Exhibit 99.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
IN RE: ) CHAPTER 11
)
INTERMET CORPORATION, ET AL., ) CASE NO. 04-67597
) (JOINTLY ADMINISTERED)
DEBTORS. )
) HONORABLE MARCI B. MCIVOR
AMENDED DISCLOSURE STATEMENT OF INTERMET CORPORATION
AND CERTAIN OF ITS DOMESTIC SUBSIDIARIES DATED AUGUST 12, 2005
THE VOTING DEADLINE TO ACCEPT OR REJECT THE PLAN IS 4:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER 20, 2005 (THE "VOTING DEADLINE"), UNLESS EXTENDED BY INTERMET
CORPORATION ("INTERMET") OR THE APPLICABLE DEBTOR. IN ORDER TO BE COUNTED,
BALLOTS MUST BE RECEIVED BY SUCH TIME. NOTEHOLDERS MUST RETURN THEIR BALLOTS
EARLIER THAN THE VOTING DEADLINE TO A "NOMINEE"--SEE SECTION II.D. OF THIS
DISCLOSURE STATEMENT FOR FURTHER DETAILS.
FOLEY & LARDNER LLP
Judy A. O'Neill (P32142)
Daljit S. Doogal (P57181)
Frank W. DiCastri
500 Woodward Avenue
Detroit, Michigan 48226
(313) 234-7100
Counsel to the Debtors and
Debtors in Possession
DISCLAIMER
NO PERSON (AS DEFINED IN THE PLAN) IS AUTHORIZED IN CONNECTION WITH THE PLAN, OR
THE SOLICITATION OF BALLOTS WITH RESPECT TO THE PLAN, TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS DISCLOSURE
STATEMENT, ITS EXHIBITS AND ANY OTHER BANKRUPTCY COURT-APPROVED SOLICITATION
MATERIALS. IF ANY SUCH REPRESENTATIONS OR INFORMATION ARE GIVEN OR MADE, THEY
SHOULD NOT BE RELIED UPON. THE DELIVERY OF THIS DISCLOSURE STATEMENT WILL NOT
UNDER ANY CIRCUMSTANCES IMPLY THAT ALL THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THIS DISCLOSURE STATEMENT DESCRIBES VARIOUS TRANSACTIONS CONTEMPLATED UNDER THE
PLAN BUT IS NOT A SUBSTITUTE FOR THE PLAN. THE TERMS OF THE PLAN WILL GOVERN IN
CASE OF ANY INCONSISTENCY BETWEEN THE PLAN AND THIS DISCLOSURE STATEMENT. A COPY
OF THE PLAN ACCOMPANIES THIS DISCLOSURE STATEMENT. THE DEFINITIONS IN THE PLAN
ARE INCORPORATED BY REFERENCE IN THIS DISCLOSURE STATEMENT. CAPITALIZED TERMS
USED IN THIS DISCLOSURE STATEMENT, WITHOUT DEFINITION, HAVE THE RESPECTIVE
MEANINGS ASCRIBED TO SUCH TERMS IN THE PLAN.
THE DEBTORS RESERVE THE RIGHT TO FILE AN AMENDED PLAN AND AN AMENDED DISCLOSURE
STATEMENT AT ANY TIME SUBJECT TO THE LIMITATIONS IN THE PLAN AND THE BANKRUPTCY
CODE. YOU ARE URGED TO STUDY THE PLAN IN FULL AND TO CONSULT WITH YOUR LEGAL
COUNSEL AND TAX ADVISORS ABOUT THE PLAN AND ITS IMPACT UPON YOUR LEGAL RIGHTS,
INCLUDING POSSIBLE TAX CONSEQUENCES. PLEASE READ THIS DISCLOSURE STATEMENT AND
ITS EXHIBITS CAREFULLY AND CONSIDER FULLY THE "CERTAIN FACTORS TO BE CONSIDERED"
SECTION HEREOF BEFORE VOTING FOR OR AGAINST THE PLAN. SEE SECTION XII - "CERTAIN
FACTORS TO BE CONSIDERED."
THE PLAN AND THIS DISCLOSURE STATEMENT ARE NOT REQUIRED TO BE PREPARED IN
ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER APPLICABLE
NON-BANKRUPTCY LAW. THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE
BANKRUPTCY COURT AS CONTAINING "ADEQUATE INFORMATION"; HOWEVER, SUCH APPROVAL
DOES NOT CONSTITUTE ENDORSEMENT BY THE BANKRUPTCY COURT OF THE PLAN OR
DISCLOSURE STATEMENT AND NONE OF THE SECURITIES AND EXCHANGE COMMISSION ("SEC"),
ANY STATE SECURITIES COMMISSION OR ANY SIMILAR PUBLIC, GOVERNMENTAL OR
REGULATORY AUTHORITIES HAS APPROVED THIS DISCLOSURE STATEMENT, THE PLAN, THE NEW
COMMON STOCK (AS DEFINED IN THE
PLAN) OR THE RIGHTS (AS DEFINED IN THE PLAN) OFFERED UNDER THE PLAN, OR HAS
PASSED ON THE ACCURACY OR ADEQUACY OF THE STATEMENTS IN THIS DISCLOSURE
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PERSONS
TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING SECURITIES OF THE
DEBTORS SHOULD EVALUATE THE PLAN IN LIGHT OF THE PURPOSES FOR WHICH IT WAS
PREPARED.
NO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER FEDERAL OR STATE SECURITIES OR "BLUE SKY" LAWS
HAS BEEN FILED WITH THE SEC OR ANY OTHER AGENCY BY THE DEBTORS WITH RESPECT TO
THE RIGHTS OR THE NEW COMMON STOCK THAT WILL BE ISSUED ON THE EFFECTIVE DATE OF
THE PLAN AND THAT MAY BE DEEMED TO BE OFFERED BY VIRTUE OF THIS SOLICITATION.
THE DEBTORS ARE RELYING ON THE EXEMPTION FROM REGISTRATION CONTAINED IN SECTION
1145 OF THE BANKRUPTCY CODE TO EXEMPT FROM REGISTRATION UNDER THE SECURITIES
LAWS ANY OFFER OF THE NEW COMMON STOCK (EXCEPT ANY OFFER TO THE INITIAL
COMMITTED PURCHASERS (AS DEFINED IN THE PLAN)) THAT MAY BE DEEMED TO BE MADE
PURSUANT TO THE PLAN.
EXCEPT WITH RESPECT TO THE PROJECTIONS SHOWN IN EXHIBIT G TO THIS DISCLOSURE
STATEMENT (THE "PROJECTIONS"), AND EXCEPT AS OTHERWISE SPECIFICALLY AND
EXPRESSLY STATED HEREIN, THIS DISCLOSURE STATEMENT DOES NOT REFLECT ANY EVENTS
THAT MAY OCCUR SUBSEQUENT TO THE DATE HEREOF. SUCH EVENTS MAY HAVE A MATERIAL
IMPACT ON THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT. THE DEBTORS DO
NOT INTEND TO UPDATE THE PROJECTIONS. THE PROJECTIONS ARE QUALIFIED BY, AND ARE
SUBJECT TO, THE ASSUMPTIONS SET FORTH HEREIN AND THE OTHER INFORMATION CONTAINED
IN THIS DISCLOSURE STATEMENT. THE PROJECTIONS WERE NOT PREPARED WITH A VIEW
TOWARD COMPLIANCE WITH PUBLISHED GUIDELINES OF THE SEC, THE AMERICAN INSTITUTE
OF CERTIFIED PUBLIC ACCOUNTANTS OR ANY OTHER REGULATORY OR PROFESSIONAL AGENCY
OR BODY, GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") OR CONSISTENCY WITH
THE AUDITED FINANCIAL STATEMENTS INCLUDED IN THIS DISCLOSURE STATEMENT. IN
ADDITION, NONE OF THE AUDITORS OR OTHER ADVISORS FOR THE DEBTORS HAS COMPILED OR
EXAMINED THE PROJECTIONS AND, ACCORDINGLY, NONE OF SUCH PARTIES EXPRESSES ANY
OPINION OR PROVIDES ANY OTHER FORM OF ASSURANCE WITH RESPECT TO, OR ASSUMES ANY
RESPONSIBILITY FOR, AND EACH SUCH PARTY EXPRESSLY DISCLAIMS ANY RESPONSIBILITY
FOR, THE PROJECTIONS. THE PROJECTIONS SHOULD BE READ TOGETHER WITH THE
INFORMATION CONTAINED IN THE PLAN AND THIS DISCLOSURE STATEMENT INCLUDING UNDER
SECTION IV - "OPERATIONS OF THE
DEBTORS," SECTION VI - "CAUSES OF ACTION," AND SECTION XII - "CERTAIN FACTORS TO
BE CONSIDERED."
THIS DISCLOSURE STATEMENT MAY NOT BE RELIED UPON FOR ANY PURPOSE OTHER THAN TO
DETERMINE WHETHER TO VOTE IN FAVOR OF OR AGAINST THE PLAN. NOTHING CONTAINED
HEREIN WILL CONSTITUTE AN ADMISSION OF ANY FACT OR OF LIABILITY BY ANY PARTY
WITH REGARD TO ANY CLAIM OR LITIGATION. NO STATEMENT OF FACT WILL BE ADMISSIBLE
IN ANY PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY, OR IN ANY PROCEEDING
WITH RESPECT TO ANY LEGAL EFFECT OF THE REORGANIZATION OF THE DEBTORS OR THE
TRANSACTIONS CONTEMPLATED BY THE PLAN AND THIS DISCLOSURE STATEMENT.
CERTAIN OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, BY ITS
NATURE, IS IN THE MANNER OF PROJECTIONS, WHICH MAY PROVE TO BE DIFFERENT FROM
ACTUAL RESULTS AND MAY BE SUBJECT TO CHANGE FROM TIME TO TIME.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS BEEN SUBMITTED BY
MANAGEMENT OF THE DEBTORS, EXCEPT WHERE OTHER SOURCES ARE IDENTIFIED. THE
DEBTORS AUTHORIZE NO REPRESENTATIONS CONCERNING THE DEBTORS OR THE PLAN OTHER
THAN THOSE IN THIS DISCLOSURE STATEMENT AND ACCOMPANYING DOCUMENTS. YOU SHOULD
NOT RELY ON ANY REPRESENTATIONS OR INDUCEMENTS MADE BY ANY PARTY TO SECURE YOUR
VOTE OTHER THAN THOSE CONTAINED IN THIS DISCLOSURE STATEMENT. NO ONE IS
AUTHORIZED TO MAKE ANY REPRESENTATIONS ON BEHALF OF THE DEBTORS. THE DEBTORS
HAVE BEEN CAREFUL TO BE ACCURATE IN THIS DISCLOSURE STATEMENT IN ALL MATERIAL
RESPECTS, AND THEY BELIEVE THAT THE CONTENTS OF THIS DISCLOSURE STATEMENT ARE
COMPLETE AND ACCURATE IN ALL MATERIAL RESPECTS. HOWEVER, THE DEBTORS CANNOT AND
DO NOT WARRANT OR REPRESENT THAT THE INFORMATION CONTAINED HEREIN IS WITHOUT
INACCURACY. IN PARTICULAR, EVENTS AND FORCES BEYOND THE CONTROL OF THE DEBTORS
MAY ALTER THE ASSUMPTIONS UPON WHICH THE FEASIBILITY OF THE PLAN ARE SUBJECT.
THIS DISCLOSURE STATEMENT MAY CONTAIN STATEMENTS THAT ARE, OR MAY BE DEEMED TO
BE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD LOOKING STATEMENTS INCLUDE THOSE
REGARDING CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THE PLAN. ALTHOUGH
THE DEBTORS BELIEVE THAT SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, NO
ASSURANCE CAN BE GIVEN THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT.
SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND
OTHER FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED IN SECTION XII,
"CERTAIN FACTORS TO BE CONSIDERED," THAT MAY CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE DEBTORS TO BE DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE, AND ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE STATEMENTS.
YOU SHOULD ALSO REVIEW PART II, ITEM 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," CONTAINED IN INTERMET'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005, FOR ADDITIONAL
INFORMATION REGARDING FACTORS THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE DEBTORS TO BE DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE, AND ACHIEVEMENTS EXPRESSED OR IMPLIED BY ANY FORWARD-LOOKING
STATEMENTS.
TABLE OF CONTENTS
I. INTRODUCTION...................................................... 1
A. GENERAL...................................................... 1
B. SUMMARY OF DEBTORS' CORPORATE STRUCTURE...................... 2
C. JOINTLY PROPOSED PLANS OF REORGANIZATION..................... 3
D. INTERCOMPANY CLAIMS.......................................... 19
E. PRESERVATION OF CERTAIN CAUSES OF ACTION..................... 19
II. PLAN VOTING PROCEDURES; ACCEPTANCE; CONFIRMATION.................. 19
A. VOTING PROCEDURES............................................ 19
B. ELECTIONS ON THE BALLOT TO RECEIVE NEW COMMON STOCK.......... 20
C. SPECIFIC INSTRUCTIONS FOR HOLDERS OF IMPAIRED CLAIMS
OTHER THAN NOTEHOLDER CLAIMS................................. 21
D. SPECIFIC INSTRUCTIONS FOR HOLDERS OF NOTEHOLDER CLAIMS....... 21
E. INQUIRIES.................................................... 23
F. ACCEPTANCE................................................... 23
G. CONDITIONS TO CONFIRMATION OF THE PLAN AND EFFECTIVENESS
OF THE PLAN.................................................. 24
H. MODIFICATION OF THE PLAN AND AMENDMENTS...................... 25
I. EFFECT OF CONFIRMATION....................................... 26
J. REVOCATION OF THE PLAN....................................... 26
III. BACKGROUND OF THE RESTRUCTURING AND EVENTS LEADING TO COMMENCEMENT
OF BANKRUPTCY PROCEEDINGS......................................... 26
IV. OPERATIONS OF THE DEBTORS......................................... 27
A. CORPORATE STRUCTURE.......................................... 27
B. INTERMET'S BUSINESS OPERATIONS............................... 29
C. PROPERTIES................................................... 37
D. DIRECTORS AND EXECUTIVE OFFICERS OF THE DEBTORS.............. 38
E. THE PRINCIPALS OF THE DEBTORS................................ 40
F. ENVIRONMENTAL RELATED LIABILITIES............................ 46
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V. THE DEBTORS' DEBT OBLIGATIONS..................................... 49
A. THE PRE-PETITION CREDIT FACILITY............................. 49
B. LETTERS OF CREDIT AGREEMENT.................................. 49
C. SENIOR NOTES................................................. 50
D. INDUSTRIAL REVENUE BONDS..................................... 51
E. TRADE DEBT................................................... 52
VI. CAUSES OF ACTION.................................................. 53
A. CHAPTER 5 CLAIMS............................................. 53
B. OTHER CLAIMS................................................. 53
C. PENDING LITIGATION........................................... 53
VII. SIGNIFICANT POST-PETITION ACTIONS................................. 53
A. FIRST DAY MOTIONS............................................ 54
B. RETENTION OF PROFESSIONALS................................... 54
C. CASE ADMINISTRATION.......................................... 55
D. OPERATIONAL DEVELOPMENTS..................................... 55
E. DEBTOR-IN-POSSESSION FINANCING............................... 63
F. FORMATION OF THE OFFICIAL COMMITTEE OF EQUITY SECURITY
HOLDERS AND THE AD HOC INTERMET TRADE CLAIMS COMMITTEE....... 65
G. APPROVAL OF THE KEY EMPLOYEE RETENTION PLAN.................. 66
H. GOODWILL AND ASSET IMPAIRMENT................................ 67
VIII. SUMMARY OF THE PLAN............................................... 68
A. EIGHTEEN (18) DIFFERENT PLANS OF REORGANIZATION.............. 69
B. TREATMENT OF UNCLASSIFIED CLAIMS............................. 72
C. TREATMENT OF CLASSES THAT ARE UNIMPAIRED UNDER THE PLAN...... 77
D. TREATMENT OF CLASSES THAT ARE IMPAIRED UNDER THE PLAN........ 79
E. INTERCOMPANY CLAIMS.......................................... 86
IX. EFFECT OF CONFIRMATION AND IMPLEMENTATION OF THE PLAN............. 86
A. CONFIRMATION................................................. 87
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B. EFFECTS OF PLAN CONFIRMATION................................. 87
C. EXIT FINANCING............................................... 94
D. EXECUTORY CONTRACTS AND UNEXPIRED LEASES..................... 95
E. DISTRIBUTIONS................................................ 97
F. RETIREE BENEFITS............................................. 100
G. CORPORATE GOVERNANCE......................................... 101
H. REORGANIZED DEBTORS.......................................... 102
I. CORPORATE ACTION............................................. 102
J. NON-DEBTOR AFFILIATES........................................ 103
K. STOCKHOLDERS' AGREEMENT...................................... 103
L. APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS........... 104
M. REGISTRATION RIGHTS AGREEMENT................................ 106
N. CANCELLATION OF EXISTING COMMON STOCK AND EXISTING PREFERRED
STOCK........................................................ 107
O. MANAGEMENT INCENTIVE PLAN.................................... 107
P. KEY EMPLOYEE RIGHTS OFFERING................................. 108
Q. CONTINUATION OF BUSINESS..................................... 108
R. EMPLOYMENT AGREEMENTS........................................ 109
S. DISBANDMENT OF OFFICIAL COMMITTEES........................... 109
T. DISBURSING AGENT............................................. 109
U. POST-CONFIRMATION EFFECT OF INDENTURE........................ 109
V. APPROVAL OF SETTLEMENTS...................................... 110
W. PRESERVATION OF CERTAIN CAUSES OF ACTION..................... 110
X. THE RESTRUCTURING COMMITMENT LETTER AND THE RIGHTS OFFERING....... 111
A. INITIAL COMMITTED PURCHASERS................................. 111
B. TERMS AND CONDITIONS OF THE RESTRUCTURING COMMITMENT LETTER.. 113
C. ABILITY TO PARTICIPATE IN THE RIGHTS OFFERING................ 114
D. ISSUANCE OF RIGHTS........................................... 116
E. SUBSCRIPTION PERIOD.......................................... 116
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F. SUBSCRIPTION PRICE........................................... 116
G. SUBSCRIPTION RECORD DATE..................................... 116
H. SUBSCRIPTION AGENT........................................... 116
I. EXERCISE OF RIGHTS........................................... 117
J. TRANSFER RESTRICTION; REVOCATION............................. 117
K. DISTRIBUTION OF RIGHTS OFFERING SHARES....................... 118
L. SUBSEQUENT ADJUSTMENTS TO THE RIGHTS OFFERING PARTICIPATION
CLAIM AMOUNT................................................. 118
M. NO INTEREST.................................................. 118
N. VALIDITY OF EXERCISE OF RIGHTS............................... 118
O. USE OF PROCEEDS.............................................. 119
P. MARKETING TO OTHER POTENTIAL INVESTORS AND ALTERNATIVES...... 119
Q. JURISDICTION................................................. 120
XI. VALUATION ANALYSIS................................................ 120
A. VALUATION OF THE REORGANIZED DEBTORS......................... 120
XII. CERTAIN FACTORS TO BE CONSIDERED.................................. 129
A. CERTAIN BANKRUPTCY CONSIDERATIONS............................ 129
B. RISKS RELATING TO THE NEW COMMON STOCK....................... 130
C. RISKS ASSOCIATED WITH THE BUSINESSES......................... 131
XIII. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IF THE PLAN IS
CONFIRMED......................................................... 131
A. U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS.......... 133
B. U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CERTAIN
CLAIMS....................................................... 137
C. U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF NEW COMMON
STOCK........................................................ 140
XIV. FEASIBILITY OF THE PLAN AND THE BEST INTERESTS OF CREDITORS TEST.. 143
A. FEASIBILITY OF THE PLAN...................................... 143
B. BEST INTERESTS TEST.......................................... 145
C. CHAPTER 7 LIQUIDATION ANALYSIS............................... 146
XV. SOLICITATION OF THE PLAN.......................................... 148
iv
A. PARTIES IN INTEREST ENTITLED TO VOTE......................... 148
B. CLASSES IMPAIRED UNDER THE PLAN.............................. 149
C. WAIVERS OF DEFECTS, IRREGULARITIES, ETC...................... 150
D. WITHDRAWAL OF BALLOTS; REVOCATION............................ 150
E. FURTHER INFORMATION; ADDITIONAL COPIES....................... 151
XVI. CONCLUSION........................................................ 151
v
List of Exhibits
Exhibit A - Debtors' Amended Plans of Reorganization
Exhibit B - Corporate Structure Chart
Exhibit B1 - Post-Emergence Corporate Structure Chart
Exhibit C - List Of Debtors' Properties
Exhibit D - List Of Pending Litigation
Exhibit E - List Of First Day Motions
Exhibit F - Liquidation Analysis
Exhibit G - Projected Financial Information For The Reorganized Debtors
Exhibit H - Selected Historical Financial Information
Exhibit I - Distribution Schedule
Exhibit J - Stockholders' Agreement
vi
I. INTRODUCTION
A. GENERAL
The purpose of this Amended Disclosure Statement (the "Disclosure Statement")(1)
is to provide Holders of all Claims and Interests in the Debtors with adequate
information, within the meaning of Section 1125(a) and 1126 of the Bankruptcy
Code, of a kind, and in sufficient detail, to make an informed judgment about
the amended plans of reorganization submitted to the Bankruptcy Court on August
12, 2005 (collectively, the "Plan") by Intermet Corporation, a Georgia
corporation ("Intermet"), and certain of its domestic subsidiaries, Alexander
City Casting Company, Inc., Cast-Matic Corporation, Columbus Foundry, L.P.,
Diversified Diemakers, Inc., Ganton Technologies, Inc., Intermet Holding
Company, Intermet Illinois, Inc., Intermet International, Inc., Intermet U.S.
