, Cast Alloys was included in the Castings segment.
Revenues for Cast Alloys for the years ended September 30, 2002 and 2001
were $8,641 and $53,130, respectively. Interest expense allocated to Cast Alloys
of $1,954 and $4,309 for the years ended September 30, 2002 and 2001,
respectively, was based on the purchase price of Cast Alloys in relation to the
purchase price of all other acquisitions funded by additional Company
borrowings.
On October 2, 2000, the Company sold all of the issued and outstanding
shares of common stock of Hartley Controls Corporation (Hartley) for cash of
$5,190, net of fees of $129. The disposition of Hartley resulted in a gain of
$2,404, net of income taxes of $1,603. Proceeds from the sale were used to
reduce outstanding debt. Hartley designed and manufactured customized sand
control systems. In accordance with the provisions of APB Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," which has been amended by SFAS No. 144, the results of
operations of Hartley have been reported as discontinued operations in the
consolidated statements of operations.
6. INVENTORIES
Inventories consist of the following as of September 30:
<Table>
<Caption>
2003 2002
------- -------
Raw materials............................................... $ 3,709 $ 3,961
Work in process and finished goods.......................... 38,731 35,034
Supplies.................................................... 14,115 12,272
------- -------
$56,555 $51,267
======= =======
</Table>
7. INTANGIBLE ASSETS
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets,"
as of October 1, 2001. Under SFAS No. 142, goodwill and intangible assets deemed
to have indefinite lives are no longer amortized but are subject to annual
impairment tests in accordance with the statement. Other intangible assets
continue to be amortized over their estimated useful lives.
Upon adoption of SFAS No. 141, the Company reclassified the identifiable
intangible assets related to the assembled workforce and facilities in place
with an unamortized balance of $4,660 and $3,469, respectively, net of related
deferred income taxes of $1,864 and $1,388, respectively, to goodwill.
The Company performed the transitional impairment test of goodwill as of
October 1, 2001, and concluded that no impairment existed at the time of
adoption of SFAS No. 142. As discussed in Note 5, subsequent to the adoption of
SFAS No. 142, a goodwill impairment charge of $10,668 related to Cast Alloys, a
discontinued operation, was recognized. The Company performed the annual
impairment test of goodwill as of July 1, 2002, and concluded that no additional
goodwill impairment existed. The impairment tests were performed based on the
expected present value of future cash flows for each of the Company's reporting
units. As further discussed in Notes 2 and 3, on August 5, 2003, the Company
filed for protection under Chapter 11 of the Bankruptcy Code and on October 8,
2003 emerged from the Chapter 11 reorganization proceedings with a significantly
restructured balance sheet, including a substantial reduction in the carrying
value of the Company's intangible assets.
F-16
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Identifiable intangible assets consist of the following as of September 30:
<Table>
<Caption>
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
----------------------- -----------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
-------- ------------ -------- ------------
Amortizable intangible assets:
Customer lists.......................... $31,441 $17,945 $31,441 $14,814
Tradenames.............................. 22,553 3,217 22,553 2,649
Other................................... 1,295 773 1,295 653
------- ------- ------- -------
$55,289 $21,935 $55,289 $18,116
======= ======= ======= =======
</Table>
The Company does not have any intangible assets deemed to have indefinite
lives. Amortization expense expected to be recognized during fiscal years
subsequent to September 30, 2003, is as follows:
<Table>
2004........................................................ $3,832
2005........................................................ 3,832
2006........................................................ 3,832
2007........................................................ 3,195
2008........................................................ 2,002
</Table>
Changes in the carrying amount of goodwill during the year ended September
30, 2002, consist of the following:
<Table>
<Caption>
CASTINGS FORGINGS
SEGMENT SEGMENT TOTAL
-------- -------- --------
Balance as of September 30, 2001...................... $168,709 $17,296 $186,005
Reclassification of assembled workforce and facilities
in place net of deferred income tax liability of
$3,064, $188 and $3,252, respectively............... 4,595 282 4,877
Impairment charge related to discontinued
operations -- See Note 5............................ (10,668) -- (10,668)
-------- ------- --------
Balance as of September 30, 2002...................... $162,636 $17,578 $180,214
======== ======= ========
</Table>
As required by SFAS No. 142, the results of operations of the Company for
periods prior to its adoption have not been restated. The following table
reconciles reported net loss to pro forma net loss that would have resulted for
the year ending September 30, 2001 if SFAS No. 142 had been adopted effective
October 1, 2000:
<Table>
Reported net loss........................................... $(15,050)
Amortization of goodwill.................................... 5,552
Amortization of assembled workforce, net of tax............. 1,025
Amortization of facilities in place, net of tax............. 45
--------
Pro forma net loss.......................................... $ (8,428)
========
</Table>
F-17
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following as of September 30:
<Table>
<Caption>
2003 2002
-------- --------
11 1/8% Series B Senior Subordinated Notes.................. $150,000 $150,000
11 1/8% Series D Senior Subordinated Notes, including
unamortized premium of $1,206 in 2002..................... 45,000 46,206
11 1/8% Series F Senior Subordinated Notes, including
unamortized premium of $1,642 in 2002..................... 87,000 88,642
Term Loan Facilities........................................ 112,792 117,292
Acquisition Loan Facility................................... 5,335 10,794
Revolving Credit Facility................................... 29,314 28,500
PIK Note.................................................... 9,900 9,900
Other....................................................... 16 98
-------- --------
$439,357 $451,432
======== ========
</Table>
The Company had a Credit Facility, as amended, with a group of banks, which
provided Term Loan Facilities, an Acquisition Loan Facility and a Revolving
Credit Facility. Borrowings under this Pre-Petition Credit Facility were secured
by substantially all assets of the Company. Covenants in the Pre-Petition Credit
Facility restricted the payment of dividends, capital expenditures and certain
other transactions and required the Company to maintain leverage, net worth and
interest coverage ratios. The Pre-Petition Credit Facility bore interest at
LIBOR (1.125% at September 30, 2003) plus 4.5% or LIBOR plus 4.75%. Effective
December 31, 2001, the Credit Agreement was amended to provide relief from the
above financial ratio covenants through December 31, 2003, reduce the amount of
the Revolving Credit Facility to $29,565 and establish minimum EBITDA and
liquidity covenants. At March 31, 2003, the Company was in default of the
minimum EBITDA covenant on the Pre-Petition Credit Facility. In addition, the
Company did not make the scheduled May 1, 2003 interest payment on the
Pre-Petition Senior Subordinated Notes which was an event of default under the
Indenture Agreement covering the Pre-Petition Senior Subordinated Notes.
As of September 30, 2003, as a result of the Chapter 11 filing, the
carrying value of the Company's debt is classified as long-term liabilities
subject to compromise. As discussed in Note 2, in order to record the debt
instruments at the amount allowed by the Bankruptcy Court, in accordance with
SOP 90-7, unamortized premiums of $2,226 related to the Pre-Petition Senior
Subordinated Notes were written off as a component of reorganization expense in
2003.
As further discussed in Note 2, upon the Company's consummation of the Plan
of Reorganization, all of the Company's Pre-Petition Senior Subordinated Notes
and Pre-Petition Credit Facility and PIK Note were cancelled or repaid.
The New Credit Facility has a 5-year maturity, provides for a revolving
credit line of up to $70,000 (with a $5,000 sublimit available for letters of
credit), a term loan in the aggregate amount of up to $22,085, contains various
financial and non-financial covenants and is secured by substantially all of the
Company's tangible and intangible assets. The interest rate on the New Credit
Facility is based on LIBOR plus an applicable margin, based upon the Company
meeting certain financial statistics. The Company, including its wholly-owned
subsidiaries, jointly and severally guarantee the Company's obligation under the
New Credit Facility. The Second Secured Notes are due in 2010 and bear interest
at 11%. The New Senior Subordinated Notes bear interest at 13% and are due in
2013.
F-18
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
The Company leases certain plants, warehouse space, machinery and
equipment, office equipment and vehicles under operating leases. Rent expense
for continuing operations under these operating leases for the years ended
September 30, 2003, 2002 and 2001 totaled $2,885, $3,147 and $2,777,
respectively.
The Company did not enter into any capital leases during the years ended
September 30, 2003 or 2002.
Property, plant and equipment under leases accounted for as capital leases
as of September 30 are as follows:
<Table>
<Caption>
2003 2002
------- -------
Machinery and equipment..................................... $20,867 $21,471
Less accumulated depreciation............................... (4,978) (3,983)
------- -------
$15,889 $17,488
======= =======
</Table>
Minimum rental payments due under operating and capital leases for fiscal
years subsequent to September 30, 2003, are as follows:
<Table>
<Caption>
OPERATING CAPITAL
LEASES LEASES
--------- -------
2004........................................................ $1,813 $2,951
2005........................................................ 1,344 1,656
2006........................................................ 743 --
2007........................................................ 293 --
2008........................................................ 244 --
Thereafter.................................................. 347 --
------ ------
Total minimum lease payments................................ $4,784 4,607
======
Less amount representing interest........................... 378
------
Present value of minimum lease payments..................... 4,229
Less current portion........................................ 2,646
------
Capital lease obligations................................... $1,583
======
</Table>
The Company is partially self-insured for workers' compensation claims. An
accrued liability is recorded for claims incurred but not yet paid or reported
and is based on current and historical claim information. The accrued liability
may ultimately be settled for an amount different than the recorded amount.
Adjustments of the accrued liability are recorded in the period in which they
become known.
Approximately 63% of the Company's work force is covered by collective
bargaining agreements. The collective bargaining agreements for Mercer and the
Kendallville location of Dalton are scheduled to expire during fiscal 2004.