Holding, Inc., Ironton Iron, Inc., Lynchburg Foundry Company, Northern Castings
Corporation, Sudbury, Inc., SUDM, Inc., Tool Products, Inc., Wagner Castings
Company, and Wagner Havana, Inc. (collectively, the "Domestic Subsidiaries")
(Intermet and the Domestic Subsidiaries are each individually referred to as a
"Debtor" and collectively, as the "Debtors"). A copy of the Plan is attached
hereto as Exhibit A.
THE PLAN IS PROPOSED JOINTLY BY ALL OF THE DEBTORS, BUT CONSTITUTES A SEPARATE
PLAN FOR EACH DEBTOR. THE ESTATES OF THE DEBTORS HAVE NOT BEEN CONSOLIDATED,
SUBSTANTIVELY OR OTHERWISE. ANY CLAIMS HELD AGAINST ONE OF THE DEBTORS WILL BE
SATISFIED SOLELY FROM THE CASH AND ASSETS OF SUCH DEBTOR. EXCEPT AS SPECIFICALLY
SET FORTH IN THE PLAN, NOTHING IN THE PLAN OR THIS DISCLOSURE STATEMENT WILL
CONSTITUTE OR BE DEEMED TO CONSTITUTE AN ADMISSION THAT ONE OF THE DEBTORS IS
SUBJECT TO OR LIABLE FOR ANY CLAIM AGAINST THE OTHER DEBTORS. THE CLAIMS OF
CREDITORS THAT HOLD CLAIMS AGAINST MULTIPLE DEBTORS WILL BE TREATED AS SEPARATE
CLAIMS WITH RESPECT TO EACH DEBTOR'S ESTATE FOR ALL PURPOSES (INCLUDING, BUT NOT
LIMITED TO, DISTRIBUTIONS AND VOTING), AND SUCH CLAIMS WILL BE ADMINISTERED AS
PROVIDED IN THE PLAN. THEREFORE, EXCEPT AS EXPRESSLY SPECIFIED IN THE PLAN, THE
CLASSIFICATIONS OF CLAIMS AND INTERESTS SET FORTH IN THE PLAN WILL BE DEEMED TO
APPLY SEPARATELY WITH RESPECT TO EACH PLAN PROPOSED BY EACH DEBTOR.
The Debtors are debtors and debtors-in-possession in jointly administered Cases
under Chapter 11 of the Bankruptcy Code. The Debtors are reorganizing and
continuing to conduct their businesses as debtors-in-possession pursuant to
Sections 1107 and 1108 of the Bankruptcy Code and are soliciting votes to accept
or reject the Plan. The Debtors
- ----------
(1) A copy of this Disclosure Statement and all of its exhibits, including
exhibits to the Plan as they become available on the Exhibit Filing Date
(or earlier in the event that the Plan so provides), will be available at
www.administar.net. This Disclosure Statement amends and restates the
Disclosure Statement filed on August 5, 2005.
1
and the Creditors' Committee believe that acceptance of the Plan is in the best
interests of any Person who holds a Claim against the Debtors. Based on the
settlement described in Section VIII.A. of this Disclosure Statement, the Ad Hoc
Committee supports the Plan.
None of the non-Debtor Affiliates incorporated outside of the United States have
commenced, or are subject to, a case under Chapter 11 of the Bankruptcy Code or
similar insolvency proceeding in any other jurisdiction. These foreign
non-Debtor Affiliates, which are identified in the corporate structure chart
attached hereto as Exhibit B, continue to operate their businesses in the
ordinary course of business. In addition, there are two domestic non-Debtor
Affiliates: Western Capital Corporation and Transnational Indemnity Company.
These subsidiaries have ceased operations and the Debtors anticipate that they
will be dissolved pursuant to state law prior to, or soon after, the Effective
Date.
Debtors Alexander City Casting Company, Inc., Ironton Iron, Inc., Wagner Havana,
Inc. and Intermet Illinois, Inc. are non-operating entities which currently own
Assets. It is each such Debtor's intention to sell such Assets after the
Effective Date. The proceeds of such sales will be paid to the Exit Lenders.
HOLDERS OF CLAIMS AGAINST ANY OF THE DEBTORS SHOULD READ THIS DISCLOSURE
STATEMENT AND THE PLAN, TOGETHER WITH THE EXHIBITS, IN THEIR ENTIRETY BEFORE
VOTING ON THE PLAN.
B. SUMMARY OF DEBTORS' CORPORATE STRUCTURE
Attached as Exhibit B hereto is a chart illustrating the current corporate
structure of the Debtors and the non-Debtor Affiliates.
Immediately after the Effective Date, the Debtors intend to restructure their
domestic operations in order to realign the legal structure with the management
reporting system, streamline and simplify the corporate structure to reduce the
administrative burden of managing the current structure, and the Debtors believe
the new corporate structure will allow them to more effectively manage the tax
consequences associated with cancellation of indebtedness income. Attached as
Exhibit B1 is a chart illustrating the post-Effective Date corporate structure
of the Debtors that is currently contemplated. The Debtors currently contemplate
the following changes to their domestic corporate structure:(2)
- - Reorganized Intermet will form a new corporation named "Light Metals Group,
Inc."
- - "Light Metals Group, Inc." will form "Tool Products, LLC," "Ganton
Technologies, LLC," "Diversified Diemakers, LLC" and "Alexander City, LLC"
- ----------
(2) The post-emergence corporate structure chart attached as Exhibit B1 and the
transactions contemplated therein (including all corporate name changes)
are preliminary and subject to change as the Debtors (and the Reorganized
Debtors) continue to evaluate the reorganization of their businesses.
2
- - Reorganized Tool Products, Inc. will merge with "Tool Products, LLC"
- - Reorganized Ganton Technologies, Inc. will merge with "Ganton Technologies,
LLC"
- - Reorganized Alexander City Casting Company, Inc. will merge with "Alexander
City, LLC"
- - Reorganized Diversified Diemakers, Inc. will merge with "Diversified
Diemakers, LLC"
- - Reorganized Sudbury, Inc. will be renamed "Ferrous Metals Group, Inc."
- - Reorganized Intermet will contribute the stock of Reorganized Lynchburg
Foundry Company, Reorganized Ironton Iron, Inc., and Reorganized Northern
Castings Corporation to "Ferrous Metals Group, Inc."
- - "Ferrous Metals Group, Inc." will form "Lynchburg, LLC," "Northern, LLC,"
and "Ironton, LLC"
- - Reorganized Lynchburg Foundry Company will merge with "Lynchburg, LLC"
- - Reorganized Northern Castings Corporation will merge with "Northern, LLC"
- - Reorganized Ironton Iron, Inc. will merge with "Ironton, LLC"
- - "Ferrous Metals Group, Inc." will contribute the stock of Reorganized
Western Capital Corporation to Reorganized Wagner Castings Company
- - Reorganized Wagner Havana, Inc. will merge with Reorganized Western Capital
Corporation
C. JOINTLY PROPOSED PLANS OF REORGANIZATION
THE PLAN IS THE PRODUCT OF INTENSIVE NEGOTIATIONS AMONG THE DEBTORS, THE
CREDITORS' COMMITTEE, THE PRE-PETITION AGENT, THE INITIAL COMMITTED PURCHASERS
AND THE AD HOC COMMITTEE. THE DEBTORS AND THE CREDITORS' COMMITTEE BELIEVE THAT
THE PLAN PROVIDES THE BEST RECOVERIES POSSIBLE FOR HOLDERS OF CLAIMS AGAINST THE
DEBTORS AND THEY STRONGLY RECOMMEND THAT YOU VOTE TO ACCEPT THE PLAN. BASED ON
THE SETTLEMENT DESCRIBED IN SECTION VIII.A. OF THIS DISCLOSURE STATEMENT, THE AD
HOC COMMITTEE SUPPORTS THE PLAN.
The following is a brief summary of certain material provisions of the Plan. For
a more detailed description of the terms of the Plan, see SECTION VIII "SUMMARY
OF PLAN." The Plan was the result of a term sheet negotiated among the Debtors,
the Creditors' Committee, the Pre-Petition Agent, and the Initial Committed
Purchasers which is attached to the Restructuring Commitment Letter attached to
the Plan as Exhibit A. The following summary is qualified in its entirety by the
provisions of the Plan.
3
The Plan provides for the treatment of both classified and unclassified Claims
against and Interests in each of the Debtors. SEE SECTION VIII - "SUMMARY OF THE
PLAN" and Exhibit A to this Disclosure Statement for more details.
1. Unclassified Claims Against Each Debtor
In accordance with Section 1123(a)(1) of the Bankruptcy Code, the Plan provides
that Administrative Claims, Tax Claims, DIP Facility Claims, U.S. Trustee Fees,
Workers' Compensation Claims (to the extent such Workers' Compensation Claims
are not General Unsecured Claims as described in Article 3.06 of the Plan),
Pension Claims, and Consignment Claims are not classified. The respective
treatment of such unclassified Claims is set forth below.
A. Administrative Claims Against Any Debtor
Except for Holders of DIP Facility Claims, each Holder of an Allowed
Administrative Claim against any Debtor will receive, in full satisfaction of
such Allowed Administrative Claim, Cash equal to the amount of such Claim on the
later of (i) the Effective Date and (ii) the date that is ten (10) days after
the Allowance Date, unless such Holder agrees to different treatment of such
Allowed Claim; provided, however, that Allowed Administrative Claims
representing obligations incurred in the ordinary course of business by a Debtor
will be paid or performed in accordance with the terms and conditions of the
particular transactions and any agreements relating thereto. Nothing in the Plan
will be deemed to accelerate a Debtor's obligation to make payment on account of
any Administrative Claim that is not due and owing as of the Confirmation Date,
is not Allowed, or is subject to ongoing objections in the Bankruptcy Court or
another court of competent jurisdiction.
B. Tax Claims Against Any Debtor
Each Holder of an Allowed Tax Claim against any Debtor will receive, in full
satisfaction of such Allowed Tax Claim, at the election of the relevant Debtor,
in its sole discretion, either (i) Cash equal to the amount of such Claim on the
later of (1) the Effective Date and (2) the date that is ten (10) days after the
Allowance Date, unless such Holder will have agreed to different treatment of
such Allowed Tax Claim, or (ii) in accordance with Section 1129(a)(9)(C) of the
Bankruptcy Code, Cash payments in equal monthly installments commencing on the
first Business Day of the month succeeding the month in which the Effective Date
occurs and continuing on the first Business Day of each month thereafter, until
the month which is six (6) years after the date of assessment of such Claim,
totaling the principal amount of such Claim plus interest on any outstanding
balance from the Effective Date calculated at the interest rate equal to the
applicable federal rate as determined in accordance with Section 1274(d) of the
Internal Revenue Code of 1986, as amended (the "IRC"), and the regulations
promulgated thereunder, or (iii) such other treatment as to which the Holder of
such Allowed Tax Claim will have agreed in writing; provided that any Claim or
demand for payment of a penalty (other than a penalty of the type specified in
Section 507(a)(8)(G) of the Bankruptcy Code) will
4
be disallowed pursuant to the Plan and the Holder of an Allowed Tax Claim will
not assess or attempt to collect such penalty from the Debtors, their Estates,
the Reorganized Debtors, or their property.
C. DIP Facility Claims Against Any Debtor
On the Effective Date, in full satisfaction of the DIP Facility Claims against
each Debtor, the DIP Agents (for the benefit of the DIP Lenders, as applicable)
will receive Cash in an amount equal to the then outstanding amount of the DIP
Facility Claims (including, without limitation, all accrued and unpaid interest,
fees and expenses and any other amounts that may then be due and payable under
the DIP Facility) and any undrawn letters of credit issued pursuant to the DIP
Facility will be returned and marked cancelled and will be replaced by letters
of credit issued under the Exit Financing Facility. On the Effective Date, the
DIP Agents' and the DIP Lenders' commitments and obligations under the DIP
Facility will be irrevocably terminated and the Debtors will be deemed to have
unconditionally and irrevocably released the DIP Lenders and the DIP Agents from
all obligations, claims and liabilities arising thereunder or relating thereto.
D. U.S. Trustee Fees Owed By Any Debtor
The U.S. Trustee's quarterly fees owed by any Debtor will be paid in full
without prior approval pursuant to 28 U.S.C. Section 1930 on or before the
Effective Date. All fees payable pursuant to 28 U.S.C. Section 1930 will be paid
by each of the Reorganized Debtors in accordance therewith until the closing of
its respective Case pursuant to Section 350(a) of the Bankruptcy Code.
E. Workers' Compensation Claims Against Any Debtor
Upon the Effective Date of the Plan, with the exception of the Workers'
Compensation Program for the State of Ohio, which relates to Ironton Iron, Inc.
and Sudbury, Inc., the Reorganized Debtors will continue the Workers'
Compensation Programs for all states in which they operate. Nothing in the Plan
will be deemed to discharge, release, or relieve the Debtors or Reorganized
Debtors from any current or future liability with respect to any of its/their
obligations under the Workers' Compensation Programs, provided that in the case
of the Workers' Compensation Program for the State of Ohio, which relates to
Ironton Iron, Inc. and Sudbury, Inc., Claims arising thereunder will be General
Unsecured Claims. The Reorganized Debtors will be responsible for all valid
Claims for benefits and liabilities under the applicable Workers' Compensation
Programs, provided that, in the case of the Workers' Compensation Program for
the State of Ohio, which relates to Ironton Iron, Inc. and Sudbury, Inc., such
Claims arising thereunder will be General Unsecured Claims under the Plan,
regardless of when the applicable injuries occurred. All obligations under the
applicable Workers' Compensation Programs will be paid in accordance with the
terms and conditions of applicable Workers' Compensation Programs and all other
applicable laws other than the Workers' Compensation Program for the State of
Ohio, which relates to Ironton Iron, Inc. and Sudbury, Inc., which Claims will
be General Unsecured Claims under the Plan, regardless of when the applicable
injuries occurred. For all states in which the Debtors currently operate or have
operated,
5
with the exception of the State of Ohio, the Workers Compensation Programs are
either (i) self-insured, or (ii) insured with a third party insurance carrier,
and are in all cases secured by letters of credit. Accordingly, Claims resulting
from the Workers' Compensation Program for the State of Ohio, which relates to
Ironton Iron, Inc. and Sudbury, Inc., will be Class 4 General Unsecured Claims
or Class 5 Unsecured Convenience Claims as applicable.
F. Pension Claims Against Any Debtor
Upon Confirmation and substantial consummation of the Plan, the Reorganized
Debtors will continue all Pension Plans in accordance with applicable law, and
the Debtors' obligations under applicable law with respect to continued funding
of the Pension Plans will remain unaltered. Nothing in the Plan shall be deemed
to discharge, release, or relieve the Debtors, the Reorganized Debtors, or their
control group of or from any current or future liability under applicable law
with respect to the Pension Plans. On the Effective Date, the Debtors will pay
into each Pension Plan the amount then due for the 2004 Pension Plan years
unless such payments have already been made by the Debtors in the ordinary
course. On the Effective Date, the Debtors will pay into each Pension Plan the
remaining amounts then due under applicable minimum funding standards and the
PBGC will be deemed to have withdrawn its Claims with respect to the Pension
Plans. The PBGC is enjoined from seeking relief against the Reorganized Debtors
under 29 U.S.C. Section 1362(e) as a consequence of the closure of the Debtors'
Racine, Wisconsin or Decatur, Illinois facilities so long as (i) the Debtors
remain current on minimum funding for all Pension Plans and do not apply for a
waiver; (ii) the Debtors achieve at least 90% of the EBITDA contained in the
financial projections that they have provided to their creditors in these Cases,
provided, however, that the Debtors will have 30 calendar days to show that
failure to meet such projections does not have a material adverse effect on PBGC
or any of the pension plans sponsored by Intermet or any member of its
controlled group; (iii) the Debtors remain current on their obligations to and
in compliance with all covenants with their lenders, provided, however, that the
Debtors will have 15 calendar days to show that the failure to meet an
obligation or comply with a covenant does not have a material adverse effect
PBGC or any of the pension plans sponsored by Intermet or any member of its
controlled group; (iv) no reportable event occurs under 29 C.F.R. Section
4043.29, provided, however, that the Debtors will have 30 calendar days to show
that if such a reportable event occurs, it will not have a material adverse
effect on PBGC or any of the Pension Plans sponsored by the Debtors or any
member of their controlled group; and (v) the Debtors provides the PBGC with any
reports that they provide to any lender relating to failure to meet an
obligation or comply with a covenant within 15 calendar days. In addition, the
Debtors agree to be treated as subject to and shall not be exempted from advance
reporting of reportable events under 29 C.F.R. Section 4043.61. The Debtors also
will provide to PBGC Forms 5500 and the actuarial valuation reports annually;
notice of changes in actuarial assumptions; and notice of plan mergers or other
plan transactions. The Debtors will provide audited annual and unaudited
quarterly financial statements when provided to their lenders.
G. Consignment Claims Against Any Debtor
6
Notwithstanding Section 1141(c) or any other provision of the Bankruptcy Code,
all Liens, if any, of Persons who provided goods to the Debtors on consignment
(i) prior to the Petition Date and who hold valid, enforceable, and perfected
Liens in such goods (a) pursuant to a written agreement with the Debtors and (b)
in accordance with applicable law, or (ii) after the Petition Date pursuant to
any order of the Bankruptcy Court will, in each case, survive the Effective Date
and continue in accordance with the contractual terms of the underlying
agreements between the Debtors and such Persons and will remain enforceable as
of the Effective Date with the same extent, validity and priority as existed as
of the Petition Date or pursuant to such order, as the case may be. All other
Persons who provided goods to the Debtors on consignment will be deemed to hold
General Unsecured Claims under the Plan.
2. Classified Claims Against Each Debtor
Classes 1, 2, and 3 are Unimpaired for all Debtors. Holders of Unimpaired Equity
Interests in the Unimpaired Equity Debtors are Unimpaired. Therefore, pursuant
to Section 1126(f) of the Bankruptcy Code, the Holders of Allowed Claims or
Unimpaired Equity Interests in such Classes are conclusively presumed to have
accepted the Plan. Classes 3a, 3b, 4, 4a, 4b, 4c, 5 and Class 6b Impaired Equity
Interests are Impaired. Holders of Allowed Claims in Classes 3a, 3b, 4, 4a, 4b,
4c and 5 are, to the extent that such Claims are Allowed, not Disputed, or
Temporarily Allowed for voting purposes pursuant to Bankruptcy Rule 3018(a),
allowed to vote as a Class to accept or reject the Plan. Holders of Class 6b
Impaired Equity Interests in the Impaired Equity Debtors are deemed to have
rejected the Plan pursuant to Section 1126(g) of the Bankruptcy Code.
The tables below provide summaries of the classification and treatment of
classified Claims and Equity Interests for each Debtor. The treatment of Claims
shown below is more fully explained in the distribution schedule attached as
Exhibit I to this Disclosure Statement.
THE PLAN IS PROPOSED JOINTLY BY ALL OF THE DEBTORS, BUT CONSTITUTES A SEPARATE
PLAN FOR EACH DEBTOR. THE ESTATES OF THE DEBTORS HAVE NOT BEEN CONSOLIDATED,
SUBSTANTIVELY OR OTHERWISE. ANY CLAIMS HELD AGAINST ONE OF THE DEBTORS WILL BE
SATISFIED SOLELY FROM THE CASH AND ASSETS OF SUCH DEBTOR. EXCEPT AS SPECIFICALLY
SET FORTH IN THE PLAN, NOTHING IN THE PLAN OR THIS DISCLOSURE STATEMENT WILL
CONSTITUTE OR BE DEEMED TO CONSTITUTE AN ADMISSION THAT ONE OF THE DEBTORS IS
SUBJECT TO OR LIABLE FOR ANY CLAIM AGAINST THE OTHER DEBTORS. THE CLAIMS OF
CREDITORS THAT HOLD CLAIMS AGAINST MULTIPLE DEBTORS WILL BE TREATED AS SEPARATE
CLAIMS WITH RESPECT TO EACH DEBTOR'S ESTATE FOR ALL PURPOSES (INCLUDING, BUT NOT
LIMITED TO, DISTRIBUTIONS AND VOTING), AND SUCH CLAIMS WILL BE ADMINISTERED AS
PROVIDED IN THE PLAN. THEREFORE, EXCEPT AS EXPRESSLY SPECIFIED IN THE PLAN, THE
CLASSIFICATIONS OF CLAIMS AND INTERESTS SET FORTH IN THE PLAN WILL BE DEEMED TO
APPLY SEPARATELY WITH RESPECT TO EACH PLAN PROPOSED BY EACH DEBTOR.
7
CLASS AND TYPE ESTIMATED AMOUNT OF ALLOWED CLAIMS ESTIMATED RECOVERY
OF CLAIM OR OR EQUITY INTERESTS BY DEBTOR ON OF ALLOWED CLAIMS OR
EQUITY INTEREST THE EFFECTIVE DATE, SUBJECT TO EQUITY INTERESTS BY DEBTOR
FOR EACH DEBTOR TREATMENT BY EACH DEBTOR OBJECTIONS (A) (B)
- --------------- ---------------------------------------------- ----------------------------------- --------------------------
Class 1 Unimpaired for each Debtor - deemed to Intermet 100%
(Priority have accepted the Plan and not entitled Corporation: approx. $1,337,882
Claims) to vote on the Plan; each Holder paid in full
in Cash from the Assets of each particular Alexander City Casting 100%
Debtor against whom the Holder holds its Claim Company, Inc.: $0
on the latest of the (i) Effective Date, (ii)
the date that is 10 days after the Allowance Cast-Matic 100%
Date of such Claim and (iii) the date when Corporation: approx. $123,878
such Claim becomes due and payable according
to its terms. Columbus 100%
Foundry, L.P.: approx. $95,175
Diversified 100%
Diemakers, Inc.: approx. $33,135
Ganton 100%
Technologies, Inc.: approx.
$146,574
Intermet Holding Company: $0 100%
Intermet Illinois, Inc.: $0 100%
Intermet International, Inc.: $0 100%
Intermet U.S. 100%
Holding, Inc.: approx. $10,186
Ironton Iron, Inc.: $0 100%
Lynchburg Foundry 100%
Company: approx. $26,431
Northern Castings 100%
Corporation: approx. $27,871
Sudbury, Inc.: $0 100%
SUDM, Inc.: $0 100%
Tool Products, Inc.: approx. 100%
$70,048
Wagner Castings 100%
Company: approx. $14,983
Wagner Havana, Inc.: $0 100%
Class 2 Unimpaired for each Debtor- deemed to Intermet 100%
(Pre-Petition have accepted the Plan and not entitled Corporation: approx. $171 million
Lender Claims) to vote on Plan; Pre-Petition Agent
paid Cash in full amount of principal and Alexander City Casting 100%
interest due, plus all un-reimbursed fees and Company, Inc.: approx. $171 million
expenses incurred by the Pre-Petition Agent
through the Effective Date, plus all interest Cast-Matic 100%
and fees (if any) to which the Pre-Petition Corporation: approx. $171 million
Lenders are entitled under Section 506(b) of
the Bankruptcy Code, and any other amounts Columbus 100%
owed by the Debtors under the DIP Order. Foundry, L.P.: approx. $171 million
Diversified 100%
Diemakers, Inc.: approx.
$171 million
Ganton 100%
Technologies, Inc.: approx.
$171 million
Intermet 100%
Holding Company: approx.
$171 million
Intermet Illinois, Inc.: approx. 100%
$171 million
8
CLASS AND TYPE ESTIMATED AMOUNT OF ALLOWED CLAIMS ESTIMATED RECOVERY
OF CLAIM OR OR EQUITY INTERESTS BY DEBTOR ON OF ALLOWED CLAIMS OR
EQUITY INTEREST THE EFFECTIVE DATE, SUBJECT TO EQUITY INTERESTS BY DEBTOR
FOR EACH DEBTOR TREATMENT BY EACH DEBTOR OBJECTIONS (A) (B)
- --------------- ---------------------------------------------- ----------------------------------- --------------------------
Intermet 100%
International, Inc.: approx. $171
million
Intermet U.S. 100%
Holding, Inc.: approx. $171 million
Ironton Iron, Inc.: approx. $171 100%
million
Lynchburg Foundry 100%
Company: approx. $171 million
Northern Castings 100%
Corporation: approx. $171 million
Sudbury, Inc.: approx. $171 million 100%
SUDM, Inc.: approx. $171 million 100%
Tool Products, Inc.: approx. $171 100%
million
Wagner Castings 100%
Company: approx. $171 million
Wagner Havana, Inc.: approx. $171 100%
million
Class 3 Unimpaired - legal, equitable and contractual Intermet Corporation: approx. 100%
(Secured Claims rights reinstated on the Effective Date, or $322,248
Against Any otherwise satisfied in accordance with
Debtor Except the Plan. Alexander City Casting 100%
Claims In Class Company, Inc.: $0
3a As To Wagner
Castings Cast-Matic Corporation: approx. 100%
Company) $6,983
Columbus 100%
Foundry, L.P.: approx. 201,595
Diversified 100%
Diemakers, Inc.: approx. $50,787
Ganton 100%
Technologies, Inc.: approx.
$2,841,476
Intermet Holding Company: $0 100%
Intermet Illinois, Inc.: $0 100%
Intermet International, Inc.: $0 100%
Intermet U.S. 100%
Holding, Inc.: approx. $22,763
Ironton Iron, Inc.: $0 100%
Lynchburg Foundry 100%
Company: approx. $157,687
Northern Castings 100%
Corporation: approx. $798
Sudbury, Inc.: $0 100%
SUDM, Inc.: $0 100%
Tool Products, Inc.: approx. 100%
$617,655
Wagner Castings 100%
Company: approx. $330,712
Wagner Havana, Inc.: $0 100%
Class 3a Impaired. On the Effective Date, Dana Wagner Castings 100%
(Secured Corporation will be allowed to setoff Company: approx. $5,300
9
CLASS AND TYPE ESTIMATED AMOUNT OF ALLOWED CLAIMS ESTIMATED RECOVERY
OF CLAIM OR OR EQUITY INTERESTS BY DEBTOR ON OF ALLOWED CLAIMS OR
EQUITY INTEREST THE EFFECTIVE DATE, SUBJECT TO EQUITY INTERESTS BY DEBTOR
FOR EACH DEBTOR TREATMENT BY EACH DEBTOR OBJECTIONS (A) (B)
- --------------- ---------------------------------------------- ----------------------------------- --------------------------
Claims Held By such Claim from amounts owed to Wagner
Dana Castings, Columbus Foundry, L.P., Lynchburg
Corporation Foundry Company, and Intermet, on the
Against Wagner condition that Dana provides the amendments
Castings to its purchase orders with the aforementioned
Company) Debtors set forth in an agreement by and among
such Debtors and Dana dated April, 2005.
(c) Class 4 Impaired - each Holder paid: Intermet Cash-Out Amount: 4.09%
(General Corporation: approx. $189,197,093
Unsecured (a) the Cash-Out Amount; OR (includes Noteholder Claims) If New Common Stock and
Claims Other Rights elected: 15.4%
Than Those (b) at the option of each such Holder of a
In Classes 4a, General Unsecured Claim and only to the extent If Inducement Cash
4b, or 4c) that such Holder of General Unsecured Claims elected: Pro Rata share of
so elects on the Ballot: $1,501,901, estimated at
16.2%
(i) a Pro Rata portion of shares of New
Common Stock allocated to the applicable Alexander City Casting Cash-Out Amount: 2.61%
Debtor as indicated in Exhibit B to the Plan, Company, Inc.: approx. $179,931,240
and (consists only of Noteholder If New Common Stock and
Claims) Rights elected: 9.8%
(ii) its Pro Rata share of the Rights
allocated to the applicable Debtor as If Inducement Cash
indicated on Exhibit B to the Plan; OR elected: N/A
(c) at the option of each such Holder of a Cast-Matic Cash-Out Amount: 2.90%
General Unsecured Claim and only to the extent Corporation: approx. $183,197,759
that such Holder of General Unsecured Claims (includes Noteholder Claims) If New Common Stock and
makes the Inducement Cash Election for such Rights elected: 10.9%
Debtor on the Ballot, the Inducement Cash
Amount. If Inducement Cash
elected: Pro Rata share of
For the avoidance of doubt, in the event a $375,002, estimated at
Holder of a General Unsecured Claim fails to 11.5%
elect the options set forth in subsections (b)
or (c) above, such Holder will receive Cash Columbus Cash-Out Amount: 4.0%
equal to the Cash-Out Amount. Foundry, L.P.: approx. $189,397,046
(includes Noteholder Claims) If New Common Stock and
Rights elected: 15.1%
If Inducement Cash
elected: Pro Rata share of
$1,499,723, estimated at
15.8%
Diversified Cash-Out Amount: 3.13%
Diemakers, Inc.: approx.
$183,291,005 (includes Noteholder
Claims) If New Common Stock and
Rights elected: 11.8%
If Inducement Cash
elected: Pro Rata share of
$416,418, estimated at
12.4%
10
CLASS AND TYPE ESTIMATED AMOUNT OF ALLOWED CLAIMS ESTIMATED RECOVERY
OF CLAIM OR OR EQUITY INTERESTS BY DEBTOR ON OF ALLOWED CLAIMS OR
EQUITY INTEREST THE EFFECTIVE DATE, SUBJECT TO EQUITY INTERESTS BY DEBTOR
FOR EACH DEBTOR TREATMENT BY EACH DEBTOR OBJECTIONS (A) (B)
- --------------- ---------------------------------------------- ---------------------------------- --------------------------
Ganton Technologies, Cash-Out Amount: 2.67%
Inc.: approx. $187,016,248
(includes Noteholder Claims) If New Common Stock and
Rights elected: 10.0%
If Inducement Cash
elected: Pro Rata share of
$748,563, estimated at
10.6%
Intermet Holding Company: $0 (not N/A
a guarantor of Senior Notes and
therefore, no Noteholder Claims)
Intermet Cash-Out Amount: 2.61%
Illinois, Inc.: approx.
$181,331,240 (includes Noteholder If New Common Stock and
Claims) Rights elected: 9.8%
If Inducement Cash
elected: Pro Rata share of
$144,935, estimated at
10.4%
Intermet Cash-Out Amount: N/A
International, Inc.: approx.
$14,000 (not a guarantor of If New Common Stock and
Senior Notes, and therefore, no Rights elected: 100%
Noteholder Claims)
If Inducement Cash
elected: N/A
Intermet U.S. Cash-Out Amount: 2.75%
Holding, Inc.: approx.
$185,889,247 (includes If New Common Stock and
Noteholder Claims) Rights elected: 10.3%
If Inducement Cash
elected: Pro Rata share of
$648,143, estimated at
10.9%
Ironton Iron, Inc.: approx. Cash-Out Amount: 2.61%
$182,736,103 (includes
Noteholder Claims)
If New Common Stock and
Rights elected: 9.8%
If Inducement Cash
elected: Pro Rata share of
$290,373, estimated at
10.4%
Lynchburg Foundry Cash-Out Amount: 2.63%
Company: approx. $189,342,671
(includes Noteholder Claims) If New Common Stock and
Rights elected: 9.9%
If Inducement Cash
elected: Pro Rata share of
11
CLASS AND TYPE ESTIMATED AMOUNT OF ALLOWED CLAIMS ESTIMATED RECOVERY
OF CLAIM OR OR EQUITY INTERESTS BY DEBTOR ON OF ALLOWED CLAIMS OR
EQUITY INTEREST THE EFFECTIVE DATE, SUBJECT TO EQUITY INTERESTS BY DEBTOR
FOR EACH DEBTOR TREATMENT BY EACH DEBTOR OBJECTIONS (A) (B)
- --------------- ---------------------------------------------- ---------------------------------- --------------------------
$981,416, estimated at
10.4%
Northern Castings Cash-Out Amount: 2.94%
Corporation: approx. $181,482,233
(includes Noteholder Claims) If New Common Stock and
Rights elected: 11.1%
If Inducement Cash
elected: Pro Rata share of
$180,772, estimated at
11.7%
Sudbury, Inc.: approx. Cash-Out Amount: 2.62%
$182,804,825 (includes Noteholder
Claims)
If New Common Stock and
Rights elected: 9.9%
If Inducement Cash
elected: Pro Rata share of
$297,963, estimated at
10.4%
Tool Cash-Out Amount: 3.0%
Products, Inc.: approx.
$186,138,827 (includes Noteholder If New Common Stock and
Claims) Rights elected: 11.3%
If Inducement Cash
elected: Pro Rata share of
$737,597, estimated at
11.9%
Wagner Castings Company Cash-Out Amount: 2.61%
Company: approx. $184,580,140
(includes Noteholder Claims). If New Common Stock and
Rights elected: 9.8%
If Inducement Cash
elected: Pro Rata share of
$481,277, estimated at
10.4%
Wagner Cash-Out Amount: 2.62%
Havana, Inc.: approx. $181,369,667
(includes Noteholder Claims). If New Common Stock and
Rights elected: 9.9%
If Inducement Cash
elected: Pro Rata share of
$149,176, estimated at
10.4%
12
CLASS AND TYPE ESTIMATED AMOUNT OF ALLOWED CLAIMS ESTIMATED RECOVERY
OF CLAIM OR OR EQUITY INTERESTS BY DEBTOR ON OF ALLOWED CLAIMS OR
EQUITY INTEREST THE EFFECTIVE DATE, SUBJECT TO EQUITY INTERESTS BY DEBTOR
FOR EACH DEBTOR TREATMENT BY EACH DEBTOR OBJECTIONS (A) (B)
- --------------- ---------------------------------------------- ---------------------------------- --------------------------
Class 4a Impaired. If the Liquidating Plan Condition is Wagner Castings Company 0%
(General satisfied, each Holder paid: General Company: approx.
Unsecured $184,580,140 Unsecured Claims
Claims and On or as soon as reasonably practicable after (includes Noteholder Claims).
Unsecured the Effective Date, in full satisfaction of
Convenience the Allowed General Unsecured Claims in such
Claims Against Class, the Indenture Trustee, on behalf of
Wagner Castings each of the Noteholders, or each Holder of the
Company but Allowed General Unsecured Claims,
only if the respectively, will receive in full
Liquidating satisfaction of their Claims against Wagner
Plan Condition Castings:
is satisfied)
Cash equal to each Holder's Pro Rata share of
all proceeds remaining after liquidation of
all assets of Wagner Castings and the
satisfaction of all Liens thereon, including
those arising after the Effective Date, such
as the Liens arising under the Exit Financing
Facility.
Class 4b Impaired. On or as soon as reasonably SUDM, Inc.: approx. $179,931,240 Cash-Out Amount: 2.61%
(General practicable after the Effective Date, in full (consists only of Noteholder
Unsecured satisfaction of its Allowed General Unsecured Claims) If New Common Stock and
Claims Against Claims in such Class, the Indenture Trustee, Rights elected: 9.8%
SUDM, Inc.) on behalf of each of the Noteholders, or each
Holder of the Allowed General Unsecured If Inducement Cash
Claims, respectively, will receive: elected: N/A
(a) the Cash-Out Amount allocated to SUDM as
indicated at right and in Exhibit B to the
Plan; OR
(b) at the option of each such Holder of a
General Unsecured Claim and only to the extent
that such Holder of General Unsecured Claims
so elects on the Ballot:
(i) a Pro Rata portion of shares of New
Common Stock allocated to SUDM as indicated in
Exhibit B to the Plan, and
(ii) its Pro Rata share of the Rights
allocated to SUDM as indicated on Exhibit B to
the Plan; OR
13
CLASS AND TYPE ESTIMATED AMOUNT OF ALLOWED CLAIMS ESTIMATED RECOVERY
OF CLAIM OR OR EQUITY INTERESTS BY DEBTOR ON OF ALLOWED CLAIMS OR
EQUITY INTEREST THE EFFECTIVE DATE, SUBJECT TO EQUITY INTERESTS BY DEBTOR
FOR EACH DEBTOR TREATMENT BY EACH DEBTOR OBJECTIONS (A) (B)
- --------------- ---------------------------------------------- ---------------------------------- --------------------------
(c) at the option of each such Holder of a
General Unsecured Claim against SUDM and only
to the extent that such Holder makes the
Inducement Cash Election for SUDM on the
Ballot, the Inducement Cash Amount with
respect to SUDM.
For the avoidance of doubt, in the event a
Holder of a General Unsecured Claim fails to
elect the options set forth in subsections (b)
or (c) above, such Holder will receive Cash
equal to the Cash-Out Amount.