F-19
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
The credit for income taxes consists of the following:
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30
-----------------------------
2003 2002 2001
-------- -------- -------
Current:
Federal............................................. $ -- $(18,522) $(2,902)
State............................................... 346 308 (1,218)
Foreign............................................. -- -- 886
-------- -------- -------
346 (18,214) (3,234)
Deferred.............................................. (10,337) (10,650) (1,630)
-------- -------- -------
$ (9,991) $(28,864) $(4,864)
======== ======== =======
</Table>
The credit for income taxes is included in the consolidated statements of
operations as follows:
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30
----------------------------
2003 2002 2001
------- -------- -------
Continuing operations.................................. $(8,541) $ (5,917) $(4,004)
Discontinued operations................................ (1,450) (22,947) (860)
------- -------- -------
$(9,991) $(28,864) $(4,864)
======= ======== =======
</Table>
The credit for income taxes differs from the amount computed by applying
the federal statutory rate of 35% to loss before income taxes as follows:
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30
-----------------------------
2003 2002 2001
-------- -------- -------
Credit at statutory rate.............................. $(12,443) $(26,798) $(6,970)
State income taxes (benefit), net of federal taxes.... 225 74 (535)
Amortization of goodwill.............................. -- -- 1,943
Additional provision recorded in connection with tax
examinations........................................ -- 932 417
Reorganization expenses............................... 2,244 -- --
Permanent difference related to the discontinuance of
Cast Alloys......................................... -- (2,734) --
Other................................................. (17) (338) 281
-------- -------- -------
Credit for income taxes............................... $ (9,991) $(28,864) $(4,864)
======== ======== =======
</Table>
F-20
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax assets and liabilities consist of the following as of
September 30:
<Table>
<Caption>
2003 2002
-------- --------
Deferred income tax liabilities:
Inventories............................................... $ (2,244) $ (3,023)
Property, plant and equipment............................. (35,939) (37,277)
Identifiable intangible assets............................ (13,362) (14,890)
Other..................................................... (2,093) (1,781)
-------- --------
(53,638) (56,971)
Deferred income tax assets:
Employee benefit plans.................................... 11,604 10,062
Accrued vacation.......................................... 2,101 2,185
Other accrued liabilities................................. 3,136 1,743
Net operating loss carryforwards.......................... 5,986 1,754
Other..................................................... 1,066 --
-------- --------
23,893 15,744
-------- --------
Net deferred income tax liability........................... $(29,745) $(41,227)
======== ========
Included in the consolidated balance sheets as:
Current deferred income tax asset......................... $ 4,059 $ 2,659
Noncurrent deferred income tax liability.................. (33,804) (43,886)
-------- --------
$(29,745) $(41,227)
======== ========
</Table>
As of September 30, 2003, the Company has federal and state net operating
loss carryforwards for income tax purposes of approximately $13,000 and $24,000,
respectively, which expire through 2023.
11. EMPLOYEE BENEFIT PLANS
DEFINED-BENEFIT PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company sponsors five defined-benefit pension plans covering the
majority of its hourly employees. Retirement benefits under the pension plans
are based on years of service and defined-benefit rates. The Company funds the
pension plans based on actuarially determined cost methods allowable under
Internal Revenue Service regulations. Plan assets consist primarily of mutual
funds. The measurement date for three of the defined-benefit pension plans is
September 30. The remaining two plans use a measurement date of June 30.
The Company also sponsors unfunded defined-benefit postretirement health
care plans covering substantially all salaried and hourly employees at Neenah
and their dependents. For salaried employees at Neenah, benefits are provided
from the date of retirement for the duration of the employee's life, while
benefits for hourly employees at Neenah are provided from retirement to age 65.
Retirees' contributions to the plans are based on years of service and age at
retirement. The Company funds benefits as incurred. These plans use a
measurement date of September 30.
F-21
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the funded status of the pension plans and
postretirement benefit plans and the amounts recognized in the consolidated
balance sheets at September 30, 2003 and 2002:
<Table>
<Caption>
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------- ------------------------
2003 2002 2003 2002
-------- -------- ----------- ----------
Change in benefit obligation:
Benefit obligation, October 1............. $ 51,911 $ 44,166 $ 8,373 $ 7,024
Service cost........................... 1,798 1,512 319 198
Interest cost.......................... 3,433 3,269 592 476
Plan amendments........................ 496 -- -- --
Curtailment............................ 565 -- -- --
Actuarial losses....................... 3,940 5,077 1,462 1,037
Benefits paid.......................... (2,094) (2,113) (427) (362)
-------- -------- -------- -------
Benefit obligation, September 30.......... $ 60,049 $ 51,911 $ 10,319 $ 8,373
======== ======== ======== =======
Change in plan assets:
Fair value of plan assets, October 1...... $ 38,200 $ 40,020 $ -- $ --
Actual return (loss) on plan assets.... 4,375 (1,769) -- --
Company contributions.................. 8,008 2,062 427 362
Benefits paid.......................... (2,094) (2,113) (427) (362)
-------- -------- -------- -------
Fair value of plan assets, September 30... $ 43,489 $ 38,200 $ -- $ --
======== ======== ======== =======
Funded status of the plans:
Benefit obligation in excess of plan
assets................................. $(16,560) $(13,711) $(10,319) $(8,373)
Unrecognized prior service cost........... 2,532 2,184 536 581
Unrecognized net losses................... 15,592 13,279 2,512 1,096
-------- -------- -------- -------
$ 1,564 $ 1,752 $ (7,271) $(6,696)
======== ======== ======== =======
Amounts recognized in the consolidated
balance sheets at September 30:
Accrued pension liability.............. $(16,562) $(13,765) $ (7,271) $(6,696)
Intangible asset....................... 2,532 2,184 -- --
Deferred income tax asset.............. 6,285 5,333 -- --
Accumulated other comprehensive loss... 9,309 8,000 -- --
-------- -------- -------- -------
$ 1,564 $ 1,752 $ (7,271) $(6,696)
======== ======== ======== =======
</Table>
Amounts applicable to the Company's pension plans with accumulated benefit
obligations and projected benefit obligations in excess of plan assets:
<Table>
<Caption>
2003 2002
------- -------
Projected benefit obligation................................ $60,049 $51,911
Accumulated benefit obligation.............................. 60,049 51,911
Fair value of plan assets................................... 43,489 38,200
</Table>
F-22
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of net periodic benefit cost for the years ended September 30,
2003, 2002 and 2001, respectively, are as follows:
<Table>
<Caption>
PENSION BENEFITS POSTRETIREMENT BENEFITS
--------------------------------------- -------------------------
2003 2002 2001 2003 2002 2001
-------------- --------- ---------- ------- ----- -------
Service cost.................. $ 1,798 $ 1,512 $ 1,543 $ 319 $198 $ 204
Interest cost................. 3,433 3,269 3,036 592 476 493
Expected return on plan
assets...................... (3,265) (3,486) (3,580) -- -- --
Amortization of prior service
cost........................ 146 146 123 45 45 45
Recognized net actuarial
(gain) loss................. 515 26 2 47 (5) 2
-------------- --------- ---------- ------ ---- ------
Net periodic benefit cost..... $ 2,627 $ 1,467 $ 1,124 $1,003 $714 $ 744
============== ========= ========== ====== ==== ======
Net periodic benefit cost
included in the consolidated
statements of operations as:
Continuing operations.... $ 2,432 $ 1,373 $ 1,029 $1,003 $714 $ 744
Discontinued
operations............. 195 94 95 -- -- --
-------------- --------- ---------- ------ ---- ------
$ 2,627 $ 1,467 $ 1,124 $1,003 $714 $ 744
============== ========= ========== ====== ==== ======
Assumptions as of September
30:
Discount rate............... 6.25% to 6.75% 7.25% to 6.25% 6.75% 7.625%
6.75% 7.625%
Expected long-term rate of
return................... 7.50% to 6.75% to 7.50% to -- -- --
8.50% 9.00% 9.00%
</Table>
For measurement purposes, the healthcare cost trend rate was assumed to be
9.0% decreasing gradually to 5.0% in 2010 and then remaining at that level
thereafter. The healthcare cost trend rate assumption has a significant effect
on the amounts reported. A one percentage point change in the healthcare cost
trend rate would have the following effect:
<Table>
<Caption>
1% INCREASE 1% DECREASE
----------- -----------
Effect on total of service cost and interest cost........... $ 189 $ (147)
Effect on postretirement benefit obligation................. 1,858 (1,470)
</Table>
DEFINED-CONTRIBUTION RETIREMENT PLANS
The Company sponsors various defined-contribution retirement plans (the
Plans) covering substantially all salaried and certain hourly employees. The
Plans allow participants to make 401(k) contributions in amounts ranging from 1%
to 15% of their compensation. The Company matches between 35% and 50% of the
participants' contributions up to a maximum of 6% of the employee's
compensation, as defined. The Company may make additional voluntary
contributions to the Plans as determined annually by the Board of Directors.
Total Company contributions for continuing operations amounted to $1,694, $1,456
and $1,840 for the years ended September 30, 2003, 2002 and 2001, respectively.
OTHER EMPLOYEE BENEFITS
The Company provides unfunded supplemental retirement benefits to certain
active and retired employees at Dalton. At September 30, 2003, the present value
of the current and long-term portion of
F-23
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
these supplemental retirement obligations totaled $201 and $2,846, respectively.
At September 30, 2002, the present value of the current and long-term portion of
these supplemental retirement obligations totaled $334 and $2,955, respectively.
Certain of Dalton's hourly employees are covered by a multi-employer,
defined-benefit pension plan pursuant to a collective bargaining agreement. The
Company's expense for the years ended September 30, 2003, 2002 and 2001, was
$417, $397 and $470, respectively.
Substantially all of Mercer's union employees are covered by a
multiemployer, defined-benefit pension plan pursuant to a collective bargaining
agreement. The Company's expense for the years ended September 30, 2003, 2002
and 2001, was $102, $119 and $135, respectively.
12. PROVISION FOR IMPAIRMENT OF ASSETS
In accordance with SFAS No. 144, the Company recognized an impairment
charge of $74 during the year ended September 30, 2002, related to a building
held for sale to adjust the carrying value of the building to fair value less
costs to sell.
13. SEGMENT INFORMATION
The Company has two reportable segments, Castings and Forgings. The
Castings segment manufactures and sells gray and ductile iron castings for the
industrial and municipal markets, while the Forgings segment manufactures forged
components for the industrial market. The Other segment includes machining
operations and freight hauling.
The Company evaluates performance and allocates resources based on the
operating income before depreciation and amortization charges of each segment.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Intersegment sales
and transfers are recorded at cost plus a share of operating profit. The
following segment information is presented for continuing operations:
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30
---------------------------------
2003 2002 2001
--------- --------- ---------
Revenues from external customers:
Castings........................................ $ 349,410 $ 361,914 $ 363,833
Forgings........................................ 20,681 21,893 28,109
Other........................................... 19,185 20,498 19,460
Elimination of intersegment revenues............ (14,213) (16,598) (12,620)
--------- --------- ---------
$ 375,063 $ 387,707 $ 398,782
========= ========= =========
Loss from continuing operations:
Castings........................................ $ (22,870) $ (5,953) $ (13,129)
Forgings........................................ (6,819) (4,135) (5,112)
Other........................................... (150) (764) (711)
Elimination of intersegment loss................ 6,969 4,899 5,823
--------- --------- ---------
$ (22,870) $ (5,953) $ (13,129)
========= ========= =========
</Table>
F-24
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30
---------------------------------
2003 2002 2001
--------- --------- ---------
Total assets:
Castings........................................ $ 641,870 $ 668,669 $ 770,044
Forgings........................................ 38,454 41,584 51,148
Other........................................... 10,971 16,494 16,149
Elimination of intersegment assets.............. (154,461) (157,359) (210,898)
--------- --------- ---------
$ 536,834 $ 569,388 $ 626,443
========= ========= =========
</Table>
<Table>
<Caption>
CASTINGS FORGINGS OTHER TOTAL
-------- -------- ------ -------
Year ended September 30, 2003:
Interest expense.............................. $41,907 $ 4,803 $ 735 $47,445
Interest income............................... 825 -- -- 825
Provision (credit) for income taxes........... (8,331) (622) 412 (8,541)
Depreciation and amortization expense......... 22,522 2,277 1,296 26,095
Expenditures for long-lived assets............ 11,112 217 571 11,900
Year ended September 30, 2002:
Interest expense.............................. $38,196 $ 4,439 $ 831 $43,466
Interest income............................... 819 -- -- 819
Credit for income taxes....................... (3,005) (2,790) (122) (5,917)
Depreciation and amortization expense......... 23,251 2,627 1,669 27,547
Expenditures for long-lived assets............ 8,558 415 82 9,055
Year ended September 30, 2001:
Interest expense.............................. $37,518 $ 4,953 $ 983 $43,454
Interest income............................... 445 -- -- 445
Provision (credit) for income taxes........... (813) (3,273) 82 (4,004)
Depreciation and amortization expense......... 29,878 3,884 1,505 35,267
Expenditures for long-lived assets............ 16,219 228 435 16,882
</Table>
F-25
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC INFORMATION
<Table>
<Caption>
LONG-LIVED
NET SALES ASSETS(1)
--------- ----------
Year ended September 30, 2003:
United States............................................. $364,318 $162,969
Foreign countries......................................... 10,745 --
-------- --------
$375,063 $162,969
======== ========
Year ended September 30, 2002:
United States............................................. $378,968 $173,565
Foreign countries......................................... 8,739 --
-------- --------
$387,707 $173,565
======== ========
Year ended September 30, 2001:
United States............................................. $390,656 $189,726
Foreign countries......................................... 8,126 --
-------- --------
$398,782 $189,726
======== ========
</Table>
- ---------------
(1) Represents tangible long-lived assets only.
F-26
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. GUARANTOR SUBSIDIARIES
The following tables present condensed consolidating financial information
for fiscal 2003, 2002 and 2001 for: (a) the Company, and (b) on a combined
basis, the guarantors of the Senior Subordinated Notes, which include all of the
wholly owned subsidiaries of the Company (Subsidiary Guarantors). Separate
financial statements of the Subsidiary Guarantors are not presented because the
guarantors are jointly, severally and unconditionally liable under the
guarantees, and the Company believes separate financial statements and other
disclosures regarding the Subsidiary Guarantors are not material to investors.
CONDENSED CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2003
<Table>
<Caption>
SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents..................... $ 24,432 $ (76) $ -- $ 24,356
Accounts receivable, net...................... 30,069 26,264 -- 56,333
Inventories................................... 21,029 35,526 -- 56,555
Deferred income taxes......................... (400) 4,459 -- 4,059
Other current assets.......................... 4,924 3,612 -- 8,536
-------- -------- --------- --------
Total current assets............................ 80,054 69,785 -- 149,839
Investments in and advances to subsidiaries..... 196,184 -- (196,184) --
Property, plant and equipment, net.............. 79,514 83,455 -- 162,969
Deferred financing costs, identifiable
intangible assets and goodwill, net........... 122,592 92,369 -- 214,961
Other assets.................................... 3,970 5,095 -- 9,065
-------- -------- --------- --------
$482,314 $250,704 $(196,184) $536,834
======== ======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities not subject to compromise:
Accounts payable.............................. $ 9,439 $ 16,846 $ -- $ 26,285
Accrued wages and employee benefits........... 4,481 6,826 -- 11,307
Other accrued liabilities..................... 3,933 1,985 -- 5,918
Current portion of capital lease
obligations................................ -- 2,646 -- 2,646
-------- -------- --------- --------
Total current liabilities....................... 17,853 28,303 -- 46,156
Long-term liabilities subject to compromise..... 465,540 -- -- 465,540
Capital lease obligations....................... -- 1,583 -- 1,583
Deferred income taxes........................... 18,076 15,728 -- 33,804
Postretirement benefit obligations.............. 7,271 -- -- 7,271
Other liabilities............................... 12,590 8,906 -- 21,496
Stockholder's equity (deficit).................. (39,016) 196,184 (196,184) (39,016)
-------- -------- --------- --------
$482,314 $250,704 $(196,184) $536,834
======== ======== ========= ========
</Table>
F-27
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2002
<Table>
<Caption>
SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents..................... $ 29,290 $ (3,126) $ -- $ 26,164
Accounts receivable, net...................... 30,829 25,624 -- 56,453
Inventories................................... 20,535 30,732 -- 51,267
Refundable income taxes....................... 14,850 -- -- 14,850
Deferred income taxes......................... (1,773) 4,432 -- 2,659
Other current assets.......................... 3,372 6,820 -- 10,192
-------- -------- --------- --------
Total current assets............................ 97,103 64,482 -- 161,585
Investments in and advances to subsidiaries..... 198,460 (23,829) (174,631) --
Property, plant and equipment, net.............. 83,523 90,042 -- 173,565
Deferred financing costs, identifiable
intangible assets and goodwill, net........... 129,687 94,356 -- 224,043
Other assets.................................... 4,191 6,004 -- 10,195
-------- -------- --------- --------
$512,964 $231,055 $(174,631) $569,388
======== ======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................. $ 7,740 $ 14,851 $ -- $ 22,591
Accrued wages and employee benefits........... 6,151 6,507 -- 12,658
Accrued interest.............................. 13,733 -- -- 13,733
Other current liabilities..................... 1,151 3,132 -- 4,283
Current portion of long-term debt............. 40,917 -- -- 40,917
Current portion of capital lease
obligations................................ -- 2,353 -- 2,353
-------- -------- --------- --------
Total current liabilities....................... 69,692 26,843 -- 96,535
Long-term debt.................................. 410,515 -- -- 410,515
Capital lease obligations....................... -- 4,816 -- 4,816
Deferred income taxes........................... 26,110 17,776 -- 43,886
Postretirement benefit obligations.............. 6,696 -- -- 6,696
Other liabilities............................... 12,097 6,989 -- 19,086
Stockholder's equity (deficit).................. (12,146) 174,631 (174,631) (12,146)
-------- -------- --------- --------
$512,964 $231,055 $(174,631) $569,388
======== ======== ========= ========
</Table>
F-28
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
Net sales....................................... $160,529 $220,102 $(5,568) $375,063
Cost of sales................................... 117,301 210,101 (5,568) 321,834
-------- -------- ------- --------
Gross profit.................................... 43,228 10,001 -- 53,229
Selling, general and administrative expenses.... 11,766 14,366 -- 26,132
Amortization expense............................ 1,832 1,987 -- 3,819
Loss on disposal of equipment................... 214 (19) -- 195
-------- -------- ------- --------
Operating income................................ 29,416 (6,333) -- 23,083
Other income (expense):
Interest expense.............................. (25,589) (21,856) -- (47,445)
Interest income............................... 822 3 -- 825
Reorganization expense........................ (7,874) -- -- (7,874)
-------- -------- ------- --------
(32,641) (21,853) -- (54,494)
-------- -------- ------- --------
Loss from continuing operations before income
taxes and equity in earnings of
subsidiaries.................................. (3,225) (28,186) -- (31,411)
Provision (credit) for income taxes............. (8,846) 305 -- (8,541)
-------- -------- ------- --------
5,621 (28,491) -- (22,870)
Equity in losses of subsidiaries................ (31,182) -- 31,182 --
-------- -------- ------- --------
Loss from continuing operations................. (25,561) (28,491) 31,182 (22,870)
Loss from discontinued operations, net of income
taxes......................................... -- (1,095) -- (1,095)
Loss on sale of discontinued operations, net of
income tax.................................... -- (1,596) -- (1,596)
-------- -------- ------- --------
Net loss........................................ $(25,561) $(31,182) $31,182 $(25,561)
======== ======== ======= ========
</Table>
F-29
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
Net sales....................................... $168,519 $227,300 $(8,112) $387,707
Cost of sales................................... 119,442 212,410 (8,112) 323,740
-------- -------- ------- --------
Gross profit.................................... 49,077 14,890 -- 63,967
Selling, general and administrative expenses.... 13,357 15,386 -- 28,743
Amortization expense............................ 1,833 1,996 -- 3,829
Provision for impairment of assets.............. -- 74 -- 74
Loss on disposal of equipment................... 98 446 -- 544
-------- -------- ------- --------
Operating income................................ 33,789 (3,012) -- 30,777
Other income (expense):
Interest expense.............................. (22,568) (20,898) -- (43,466)
Interest income............................... 805 14 -- 819