Class 4c Impaired. If the Liquidating Plan Condition Wagner Cash-Out Amount: 2.62%
(General is satisfied: Havana, Inc.: approx. $181,369,667
Unsecured (includes Noteholder Claims) If New Common Stock and
Claims And On the Effective Date, the Indenture Rights elected: 9.9%
Unsecured Trustee, on behalf of each of the
Convenience Noteholders, or a Holder of Allowed If Inducement Cash
Claims Against General Unsecured Claims against Wagner elected: Pro Rata share of
Wagner Havana, Havana, Inc., will receive in full $149,176, estimated at
Inc., but only satisfaction of their Claims: 10.4%
if the
Liquidating (a) the Cash-Out Amount allocated to
Plan Wagner Havana as indicated in Exhibit B to
Condition is the Plan; OR
satisfied)
(b) at the option of each such Holder of a
General Unsecured Claim and only to the extent
that such Holder of General Unsecured Claims
so elects on the Ballot:
(i) a Pro Rata portion of shares of the
New Common Stock allocated to Wagner Havana as
indicated in Exhibit B to the Plan,
(ii) its Pro Rata share of the Rights
allocated to Wagner Havana and indicated on
Exhibit B to the Plan; and
(iii) its Pro Rata share of the
Reorganized Wagner Havana New Common Stock
which will be conveyed
14
CLASS AND TYPE ESTIMATED AMOUNT OF ALLOWED CLAIMS ESTIMATED RECOVERY
OF CLAIM OR OR EQUITY INTERESTS BY DEBTOR ON OF ALLOWED CLAIMS OR
EQUITY INTEREST THE EFFECTIVE DATE, SUBJECT TO EQUITY INTERESTS BY DEBTOR
FOR EACH DEBTOR TREATMENT BY EACH DEBTOR OBJECTIONS (A) (B)
- --------------- ---------------------------------------------- ---------------------------------- --------------------------
immediately to Reorganized Intermet upon the
Effective Date; OR
(c) at the option of each such Holder of a
General Unsecured Claim against Wagner Havana
and only to the extent that such Holder makes
the Inducement Cash Election for Wagner Havana
on the Ballot, the Inducement Cash Amount with
respect to Wagner Havana as indicated in
Exhibit B to the Plan.
In the event a Holder of a General Unsecured
Claim fails to elect the options set forth in
subsections (b) or (c) above, such Holder will
receive the Cash-Out Amount allocated to
Wagner Havana.
(d) Class 5 Impaired - each Holder paid as soon as Intermet Pro Rata share of
(Unsecured practicable after the Effective Date, the Corporation: approx. $3,014,877 $488,681, estimated to be
Convenience Convenience Cash Amount shown at right and in 16.2%
Claims) Exhibit B to the Plan.
Alexander City Casting N/A
Company, Inc.: $0
Cast-Matic Pro Rate share of
Corporation: approx. $1,169,873 $134,304, estimated to be
11.5%
Columbus Pro Rata share of
Foundry, L.P.: approx. $3,749,449 $594,047, estimated to be
15.8%
Diversified Pro Rata share of
Diemakers, Inc.: approx. $350,337, estimated to be
$2,826,606 12.4%
Ganton Pro Rata share of
Technologies, Inc.: approx.
$4,438,257 $468,922, estimated to be
10.6%
Intermet Holding Company: $0 N/A
Intermet Illinois, Inc.: approx. Pro Rata share of $36,
$348 estimated to be 10.4%
Intermet Pro Rata share of $14,000,
International, Inc.: $0 estimated to be 100%
Intermet U.S. Pro Rata share of
Holding, Inc.: approx. $2,363,306 $257,093, estimated to be
10.9%
Ironton Iron, Inc.: approx. $2,517 Pro Rata share of $261,
estimated to be 10.4%
Lynchburg Foundry Pro Rata share of
Company: approx. $2,965,232 $309,212, estimated to be
15
CLASS AND TYPE ESTIMATED AMOUNT OF ALLOWED CLAIMS ESTIMATED RECOVERY
OF CLAIM OR OR EQUITY INTERESTS BY DEBTOR ON OF ALLOWED CLAIMS OR
EQUITY INTEREST THE EFFECTIVE DATE, SUBJECT TO EQUITY INTERESTS BY DEBTOR
FOR EACH DEBTOR TREATMENT BY EACH DEBTOR OBJECTIONS (A) (B)
- --------------- ---------------------------------------------- ---------------------------------- --------------------------
10.4%
Northern Castings Pro Rata share of
Corporation: approx. $1,117,590 $130,258, estimated to be
11.7%
Sudbury, Inc.: approx. $6,853 Pro Rata share of $711,
estimated to be 10.4%
SUDM, Inc.: $0 N/A
Tool Products, Inc.: approx. Pro Rata share of
$3,096,229 $367,900, estimated to be
11.9%
Wagner Castings Pro Rata share of
Company: approx. $2,950,382 $305,438, estimated to be
10.4%
Wagner Havana, Inc.: approx. Pro Rata share of $26,236,
$252,977 estimated to be 10.4%
Class 6a Unimpaired as to the Unimpaired Equity Alexander City Casting 100%; Allowed and retained
(Unimpaired Interests in the Unimpaired Equity Debtors, in Company, Inc.: 500 shares by Reorganized Intermet
Equity which cases the Holders are deemed to have
Interests) accepted the Plan and are not entitled to Cast-Matic Corporation: 47,805 100%; Allowed and retained
vote. As to such Unimpaired Equity Debtors, shares by Reorganized Sudbury,
the Class 6 Unimpaired Equity Interests will Inc.
be Allowed and retained by the applicable
Reorganized Debtor shown at right. Columbus Foundry, L.P.: 95% 100%; Allowed and retained
General Partner Interest, and 5% by Reorganized Intermet
Limited Partner Interest U.S. Holding, Inc. (95%
General Partner Interest)
and SUDM, Inc. (5% Limited
Partner Interest)
Diversified Diemakers, Inc.: 100%; Allowed and retained
10,000 shares by Reorganized Intermet
Ganton Technologies, Inc.: 100%; Allowed and retained
1,000,000 shares by Reorganized Intermet
Intermet Holding Company: 1,000 100%; Allowed and retained
shares by Reorganized Intermet
International, Inc.
Intermet Illinois, Inc.: 1,000 100%; Allowed and retained
shares by Reorganized Sudbury,
Inc.
Intermet International, Inc.: 500 100%; Allowed and retained
shares by Reorganized Intermet
Intermet U.S. Holding, Inc.: 1,000 100%; Allowed and retained
shares by Intermet International,
Inc.
Ironton Iron, Inc., but only as to Existing Common Stock:
16
CLASS AND TYPE ESTIMATED AMOUNT OF ALLOWED CLAIMS ESTIMATED RECOVERY
OF CLAIM OR OR EQUITY INTERESTS BY DEBTOR ON OF ALLOWED CLAIMS OR
EQUITY INTEREST THE EFFECTIVE DATE, SUBJECT TO EQUITY INTERESTS BY DEBTOR
FOR EACH DEBTOR TREATMENT BY EACH DEBTOR OBJECTIONS (A) (B)
- --------------- ---------------------------------------------- ---------------------------------- --------------------------
the Existing Common Stock: 23,000 100%; Allowed and retained
shares. See Class 6b for treatment by Reorganized Intermet
of the Existing Preferred Stock.
Lynchburg Foundry Company: 100 100%; Allowed and retained
shares by Reorganized Intermet
Northern Castings Corporation: 500 100%; Allowed and retained
shares by Reorganized Intermet
Sudbury, Inc.: 1,000 shares 100%; Allowed and retained
by Reorganized Intermet
SUDM, Inc.: 1,000 shares 100%; Allowed and retained
by Intermet International,
Inc.
Tool Products, Inc.: 100 shares 100%; Allowed and retained
by Reorganized Intermet
(e) Wagner Castings Company: If Liquidating Plan
296,550 shares if the Liquidating Condition is not satisfied:
Plan Condition is not satisfied. 100%; Allowed and retained
See Class 6b if the Liquidating by Reorganized Sudbury, Inc.
Plan Condition is satisfied.
(e) Wagner Havana, Inc.: 100 If Liquidating Plan
shares if the Liquidating Plan Condition is not
Condition is not satisfied. See satisfied: 100%; Allowed
Class 6b if the Liquidating Plan and retained by
Condition is satisfied. Reorganized Wagner
Castings Company
Class 6b Impaired as to the Impaired Equity Intermet Corporation: 0 shares 0%; Cancelled.
(Impaired Interests in the Impaired Equity Debtors,
Equity in which cases the Holders are not (e) Wagner Castings Company, but If the Liquidating Plan
Interests) entitled to vote on the Plan and are only if the Liquidating Plan Condition is satisfied:
deemed to have rejected it. On the Condition is satisfied: 0 shares For liquidation purposes
Effective Date, all of the Class 6b only, 1 share of Reorganized
Impaired Equity Interests of such Impaired Wagner Castings New Common
Equity Debtors will be cancelled. Stock issued and transferred
to a third-party liquidating
trustee.
(e) Wagner Havana, Inc., but If Liquidating Plan
only if the Liquidating Plan Condition is satisfied:
Condition is satisfied: 0 shares. 0%; Cancelled. 1000 shares
of Reorganized Wagner
Havana New Common Stock
issued to Holders of
General
17
CLASS AND TYPE ESTIMATED AMOUNT OF ALLOWED CLAIMS ESTIMATED RECOVERY
OF CLAIM OR OR EQUITY INTERESTS BY DEBTOR ON OF ALLOWED CLAIMS OR
EQUITY INTEREST THE EFFECTIVE DATE, SUBJECT TO EQUITY INTERESTS BY DEBTOR
FOR EACH DEBTOR TREATMENT BY EACH DEBTOR OBJECTIONS (A) (B)
- --------------- ---------------------------------------------- ---------------------------------- --------------------------
Unsecured Claims
and transferred to
Reorganized Intermet.
Ironton Iron, Inc., but only as Existing Preferred Stock:
to the Existing Preferred Stock: 0%; Cancelled.
0 shares.
(a) The Claims estimates set forth above reflect current estimates of Claims at
each Debtor. Actual distributions may be higher or lower based on the
resolution of Disputed Claims and actual Allowed Claims at each Debtor.
(b) This table assumes and incorporates the Substantive Consolidation
Settlement described in Section VIII.A. of this Disclosure Statement. In
particular, this table reflects the additional $6.7 million in value that,
pursuant to the settlement, Noteholders are providing to Holders of General
Unsecured Claims and Unsecured Convenience Claims (other than Noteholders),
as compared to the value that would have been distributed to such Creditors
in de-consolidated plans.
(c) See "Explanation of Creditor Treatment in Class 4" in Section VIII.D.2.a,
below.
(d) Allowed unsecured Claims that are less than or equal to $125,000 and for
which only one Debtor is liable, or for which the Holder makes a
Convenience Class Election. See "Explanation of Creditor Treatment in Class
5" in Section VII.D.6.a. below.
(e) See "Explanation of Impaired Equity Interest Treatment in Class 6b for
Wagner Castings Company and Wagner Havana, Inc." in Section VIII.D.7.a,
below.
For a more detailed description of the foregoing Classes of Claims and Equity
Interests and the proposed Distributions thereto, SEE SECTION VIII - "SUMMARY OF
THE PLAN."
A. Aggregate Noteholder Recoveries
DUE TO THE GUARANTIES DISCUSSED IN SECTION V.C. BELOW, THE NOTEHOLDERS HAVE
CLAIMS AGAINST INTERMET AND EVERY SENIOR NOTE GUARANTOR (ALL DEBTORS EXCEPT
INTERMET INTERNATIONAL, INC. AND INTERMET HOLDING COMPANY). THEREFORE, THE
NOTEHOLDERS WILL RECEIVE DISTRIBUTIONS FROM INTERMET AND EVERY SENIOR NOTE
GUARANTOR EQUAL TO THE SUM OF ALL OF THE CASH-OUT AMOUNT RECOVERIES, OR THE NEW
COMMON STOCK AND RIGHTS RECOVERIES, AS APPLICABLE, WHICH ARE ILLUSTRATED IN THE
TABLE ABOVE.
THE AGGREGATE PERCENTAGE RECOVERY FOR NOTEHOLDERS WHO ELECT TO RECEIVE THE
CASH-OUT AMOUNT FROM EACH SUCH DEBTOR IS ESTIMATED TO BE APPROXIMATELY 12.71%.
THE AGGREGATE PERCENTAGE RECOVERY FOR NOTEHOLDERS WHO ELECT TO RECEIVE NEW
COMMON STOCK AND RIGHTS FROM EACH SUCH DEBTOR IS
18
ESTIMATED TO BE APPROXIMATELY 47.8%. SEE SECTIONS V.C. AND VIII FOR MORE
DETAILS.
D. INTERCOMPANY CLAIMS
All Intercompany Claims will be released, waived and discharged as of the
Effective Date. Claims held by Non-Debtor Affiliates against the Debtors will,
with the consent of the Initial Committed Purchasers, to the maximum extent
practicable, be (a) released, waived, and discharged as of the Effective Date,
(b) offset against claims held by Debtors against Non-Debtor Affiliates, or (c)
converted to equity with respect to the obligee Debtor.
E. PRESERVATION OF CERTAIN CAUSES OF ACTION
In accordance with Section 1123(b)(3) of the Bankruptcy Code, and except as
otherwise provided in the Plan and/or the Confirmation Order, the Reorganized
Debtors will retain and may (but are not required to) enforce all Retained
Actions, including Avoidance Actions and other similar claims arising under
applicable state laws, including, without limitation, fraudulent transfer
claims, if any, and all other Causes of Action of a trustee and debtor-in
possession under the Bankruptcy Code. The Debtors or the Reorganized Debtors, in
their sole discretion, will determine whether to bring, settle, release,
compromise, or enforce any rights (or decline to do any of the foregoing) with
respect to the Retained Actions, other than the Avoidance Actions. The
Reorganized Debtors or any successor may pursue such litigation claims in
accordance with the best interests of the Reorganized Debtors or any successors
holding such rights of action. The failure of the Debtors to specifically list
any Claim, Causes of Action, right of action, suit or proceeding in the
Schedules or on Exhibit J to the Plan does not, and will not be deemed to,
constitute a waiver or release by the Debtors of such Claim, Causes of Action,
right of action, suit or proceedings, and the Reorganized Debtors will retain
the right to pursue such Claims, Causes of Action, rights of action, suits or
proceedings in their sole discretion and, therefore, no preclusion doctrine,
collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial,
equitable or otherwise) or laches will apply to such claim, right of action,
suit or proceeding upon or after the Confirmation or consummation of the Plan.
Further, recovery of any proceeds of Causes of Action will be deemed "for the
benefit of the Estates" as set forth in Section 550(a) of the Bankruptcy Code.
II. PLAN VOTING PROCEDURES; ACCEPTANCE; CONFIRMATION
A. VOTING PROCEDURES
Under the Bankruptcy Code, the only Classes that are entitled to vote to accept
or reject the Plan are Classes of Claims that are Impaired under the Plan.
Accordingly, Classes of Claims or Interests that are Unimpaired under the Plan
as to all Debtors, Classes 1 (Priority Claims Against Any Debtor), 2
(Pre-Petition Lender Claims Against Any Debtor), 3 (Class 3 Against Any Debtor
Except As To Wagner Castings Company), and 6a (Unimpaired Equity Interests) are
presumed to have accepted the Plan as to all Debtors and are not entitled to
vote on the Plan. Holders of Secured Claims held by Dana
19
Corporation Against Wagner Castings Company (Class 3a), General Unsecured Claims
against any Debtor (Classes 4, 4a, 4b, and 4c), and Unsecured Convenience Claims
(Class 5), as to all Debtors, are Impaired and will be entitled to vote to
accept or reject the Plan. Holders of Impaired Equity Interests (Class 6b) will
not vote because such Impaired Equity Interests will not receive any
Distribution and, accordingly, such Holders are deemed to have rejected the Plan
pursuant to Section 1126(g) of the Bankruptcy Code.
Creditors that hold Claims in more than one Impaired Class are entitled to vote
separately in each Class. To the extent that such multiple claims can be
identified by the Debtors' balloting and subscription agents, J.P. Morgan Trust
Company N.A. ("JP Morgan") and Financial Balloting Group L.L.C. ("Financial
Balloting Group", and with JP Morgan, the "Balloting Agents"), such a Creditor
will receive a separate Ballot for each of its Claims in each Class (in
accordance with the records of the Clerk of the Court) and should complete and
sign each Ballot separately. JP Morgan will serve as Balloting Agent with
respect to non-Noteholder Claims and Financial Balloting Group will serve as
Balloting Agent with respect to Noteholder Claims.
Except as otherwise ordered by the Bankruptcy Court, votes on the Plan will be
counted only with respect to Claims: (a) that are listed on the Schedules other
than as disputed, contingent or unliquidated; or (b) for which a Proof of Claim
was filed on or before the applicable Claims Filing Bar Date. Any vote by a
Holder of a Claim will not be counted if such Claim has been disallowed or is
the subject of an unresolved objection, or is otherwise not entitled to a vote
pursuant to the Bankruptcy Code or Bankruptcy Rules or a Bankruptcy Court order,
absent an order of the Bankruptcy Court allowing such Claim for voting purposes
pursuant to Section 502 of the Bankruptcy Code and Rule 3018 of the Bankruptcy
Rules.
Voting on the Plan by each Holder of a Claim in an Impaired Class entitled to
vote is important. After carefully reviewing the Plan and this Disclosure
Statement, each Holder of such a Claim should use the enclosed Ballot or Ballots
to vote to either accept or reject the Plan, and then return the Ballot or
Ballots by mail to the appropriate address.
B. ELECTIONS ON THE BALLOT TO RECEIVE NEW COMMON STOCK
The Ballots will give Creditors options to elect to receive New Common Stock and
to participate in the Rights Offering. All holders of New Common Stock will be
subject to the Stockholders' Agreement which will, among other things, govern
each holder of New Common Stock's access to information with respect to the
Reorganized Debtors and each holder's ability to transfer such holder's New
Common Stock. ACCORDINGLY, A PERSON'S ELECTION ON THE BALLOT TO RECEIVE NEW
COMMON STOCK WILL CONSTITUTE SUCH PERSON'S AGREEMENT TO BE BOUND BY THE
STOCKHOLDERS' AGREEMENT, WHICH IS ATTACHED TO THE PLAN AS EXHIBIT F AND AS
EXHIBIT J TO THIS DISCLOSURE STATEMENT.
20
C. SPECIFIC INSTRUCTIONS FOR HOLDERS OF IMPAIRED CLAIMS OTHER THAN
NOTEHOLDER CLAIMS
IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE PROPERLY COMPLETED AS
DESCRIBED IN THIS DISCLOSURE STATEMENT AND IN ACCORDANCE WITH THE BALLOT AND THE
VOTING INSTRUCTIONS ON THE BALLOT AND RECEIVED BY THE APPLICABLE BALLOTING AGENT
NO LATER THAN THE VOTING DEADLINE.
If a Ballot is damaged, lost, or missing, a replacement Ballot may be obtained
by sending a written request to the Balloting Agent. If you have any questions
about (1) the procedure for voting your Claim or with respect to the packet of
materials that you have received or (2) or if you wish to obtain an additional
copy of the Plan, this Disclosure Statement or any appendices or exhibits to
such documents, please contact JP Morgan at WWW.ADMINISTAR.NET or by telephone
at (904) 807-3023.
D. SPECIFIC INSTRUCTIONS FOR HOLDERS OF NOTEHOLDER CLAIMS
IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE PROPERLY COMPLETED AS
DESCRIBED IN THIS DISCLOSURE STATEMENT AND IN ACCORDANCE WITH THE BALLOT AND THE
VOTING INSTRUCTIONS ON THE BALLOT.
If a Ballot is damaged, lost, or missing, a replacement Ballot may be obtained
by sending a written request to the Balloting Agent. If you have any questions
about (1) the procedure for voting your Claim or with respect to the packet of
materials that you have received or (2) if you wish to obtain an additional copy
of the Plan, this Disclosure Statement or any appendices or exhibits to such
documents, please contact Financial Balloting Group at (646) 282-1800.
The Record Date for determining which Holders of Noteholder Claims are entitled
to vote on the Plan is August 9, 2005. THE INDENTURE TRUSTEE WILL NOT VOTE ON
BEHALF OF THE HOLDERS OF SUCH NOTEHOLDER CLAIMS. HOLDERS MUST SUBMIT THEIR OWN
BALLOTS IN ACCORDANCE WITH THE BALLOT AND THE INSTRUCTIONS ON THE BALLOT.
1. Beneficial Owners
A beneficial owner holding Senior Notes should vote on the Plan by completing
and signing the enclosed Ballot in accordance with the provisions of the Ballot
and returning it directly to the designated bank, broker, agent, nominee or
other record holder holding your Senior Notes ("Nominee") as promptly as
possible and in sufficient time to allow such Nominee to process the Ballot and
return it to Financial Balloting Group in the enclosed pre-paid envelope by the
Voting Deadline.
As described in the Ballot, in order to make the elections in the Ballot, a
beneficial owner must have been the beneficial owner of its Noteholder Claim
either (1) as of the Record
21
Date or the Subscription Record Date, as applicable with respect to each
election, and the date such beneficial owner's notes are tendered by its Nominee
with respect to certain elections, as stated in the Ballot, or (2) as of the
date the beneficial owner's notes are tendered by its Nominee as described in
the Ballot with respect to other elections, as stated in the Ballot.
In order to vote and make any election choice other than the "Cash-Out Amount"
alternative described in the Ballot, the beneficial owner's Nominee must
"tender" the beneficial owner's notes into the appropriate election account
established at the Depository Trust Company ("DTC") for that purpose. (The
Cash-Out Amount alternative is the default alternative under the Plan, and any
Senior Notes that have not had another specific alternative election made with
respect to them will receive the Cash-Out Amount treatment.) Senior Notes may be
withdrawn from a particular election account until the Voting Deadline. After
the Voting Deadline, no withdrawals will be permitted. Once the Senior Notes
have been "tendered" and the Voting Deadline has passed, no further trading will
be permitted in the Senior Notes held in the election accounts.
Any Ballot returned to a Nominee by a beneficial owner will not be counted for
purposes of acceptance or rejection of the Plan until such Nominee properly
completes and timely delivers to Financial Balloting Group that Ballot and a
master Ballot that reflects the vote of such beneficial owner.
2. Nominees
A Nominee that on the Record Date is the registered holder of Senior Notes for a
beneficial owner will obtain the votes of the beneficial owners of such Senior
Notes, consistent with customary practices for obtaining the votes of such
securities, as follows:
The Nominee will obtain the votes of beneficial owners by forwarding
to the beneficial owners the unsigned Ballots, together with the Disclosure
Statement, a return envelope provided by, and addressed to, the Nominee, and
other materials requested to be forwarded, no later than five (5) business days
after receipt by such Nominee of such materials. Each such beneficial owner must
then indicate his/her or its vote and any election on the Ballot, complete the
information requested in the Ballot, review the certifications contained in the
Ballot, execute the Ballot, and return the Ballot to the Nominee. After
collecting the Ballots, the Nominee will, in turn, complete a master Ballot
compiling the votes and other information from the Ballot, execute the master
Ballot, and deliver the master Ballot to Financial Balloting Group so that it is
RECEIVED by Financial Balloting Group before the Voting Deadline. Copies of all
Ballots returned by beneficial owners must be forwarded to Financial Balloting
Group (along with the master ballot) and retained by Nominees for inspection for
at least one year from the Voting Deadline. EACH NOMINEE SHOULD ADVISE ITS
BENEFICIAL OWNERS TO RETURN THEIR BALLOTS TO THE NOMINEE BY A DATE CALCULATED BY
THE NOMINEE TO ALLOW IT TO PREPARE AND RETURN THE MASTER BALLOT TO FINANCIAL
BALLOTING GROUP SO THAT
22
IT IS RECEIVED BY FINANCIAL BALLOTING GROUP BEFORE THE VOTING DEADLINE.
3. Miscellaneous
For purposes of voting to accept or reject the Plan, the beneficial owners of
Senior Notes will be deemed to be the "Holders" of the Claims represented by
such Senior Notes. The Debtors, in their sole discretion, may request that the
applicable Balloting Agent attempt to contact voters who have submitted
defective Ballots to cure any such defects in the Ballots or master Ballots.
Except as provided below, unless the Ballot or master Ballot is timely submitted
to the Balloting Agent before the Voting Deadline together with any other
documents required by such Ballot or master Ballot, the Debtors may, in their
sole discretion, reject such Ballot or master Ballot as invalid, and therefore
decline to utilize it in connection with seeking Confirmation of the Plan.
Other procedures apply to the voting process and Ballots generally as provided
in the Bankruptcy Court's Order (I) Approving Disclosure Statement; (II)
Approving Form And Manner Of Notice Of Confirmation Hearing (III) Establishing
Procedures For Filing Objections To Confirmation Of Debtors' Plan; (IV)
Approving Balloting Agents And Subscription Agents; (V) Approving Solicitation
Package And Related Procedures; (VI) Setting Voting And Subscription Record
Date; (VII) Approving Forms Of Ballots; (VIII) Establishing Voting Deadline;
(IX) Approving Procedures For Vote Tabulation; (X) Establishing Deadline And
Procedures For Temporary Allowance Of Claims (XI) Approving Procedures For
Rights Offering; And (XII) Approving Certain Other Related Matters, a copy of
which has been provided to voting Creditors and which is available upon request
to JP Morgan.
E. INQUIRIES
If you have questions about the procedures for voting your Claim, or the packet
of materials that you received, please contact the applicable Balloting Agent,
i.e., if you are not a Noteholder, contact JP Morgan at (904) 807-3023 and if
you are a Noteholder, contact Financial Balloting Group at (646) 282-1800.
If you wish to obtain additional copies of the Plan, this Disclosure Statement,
or the Exhibits to those documents at your own expense, unless otherwise
specifically required by Bankruptcy Rule 3017(d), please contact JP Morgan as
described above.
FOR FURTHER INFORMATION AND INSTRUCTION ON VOTING TO ACCEPT OR REJECT THE PLAN,
SEE SECTION XV OF THIS DISCLOSURE STATEMENT.
F. ACCEPTANCE
The Bankruptcy Code defines acceptance of a plan by an impaired class of claims
as acceptance by the holders of at least two-thirds (2/3) in dollar amount and
more than one-
23
half (1/2) in number of the allowed claims of that class which actually timely
and properly cast ballots.
In the event that any of the Impaired Classes of Claims do not accept the Plan
with respect to any Debtor, the Debtors reserve the right to (a) modify the Plan
in accordance with its terms, and (b) request that the Court confirm the Plan in
accordance with Section 1129(b) of the Bankruptcy Code, notwithstanding such
lack of acceptance, by a finding that the Plan provides fair and equitable
treatment to any Impaired Class of Claims voting to reject the Plan.
G. CONDITIONS TO CONFIRMATION OF THE PLAN AND EFFECTIVENESS OF THE PLAN
1. CONDITIONS PRECEDENT TO CONFIRMATION OF THE PLAN
The following must occur on or before Confirmation, unless and until each of the
following conditions has been satisfied or waived, in accordance with Article
9.02 of the Plan, in writing by the Debtors and each of the Initial Committed
Purchasers:
A. The Bankruptcy Court will have entered the Confirmation
Order;
B. The following documents will be executed and delivered to
the Initial Committed Purchasers, each in form and substance
satisfactory to the Initial Committed Purchasers:
(i) a commitment letter related to the Exit Financing
Facility;
(ii) the Private Placement Purchase Agreement; and
(iii) the Cash-Out Purchase Agreement.
C. The Restructuring Commitment Letter will have been approved
by the Bankruptcy Court pursuant to a Final Order.
D. The Restructuring Commitment Letter will not have been
terminated, and all conditions precedent thereunder will
have been satisfied or waived, unless such conditions
precedent relate to post-Confirmation events.
2. Conditions Precedent To Effectiveness Of The Plan
Notwithstanding any other provision of the Plan or the Confirmation Order, the
Effective Date of the Plan will not occur, and the Plan will not be binding on
any party, unless and until each of the following conditions has been satisfied
or waived, in accordance with
24
Article 9.02 of the Plan, in writing by the Debtors and each of the Initial
Committed Purchasers:
(i) The Confirmation Order, in form and substance reasonably
satisfactory to the Initial Committed Purchasers, will have become a Final
Order;
(ii) The closing and an initial funding will have occurred under
the Exit Financing Facility and all conditions precedent to the consummation
thereof (other than the occurrence of the Effective Date of the Plan) will have
been waived or satisfied in accordance with the terms thereof;
(iii) The closing and funding will have occurred under the Rights
Offering and/or Private Placement Purchase Agreement and the Cash-Out Purchase
Agreement and all conditions precedent to the consummation thereof (other than
the occurrence of the Effective Date of the Plan) will have been waived or
satisfied in accordance with the terms thereof;
(iv) The certificate of incorporation for Reorganized Intermet,
and the bylaws of Reorganized Intermet (and similar corporate governance
documents), the Registration Rights Agreement, the Stockholders' Agreement, and
the Exit Financing Facility will each be in form and substance acceptable to the
Initial Committed Purchasers and will be effective on the Effective Date.
(v) The New Common Stock will have been issued in accordance with
the Plan;
(vi) The Restructuring Commitment Letter will not have been
terminated and all conditions precedent thereunder will have been satisfied or
waived;
(vii) All other actions, documents and agreements necessary to
implement the Plan as of the Effective Date will have been delivered and all
conditions precedent thereto will have been satisfied or waived; and
(viii) Reorganized Intermet and the Initial Committed Purchasers
will have approved the terms of the Employment Agreements.
H. MODIFICATION OF THE PLAN AND AMENDMENTS
The Debtors may alter, amend, or modify the Plan or any Exhibits thereto under
Section 1127(a) of the Bankruptcy Code at any time prior to the Confirmation
Hearing Date with the consent of the Initial Committed Purchasers which consent
will not be reasonably withheld. The Debtors may, under Section 1127(b) of the
Bankruptcy Code, institute proceedings in the Bankruptcy Court to remedy any
defect or omission or reconcile any inconsistencies in the Plan, the Disclosure
Statement or the Confirmation Order, and such matters as may be necessary to
carry out the purposes and effects of the Plan.
25
I. EFFECT OF CONFIRMATION
If the Plan is Confirmed by the Bankruptcy Court:
- - The terms of the Plan will be binding on the Debtors, all Creditors,
Holders of Equity Interests, and other parties in interest, regardless of
whether they have accepted the Plan.
- - Except as provided in the Plan, all Claims and Equity Interests will be
discharged; and Creditors and Holders of Equity Interests will be
prohibited from asserting their Claims against or Equity Interests in the
Debtors or their Assets, or against Reorganized Intermet or any of the
Reorganized Debtors.
J. REVOCATION OF THE PLAN
The Debtors reserve the right to revoke or withdraw the Plan prior to the
Confirmation Date. If the Debtors so revoke or withdraw the Plan, then the Plan
will be null and void and, in such event, nothing contained therein will be
deemed to constitute a waiver or release of any Claims by or against, or any
Equity Interests in, any Debtor or any other Person or to prejudice in any
manner the rights of any Debtor or any Person in any further proceedings
involving any Debtor.
III. BACKGROUND OF THE RESTRUCTURING AND EVENTS LEADING TO COMMENCEMENT OF
BANKRUPTCY PROCEEDINGS(3)
The Debtors' Cases were initiated primarily in response to substantial and
unprecedented increases in the cost of raw materials, especially scrap steel.
The price of scrap steel, which is the Debtors' primary raw material for ferrous
casting operations, increased from approximately $160 per net ton at the
beginning of 2003 to approximately $210 per net ton at the end of 2003 and to
approximately $400 per net ton by the end of 2004. The price of scrap steel
reached a peak of $440 per net ton in November, 2004.
Industry commentators attribute this unprecedented rise in scrap steel prices
to, among other things:
- - An assessment of an export tariff by Russia and the Ukraine, which
decreased the supply available to countries such as China, South Korea and
Turkey.
- - High oil prices and war which contributed to a worldwide rise in freight
prices.
- ----------
(3) This information is intended as a summary only. No single factor, but
rather a combination of the events described below, led to these Chapter 11
Cases.
26
- - China's rapid macroeconomic and intensive manufacturing growth, which
fueled China's purchase of more than 3.3 million tons of U.S. scrap in 2003
alone (accounting for approximately 30% of all U.S. exported scrap for the
year).
- - South Korea's increased purchases of scrap steel from the U.S.
(approximately 2.5 million tons in 2003).
- - The economic rebound of the U.S. economy which resulted in increased
domestic demand for scrap.(4)
Because of pre-existing contractual pricing terms with most of the Debtors'
customers, the Debtors' were limited in their ability to pass these and other
raw material cost increases to customers. At the same time, some of the Debtors'
largest trade creditors began to tighten or eliminate credit terms, which
increased working capital requirements. The Debtors also experienced operational
difficulties at the Pulaski, Tennessee and Racine, Wisconsin light-metals
plants.
These financial and operational difficulties impaired the Debtors' ability to
continue to draw on the Pre-Petition Credit Facility. In an effort to avoid
anticipated defaults under loan covenants, which would have occurred as of
September 30, 2004, the Debtors entered into discussions with the Pre-Petition
Agent, seeking waivers of certain conditions contained in the Pre-Petition
Credit Facility. The Debtors were unable to obtain waivers on acceptable terms
and, consequently, the Cases were filed on September 29, 2004.
The Debtors have continued to operate their U.S. businesses as
debtors-in-possession under Bankruptcy Court protection from Creditors. The
Debtors continue to review all aspects of their business for opportunities to
improve performance, while seeking to restructure their secured and unsecured
debt, rationalize their facilities and cost structure, and effect a customer
strategy focused on scrap steel cost recovery and other commercial and financial
issues.
IV. OPERATIONS OF THE DEBTORS
A. CORPORATE STRUCTURE
Intermet, a Georgia corporation, has been publicly held since 1985. Intermet
directly or indirectly owns all of the issued and outstanding ownership
interests of each of the Domestic Subsidiaries listed below. Each of the
Domestic Subsidiaries listed below is an entity organized under the laws of the
respective states identified below and each is a Debtor in the Cases:
- ----------
(4) Spada, Alfred T., "Ferrous Scrap Pricing: A Case of Supply and Demand,"
Modern Casting, April 2004 at 18.
27
ALEXANDER CITY CASTING COMPANY, INC., a/k/a Intermet Alexander City Foundry, an
Alabama corporation
CAST-MATIC CORPORATION, a/k/a Intermet Stevensville Plant, a Michigan
corporation
COLUMBUS FOUNDRY, L.P., a/k/a Intermet Columbus Foundry, a Delaware limited
partnership
DIVERSIFIED DIEMAKERS, INC., a/k/a Intermet Hannibal Plant, a/k/a Intermet
Palmyra Plant, a/k/a Intermet Monroe City Plant, a Delaware corporation
GANTON TECHNOLOGIES, INC., a/k/a Intermet Racine Plant, a/k/a Intermet Racine
Machining, a/k/a Intermet Pulaski Plant, an Illinois corporation
INTERMET HOLDING COMPANY, a Delaware corporation
INTERMET ILLINOIS, INC., f/k/a Frisby P.M.C., Incorporated, an Illinois
corporation
INTERMET INTERNATIONAL, INC., f/k/a Intermet New River Foundry, f/k/a Intermet
Columbus Machining, a Georgia corporation
IRONTON IRON, INC., a/k/a Intermet Ironton Foundry, an Ohio corporation
INTERMET U.S. HOLDING, INC., a/k/a Intermet New River Foundry, a/k/a Intermet
Columbus Machining, a Delaware corporation
LYNCHBURG FOUNDRY COMPANY, a/k/a Intermet Archer Creek Foundry, a/k/a Intermet
Radford Foundry, a Virginia corporation
NORTHERN CASTINGS CORPORATION, a/k/a Intermet Hibbing Foundry, a Georgia
corporation
SUDBURY, INC., a Delaware corporation
SUDM, INC., a Michigan corporation
TOOL PRODUCTS, INC., a/k/a Intermet Minneapolis Plant, a/k/a Intermet Jackson
Plant, a Delaware corporation
WAGNER CASTINGS COMPANY, a/k/a Intermet Decatur Foundry, a Delaware corporation
WAGNER HAVANA, INC., a/k/a Intermet Havana Foundry, a Delaware corporation
Intermet also conducts business through its foreign non-Debtor Affiliates, as
listed in the organizational chart attached as Exhibit B hereto. None of the
foreign non-Debtor Affiliates have commenced, or is subject to, cases under
Chapter 11 of the Bankruptcy Code or similar insolvency proceedings in any other
jurisdiction. These foreign non-Debtor Affiliates continue to operate their
businesses in the ordinary course of business outside of any insolvency
proceeding.
In addition, there are two domestic non-Debtor Affiliates: Western Capital
Corporation and Transnational Indemnity Company. These domestic non-Debtor
Affiliates have
28
ceased operations and the Debtors anticipate that they will be dissolved
pursuant to state law prior to, or shortly after, the Effective Date.
B. INTERMET'S BUSINESS OPERATIONS
Intermet is one of the largest independent producers of ductile iron, aluminum,
magnesium and zinc castings in the world. In addition, the Debtors provide
machining and tooling related to their casting business along with a range of
other products and services to the automotive and industrial markets. The
Debtors specialize in the design and manufacture of highly engineered, cast
automotive components for the global light truck, passenger car, light vehicle
and heavy-duty vehicle markets. These products are primarily structural and
safety components and are used in vehicle powertrain, chassis, brake and
body/interior parts.
The Debtors supply cast products to a broad array of automotive and industrial
customers. Original equipment manufacturers ("OEMs") and Tier 1 and Tier 2
suppliers of automotive components increasingly rely on their suppliers to
design and engineer parts based on specific design parameters, including weight,
size, cost and performance criteria. In addition, OEMs, Tier 1 and Tier 2
suppliers look to their suppliers to solve problems arising in the design and
manufacturing process. The Debtors provide a broad range of full-service
capabilities, including advanced design and engineering, casting, machining and
sub-assembly.
The Debtors' ferrous metal products include ductile iron castings and related
machining operations. These castings include crankshafts, brackets, bearing
caps, steering knuckles, wheel spindles, differential carriers and cases, brake
anchors and calipers and suspension control arms. The Debtors' light metals
products include aluminum, magnesium and zinc castings and related machining
operations. These castings include engine covers, brackets, instrument panel
frames, connector housings, steering knuckles, airbag controller enclosures,
heat sinks, steering column components and windshield wiper motor enclosures.
The Debtors provide cast products used by automotive OEMs including, but not
limited to, DaimlerChrysler, Ford, General Motors, PSA Peugeot Citroen,
Volkswagen, BMW, Honda and Toyota, as well as their leading suppliers, such as
Delphi, Visteon, PBR Automotive, TRW, Continental Teves, Knorr, Denso, Metaldyne
and Dana.
As of December 31, 2004, the Debtors' Ferrous Metals segment had a total average
straight time casting capacity of 625,000 net tons, a decrease of 18,000 net
tons as compared to 643,000 net tons in 2003. The decrease was due to the
closure of the Debtors' Havana, Illinois plant in 2004. The Debtors' Light
Metals segment had a total average straight time available casting capacity of
75,600 net tons as of December 31, 2004, an increase of 4,000 net tons as
compared to 71,600 net tons in 2003.