-------- -------- ------- --------
(21,763) (20,884) -- (42,647)
-------- -------- ------- --------
Income (loss) from continuing operations before
income taxes and equity in earnings of
subsidiaries.................................. 12,026 (23,896) -- (11,870)
Provision (credit) for income taxes............. 1,293 (7,210) -- (5,917)
-------- -------- ------- --------
10,733 (16,686) -- (5,953)
Equity in losses of subsidiaries................ (58,436) -- 58,436 --
-------- -------- ------- --------
Loss from continuing operations................. (47,703) (16,686) 58,436 (5,953)
Loss from discontinued operations, net of income
taxes......................................... -- (41,750) -- (41,750)
-------- -------- ------- --------
Net loss........................................ $(47,703) $(58,436) $58,436 $(47,703)
======== ======== ======= ========
</Table>
F-30
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
Net sales....................................... $160,735 $244,175 $(6,128) $398,782
Cost of sales................................... 113,550 227,842 (6,128) 335,264
-------- -------- ------- --------
Gross profit.................................... 47,185 16,333 -- 63,518
Selling, general and administrative expenses.... 11,857 15,730 -- 27,587
Amortization expense............................ 4,919 5,570 -- 10,489
Gain on disposal of equipment................... (11) (423) -- (434)
-------- -------- ------- --------
Operating income................................ 30,420 (4,544) -- 25,876
Other income (expense):
Interest expense.............................. (19,828) (23,626) -- (43,454)
Interest income............................... 411 34 -- 445
-------- -------- ------- --------
(19,417) (23,592) -- (43,009)
-------- -------- ------- --------
Income (loss) from continuing operations before
income taxes and equity in earnings of
subsidiaries.................................. 11,003 (28,136) -- (17,133)
Provision (credit) for income taxes............. 6,361 (10,365) -- (4,004)
-------- -------- ------- --------
4,642 (17,771) -- (13,129)
Equity in losses of subsidiaries................ (22,096) -- 22,096 --
-------- -------- ------- --------
Loss from continuing operations................. (17,454) (17,771) 22,096 (13,129)
Loss from discontinued operations, net of income
taxes......................................... -- (4,325) -- (4,325)
Gain on sale of discontinued operations, net of
income taxes.................................. 2,404 -- -- 2,404
-------- -------- ------- --------
Net loss........................................ $(15,050) $(22,096) $22,096 $(15,050)
======== ======== ======= ========
</Table>
F-31
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED SEPTEMBER 30, 2003
<Table>
<Caption>
SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
OPERATING ACTIVITIES
Net loss........................................ $(25,561) $(31,182) $ 31,182 $(25,561)
Noncash adjustments............................. 5,548 18,473 -- 24,021
Changes in operating assets and liabilities..... 29,427 (4,885) -- 24,542
-------- -------- -------- --------
Net cash provided by (used in) operating
activities.................................... 9,414 (17,594) 31,182 23,002
INVESTING ACTIVITIES
Investments in and advances to subsidiaries..... 1,086 30,096 (31,182) --
Purchase of property, plant and equipment....... (4,930) (6,970) -- (11,900)
Other........................................... 89 494 -- 583
-------- -------- -------- --------
Net cash provided by (used in) investing
activities.................................... (3,755) 23,620 (31,182) (11,317)
FINANCING ACTIVITIES
Proceeds from long-term debt.................... 815 -- -- 815
Payments on long-term debt and capital lease
obligations................................... (10,041) (2,976) -- (13,017)
Debt issuance costs............................. (1,291) -- -- (1,291)
-------- -------- -------- --------
Net cash used in financing activities........... (10,517) (2,976) -- (13,493)
-------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents................................... (4,858) 3,050 -- (1,808)
Cash (overdraft) and cash equivalents at
beginning of year............................. 29,290 (3,126) -- 26,164
-------- -------- -------- --------
Cash (overdraft) and cash equivalents at end of
year.......................................... $ 24,432 $ (76) $ -- $ 24,356
======== ======== ======== ========
</Table>
F-32
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED SEPTEMBER 30, 2002
<Table>
<Caption>
SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
OPERATING ACTIVITIES
Net loss........................................ $(47,703) $(58,436) $ 58,436 $(47,703)
Noncash adjustments............................. 10,773 46,780 -- 57,553
Changes in operating assets and liabilities..... (13,173) 19,759 -- 6,586
-------- -------- -------- --------
Net cash provided by (used in) operating
activities.................................... (50,103) 8,103 58,436 16,436
INVESTING ACTIVITIES
Investments in and advances to subsidiaries..... 62,066 (3,630) (58,436) --
Purchase of property, plant and equipment....... (4,510) (4,545) -- (9,055)
Other........................................... 37 (335) -- (298)
-------- -------- -------- --------
Net cash provided by (used in) investing
activities.................................... 57,593 (8,510) (58,436) (9,353)
FINANCING ACTIVITIES
Proceeds from long-term debt.................... 33,400 -- -- 33,400
Payments on long-term debt and capital lease
obligations................................... (15,424) (2,383) -- (17,807)
Debt issuance costs............................. (858) -- -- (858)
-------- -------- -------- --------
Net cash provided by (used in) financing
activities.................................... 17,118 (2,383) -- 14,735
-------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents................................... 24,608 (2,790) -- 21,818
Cash (overdraft) and cash equivalents at
beginning of year............................. 4,682 (336) -- 4,346
-------- -------- -------- --------
Cash (overdraft) and cash equivalents at end of
year.......................................... $ 29,290 $ (3,126) $ -- $ 26,164
======== ======== ======== ========
</Table>
F-33
NEENAH FOUNDRY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
OPERATING ACTIVITIES
Net loss........................................ $(15,050) $(22,096) $ 22,096 $(15,050)
Noncash adjustments............................. 7,614 29,156 -- 36,770
Changes in operating assets and liabilities..... (4,849) (7,584) -- (12,433)
-------- -------- -------- --------
Net cash provided by (used in) operating
activities.................................... (12,285) (524) 22,096 9,287
INVESTING ACTIVITIES
Investments in and advances to subsidiaries..... 14,650 7,446 (22,096) --
Proceeds from disposition of business, net of
fees.......................................... 5,190 -- -- 5,190
Purchase of property, plant and equipment....... (4,371) (12,511) -- (16,882)
Other........................................... 99 5,133 -- 5,232
-------- -------- -------- --------
Net cash provided by (used in) investing
activities.................................... 15,568 68 (22,096) (6,460)
FINANCING ACTIVITIES
Proceeds from long-term debt.................... 5,000 -- -- 5,000
Payments on long-term debt and capital lease
obligations................................... (19,677) (2,376) -- (22,053)
Debt issuance costs............................. (906) -- -- (906)
-------- -------- -------- --------
Net cash used in financing activities........... (15,583) (2,376) -- (17,959)
-------- -------- -------- --------
Decrease in cash and cash equivalents........... (12,300) (2,832) -- (15,132)
Cash and cash equivalents at beginning of
year.......................................... 16,982 2,496 -- 19,478
-------- -------- -------- --------
Cash (overdraft) and cash equivalents at end of
year.......................................... $ 4,682 $ (336) $ -- $ 4,346
======== ======== ======== ========
</Table>
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30, 2003
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Net sales............................... $84,334 $86,959 $102,835 $100,935
Gross profit............................ 12,165 9,218 17,689 14,157
Net loss................................ (4,619) (8,105) (3,851) (8,986)
</Table>
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30, 2002
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Net sales............................... $ 84,105 $88,461 $110,949 $104,192
Gross profit............................ 10,414 10,898 21,837 20,818
Net income (loss)....................... (41,074) (9,167) (2,209) 4,747
</Table>
F-34
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$133,130,000
NEENAH FOUNDRY COMPANY
11% SENIOR SECURED NOTES DUE 2010
-------------------------
PROSPECTUS
-------------------------
EACH BROKER-DEALER THAT RECEIVES NEW SECURITIES FOR ITS OWN ACCOUNT
PURSUANT TO THE EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A
PROSPECTUS IN CONNECTION WITH ANY RESALE OF THESE NEW SECURITIES. BY SO
ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A BROKER-DEALER WILL NOT BE DEEMED
TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT.
THIS PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE
USED BY A BROKER-DEALER IN CONNECTION WITH RESALES OF NEW SECURITIES RECEIVED IN
EXCHANGE FOR SECURITIES WHERE THOSE SECURITIES WERE ACQUIRED BY THIS
BROKER-DEALER AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES. WE HAVE AGREED THAT, STARTING ON THE EXPIRATION DATE AND ENDING ON
THE CLOSE OF BUSINESS 180 DAYS AFTER THE EXPIRATION DATE, WE WILL MAKE THIS
PROSPECTUS AVAILABLE TO ANY BROKER-DEALER FOR USE IN CONNECTION WITH ANY SUCH
RESALE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Advanced Cast Products, Inc is a corporation organized under the laws
of the State of Delaware.
Article Seven of the Certificate of Incorporation of Advanced Cast
Products, Inc. provides that:
To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or may hereafter be amended, a Director of this
corporations shall not be liable to the corporation or its stockholder
for monetary damages for breach of fiduciary duty as a Director.
Article Thirteen of the By-Laws of Advanced Cast Products, Inc.
provides that:
The corporation shall indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was
a director, officer, employee or agent of the corporation or serves or
served any other enterprise at the request of the corporation, against
any and all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by him in
connection with such action, suit or proceeding, in any circumstances,
and to the full extent, permitted by Section 145 of the Delaware
Corporation Law, any amendment thereto, or any law of similar import.
(b) Mercer Forge Corporation is a corporation organized under the laws of
the State of Delaware.
Article Four of the By-Laws of Mercer Forge Corporation provides that:
Every person now or hereafter serving as a director or officer of
the corporation and every such director or officer serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the corporation in accordance with
and to the fullest extent permitted by law for the defense of, or in
connection with, any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative.
Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt
of an undertaking by or on behalf of such director of officer to repay
such amount unless it shall be ultimately determined that he is entitled
to be indemnified by the corporation as authorized in Article Four of
the By-Laws.