The Debtors' casting facilities, including their European facilities, operated
at an average annual capacity utilization of 74% in 2004, 68% in 2003 and 70% in
2002.
29
1. Acquisitions And Closures
A. Columbus Machining Closure
In October 2004, the Debtors announced the closure of their Columbus Machining
Plant, located in Midland, Georgia, which occurred during the first quarter of
2005. As a result of this decision the Debtors recorded a $0.3 million
restructuring and impairment charge that was primarily comprised of the
write-down of inventory. See additional discussion in Intermet's Annual Report
on Form 10-K, December 31, 2004, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in Note 5 to the Consolidated
Financial Statements, Restructuring and Impairment Charges, included therewith.
See also Section VII.D.4 of this Disclosure Statement, "Columbus Machining
Closure," for additional details.
B. Racine Closure
In December 2004, the Debtors announced the closure of their Racine
(die-casting) Plant and Racine Machining Plant, both of which are located in
Sturtevant, Wisconsin. The Debtors closed these plants during the second quarter
of 2005. As a result of this decision, the Debtors recorded a $10.3 million
restructuring and impairment charge in 2004. This charge consisted of a
write-down of fixed assets of $6.5 million, write-down of inventory of $2.4
million, a pension plan curtailment of $1.2 million and an additional $0.1
million each for severance pay and other contractual benefits included in the
collective bargaining agreement that was in place at the plant. See additional
discussion in Intermet's Annual Report on Form 10-K, December 31, 2004,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in Note 5 to the Consolidated Financial Statements,
Restructuring and Impairment Charges included therewith. See also Section
VII.D.3 of this Disclosure Statement, "Racine Plant Closure," for additional
details.
C. Decatur Closure
On March 29, 2005, the Debtors announced their plan to close their Decatur
Foundry located in Decatur, Illinois during the fourth quarter of 2005. The
Debtors recognized asset impairment charges in 2004 of $10.9 million to reduce
the capital assets to their fair values. The Debtors are in the process of
determining reserves required for plant closing costs. See Section VII.D.5 of
this Disclosure Statement, "Decatur Plant Closure," for more details.
D. Porto, Portugal
Pursuant to the Debtors' agreement dated June 25, 2003 with Melfina - Estudos,
Servicos e Participacoes, S.A., the Debtors made a final payment in December
2004 to acquire 100% ownership of the shares of Fundicao Nodular, S.A. ("Porto
Foundry"), which is located in Porto, Portugal. Under the terms of the
agreement, the Debtors acquired the final 25% of the shares for a cash
investment of Euro 4.9 million (approximately $6.2 million). The Porto Foundry
is a caster of various ductile-iron automotive components.
30
2. Financial Information About Segments
Sales and operating loss for the Debtors' Ferrous Metals segment in 2004 were
$562.6 million and $16.9 million, respectively, compared with sales and
operating income of $493.4 million and $13.2 million, respectively, in 2003.
Sales and operating loss in the Debtors' Light Metals segment in 2004 were
$274.6 million and $124.6 million, respectively, compared to sales and operating
loss of $237.8 million and $44.2 million, respectively, in 2003. See additional
discussion in Intermet's Annual Report on Form 10-K, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and in Note 14 to
the Consolidated Financial Statements, Reporting for Business Segments included
therewith.
3. Products, Markets And Sales
The Debtors focus on value-added cast metal products, which they supply mainly
to the automotive market. In 2004, 2003 and 2002, approximately 95.4%, 94.1% and
95.2% of the Debtors' sales, respectively, were attributable to the automotive
market. Within the automotive market, the Debtors' products generally fall into
four major categories:
- - Chassis and suspension components such as steering knuckles, control arms,
steering gear housings, torsion bar adjusters, spindle carriers and spring
seats;
- - Powertrain components such as electronic control module housings, engine
crankshafts, bearing caps, front covers and cam covers; transmission
housings, retainers and bodies; and differential cases, carriers and
bearing caps;
- - Brake components such as light vehicle and heavy vehicle calipers, anchors
and brackets; and
- - Interior/body components such as steering column and lock housings,
electronic enclosures, mirror supports and brackets.
The Debtors also manufacture a variety of products for the industrial and
appliance markets. In 2004, 2003 and 2002, approximately 4.6%, 5.9% and 4.8% of
the Debtors' sales, respectively, were attributable to the industrial and
appliance markets.
Reportable segment sales for continuing operations by market for 2004 were as
follows:
MARKET
AUTOMOTIVE INDUSTRIAL AND OTHER TOTAL
---------- -------------------- -----
FERROUS METALS SEGMENT 65.8% 0.8% 66.6%
LIGHT METALS SEGMENT 29.6% 3.8% 33.4%
---- --- -----
TOTAL 95.4% 4.6% 100.0%
==== === =====
31
Reportable segment sales for continuing operations by market for 2003 were as
follows:
MARKET
AUTOMOTIVE INDUSTRIAL AND OTHER TOTAL
---------- -------------------- -----
FERROUS METALS SEGMENT 66.5% 1.0% 67.5%
LIGHT METALS SEGMENT 27.6% 4.9% 32.5%
---- --- -----
TOTAL 94.1% 5.9% 100.0%
==== === =====
Reportable segment sales for continuing operations by market for 2002 were as
follows:
MARKET
AUTOMOTIVE INDUSTRIAL AND OTHER TOTAL
---------- -------------------- -----
FERROUS METALS SEGMENT 63.3% 0.8% 64.1%
LIGHT METALS SEGMENT 31.9% 4.0% 35.9%
---- --- -----
TOTAL 95.2% 4.8% 100.0%
==== === =====
All of the Debtors' foundry facilities that supply the automotive industry have
QS-9000 and ISO-9001 or ISO-9002 certification. All of the Debtors' European and
many of their North American operations have been certified to the new TS-16949
quality standard.
The Debtors primarily market their products through their own sales and customer
service staff. To a limited degree, the Debtors use independent sales
representatives. The Debtors' principal sales offices are in Troy, Michigan and
Saarbrucken, Germany, but are also supported by a smaller sales office in Tokyo,
Japan. The Debtors primarily produce to customer orders and do not maintain any
significant inventory of finished goods not on order.
The Debtors' sales staff acts as a liaison between their customers and their
production personnel. Through the Debtors' applications and product engineering
groups, the Debtors offer engineering and design capabilities and customer
assistance at the design stage of customer programs. The Debtors utilize quality
assurance representatives and engineers to work with their customers'
manufacturing personnel to detect and avoid potential problems as well as to
evaluate new product opportunities. In addition to working with their customers'
design engineers and other technical staff, the Debtors' product design
engineers frequently work closely with customers' purchasing personnel and the
Debtors' own sales personnel to present their ideas and secure production
purchase orders.
The Debtors supply cast products to automotive OEMs directly and through Tier 1
and Tier 2 suppliers. During the past three years, net sales to significant
customers were as follows (as a percentage of consolidated net sales):
32
CUSTOMER 2004 2003 2002
-------- ---- ---- ----
DAIMLERCHRYSLER 11% 10% 18%
DELPHI 11% 11% 11%
FORD 9% 11% 12%
METALDYNE 10% 8% 1%
TRW 7% 6% 2%
VISTEON 6% 6% 5%
PBR AUTOMOTIVE 5% 6% 5%
GENERAL MOTORS 3% 5% 5%
During the past three years, net sales by market were as follows (as a
percentage of consolidated net sales):
2004 2003 2002
---- ---- ----
NORTH AMERICAN LIGHT TRUCKS 46% 52% 53%
NORTH AMERICAN PASSENGER CARS 26% 25% 29%
NORTH AMERICAN HEAVY VEHICLES 2% 1% 1%
EUROPEAN LIGHT VEHICLES 17% 13% 9%
EUROPEAN HEAVY VEHICLES 4% 3% 3%
INDUSTRIAL AND OTHER 5% 6% 5%
--- --- ---
TOTAL 100% 100% 100%
=== === ===
Sales of ferrous metals castings for continuing operations were 478,000, 455,000
and 429,000 net tons in 2004, 2003 and 2002, respectively. The increase in net
tons sold in 2004 compared to 2003 is primarily because of increased European
sales, the full effect of the consolidation of the Porto Foundry in July 2003,
and the use of the Debtors' products for a new DaimlerChrysler program in North
America. The increase in net tons sold in 2003 compared to 2002 is primarily
because of the Debtors' consolidation of the Porto Foundry's operating results
beginning in July 2003.
Sales of light metals castings were 41,000, 34,000 and 41,000 net tons in 2004,
2003 and 2002, respectively. The increase in net tons sold in 2004 compared to
2003 is primarily because the Debtors are supplying products for new programs
for DaimlerChrysler and Ford. The decrease in net tons sold in 2003 compared to
2002 was due primarily to lower market demand and the conversion of one
high-volume magnesium program to plastic.
4. Design, Manufacturing And Machining
The Debtors have a technical center located in Lynchburg, Virginia, and
engineering capability in Troy, Michigan, Saarbrucken, Germany and Tokyo, Japan,
that provide development, engineering and design services to the Debtors'
customers. In addition, the Debtors provide technical support to all of their
plants. The Debtors furnish their customers with design support using the
customers' native computer-aided design and engineering languages as well as the
Debtors' cast metal process simulation software. The Debtors' design and
engineering teams also assist their customers in the initial stages of product
creation and development.
The Debtors' capabilities include computer-aided engineering analysis, design
optimization, prototyping, modeling enhancements and testing. The Debtors use
three-
33
dimensional solid modeling software in conjunction with rapid prototype
development, among other computer-aided design techniques, to support their
customers in the initial stages of product design and prototype creation. The
Debtors' goal is to continually improve product quality and performance. The
Debtors also strive to reduce costs by offering new product solutions that
optimize designs, reduce weight, consider the use of alternative materials or
incorporate more efficient manufacturing processes. The Debtors believe that
their design and engineering capabilities serve as a competitive advantage as
their customers continue to outsource these critical activities to their own
suppliers.
The Debtors' Ferrous Metals segment produces ductile iron castings. The Debtors'
ferrous metal castings range from small parts weighing only a few ounces each to
products weighing up to 75 pounds each. The ferrous metals cast production
process involves melting scrap steel and pig iron in a cupola melter or an
electric furnace, adding various alloys and pouring the molten metal into molds
made primarily of sand. The molten metal cools and solidifies in the molds. The
molds are then broken apart and the castings are removed.
The Debtors' Light Metals segment produces castings of aluminum, magnesium and
zinc. The Debtors' light metal castings range from small products weighing only
a few ounces each to products weighing up to 50 pounds each. To produce light
metal castings, the Debtors use a process called die-casting, in which molten
aluminum, magnesium or zinc is introduced into a metal die and solidified. The
Debtors also produce light metal castings using pressure-counter-pressure
casting (PCPC (TM)), which is a casting method in which molten metal, usually
aluminum, is introduced into a permanent die cavity with low-pressure gas
applied to the metal in a sealed furnace.
Customers usually specify the properties that are required in their castings,
such as strength, ductility and hardness, and the Debtors then determine how
best to meet those specifications. Constant testing and monitoring of the
casting process is necessary to maintain both the quality and performance
consistency of the castings. Electronic analysis and monitoring equipment,
including x-ray, real-time radioscopy, ultrasonic and magnetic-particle testing
and chemical spectroscopy is used extensively in grading scrap metal, analyzing
molten metal and testing castings.
Most castings require machining before they can be put to their ultimate use.
This machining may include drilling, boring, milling, threading or cutting
operations. Many customers provide their own machining for castings or have them
machined by third parties. Most of the Debtors' light metals casting plants have
some machining operations integral in the casting operation. The Debtors also
contract with other companies to machine castings that the Debtors produce,
before the castings are shipped to customers.
5. Raw Materials
Scrap steel is the primary raw material that the Debtors use to manufacture
ferrous metals castings. The Debtors purchase scrap steel from numerous sources,
using a combination of spot market purchases and short-term contract
commitments. The Debtors have no material long-term contractual commitments with
any scrap steel supplier, nor is it
34
generally possible to secure long-term commitments in this market. Sharp
increases in scrap steel cost have had a significant negative impact on the
Debtors' financial results and were the major factor in our initiation of the
Cases. As part of the Cases, the Debtors have negotiated revised surcharge
policies related to the products in which scrap steel is a major input. These
agreements provide for price adjustments that are linked to the change in value
of certain steel indices, which the Debtors believe are representative of their
true scrap costs. These new policies became effective with a majority of the
Debtors' customers on January 1, 2005. In addition, lag times between scrap
steel price movements and the Debtors' ability to adjust prices have been
reduced from between one and six months to approximately one month with most of
the Debtors' major customers. The Debtors' customers have also agreed in some
cases to additional surcharges intended to cover price increases in other
materials and transportation.
In the Debtors' light metals business, the Debtors' primary raw materials are
primary and secondary aluminum alloy and primary magnesium ingots. The Debtors
purchase aluminum using spot market purchases and short-term contract
commitments. The Debtors have no material long-term contractual commitments with
any aluminum suppliers. The Debtors have contractual arrangements with many of
their major customers that allow the Debtors to adjust their castings prices to
reflect fluctuations in the cost of aluminum ingot. Adjustments are typically
made after a time period specified by the customers and always lag the market.
See Item 7A of Intermet's Annual Report on Form 10-K, December 31, 2004,
"Quantitative and Qualitative Disclosures about Market Risks" for further
discussion of raw materials purchases.
The Debtors had contractual arrangements with some of their suppliers, which
expired at various times through 2004, for the purchase of various materials,
other than scrap steel, primary and secondary aluminum ingot and primary
magnesium ingot, used in the manufacturing process. These contracts provided
limited protection against price increases of raw materials. Many of these
contracts were renewed in 2004. Other than as noted above, the Debtors do not
have specific arrangements in place to adjust casting prices for fluctuations in
the prices of alloy and other materials.
6. Cyclicality And Seasonality
Although most of the Debtors' products are generally not affected by
year-to-year automotive style changes, model changes may have an impact on
sales. In addition, the inherent cyclicality of the automotive industry has
affected the Debtors' sales and earnings during periods of slow economic growth
or recession. The Debtors' third and fourth quarter sales are usually lower than
first and second quarter sales due to plant closings by automakers for holidays,
vacations and model changeovers.
7. Backlog
Most of the Debtors' business involves supplying all or a portion of the
customer's requirements under blanket purchase orders that are issued on an
annual basis. Customers typically issue firm releases and shipping schedules on
a periodic basis, typically monthly or weekly. Many of the Debtors' customers'
purchase orders permit
35
cancellation of the orders at any time at the convenience of the customer. The
Debtors' backlog at any time generally consists only of the orders that have not
been released for shipment.
8. Competition
The Debtors compete with many other foundries domestically and internationally.
Some of these foundries are owned by major users of castings. For example, many
automobile manufacturers in North America and Europe, which are among the
Debtors' customer base, operate their own foundries. However, they also purchase
a significant number of castings from INTERMET and other companies. The Debtors'
castings also compete, to some degree, with other types of metal castings,
plastics, and steel and aluminum forgings and stampings.
The machining industry is highly fragmented and competitive. As in the foundry
industry, major purchasers of machined components often have significant
in-house capabilities to perform their own machining work. The Debtors compete
primarily on the basis of product quality, engineering, service and price. The
Debtors emphasize their ability to produce complex products in order to compete
for value-added castings.
9. Research And Development
The Debtors conduct process, material and product development programs for both
their ferrous metals and light metals products, principally at a technical
center and a research foundry in Lynchburg, Virginia. In addition, the Debtors
established an engineering center at their European headquarters in Saarbrucken,
Germany in 2003. This facility complements the capabilities of the Lynchburg
Technical Center and the Debtors' engineering capability in Troy, Michigan to
facilitate a global network of engineering research and development operations.
Current research and testing projects encompass both new manufacturing processes
and materials and product development. The Debtors' research foundry has a
self-contained melting and molding facility with extensive metallurgical,
physical and chemical testing capabilities. The Debtors' work on new
manufacturing processes focuses on ways to lower costs and improve quality. The
Debtors' product development work includes projects to extend the performance
range for existing materials such as with austempering of ductile iron and
special alloying for creep-resistant magnesium alloys. In addition, the Debtors
are currently working to develop new materials, improve manufacturing processes
and improve material properties. The Debtors directly expensed $1.5 million,
$1.2 million and $1.3 million in 2004, 2003 and 2002, respectively, for basic
research and development.
10. Employees
At April 30, 2005, the Debtors had 5,311 employees, comprised of 3,880 and 1,431
employees in North America and Europe, respectively. The Debtors' workforce
included 3,183 and 1,190 hourly manufacturing workers in North America and
Europe,
36
respectively, on such date. The remaining employees on such date were
management, engineering, sales and clerical personnel.
11. Financial Information About Geographic Areas
Long-lived and deferred tax assets were located as follows for 2004, 2003 and
2002 (in thousands of dollars):
For the year ended December 31:
2004 2003 2002
-------- -------- --------
IDENTIFIABLE ASSETS IN:
NORTH AMERICA $357,260 $560,117 $683,775
EUROPE $155,563 $126,567 $ 80,323
-------- -------- --------
TOTAL $512,823 $686,684 $764,098
======== ======== ========
Sales by geographic locations for external customers for 2004, 2003 and 2002
were as follows (in thousands of dollars):
For the year ended December 31:
2004 2003 2002
-------- -------- --------
SALES TO EXTERNAL CUSTOMERS:
NORTH AMERICA $658,987 $604,218 $663,648
EUROPE $175,842 $117,096 $ 88,506
OTHER INTERNATIONAL $ 2,344 $ 9,853 $ 3,583
-------- -------- --------
TOTAL $837,173 $731,167 $755,737
======== ======== ========
C. PROPERTIES
Intermet's headquarters are located in Troy, Michigan, and Intermet operates 18
manufacturing facilities throughout the world. All of the Debtors' manufacturing
locations are owned, except the Jackson Plants and Columbus Foundry facilities,
which are leased pursuant to financing arrangements utilizing industrial revenue
bonds. All of the Debtors' U.S. owned properties are subject to liens securing
bank borrowings. For further information on debt, see Section V of this
Disclosure Statement, and the discussion in Intermet's Annual Report on Form
10-K, December 31, 2004, "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and Note 8 to the Consolidated Financial
Statements, Debt, included therewith.
Intermet's operations in the United States occupy approximately 2,750,000 square
feet (approximately 419,000 square feet of which represents leased facilities)
in facilities located in Michigan, Virginia, Georgia, Illinois, Minnesota,
Missouri, Tennessee,
37
Wisconsin. Its operations outside of the United States occupy 596,000 square
feet (8,000 square feet of which represents leased facilities) in facilities
located in Germany and Portugal. The utilization and capacity of Intermet's
facilities fluctuates based upon current economics, customer demands and the mix
of components it produces and the vehicle models for which it is producing the
components. Intermet believes that substantially all of its property and
equipment is in good condition and that it has sufficient capacity to meet its
current manufacturing needs.
A list of Intermet's facilities is set forth on Exhibit C attached hereto.
Intermet's current lease for its corporate headquarters will expire on October
31, 2005. On August 4, 2005, Intermet filed a motion for authority to enter into
a new corporate headquarters lease agreement with 700 Tower SPE, LLC, Intermet's
new proposed landlord for premises located in the building located at 700 Tower
Drive, Troy, Michigan. As soon as is reasonably practicable, Intermet will move
to the new corporate headquarters facility, which is described in more detail on
Exhibit C.