The right of indemnification provided shall not be deemed exclusive
of any other rights to which any such director or officer may now or
hereafter be entitled under any by-law, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs,
executors and administrators of such person.
The Certificate of Incorporation of Mercer Forge Corporations
contains no provision relating to indemnification.
(c) Neenah Foundry Company is a corporation organized under the laws of the
State of Wisconsin.
Article Six of the Amended and Restated Certificate of Incorporation
of Neenah Foundry provides that:
To the fullest extent permitted by the Business Corporation Law of
the State of Wisconsin as the same exists or may hereafter be amended, a
director of this Corporation shall not be liable
II-1
to the Corporation or its stockholders for monetary damages for a breach
of fiduciary duty as a director. Any repeal or modification of this
provision shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification.
Under Section 180.0851(1) of the Wisconsin Business Corporation Law
(the "WBCL"), a corporation shall indemnify a director or officer, to
the extent that he or she has been successful on the merits or otherwise
in the defense of a proceeding, for all reasonable expenses incurred in
the proceeding if the director or officer was a party because he or she
is a director or officer of the corporation, and that, to the extent a
director or officer has not been successful on the merits or otherwise
in the defense of a proceeding, the corporation shall indemnify the
director or officer unless liability was incurred because the director
or officer breached or failed to perform a duty that he or she owes to
the corporation and the breach or failure to perform constitutes any of
the following (1) a willful failure to deal fairly with the corporation
or its shareholders in connection with a matter in which the director or
officer has a material conflict of interest; (2) a violation of the
criminal law, unless the director or officer had reasonable cause to
believe that his or her conduct was unlawful; (3) a transaction from
which the director or officer derived an improper personal profit; or
(4) willful misconduct.
Section 180.0858(1) of the WBCL provides that, subject to certain
limitations, the mandatory indemnification provisions do not preclude
any additional right to indemnification or allowance of expenses that a
director or officer may have under a Wisconsin corporation's articles of
incorporation, bylaws, any written agreement or a resolution of the
board of directors or shareholders.
Section 180.0859 of the WBCL provides that it is the public policy
of the State of Wisconsin to require or permit indemnification,
allowance of expenses and insurance to the extent required or permitted
under Sections 180.0850 to 180.0858 of the WBCL, for any liability
incurred in connection with a proceeding involving a federal or state
statute, rule or regulation regulating the offer, sale or purchase of
securities.
Section 180.0828 of the WBCL provides that, with certain
exceptions, a director is not liable to a corporation, its shareholders,
or any person asserting rights on behalf of the corporation or its
shareholders, for damages, settlements, fees, fines, penalties or other
monetary liabilities arising from a breach of, or failure to perform,
any duty resulting solely from his or her status as a director, unless
the person asserting liability proves that the breach or failure to
perform constitutes any of the four exceptions to mandatory
indemnification under Section 180.0851(2) referred to above.
Under Section 180.0833 of the WBCL, directors of a Wisconsin
corporation against whom claims are asserted with respect to the
declaration of improper dividends or distributions to shareholders or
certain other improper acts which they approved are entitled to
contribution from other directors who approved such actions and from
shareholders who knowingly accepted an improper dividend or
distribution, as provided therein.
Article Eight of the By-Laws of Neenah Foundry Company provides that
for indemnification of the corporation's officers and directors in
accordance with the WBCL.
(d) Neenah Transport, Inc. is a corporation organized under the laws of the
State of Wisconsin.
Under Section 180.0851(1) of the Wisconsin Business Corporation Law
(the "WBCL"), a corporation shall indemnify a director or officer, to the
extent that he or she has been successful on the merits or otherwise in the
defense of a proceeding, for all reasonable expenses incurred in the
proceeding if the director or officer was a party because he or she is a
director or officer of the corporation, and that, to the extent a director
or officer has not been successful on the merits or otherwise in the
defense of a proceeding, the corporation shall indemnify the director or
officer unless liability was incurred because the director or officer
breached or failed to perform a duty that he or she owes to the corporation
and the breach or failure to perform constitutes any of the following (1) a
II-2
willful failure to deal fairly with the corporation or its shareholders in
connection with a matter in which the director or officer has a material
conflict of interest; (2) a violation of the criminal law, unless the
director or officer had reasonable cause to believe that his or her conduct
was unlawful; (3) a transaction from which the director or officer derived
an improper personal profit; or (4) willful misconduct.
Section 180.0858(1) of the WBCL provides that, subject to certain
limitations, the mandatory indemnification provisions do not preclude any
additional right to indemnification or allowance of expenses that a
director or officer may have under a Wisconsin corporation's articles of
incorporation, bylaws, any written agreement or a resolution of the board
of directors or shareholders.
Section 180.0859 of the WBCL provides that it is the public policy of
the State of Wisconsin to require or permit indemnification, allowance of
expenses and insurance to the extent required or permitted under Sections
180.0850 to 180.0858 of the WBCL, for any liability incurred in connection
with a proceeding involving a federal or state statute, rule or regulation
regulating the offer, sale or purchase of securities.
Section 180.0828 of the WBCL provides that, with certain exceptions, a
director is not liable to a corporation, its shareholders, or any person
asserting rights on behalf of the corporation or its shareholders, for
damages, settlements, fees, fines, penalties or other monetary liabilities
arising from a breach of, or failure to perform, any duty resulting solely
from his or her status as a director, unless the person asserting liability
proves that the breach or failure to perform constitutes any of the four
exceptions to mandatory indemnification under Section 180.0851(2) referred
to above.
Under Section 180.0833 of the WBCL, directors of a Wisconsin
corporation against whom claims are asserted with respect to the
declaration of improper dividends or distributions to shareholders or
certain other improper acts which they approved are entitled to
contribution from other directors who approved such actions and from
shareholders who knowingly accepted an improper dividend or distribution,
as provided therein.
Neither the Amended nor the Restated Certificate of Incorporation or
the By-Laws of Neenah Transport, Inc. contain provisions relating to
indemnification.
(e) Cast Alloys, Inc. is a corporation organized under the laws of the
State of California.
Articles Five of the Restated Articles of Incorporation of Cast
Alloys, Inc. provides that:
To the fullest extent permitted by the General Corporation Law of
the State of California as the same exists or may hereafter be amended,
a director of this corporation shall not be liable to the corporation or
its stockholders for monetary damages for a breach of fiduciary duty as
a director. Any repeal or modification of this provision shall not
adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
Section 317 of the California General Corporation Law empowers
California corporations to indemnify any person who was or is a
director, officer, employee or other agent of the corporation, or who is
or was serving at the request of the corporation as a director, officer,
employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or who was a
director, officer, employee or agent of a foreign or domestic
corporation that was a predecessor corporation of the corporation or of
another enterprise at the request of the predecessor corporation, (other
than an action by or in right of the corporation), against expenses
(including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred by such person in connection
with any threatened, pending or completed action or proceeding, whether
civil, criminal, administrative or investigative. To be indemnified,
such person must have acted (i) in good faith and (ii) in a manner that
he or she reasonably believed to be in the best interests of the
corporation; and, in the case of a criminal proceeding, such person must
have acted without reasonable cause to believe that his or her conduct
was unlawful. In respect of any action by or in right of the
corporation, a corporation
II-3
may indemnify any person who was or is an agent of the corporation
against expenses actually and reasonably incurred by such person in
connection with the defense or settlement of the action if he or she
acted (i) in good faith and (ii) in a manner he or she believed to be in
the best interests of the corporation and its shareholders.
The By-Laws of Cast Alloys, Inc. contain no provision relating to
indemnification.
(f) Gregg Industries, Inc. is a corporation organized under the laws of the
State of California.
Section 317 of the California General Corporation Law empowers
California corporations to indemnify any person who was or is a director,
officer, employee or other agent of the corporation, or who is or was
serving at the request of the corporation as a director, officer, employee
or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, or who was a director, officer,
employee or agent of a foreign or domestic corporation that was a
predecessor corporation of the corporation or of another enterprise at the
request of the predecessor corporation, (other than an action by or in
right of the corporation), against expenses (including attorneys' fees),
judgments, fines, settlements and other amounts actually and reasonably
incurred by such person in connection with any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative or
investigative. To be indemnified, such person must have acted (i) in good
faith and (ii) in a manner that he or she reasonably believed to be in the
best interests of the corporation; and, in the case of a criminal
proceeding, such person must have acted without reasonable cause to believe
that his or her conduct was unlawful. In respect of any action by or in
right of the corporation, a corporation may indemnify any person who was or
is an agent of the corporation against expenses actually and reasonably
incurred by such person in connection with the defense or settlement of the
action if he or she acted (i) in good faith and (ii) in a manner he or she
believed to be in the best interests of the corporation and its
shareholders.
The Amended and Restated Articles of Incorporation of Gregg
Industries, Inc. contain no provision relating to indemnification.
Section Six of the By-Laws of Gregg Industries, Inc. provides for
indemnification (including expenses) consistent with Section 317 of the
California General Corporation Law.
(g) A & M Specialties, Inc. is a corporation organized under the laws of
the State of Pennsylvania.
Article Three of the Articles of Incorporation of A & M Specialties,
Inc. provides that the corporation is incorporated under the Business
Corporation Law of the State of Pennsylvania.
Under the Pennsylvania Business Corporation Law of 1988, as amended
(the "PBCL"), Pennsylvania corporations have the power to indemnify any
person acting as a representative of the corporation against liabilities
incurred in such capacity provided certain standards are met, including
good faith and the belief that the particular action or failure to take
action is in the best interests of the corporation. In general, this power
to indemnify does not exist in the case of actions against any person by or
in the right of the corporation if the person otherwise entitled to
indemnification shall have been adjudged to be liable to the corporation
unless a court determines that despite the adjudication of liability but in
view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for expenses that the court deems proper.
A corporation is required to indemnify representatives of the corporation
against expenses they may incur in defending actions against them in such
capacities if they are successful on the merits or otherwise in the defense
of such actions. In all other cases, if a representative of the corporation
acted, or failed to act, in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation,
indemnification is discretionary, except as may be otherwise provided by a
corporation's bylaws, agreement, vote of shareholders or disinterested
directors or otherwise. Indemnification so otherwise provided may not,
however, be made if the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful
misconduct or recklessness. Expenses (including attorneys' fees) incurred
in defending any such action may be paid by the corporation in advance of
the final disposition of the action upon receipt of an undertaking
II-4
by or on behalf of the representative to repay the amount if it is
ultimately determined that he or she is not entitled to be indemnified by
the corporation.
In addition, a director of a Pennsylvania Corporation does not have
personal liability for monetary damages to the Corporation and its
stockholders for breaches of fiduciary duty as a director, except in
circumstances involving a breach of a director's duty of loyalty to the
Corporation or its stockholders, acts or omissions not in good faith or
which involve intentional misconduct or knowing violations of the law, the
unlawful payment of dividends or repurchase of stock or self-dealing.
Article IV of the By-Laws of A & M Specialties, Inc. provides that:
A director shall not be personally liable, as such, for monetary
damages for any action taken, or any failure to take any action, unless:
(a) the director has breached or failed to perform the duties of his or
her office under this section; and (b) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. The
preceding provisions shall not apply to the responsibility or liability
of a director pursuant to any criminal statute or the liability of a
director for the payment of taxes pursuant to local, State or Federal
law.
(h) Peerless Corporation is a corporation organized under the laws of the
State of Ohio.
Article Three of the Articles of Incorporation of Peerless
Corporation, provides that the corporation is incorporated under the
General Corporation Laws of the State of Ohio.
Under Ohio law, Ohio corporations are authorized to indemnify
directors, officers, employees and agents within prescribed limits and must
indemnify them under certain circumstances. Ohio law does not provide
statutory authorization for a corporation to indemnify directors, officers,
employees and agents for settlements, fines or judgments in the context of
derivative suits. However, it provides that directors (but not officers,
employees or agents) are entitled to mandatory advancement of expenses,
including attorneys' fees, incurred in defending any action, including
derivative actions, brought against the director, provided that the
director agrees to cooperate with the corporation concerning the matter and
to repay the amount advanced if it is proved by clear and convincing
evidence that the director's act or failure to act was done with deliberate
intent to cause injury to the corporation or with reckless disregard for
the corporation's best interests.
Ohio law does not authorize payment of judgments to a director,
officer, employee or agent after a finding of negligence or misconduct in a
derivative suit absent a court order. Indemnification is permitted,
however, to the extent such person succeeds on the merits. In all other
cases, if a director, officer, employee or agent acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, indemnification is discretionary except as
otherwise provided by a corporation's articles, code of regulations or by
contract except with respect to the advancement of expenses of directors.
Under Ohio law, a director is not liable for monetary damages unless
it is proved by clear and convincing evidence that his action or failure to
act was undertaken with deliberate intent to cause injury to the
corporation or with reckless disregard for the best interests of the
corporation. There is, however, no comparable provision limiting the
liability of officers, employees or agents of a corporation. The statutory
right to indemnification is not exclusive in Ohio and Ohio corporations
may, among other things, procure insurance for such persons.
Article IV of the Code of Regulations of Peerless Corporation provides
that:
The Corporation shall indemnify any Director or officer to the
fullest extent provided by, or permissible under, Section 17.01.13(E),
Ohio Revised Code; and the Corporation is hereby specifically authorized
to take any and all further action to effectuate any indemnification of
any Director or officer which any Ohio corporation may have power to
take, by any vote of the Shareholders, vote of disinterested Directors,
by any Agreement, or otherwise. This Section of the Code of Regulations
of the Corporation shall be interpreted in all respects to expand such
power to indemnify to the maximum extent permissible to any Ohio
Corporation with regard to the
II-5
particular facts of each case, and not in any way to limit any statutory
or other power to indemnify, or right of any individual indemnification.
The Corporation may purchase and maintain insurance for protection
of the Corporation and for protection of any Director, officer, employee
and/or any other person for whose protection, and to the fullest extent,
such insurance may be purchased and maintained under Section
1701.13(E)(7), Ohio Revised Code or otherwise. Such policy or policies
of insurance may provide such coverage and be upon such terms and
conditions as shall be authorized or approved from time to time by the
Board of Directors or the Shareholders of the Corporation.
(i) Dalton Corporation, Ashland Manufacturing Facility and Dalton
Corporation, Stryker Manufacturing Facility are corporations organized under the
laws of the State of Ohio.
Article Three of the Articles of Incorporation of Dalton Corporation,
Ashland Manufacturing Facility and Dalton Corporation, Stryker
Manufacturing Facility provides that the corporation is incorporated under
the General Corporation Laws of the State of Ohio.
Under Ohio law, Ohio corporations are authorized to indemnify
directors, officers, employees and agents within prescribed limits and must
indemnify them under certain circumstances. Ohio law does not provide
statutory authorization for a corporation to indemnify directors, officers,
employees and agents for settlements, fines or judgments in the context of
derivative suits. However, it provides that directors (but not officers,
employees or agents) are entitled to mandatory advancement of expenses,
including attorneys' fees, incurred in defending any action, including
derivative actions, brought against the director, provided that the
director agrees to cooperate with the corporation concerning the matter and
to repay the amount advanced if it is proved by clear and convincing
evidence that the director's act or failure to act was done with deliberate
intent to cause injury to the corporation or with reckless disregard for
the corporation's best interests.
Ohio law does not authorize payment of judgments to a director,
officer, employee or agent after a finding of negligence or misconduct in a
derivative suit absent a court order. Indemnification is permitted,
however, to the extent such person succeeds on the merits. In all other
cases, if a director, officer, employee or agent acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, indemnification is discretionary except as
otherwise provided by a corporation's articles, code of regulations or by
contract except with respect to the advancement of expenses of directors.
Under Ohio law, a director is not liable for monetary damages unless
it is proved by clear and convincing evidence that his action or failure to
act was undertaken with deliberate intent to cause injury to the
corporation or with reckless disregard for the best interests of the
corporation. There is, however, no comparable provision limiting the
liability of officers, employees or agents of a corporation. The statutory
right to indemnification is not exclusive in Ohio and Ohio corporations
may, among other things, procure insurance for such persons.
Article Seven of the Articles of Incorporation of Dalton Corporation,
Ashland Manufacturing Facility and Dalton Corporation, Stryker
Manufacturing Facility provides that:
The Corporation shall indemnify the officers, directors, employees
and agents of the Corporation (including expenses) asserted or incurred
in the defense of any proceeding to which the individual was made a
party or a witness because of his status with the Corporation and in
which the individual was (a) wholly successful on the merits or
otherwise or (b) in which the Corporation and in (acting in accordance
with this provision) determines that the individual's conduct and
beliefs met the standard of conduct prescribed by the Code, although the
individual is entitled to indemnification. However, in a proceeding
brought by or in the right of the Corporation, if an individual was
adjudged liable to the Corporation, indemnification shall be made only
upon order of a court acting upon the individual's application for
court-ordered indemnification.
II-6
(j) Deeter Foundry, Inc. is a corporation organized under the laws of the
State of Nebraska.
Sections 21-20, 103 through 21-20, 111 of the Nebraska Business
Corporation Act ("NBCA") provide, in part, that the directors and officers
of a corporation may, under certain circumstances, be indemnified by the
corporation against all liability expenses incurred by or imposed upon them
as a result of actions, suits or proceedings brought against them as such
directors and officers, or as directors or officers of any other
organization at the request of the corporation, if they act in good faith
and in a manner they reasonably believe to be in, or not opposed to, the
best interests of the corporation, and with respect to any criminal action
or proceeding, have no reasonable cause to believe their conduct was
unlawful, except that no indemnification shall be made against expenses in
respect of any claim, issue or matter as to which they shall have been
adjudged to be liable to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, they are fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
With certain limitations, Sections 721 through 726 of the NCBL permit
a corporation to indemnify a director or officer made a party to an action
(a) by a corporation or in its right in order to procure a judgment in its
favor unless he or she shall have breached his or her duties, or (b) other
than an action by or in the right of the corporation in order to procure a
judgment in its favor, if such director or officer acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to such
corporation's interest, and, in criminal actions, had no reasonable cause
to believe his or her conduct was unlawful.
Article VII of the By-Laws of Deeter Foundry, Inc. provides that for
compliance with the terms of the NBCA described above.
(k) Dalton Corporation, Dalton Corporation, Warsaw Manufacturing Facility
and Dalton Corporation, Kendallville Manufacturing Facility are corporations
organized under the laws of the State of Indiana.
Subdivision E of the Articles of Acceptance of Dalton Corporation,
Dalton Corporation, Warsaw Manufacturing Facility and Dalton Corporation,
Kendallville Manufacturing Facility provides that:
The corporation accepts all of the terms and provisions of The
Indiana General Corporation Act.
The Indiana Business Corporation Law ("IBCL") empowers an Indiana
corporation to indemnify present and former directors, officers,
employers or agents or any person who may have served at the request of
the corporation as a director, officer, employee, or agent of another
corporation ("Eligible Persons") against liability incurred in any
proceeding, civil or criminal, in which the Eligible Person is made a
party by reason of being or having been in any such capacity, or arising
out of his status as such, if the individual acted in good faith and
reasonably believed that (a) the individual was acting in the best
interests of the corporation, or (b) if the challenged action was taken
other than in the individual's official capacity as an officer,
director, employee or agent, the individual's conduct was at least not
opposed to the corporation's best interests, or (c) if in a criminal
proceeding, either the individual had reasonable cause to believe his
conduct was lawful or no reasonable cause to believe his conduct was
unlawful.
The IBCL further empowers a corporation to payor reimburse the
reasonable expenses incurred by an Eligible Person in connection with
the defense of any such claim, including counsel fees; and, unless
limited by its articles of incorporation, the corporation is required to
indemnify an Eligible Person against reasonable expenses if he is wholly
successful in any such proceeding, on the merits or otherwise. Directors
and officers qualify as Eligible Persons under the IBCL. Under certain
circumstances, a corporation may pay or reimburse an Eligible Person for
reasonable expenses prior to final disposition of the matter. Unless a
corporation's articles of incorporation otherwise provide, an Eligible
Person may apply for indemnification to a court which may order
indemnification upon a determination that the Eligible Person is
entitled to
II-7
mandatory indemnification for reasonable expenses or that the Eligible
Person is fairly and reasonably entitled to indemnification in view of
all the relevant circumstances without regard to whether his actions
satisfied the appropriate standard of conduct.