D. DIRECTORS AND EXECUTIVE OFFICERS OF THE DEBTORS
The following table shows the current list of directors and executive officers
of each of the Debtors:
DEBTOR DIRECTORS (AGE) OFFICERS (AGE) POSITION
- ----------- ------------------------ -------------------------- ----------------------------------
INTERMET DR. GARY F. RUFF (53) DR. GARY F. RUFF (53) CHAIRMAN OF THE BOARD AND CHIEF
CORPORATION EXECUTIVE OFFICER
DR. JOHN P. CRECINE (65) DIRECTOR
JULIA D. DARLOW (63) DIRECTOR
NORMAN F. EHLERS (67) DIRECTOR
JOHN R. HORNE (67) DIRECTOR
THOMAS H. JEFFS II (66) DIRECTOR
CHARLES G. MCCLURE (51) DIRECTOR
RICHARD A. NAWROCKI (56) DIRECTOR
MITSUNOBU TAKEUCHI (63) DIRECTOR
PAMELA E. RODGERS (46) DIRECTOR
ROBERT E. BELTS (55) VICE PRESIDENT--FINANCE AND CHIEF
FINANCIAL OFFICER
TIMOTHY R. GILLILAND (54) VICE PRESIDENT - LIGHT METALS
TODD A. HEAVIN (43) VICE PRESIDENT--FERROUS METALS
MARY JO KARJALA (60) CORPORATE SECRETARY
ALAN J. MILLER (56) VICE PRESIDENT, GENERAL COUNSEL
AND ASSISTANT SECRETARY
BYTHA MILLS (49) VICE PRESIDENT, ADMINISTRATION
THOMAS E. PRUCHA (55) VICE PRESIDENT--TECHNICAL SERVICES
JOHN D. RUTHERFORD (58) VICE PRESIDENT SALES AND
MARKETING
MICHAEL S. SKRZYPCZAK (48) CORPORATE TREASURER
38
DEBTOR DIRECTORS (AGE) OFFICERS (AGE) POSITION
- --------------------- ---------------------------- ------------------------ ----------------------------
LAURENCE VINE-CHATTERTON VICE PRESIDENT INTERMET
(55) CORPORATION AND PRESIDENT --
INTERMET EUROPE
ALEXANDER CITY ROBERT E. BELTS PRESIDENT
CASTING COMPANY, INC. ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
CAST-MATIC ROBERT E. BELTS ROBERT E. BELTS CHAIRMAN & PRESIDENT
CORPORATION ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
MICHAEL S. SKRYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
COLUMBUS INTERMET INTERNATIONAL, INC. GENERAL PARTNER
FOUNDRY, L.P. SUDM, INC. LIMITED PARTNER
DIVERSIFIED ROBERT E. BELTS ROBERT E. BELTS PRESIDENT
DIEMAKERS, INC. ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
GANTON ROBERT E. BELTS ROBERT E. BELTS CHAIRMAN & PRESIDENT
TECHNOLOGIES, INC. ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
DR. GARY F. RUFF DIRECTOR
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
INTERMET ROBERT E. BELTS ROBERT E. BELTS PRESIDENT
HOLDING COMPANY ALAN J. MILLER ALAN J. MILLER SECRETARY
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
INTERMET ROBERT E. BELTS ROBERT E. BELTS CHAIRMAN & PRESIDENT
ILLINOIS, INC. ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
INTERMET ROBERT E. BELTS ROBERT E. BELTS CHAIRMAN & PRESIDENT
INTERNATIONAL, INC. DR. GARY F. RUFF DIRECTOR
ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
GREGORY B. WAHOWIAK VICE PRESIDENT
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
INTERMET U.S. ROBERT E. BELTS ROBERT E. BELTS PRESIDENT
HOLDING, INC. ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
DR. GARY F. RUFF DIRECTOR
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
39
DEBTOR DIRECTORS (AGE) OFFICERS (AGE) POSITION
- --------------------- ---------------- --------------------- --------------------------
IRONTON ROBERT E. BELTS ROBERT E. BELTS PRESIDENT
IRON, INC. ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
LYNCHBURG ROBERT E. BELTS ROBERT E. BELTS PRESIDENT
FOUNDRY COMPANY ALAN J. MILLER VICE PRESIDENT & SECRETARY
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
NORTHERN ROBERT E. BELTS ROBERT E. BELTS CHAIRMAN & PRESIDENT
CASTINGS CORPORATION ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
DR. GARY F. RUFF DIRECTOR
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
SUDBURY, INC. ROBERT E. BELTS ROBERT E. BELTS PRESIDENT
ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
SUDM, INC. ROBERT E. BELTS ROBERT E. BELTS PRESIDENT
ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
TOOL ROBERT E. BELTS ROBERT E. BELTS CHAIRMAN & PRESIDENT
PRODUCTS, INC. ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
WAGNER ROBERT E. BELTS ROBERT E. BELTS CHAIRMAN & PRESIDENT
CASTINGS COMPANY ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
DR. GARY F. RUFF DIRECTOR
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
WAGNER ROBERT E. BELTS ROBERT E. BELTS CHAIRMAN & PRESIDENT
HAVANA, INC. ALAN J. MILLER ALAN J. MILLER VICE PRESIDENT & SECRETARY
MICHAEL S. SKRZYPCZAK TREASURER
MARY JO KARJALA ASSISTANT SECRETARY
E. THE PRINCIPALS OF THE DEBTORS
1. Background Of Directors And Executive Officers
DIRECTORS
DR. RUFF became Chairman and Chief Executive Officer of Intermet in July 2004.
He served as President and Chief Executive Officer from July 2003 to July 2004
and as
40
President and Chief Operating Officer from December 2002 to July 2003. During
July 2000, he was promoted to Executive Vice President -- Technical Services.
Before joining Intermet, Dr. Ruff served in a variety of positions at CMI
International and its successor company, Hayes Lemmerz International, Inc.,
automotive parts suppliers. He served as President of North American Aluminum
Wheels -- Hayes Lemmerz International and as Corporate Vice President of Hayes
Lemmerz International, Inc. from February 1999 to May 1999. He was Chief
Technical Officer, Executive Vice President and director of CMI International,
Inc. from February 1994 until Hayes-Lemmerz purchased CMI in January 1999.
DR. CRECINE has been a director of Intermet since 1993. He is Chief Executive
Officer of B.P.T., Inc. and Chief Financial Officer of Islandless Network, LLC,
and a private investor and consultant. He was president of the Georgia Institute
of Technology from 1987 to mid-1994. Previously he served as a professor at the
University of Michigan and founding director of the Institute of Public Policy
Studies from 1965 to 1975. He became dean of the College of Humanities and
Social Sciences at Carnegie Mellon University in 1975, a position he held until
1982 when he became the University's provost and senior vice president for
Academic Affairs. He held that position until his Georgia Tech appointment. He
is a director of Interland, Inc. and IT/IS Telecom, LLC.
MS. DARLOW has been a director of Intermet since 2001. Ms. Darlow became counsel
to the Grand Rapids based law firm of Varnum Riddering Schmidt & Howlett LLP in
January 2005. Ms. Darlow is a former partner of the Detroit-based law firm of
Dickinson Wright PLLC, having joined the firm in 1971, and most recently serving
as a consulting member and attorney from January 2002 until October 2004. Ms.
Darlow also serves on the Board of Trustees for Marygrove College and the
Michigan Opera Theatre. She is the past President of the State Bar of Michigan.
MR. EHLERS has been a director of Intermet since 1997. He served as Vice
President-Purchasing and Supply at Ford Motor Company from 1992 until his
retirement in 1996. Before 1992 he served as Vice President-Supply for Ford of
Europe, executive director of North American Automotive Operations production
purchasing and executive director of purchasing and transportation services.
MR. HORNE has been a director of Intermet since 1997. He retired as Chairman of
the Board of Navistar International Corporation in February 2004, a position he
held since February 2003. Prior to that he served as Chairman and CEO from April
2002. Mr. Horne served as Chairman, CEO and President of Navistar International
Corporation from 1995 until 2002. He serves as a director for the Corrections
Corporation of America and is a director and member of the executive committee
of Junior Achievement of Chicago.
MR. JEFFS has been a director of Intermet since 1997. He retired as vice
chairman of First Chicago NBD Corporation and First National Bank of Chicago,
and president and chief operating officer of its Michigan subsidiary, NBD Bank,
effective October 31, 1998. He is a governor of the Stratford Festival of
Canada.
41
MR. MCCLURE has been a director of Intermet since 2002. He was elected to the
position of Chairman of the Board, Chief Executive Officer and President and a
director of ArvinMeritor in August 2004. Prior to joining ArvinMeritor, he
served Federal-Mogul Corporation as Chief Executive Officer and a member of the
Board of Directors from July 2003 to July 2004, and as President and Chief
Operating Officer and a member of the Board from January 2001 to July 2003. He
served Detroit Diesel Corporation as President, Chief Executive Officer and a
member of the Board from 1997 to December 2000, and held a number of management
positions with Johnson Controls, Inc. from 1983 to 1997, including President of
the Americas Region; Vice President and Managing Director of European
Operations; and Vice President and General Manager of Joint Ventures. From 1983
to 1985 Mr. McClure was employed at Hoover Universal, acquired by Johnson
Controls in 1985. He began his career with Ford Motor Company as a heavy-duty
truck sales engineer and field service engineer. Mr. McClure is a director of
R.L. Polk & Company, and serves on the boards of various business and civic
organizations.
MR. NAWROCKI has been a director of Intermet since 2003. He is currently the
President, Chief Executive Officer and member of the Board of Directors of CMI -
Management Services, Inc., part owner and President of R.W. Ventures, LLC, a
venture capital entity, President of R.W. Real Estate, LLC, and President of
Plan B Consultants, LLC. Prior positions include President and CEO and Director,
and Executive Vice President and Chief Financial Officer of CMI International,
Inc. from November 1986 to February 1999. Prior to joining CMI International,
Inc., Mr. Nawrocki was a partner with CPA firm Cuilla, Smith and Dale. He became
a Certified Public Accountant in Michigan in 1974. Mr. Nawrocki is a mentor with
the Northville, Michigan Youth Association.
MR. TAKEUCHI has been a director of Intermet since 2004. He serves as Chairman
Emeritus of DENSO International America, Inc., North American headquarters for
Japan-based DENSO Corporation, and honorary advisor to the Board of Directors of
DENSO Corporation since June 2004 after a 40-year career with the company.
Previously, Mr. Takeuchi served as a member of DENSO Corporation's Board of
Directors and as Chair and Chief Executive Officer of DENSO International
America since July 2002, having served as President and Chief Executive Officer
since June 1997. Mr. Takeuchi is a member and past president of the Japan
Business Society of Detroit and serves on boards of the National Association of
Manufacturers, Original Equipment Suppliers Association, Motor Equipment
Manufacturers Association, Economic Club of Detroit and the Greater Detroit
Chamber of Commerce.
MS. RODGERS has been a director of Intermet since 1999. She has been president
of Rodgers Chevrolet in Woodhaven, Michigan since November 1996. Previously, she
was president of Flat Rock Chevrolet-Oldsmobile from February 1993. Ms. Rodgers
serves on the boards of the Community Foundation for Southeastern Michigan, New
Detroit Inc., and the Detroit Black Chamber.
OFFICERS
42
DR. RUFF - see above.
MR. BELTS joined Intermet as Vice President - Finance and Chief Financial
Officer in August 2002 following 14 years with Detroit Diesel Corporation, most
recently serving as Senior Vice President and Chief Financial Officer. Prior to
this position, he was Vice President and Controller with Detroit Diesel
Corporation. He began his career in 1971 with General Motors Corporation, rising
to the position of Divisional Director of Budgets and General Accounting with
GM's Detroit-Diesel-Allison Division. Detroit-Diesel-Allison transitioned to an
independent company in 1988.
MR. GILLILAND joined Intermet in October 2003 as General Manager of the Intermet
Racine Operations. He was promoted in May 2004 to the position of Vice
President, Light Metals. Prior to joining Intermet, he was with J. L. French
Automotive Castings, Inc. where he served as Vice President of Quality, having
previously held various manufacturing positions with J.L. French. Before J.L.
French, Mr. Gilliland served as Vice President of Manufacturing for Nelson Metal
Products Corporation, acquired by J.L. French in October 1999. He has served as
Vice President and General Manager at various CMI International operations, was
a Plant Manager with Amcast Corporation, and began his career with General
Motors having held positions of increasing responsibility at the company's
casting operations.
MR. HEAVIN joined Intermet as a Group Vice President in June 2000. Prior to
joining Intermet, he held the position of Manufacturing Manager for Delphi's
energy and chassis division. Prior to Delphi, Mr. Heavin was with United
Technologies Automotive for six years as Plant Manager of the Holland, Michigan
plant and subsequently as a General Manager in the Interiors group.
MS. KARJALA joined Intermet as Executive Assistant to the Chairman and CEO in
September 1995. In December 2002 she was elected by the Board of Directors to
the position of Corporate Secretary, having served as Assistant Corporate
Secretary since January 1997. Prior to joining Intermet, Ms. Karjala was with
the Jervis B. Webb Company in the position of International Office Manager. She
began her career with the Ford Motor Company.
MR. MILLER joined Intermet in July 1998 as Corporate General Counsel and was
named Vice President and General Counsel in August 1999 and Secretary in 2000.
He served as Vice President, General Counsel and Secretary of Libbey-Owens-Ford
Co., an automotive parts supplier, from February 1987 to July 1998.
MS. MILLS joined Intermet in February 1997 as Manager of Investor Relations. In
December 2002, she was elected by the Board of Directors to the position of Vice
President of Administration, having been promoted from the Director of Corporate
Affairs, a position she held from March 1999. Prior to joining Intermet, Ms.
Mills served as Human Resources Manager, Accounting Supervisor and in other
positions with Dana Corporation.
43
MR. PRUCHA joined Intermet in October 1999 as Director, Process Research and
Development and was promoted to the position of Vice President, Technical
Services in December 2002. Prior to joining Intermet, Mr. Prucha served as Vice
President of Technology with CMI International for 10 years, having 30 years of
experience in the metal-casting industry, 20 of which at CMI.
MR. RUTHERFORD joined Intermet in June 2003 as Director of Sales responsible for
Light Metals sales and the activities of the company's independent
manufacturers' representatives. He was promoted to the position of Vice
President of Sales and Marketing in August 2004. Mr. Rutherford came to Intermet
from Eastern Alloys, Inc. located in New York, where he served as Vice President
Sales and Marketing. Prior to Eastern Alloys, he was Vice President of Business
Development at Dynacast /SPM, also of New York. Prior positions included Vice
President of Sales and Marketing at Magnesium Aluminum Corporation, and he began
his career in metals and casting at Aluminum Smelting and Refining Company, Inc.
ultimately becoming President and CEO.
MR. SKRZYPCZAK joined Intermet in 1995 as Director of Treasury Services. In
April 2000, the Board of Directors appointed Mr. Skrzypczak to the position of
Corporate Treasurer. Prior to joining Intermet, he was with the U.S. Department
of the Treasury, where he served as a national bank examiner for the Comptroller
of the Currency. Mr. Skrzypczak has also held treasury and financial positions
at Inacomp Computer Centers, Merrill Lynch and Wells Fargo Bank.
MR. VINE-CHATTERTON joined Intermet in January 1999 as a Vice President of
Intermet and President of Intermet Europe. Before coming to Intermet, he was a
divisional Finance Director of T&N PLC, UK, an automotive parts supplier, from
June 1996. Mr. Vine-Chatterton was a divisional Finance Director of Caradon PLC,
UK, an international supplier to building and home improvement industries, from
January 1994 until 1996.
2. Compensation Of The Principals Of The Debtors
A. ANNUAL COMPENSATION
The following chart sets forth the annual salaries for 2004 and 2005 of the
principals of the Debtors:
NAME 2004 ANNUAL COMPENSATION 2005 ANNUAL COMPENSATION
- ---- ------------------------ ------------------------
Dr. Gary F. Ruff $500,000 (7/2004) Same as 2004
Dr. John P. Crecine See "Director Compensation" below. Same as 2004
Julia D. Darlow See "Director Compensation" below. Same as 2004
Norman F. Ehlers See "Director Compensation" below. Same as 2004
44
NAME 2004 ANNUAL COMPENSATION 2005 ANNUAL COMPENSATION
- ---- ------------------------ ------------------------
JOHN R. HORNE SEE "DIRECTOR COMPENSATION" BELOW. SAME AS 2004
THOMAS H. JEFFS II SEE "DIRECTOR COMPENSATION" BELOW. SAME AS 2004
CHARLES G. MCCLURE SEE "DIRECTOR COMPENSATION" BELOW. SAME AS 2004
RICHARD A. NAWROCKI SEE "DIRECTOR COMPENSATION" BELOW. SEE "DIRECTOR COMPENSATION" BELOW.
PAMELA E. RODGERS SEE "DIRECTOR COMPENSATION" BELOW. SAME AS 2004
ROBERT E. BELTS $260,000 SAME AS 2004
TIMOTHY R. GILLILAND $200,000 SAME AS 2004
TODD A. HEAVIN $210,000 SAME AS 2004
MARY JO KARJALA $ 72,000 $75,600 (4/05)
ALAN J. MILLER $225,000 SAME AS 2004
BYTHA MILLS $150,000 SAME AS 2004
THOMAS E. PRUCHA $175,000 SAME AS 2004
JOHN D. RUTHERFORD $200,000 SAME AS 2004
MICHAEL S. SKRZYPCZAK $130,000 SAME AS 2004
LAURENCE VINE-CHATTERTON $204,721 / E186,110 (1E = $1.1) $249,260 / E206,000 (1E=$1.21)
In addition, officers received a 401(k) match, ESOP contribution, term life
insurance benefits, other medical and health benefits, and certain other
personal benefits. See also the discussion of the Key Employee Retention Plan in
Section VII.G. of this Disclosure Statement.
B. DIRECTOR COMPENSATION
The Debtors do not pay board fees to their employee directors. The Debtors pay
Dr. Crecine, Ms. Darlow, Mr. Ehlers, Mr. Horne, Mr. Jeffs, Mr. McClure, Mr.
Nawrocki, Ms. Rodgers and Mr. Takeuchi, as non-employee directors, $8,500
quarterly, for regularly scheduled board or committee meetings and telephone
board and committee meetings. In addition, non-employee directors receive a fee
of $1,000 for special board or committee meetings other than the afternoon
before or day of a regularly scheduled board meeting. Committee chairpersons
receive a fee of $2,000 per year paid quarterly, and directors are reimbursed
for out-of-pocket expenses associated with attending meetings or conducting
board business.
45
Effective July 2004, the Debtors increased the compensation of their lead
director, Mr. Nawrocki, $3,750 per quarter in addition to the fees described
above. Effective April 2005, the Debtors further increased Mr. Nawrocki's
compensation to an aggregate increase of $12,500 per quarter in addition to the
fees described above.
F. ENVIRONMENTAL RELATED LIABILITIES
1. Description Of Environmental Liabilities
Various of the Debtors conduct and have conducted industrial operations at
numerous facilities in the United States. As a result, they have been involved
in matters relating to the discharge of materials into the environment. The
Debtors have participated and are participating in a number of on-site
investigation, monitoring and/or remediation projects at various owned and
non-owned sites, some of which are being managed or overseen by federal, state
and/or local regulatory agencies. The Debtors' operations are also regulated by
state and local environmental agencies that issue various permits covering the
Debtors' operations with respect to discharges to air, water and solid or
hazardous waste disposal. Various of the Debtors have been involved in some
proceedings with state or federal regulators alleging noncompliance with permit
limitations or other matters. Further information with respect to these matters
is set forth at Item 17 of the various Debtors' Statements of Financial Affairs.
Due to the technical and legal nature of potential environmental related
liabilities, the Debtors have utilized and continue to utilize the services of
counsel and environmental consultants to obtain the technical advice and
expertise necessary to ensure that the Debtors are in compliance with federal,
state and local laws and regulations and to insure that the Debtors' rights are
protected.