Before a corporation may indemnify any Eligible Person against
liability or reasonable expenses under the IBCL, a quorum consisting of
directors who are not parties to the proceeding must: (a) determine that
indemnification is permissible in the specific circumstances because the
Eligible Person met the requisite standard of conduct; (b) authorize the
corporation to indemnify the Eligible Person; and (c) if appropriate,
evaluate the reasonableness of expenses for which indemnification is
sought. If it is not possible to obtain a quorum of uninvolved
directors, the foregoing action may be taken by a committee of two or
more directors who are not parties to the proceeding, special legal
counsel selected by the Board or such a committee, or by the
stockholders of the corporation.
In addition to the foregoing, the IBCL states that the
indemnification it provides shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any provisions
of the articles of incorporation or bylaws, resolution of the board of
directors or stockholders, or any other authorization adopted after
notice by a majority vote of all the voting shares then issued and
outstanding. The IBCL also empowers an Indiana corporation to purchase
and maintain insurance on behalf of any Eligible Person against any
liability asserted against or incurred by him in any capacity as such,
or arising out of his status as such, whether or not the corporation
would have had the power to indemnify him against such liability.
Article VII of the Code of By-Laws of Dalton Corporation provides
that:
The Corporation shall, to the fullest extent permitted by law,
indemnify and hold harmless each person who shall serve at any time as a
director, officer or employee of the Corporation against any judgments,
fines, amounts paid in settlement and reasonable expenses, including
attorney's fees, actually and necessarily incurred as a result of any
threatened, pending or completed claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative, arising out of
the fact that such person is or was a director, officer or employee of
the Corporation, or is or was serving at the request of the Corporation
as a director, officer or employee of another corporation, partnership,
joint venture, trust or other enterprise, including pending or completed
claims, actions, suits or proceedings arising out of any actual or
alleged act or failure to act on the part of such person in connection
with the administration (including establishment, operation and
termination) of any pension plan, profit-sharing plan or other employee
benefit plan or plans maintained by the Corporation, provided that such
person acted in good faith and for a purpose which he reasonably
believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination
of any such civil or criminal action or proceeding by judgment,
settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such
person did not act in good faith or for a purpose which he reasonably
believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
The Code of By-Laws of Dalton Corporation, Warsaw Manufacturing
Facility and Dalton Corporation, Kendallville Manufacturing Facility
contain no provision relating to indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits.
See Exhibit Index.
(b) Financial Statement Schedule.
II-8
SCHEDULE II
NEENAH FOUNDRY COMPANY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 2001, 2002, AND 2003
<Table>
<Caption>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Allowance for doubtful accounts receivable:
2001........................................... $1,001 $ 761 $ 325(A) $1,437
====== ====== ====== ======
2002........................................... $1,437 $ 533 $ 908(A) $1,062
====== ====== ====== ======
2003........................................... $1,062 $1,760 $ 447(A) $2,375
====== ====== ====== ======
Reserve for obsolete inventory:
2001........................................... $3,023 $ 248 $2,749(B) $ 522
====== ====== ====== ======
2002........................................... 522 $ 240 $ 9(B) $ 753
====== ====== ====== ======
2003........................................... $ 753 $ 468 $ 27(B) $1,194
====== ====== ====== ======
</Table>
- ---------------
(A) Uncollectible accounts written off, net of recoveries.
(B) Reduction for disposition of inventory.
II-9
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Neenah Foundry
Company as of September 30, 2003 and 2002, and for each of the three years in
the period ended September 30, 2003, and have issued our report thereon dated
November 10, 2003 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
November 10, 2003
II-10
All other schedules have been omitted because they are not applicable
or because the required information is shown in the financial statements or
notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
To include any prospectus required by Section 10 (a)(3) of the
Securities Act of 1933;
To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information in the registration
statement;
To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(b) That, for the purpose of determining by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(i) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the registrant pursuant to
the provisions described under Item 20 or otherwise, the registrants have
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(d) The undersigned registrants hereby undertake:
(i) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(ii) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
NEENAH FOUNDRY COMPANY
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
- -------------------------------------- President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
- -------------------------------------- Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
- -------------------------------------- Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
- -------------------------------------- Director
Andrew Booke Cohen
* Michael J. Farrell
- -------------------------------------- Director
Michael J. Farrell
* Jeffrey G. Marshall
- -------------------------------------- Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
ADVANCED CAST PRODUCTS, INC.
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
- -------------------------------------- President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
- -------------------------------------- Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
- -------------------------------------- Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
- -------------------------------------- Director
Andrew Booke Cohen
* Michael J. Farrell
- -------------------------------------- Director
Michael J. Farrell
* Jeffrey G. Marshall
- -------------------------------------- Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
DALTON CORPORATION
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
- -------------------------------------- President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
- -------------------------------------- Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
- -------------------------------------- Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
- -------------------------------------- Director
Andrew Booke Cohen
* Michael J. Farrell
- -------------------------------------- Director
Michael J. Farrell
* Jeffrey G. Marshall
- -------------------------------------- Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
DALTON CORPORATION, WARSAW
MANUFACTURING FACILITY
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
- -------------------------------------- President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
- -------------------------------------- Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
- -------------------------------------- Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
- -------------------------------------- Director
Andrew Booke Cohen
* Michael J. Farrell
- -------------------------------------- Director
Michael J. Farrell
* Jeffrey G. Marshall
- -------------------------------------- Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
DALTON CORPORATION, STRYKER
MACHINING FACILITY CO.
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
- -------------------------------------- President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
- -------------------------------------- Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
- -------------------------------------- Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
- -------------------------------------- Director
Andrew Booke Cohen
* Michael J. Farrell
- -------------------------------------- Director
Michael J. Farrell
* Jeffrey G. Marshall
- -------------------------------------- Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
DALTON CORPORATION, ASHLAND
MANUFACTURING FACILITY
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
- -------------------------------------- President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
- -------------------------------------- Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
- -------------------------------------- Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
- -------------------------------------- Director
Andrew Booke Cohen
* Michael J. Farrell
- -------------------------------------- Director
Michael J. Farrell
* Jeffrey G. Marshall
- -------------------------------------- Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
DALTON CORPORATION, KENDALLVILLE
MANUFACTURING FACILITY
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
- -------------------------------------- President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
- -------------------------------------- Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
- -------------------------------------- Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
- -------------------------------------- Director
Andrew Booke Cohen
* Michael J. Farrell
- -------------------------------------- Director
Michael J. Farrell
* Jeffrey G. Marshall
- -------------------------------------- Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
DEETER FOUNDRY, INC.
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
- -------------------------------------- President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
- -------------------------------------- Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
- -------------------------------------- Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
- -------------------------------------- Director
Andrew Booke Cohen
* Michael J. Farrell
- -------------------------------------- Director
Michael J. Farrell
* Jeffrey G. Marshall
- -------------------------------------- Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
GREGG INDUSTRIES, INC.
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
- -------------------------------------- President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
- -------------------------------------- Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
- -------------------------------------- Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
- -------------------------------------- Director
Andrew Booke Cohen
* Michael J. Farrell
- -------------------------------------- Director
Michael J. Farrell
* Jeffrey G. Marshall
- -------------------------------------- Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
MERCER FORGE CORPORATION
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M Barrett
- -------------------------------------- President, Chief Executive Officer and Director
William M Barrett (Principal Executive Officer)
* Gary W. LaChey
- -------------------------------------- Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq
- -------------------------------------- Director
Benjamin C. Duster, IV, Esq
* Andrew Booke Cohen
- -------------------------------------- Director
Andrew Booke Cohen
* Michael J. Farrell
- -------------------------------------- Director
Michael J. Farrell
* Jeffrey G. Marshall
- -------------------------------------- Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this
Registration Statement on behalf of the directors and officers of the
registrant above whose typed names asterisks appear, pursuant to powers of
attorney duly executed by such directors and officers and filed with the
Securities and Exchange Commission.
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
A & M SPECIALTIES, INC.
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
------------------------------------------------ President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
------------------------------------------------ Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
------------------------------------------------ Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
------------------------------------------------ Director
Andrew Booke Cohen
* Michael J. Farrell
------------------------------------------------ Director
Michael J. Farrell
* Jeffrey G. Marshall
------------------------------------------------ Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
NEENAH TRANSPORT, INC.
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
------------------------------------------------ President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
------------------------------------------------ Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
------------------------------------------------ Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
------------------------------------------------ Director
Andrew Booke Cohen
* Michael J. Farrell
------------------------------------------------ Director
Michael J. Farrell
* Jeffrey G. Marshall
------------------------------------------------ Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
CAST ALLOYS, INC.
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
------------------------------------------------ President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
------------------------------------------------ Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
------------------------------------------------ Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
------------------------------------------------ Director
Andrew Booke Cohen
* Michael J. Farrell
------------------------------------------------ Director
Michael J. Farrell
* Jeffrey G. Marshall
------------------------------------------------ Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
BELCHER CORPORATION
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary,
Chief Financial
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
------------------------------------------------ President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
------------------------------------------------ Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
------------------------------------------------ Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
------------------------------------------------ Director
Andrew Booke Cohen
* Michael J. Farrell
------------------------------------------------ Director
Michael J. Farrell
* Jeffrey G. Marshall
------------------------------------------------ Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in New York City, in the
State of New York on December 8, 2003.
PEERLESS CORPORATION
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice
President -- Finance,
Treasurer, Secretary, Chief
Financial
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on December 8, 2003.
<Table>
<Caption>
SIGNATURE CAPACITY
--------- --------
* William M. Barrett
------------------------------------------------ President, Chief Executive Officer and Director
William M. Barrett (Principal Executive Officer)
* Gary W. LaChey
------------------------------------------------ Corporate Vice President -- Finance, Treasurer,
Gary W. LaChey Secretary, Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
* Benjamin C. Duster, IV, Esq.
------------------------------------------------ Director
Benjamin C. Duster, IV, Esq.
* Andrew Booke Cohen
------------------------------------------------ Director
Andrew Booke Cohen
* Michael J. Farrell
------------------------------------------------ Director
Michael J. Farrell
* Jeffrey G. Marshall
------------------------------------------------ Director
Jeffrey G. Marshall
</Table>
- ---------------
* Gary W. LaChey, by signing his name hereto, does hereby sign this Registration
Statement on behalf of the directors and officers of the registrant above
whose typed names asterisks appear, pursuant to powers of attorney duly
executed by such directors and officers and filed with the Securities and
Exchange Commission.
II-26
EXHIBIT INDEX
<Table>
2.1 Disclosure Statement for Pre-Petition Solicitation of Votes
with respect to the Prepackaged Joint Plan of Reorganization
of ACP Holding Company, NFC Castings, Inc. and Neenah
Foundry Company (incorporated by reference to Exhibit T3E-1
to application for qualification of indenture on Form T-3
(File No. 022-28687)).
2.2 Prepackaged Joint Plan of Reorganization of ACP Holding
Company, NFC Castings, Inc., Neenah Foundry Company and
Certain of its Subsidiaries under Chapter 11 of the United
States Bankruptcy Code(incorporated by reference to Exhibit
T3E-2 to application for qualification of indenture on Form
T-3 (File No. 022-28687)).
3.1 Amended and Restated Certificate of Incorporation of Neenah
Foundry Company.+
3.2 Third Amended and Restated Certificate of Incorporation of
ACP Holding Company.+
3.3 Amended and Restated Certificate of Incorporation of NFC
Castings, Inc.+
3.4 Amended and Restated Certificate of Incorporation of
Advanced Cast Products, Inc.+
3.5 Amended and Restated Articles of Incorporation of Dalton
Corporation.+
3.6 Articles of Incorporation of Dalton Corporation, Warsaw
Manufacturing Facility.+
3.7 Articles of Incorporation of Dalton Corporation, Stryker
Manufacturing Facility.+
3.8 Articles of Incorporation of Dalton Corporation, Ashland
Manufacturing Facility.+
3.9 Amended and Restated Incorporation of Incorporation of
Dalton Corporation, Kendallville Manufacturing Facility.+
3.10 Amended and Restated Certificate of Incorporation of Deeter
Foundry, Inc.+
3.11 Amended Articles of Incorporation of Gregg Industries, Inc.+
3.12 Articles of Incorporation of A&M Specialties, Inc.+
3.13 Restated Articles of Incorporation of Neenah Transport,
Inc.+
3.14 Restated Articles of Incorporation of Cast Alloys, Inc.+
3.15 Certificate of Incorporation of Belcher Corporation.+
3.16 Articles of Incorporation of Peerless Corporation.+
3.17 Amended Bylaws of Neenah Foundry Company.+
3.18 Amended Bylaws of ACP Holding Company+
3.19 Amended Bylaws of NFC Castings, Inc.+
3.20 Bylaws of Advanced Cast Products, Inc.+
3.21 Amended Code of Regulations of Dalton Corporation.+
3.22 Amended Code of Regulations of Dalton Corporation, Warsaw
Manufacturing Facility.+
3.23 Code Regulations of Dalton Corporation, Stryker
Manufacturing Facility.+
3.24 Amended and Restated Code of Regulations Dalton Corporation,
Ashland Manufacturing Facility.+
3.25 Amended and Restated Code of Regulations of Dalton
Corporation, Kendallville Manufacturing Facility.+
3.26 Bylaws of Deeter Foundry, Inc.+
3.27 Bylaws of Gregg Industries, Inc.+
3.28 Amended and Restated Bylaws of A&M Specialties, Inc.+
3.29 Amended and Restated Bylaws of Neenah Transport, Inc.+
3.30 Bylaws of Cast Alloys, Inc.+
3.31 Amended and Restated Bylaws of Belcher Corporation.+
3.32 Code of Regulations of Peerless Corporation.+
4.1 Indenture by and among Neenah Foundry Company, the
guarantors named therein and The Bank of New York, as
Trustee, dated October 8, 2003, for the 11% Senior Secured
Notes due 2010.*
4.2 Form of Note (included in Exhibit 4.1).*
</Table>
<Table>
4.3 Lien Subordination Agreement, dated October 8, 2003, by and among Fleet Capital Corporation, Neenah
Foundry Company, the subsidiaries named therein, NFC Castings, Inc. and The Bank of New York as Trustee on
behalf of the Noteholders under the Indenture governing the 11% Senior Secured Notes due 2010.*
4.4 Registration Rights Agreement, dated October 8, 2003, by and among Neenah Foundry Company, the guarantors
named therein and The Bank of New York as Trustee for the 11% Senior Secured Notes due 2010.*
4.5 Subordinated Security Agreement, dated October 8, 2003, by Neenah Foundry Company and the guarantors named
therein in favor of The Bank of New York as Trustee for the Noteholders under the Indenture governing the
11% Senior Secured Notes due 2010.*
4.6 Subordinated Pledge Agreement, dated October 8, 2003, by Dalton Corporation in favor of The Bank of New
York as Trustee for the Noteholders under the Indenture governing the 11% Senior Secured Notes due 2010.*
4.7 Subordinated Pledge Agreement, dated October 8, 2003, by Mercer Forge Corporation in favor of The Bank of
New York as Trustee for the Noteholders under the Indenture governing the 11% Senior Secured Notes due
2010.*
4.8 Subordinated Copyright, Patent, Trademark and License Mortgage, dated October 8, 2003, by Neenah Foundry
Company in favor of The Bank of New York as Trustee for the Noteholders under the Indenture governing the
11% Senior Secured Notes due 2010.*
4.9 Subordinated Copyright, Patent, Trademark and License Mortgage, dated October 8, 2003, by Advanced Cast
Products, Inc. in favor of The Bank of New York as Trustee for the Noteholders under the Indenture
governing the 11% Senior Secured Notes due 2010.*
4.10 Subordinated Copyright, Patent, Trademark and License Mortgage, dated October 8, 2003, by Peerless
Corporation in favor of The Bank of New York as Trustee for the Noteholders under the Indenture governing
the 11% Senior Secured Notes due 2010.*
4.11 Subordinated Pledge Agreement, dated October 8, 2003, by Neenah Foundry Company in favor of The Bank of
New York as Trustee for the Noteholders under the Indenture governing the 11% Senior Secured Notes due
2010.*
4.12 Subordinated Pledge Agreement, dated October 8, 2003, by Advanced Cast Products, Inc. in favor of The Bank
of New York as Trustee for the Noteholders under the Indenture governing the 11% Senior Secured Notes due
2010.*
5.1 Opinion of Foley & Lardner.*
5.2 Opinion of Kirkland & Ellis LLP.*
10.1 Credit Agreement by and among Neenah Foundry Company, the subsidiaries named therein, the various lenders
party thereto and Fleet Capital Corporation, as agent, dated October 8, 2003.+
10.2 Subscription Agreement, dated as of October 7, 2003, by and among ACP Holding Company, Neenah Foundry
Company, the subsidiary guarantors named therein and the Standby Purchasers as defined therein.*
10.3 Warrant Agreement, dated October 8, 2003, by and between ACP Holding Company and The Bank of New York as
warrant agent.*
10.4 Warrant Registration Rights Agreement, dated October 8, 2003, by and between ACP Holding Company and the
initial holders of the warrants.+
10.5 Stockholders' Agreement, dated October 8, 2003, by and among ACP Holding Company, the Standby Purchasers,
the Executives and the Directors (as such terms are defined therein).*
10.6 Indenture by and among Neenah Foundry Company, the guarantors named therein, and The Bank of New York, as
Trustee, dated October 8, 2003, for the 13% Senior Subordinated Notes due 2013.*
10.7 Form of Note (included in Exhibit 10.7)*
10.8 Registration Rights Agreement, dated October 8, 2003, by and among ACP Holding Company and the parties
named therein re warrants and common stock of ACP Holding Company.
10.9 Form of Employment Agreement by and among Neenah Foundry Company, ACP Holding Company and John Andrews.+
</Table>
<Table>
10.9 Form of Employment Agreement by and among Neenah Foundry Company, ACP Holding Company and William M.
Barrett.+
10.11 Form of Employment Agreement by and among Neenah Foundry Company, ACP Holding Company and Joseph L.
DeRita.+
10.12 Form of Employment Agreement by and among Neenah Foundry Company, ACP Holding Company and Frank C.
Headington.+
10.13 Form of Employment Agreement by and among Neenah Foundry Company, ACP Holding Company and Timothy Koller.+
10.14 Form of Employment Agreement by and among Neenah Foundry Company, ACP Holding Company and Gary W. LaChey.+
10.15 Form of Employment Agreement by and among Neenah Foundry Company, ACP Holding Company and William Martin.+
10.16 Form of Employment Agreement by and among Neenah Foundry Company, ACP Holding Company and Steve Shaffer.+
10.17 Form of Employment Agreement by and among Neenah Foundry Company, ACP Holding Company and Joseph Varkoly.+
10.18 Neenah Foundry Company 2003 Management Annual Incentive Plan.*
10.19 Neenah Foundry Company 2003 Severance and Change of Control Plan.*
12.1 Statement re computation of ratio of earnings to fixed charges.+
21.1 Subsidiaries of the registrant.*
23.1 Consent of Ernst & Young LLP.*
23.2 Consent of Foley & Lardner (included in Exhibit 5.1 ).*
23.3 Consent of Kirkland & Ellis LLP (included in Exhibit 5.2 ).*
24.1 Power of Attorney executed by William M. Barrett.*
24.2 Power of Attorney executed by Gary W. LaChey.*
24.3 Power of Attorney executed by Andrew Booke Cohen.*
24.4 Power of Attorney executed by Benjamin C. Duster, IV, Esq.*
24.5 Power of Attorney executed by Michael J. Farrell.*
24.6 Power of Attorney executed by Jeffrey G. Marshall.*
25.1 Statement re Eligibility of Trustee.*
99.1 Letter of Election and Instructions to Broker or Bank.*
</Table>
- ---------------
* Filed herewith.
+ To be filed by amendment.