2. Future Activities At Owned Sites
The Debtors intend to satisfy all environmental claims by continuing with all
compliance and remediation activities currently underway, or as may be required
in the future, in connection with owned sites (except as specifically noted
herein).
With respect to the Plan of Wagner Havana only, on March 11, 2005, the Illinois
EPA issued a violation notice letter (No. L-2005010196) to Wagner Havana,
regarding the Havana foundry site alleging various violations involving soil and
groundwater contamination. On May 18, 2005, Wagner Havana submitted a compliance
commitment agreement to the Illinois EPA. On August 4, 2005, the Illinois EPA
issued a proposed modification to the compliance commitment agreement which set
forth a compliance plan and other terms and conditions to address both the on
and off-site contamination, as set forth in Exhibit N to the Plan. The
compliance plan and all of the terms and conditions of the revised and modified
compliance commitment agreement are expressly incorporated into the Plan and
will be the obligations of Reorganized Wagner Havana and will be enforceable by
the Bankruptcy Court or state court in accordance with applicable non-bankruptcy
law. Given the current scope of the work, Wagner Havana's consultant estimates
the cost of the remediation work to be between $100,000 and $200,000.
46
3. Continuation Of Remediation Activities At Certain Non-Owned Sites
Debtor Lynchburg Foundry Company is the operator and permittee of the Falwell
Aviation landfill, which is located on property that is leased by Lynchburg
Foundry Company in Lynchburg, Virginia. The site has been used as an industrial
landfill for non-hazardous waste materials from foundry operations. Pursuant to
state and federal requirements, Intermet has been required to issue a letter of
credit in the aggregate amount of $2.7 million order to provide financial
assurance for the operation and closure of three landfills in Virginia,
including the Falwell Aviation Landfill. The other two landfills are located on
property owned by Lynchburg Foundry Company in Campbell County, Virginia and
Radford, Virginia. Pursuant to federal and state requirement, Lynchburg Foundry
Company is required to undertake closure of the Falwell Aviation Landfill. If
the closure work is not undertaken in compliance with regulations, the
Commonwealth of Virginia would be entitled to draw on the letter of credit to
perform such work. The Debtors estimate that the work can be performed at a cost
that is less than the amount that could be drawn on the letter of credit. As a
result, the Plan provides that Lynchburg Foundry Company will continue to
perform this work and that the obligations of Lynchburg Foundry Company to
perform closure and post-closure work at the Falwell Aviation Landfill will not
be discharged by the Plan.
4. Discharge Of Environmental Claims Related To Non-Owned Sites
The Debtors intend to discharge any and all obligations and claims relating to
the following matters, all of which involve non-owned sites:
A. Any liability associated with pre-filing off-site exposure
to contaminants migrating from the property located at 227
Wagner Avenue, Havana, Illinois, including but not limited
to, off-site drinking water wells (Debtor: Wagner-Havana,
Inc.).
B. Any and all liability for any off-site contamination
emanating from the properties located at 1701 West Main
Street and 1605 West Main Street, Radford, Virginia,
including potential contamination in the New River (Debtors:
Intermet International, Inc., Intermet U.S. Holding, Inc.,
Lynchburg Foundry Company).
C. Any and all liability associated with pre-filing off-site
exposure to contaminants migrating from the property located
at 825 N. Lowber Street, Decatur, Illinois (Debtor: Wagner
Castings Company).
D. Any and all liability associated with pre-filing off-site
exposure to contaminants migrating from the property
47
located on Florida Avenue in Lynchburg, Virginia (Debtor:
Lynchburg Foundry Company).
E. Any and all liability for environmental investigation or
remediation activities at any property formerly owned by any
Debtor, or for which any Debtor may be responsible by
contract or otherwise, including but not limited to the
matters listed on the Schedules of any Debtor, and the
following: (i) General Products Corporation, 2400 East South
Street, Jackson, Michigan (Debtor: Sudbury, Inc., Intermet
Corporation); (ii) Property located at 506 Randolph Avenue,
St. Paul, Minnesota (Debtor: Intermet Corporation, Sudbury,
Inc.); (iii) Property located at 118-130 Reed Street,
Philadelphia, Pennsylvania (Debtor: Sudbury, Inc.); (iv)
Iowa Mold Tooling, 500 Highway 18 West, Garner, Iowa
(Debtor: Sudbury, Inc., Intermet Corporation); (v) Frisby
PMC, 1500 Chase Avenue, Elk Grove Village, Illinois (Debtor:
Intermet Illinois, Inc., Intermet Corporation); (vi) BWX
Technologies, Inc. property located at 1570 Mt. Athos Road,
Lynchburg, Virginia (Debtor: Lynchburg Foundry Company);
(vii) Property located adjacent to 1500 Chase Avenue, Elk
Grove Village, Illinois (Debtor: Intermet Illinois, Inc.,
Intermet Corporation)
F. Allegations of Pre-Petition Non-Compliance at the Archer
Creek Facility
As of the Petition Date, Lynchburg Foundry Company was involved in negotiations
with the Virginia Department of Environmental Quality regarding the resolution
of allegations that Lynchburg was not in compliance with the air emissions
permit issued to the Archer Creek facility. On July 19, 2004, the Virginia
Department of Environmental Quality issued a Notice of Violation to Lynchburg
alleging that the facility had violated air emissions limitations in the Title V
permit previously issued to the facility. Lynchburg has taken steps to remedy
the conditions that led to the alleged violations, including the replacement of
bags on the baghouse and installation of new gauges and valves. Lynchburg
believes that the facility is currently in compliance with the limitations in
the Title V permit.
Lynchburg has been negotiating a Consent Decree with the Virginia Department of
Environmental Quality that will also provide for (1) the implementation of a
Supplemental Environmental Project ("SEP") to install an additional baghouse at
a minimum cost of $11,377, and (2) the payment of $15,170 as a civil penalty for
the alleged violations. Although the alleged violations occurred prior to the
Petition Date, Lynchburg believes that the implementation of the SEP and payment
of the civil penalty will enhance the cooperation of the Virginia Department of
Environmental Quality with respect to Lynchburg's future operations which will
continue to be regulated closely by
48
the Virginia Department of Environmental Quality and therefore Lynchburg will
seek permission from the Bankruptcy Court to enter into the Consent Decree.
V. THE DEBTORS' DEBT OBLIGATIONS
A. THE PRE-PETITION CREDIT FACILITY
Prior to the Petition Date, the Debtors' operations were financed, in part, by
the Pre-Petition Credit Facility, in which approximately 20 Pre-Petition Lenders
participated (whether pursuant to direct agreements or instruments with the
Debtors, or through participation with the lenders in contractual privity with
the Debtors), and for which the Bank of Nova Scotia is the Pre-Petition Agent.
The Pre-Petition Credit Facility is memorialized by a January 8, 2004, credit
agreement (as amended by that First Amendment dated April 13, 2004) consisting
of a $90 million revolving credit facility and a $120 million term loan (the
"Pre-Petition Credit Agreement"). As of the Petition Date, the Debtors had
borrowed approximately $41 million, and had approximately $27 million of
outstanding standby letters of credits issued under the revolver. Intermet is
the principal obligor under the Pre-Petition Credit Facility, and the remaining
Debtors are joint and several guarantors of the obligations thereunder pursuant
to that certain Second Amended and Restated Guaranty Agreement dated as of
January 8, 2004.
Pursuant to a First Amended and Restated Borrower Pledge and Security Agreement
dated as of January 8, 2004, Intermet granted to the Pre-Petition Agent, for the
benefit of the Pre-Petition Lenders, valid and enforceable first priority liens
in substantially all of the personal and intangible properties of Intermet,
including all accounts, all the Debtors' United States domestic assets and
pledges of 65% of the stock of certain of the Debtors' foreign Non-Debtor
Affiliates.
The $90.0 million revolving credit portion has a maturity date of January 8,
2009, and the $120 million term loan has a maturity date of January 8, 2010.
During 2004, principal payments of $0.6 million had been made towards the term
loan before the filing of the Debtors' Cases. Due to the default created by the
filing of the Cases, effective September 30, 2004, pricing on the revolving loan
and term loan were modified to a floating rate. The annual interest rates as of
December 31, 2004 were 6.5% for the revolving credit line and 7.0% for the term
loan. Interest is payable monthly on both loans. In addition, and also effective
as of September 30, 2004, the Debtors are required to accrue additional interest
at an annual rate of 1.5%, which is added monthly to the outstanding loan
balances for both the revolver and term loan.
B. LETTERS OF CREDIT AGREEMENT
As of the Petition Date, the Debtors were also parties to a $35.6 million Letter
of Credit Facility Agreement dated January 8, 2004 (the "L/C Facility
Agreement"). In consideration for the L/C Facility Agreement, the Bank of Nova
Scotia issued a letter of credit in the amount of approximately $35.6 million
(the "Georgia Letter of Credit") to secure payment of the Georgia Revenue Bonds
(as defined below). The L/C Facility
49
Agreement was secured solely by an account (the "Cash Collateral Account") of
the Debtors holding $35.6 million of the Debtors' funds (the "L/C Cash
Collateral").
C. SENIOR NOTES
The Debtors also used the capital markets to finance their operations and had
indebtedness under a series of unsecured Senior Notes issued on June 13, 2002,
in the aggregate outstanding principal amount of $175 million. The Senior Notes
bear a fixed rate of interest at 9.75%, and will mature on June 15, 2009.
Interest is due each June 15 and December 15.
U.S. Bank National Association is the Indenture Trustee for the Senior Notes.
The Debtors are obligated under the Senior Notes to pay the reasonable fees and
out-of-pocket expenses of the Indenture Trustee.
THE SENIOR NOTES ARE UNCONDITIONALLY GUARANTEED, JOINTLY AND SEVERALLY, BY ALL
OF THE DEBTORS EXCEPT INTERMET INTERNATIONAL, INC. AND INTERMET HOLDING COMPANY
(THE "SENIOR NOTE GUARANTORS"). THIS MEANS THAT HOLDERS OF THE SENIOR NOTES MAY
ASSERT THE ENTIRE AMOUNT OF THEIR CLAIMS AGAINST EACH AND EVERY SENIOR NOTE
GUARANTOR UNTIL THEIR CLAIMS ARE SATISFIED.
Restrictions contained in the indenture covering the Senior Notes include, but
are not limited to, restrictions on incurring additional secured debt,
repurchasing of Intermet's capital stock, disposal of assets, affiliate
transactions, and transfer of assets.
1. Benefit Of The Indenture To All Debtors(5)
As mentioned above, payment of the amounts due pursuant to the Indenture are
guaranteed by all of the Debtors except Intermet International, Inc. and
Intermet Holding Company. The proceeds of the Indenture were, in full, used to
pay down that certain First Amended and Restated Term Loan Agreement dated July
17, 2001, to which the Debtors were a party (the "2001 Term Loan Agreement").
The Indenture, along with any financing to which Intermet is a party, provides a
substantial benefit to all of the Debtors. Intermet is responsible for loaning
funds to its subsidiaries in order for them to operate in the ordinary course of
business. This is documented by inter-company accounts and notes between
Intermet and its subsidiaries. Without these inter-company loans from Intermet,
the subsidiaries would have no funds from which to operate on a daily basis or
to repay the 2001 Term Loan Agreement. Therefore, in exchange for any guaranty
of Intermet obligations, each subsidiary receives equivalent value. In the
specific context of the 2001 Term Loan Agreement, by guarantying the Indenture
and having the funds
- ----------
(5) This discussion is intended to provide an example of the benefits and is
not intended to be an exhaustive discussion of the issues. The Debtors
reserve their rights to respond to any arguments on this issue.
50
raised pursuant to the Indenture applied to the 2001 Term Loan Agreement, the
subsidiaries secured themselves of a release of their secured guaranty
obligations pursuant to the 2001 Term Loan Agreement.
D. INDUSTRIAL REVENUE BONDS
1. Columbus Foundry
One of the Debtors, Columbus Foundry, L.P., had obligations relating to
indebtedness under variable rate limited obligation revenue bonds in the
approximate outstanding principal amount of $35 million (the "Georgia Revenue
Bonds"), which was secured by the Georgia Letter of Credit issued by the
Pre-Petition Agent in favor of Harris Trust & Savings Bank. Pursuant to the
Georgia Revenue Bonds, Columbus Foundry, L.P. was required to make monthly
interest-only payments at a variable rate. The interest rate reset weekly and at
September 30, 2004, was approximately 2%. The principal was due December 1,
2019.
On October 29, 2004, in light of the default created by the filing of the Cases,
the beneficiary of the Georgia Letter of Credit drew the amount of $35,050,051,
causing a reimbursement obligation on the part of Intermet to the Bank of Nova
Scotia in the same amount including accrued interest.
In order to satisfy such reimbursement obligation, on November 8, 2004, pursuant
to the terms and conditions of the DIP Financing Order, Intermet released to the
Bank of Nova Scotia all of the L/C Cash Collateral then on deposit in the Cash
Collateral Account, which was applied by the Bank of Nova Scotia in permanent
reduction and discharge of Intermet's obligations under the L/C Facility
Agreement and the balance remaining after such application (approximately
$770,000) was returned by the Bank of Nova Scotia to Intermet.
2. Lynchburg Foundry
Another of the Debtors, Lynchburg Foundry Company, had approximately $2 million
outstanding under industrial development revenue bonds in favor of SunTrust Bank
as trustee (the "Lynchburg Bond"). Lynchburg Foundry Company was required to
make partial redemption of its industrial development revenue bonds on an annual
basis through June 2006. The redemption amount was $350,000 per year, with a
final payment at maturity of $1,650,000. The bonds were subject to optional
redemption prior to maturity and bear an interest rate of 7.0%.
The Lynchburg Bond was unsecured but was guaranteed by Mead Corporation, a
former owner of the property. Since the default created by the commencement of
the Cases, Mead Corporation has made and continues to make payments that have
come due pursuant to the terms of its guaranty of the Lynchburg Bond.
3. Tool Products
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As part of an asset purchase transaction, the Debtor now known as Tool Products,
Inc. assumed $4.5 million of industrial development revenue bond debt in favor
of U.S. Bank, National Association as trustee (the "Tool Products Bond"), of
which approximately $1.5 million in principal and interest was outstanding as of
the Petition Date, which amount was secured by a letter of credit issued
pursuant to the revolver under the Pre-Petition Credit Agreement. Tool Products,
Inc. was required to make annual principal payments of $500,000, with a final
maturity date of January 1, 2007. The interest rate reset weekly and at
September 30, 2004, was approximately 2%.
On November 1, 2004, in light of the default created by the commencement of the
Cases, the beneficiary of the Tool Products Bond drew the entire face amount
thereof causing a reimbursement obligation on the part of Intermet to the
Pre-Petition Lenders in the amount of $1,530,821, which amount is reflected as
part of the amount owed to the Pre-Petition Lenders under the revolver pursuant
to the Pre-Petition Credit Agreement.
E. TRADE DEBT
The Debtors estimate that there are approximately $83.3 million of General
Unsecured Claims which may be Allowed against the Debtors in the aggregate (not
including Noteholder Claims, and subject to objections). These General Unsecured
Claims are allocated between each Debtor as follows:
Approximate Amount Of Non-Noteholder
Debtor General Unsecured Claims
- ------ ------------------------------------
Intermet Corporation, et al.* $ 612,671
Alexander City Casting Company, Inc. $ 0
Cast-Matic Corporation $ 3,436,392
Columbus Foundry, L.P. $12,215,255
Diversified Diemakers, Inc. $ 5,186,370
Ganton Technologies, Inc. $10,523,266
Intermet Corporation $11,280,731
Intermet Illinois, Inc. $ 400,348
Intermet International, Inc. $ 14,000
Intermet U.S. Holding, Inc. $ 7,321,313
Ironton Iron, Inc. $ 1,807,380
Lynchburg Foundry Company $11,376,663
Northern Castings Corporation $ 1,668,583
Sudbury, Inc. $ 1,880,438
SUDM, Inc. $ 0
Tool Products, Inc. $ 8,303,816
Wagner Castings Company $ 6,599,283
Wagner Havana, Inc. $ 691,404
TOTAL: $83,317,913
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Note: The Claims estimates set forth above reflect current estimates of Claims
at each Debtor. Actual distributions may be higher or lower based on the
resolution of Disputed Claims and actual Allowed Claims at each Debtor.
* This entry represents Claims filed without identifying the particular
Debtor against which such Claim is asserted.
The Debtors anticipate that some of these General Unsecured Claims are subject
to disallowance or reduction.
VI. CAUSES OF ACTION
A. CHAPTER 5 CLAIMS
The Debtors are investigating whether they have Causes of Action against
Creditors or other Persons for preference liability and any other Causes of
Action contemplated by chapter 5 of the Bankruptcy Code, and reserve all of
their rights to bring any such Causes of Action. Payments to Creditors or other
Persons in the 90 days immediately preceding the Petition Date are listed in the
Debtors' Schedules and total $225,741,474. Payments to "insiders" (as that term
is defined in Section 101(31) of the Bankruptcy Code) in the one year
immediately preceding the Petition Date are also listed in the Debtors'
Schedules and total $2,438,966. A list of potential Avoidance Actions is
attached to the Plan as Exhibit I. The majority of these Causes of Actions are
against General Unsecured Creditors in Classes 4 and 5. These Causes of Action
are potential Causes of Action in that they have not been analyzed on the merits
and may be subject to valid defenses. All Causes of Action and Avoidance Actions
will be preserved and transferred to the Reorganized Debtors, and any recoveries
therefrom will inure to the benefit of the relevant Debtor and thereby enhance
the enterprise value of such Debtor.
B. OTHER CLAIMS
All other Causes of Action are preserved and will be transferred to the
Reorganized Debtors, including, but not limited to, Causes of Action arising
under commercial purchase orders, such as those relating to pricing issues,
rights of setoff, rights to recover wrongful setoffs and recoupments, and the
like. These Causes of Action include, but are not limited to, those listed on
Exhibit J to the Plan. Exhibit J to the Plan is not intended to be an exhaustive
list of the Causes of Action the Debtors and Reorganized Debtors intend to
preserve and bring following Confirmation.
C. PENDING LITIGATION
As of the Petition Date, the Debtors were not involved in any litigation that is
likely to have a material impact on the Debtors. Attached as Exhibit D is a list
of all pending litigation.
VII. SIGNIFICANT POST-PETITION ACTIONS
The Debtors commenced the Cases on the Petition Date, September 29, 2004, and
the following significant actions have been taken since the Petition Date.
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A. FIRST DAY MOTIONS
Together with their petitions for relief, the Debtors filed a number of "first
day" motions on or near the Petition Date as listed on Exhibit E. The first day
motions and orders were intended to facilitate the transition between the
Debtors' pre-Petition Date and post-Petition Date business operations by
approving certain regular business practices that may not have been specifically
authorized under the Bankruptcy Code or as to which the Bankruptcy Code requires
prior approval by the Bankruptcy Court. The first day orders obtained in these
Cases are typical of orders entered in other substantial Chapter 11 cases around
the country. Among other things, such orders provided for:
- - Joint administration of the Debtors' Cases;
- - Interim use of cash collateral;
- - Maintenance of the Debtors' bank accounts and operation of their cash -
management systems substantially as such systems existed prior to the
Petition Date;
- - Payment of certain pre-petition wages, salaries, payroll taxes, and other
compensation, employee benefits and reimburseable employee expenses;
- - A prohibition on utilities from altering, refusing or discontinuing
services on account of pre-petition Claims, deeming utilities adequately
assured of future performance, and establishing procedures for determining
requests for additional adequate assurance; and
- - Payment of pre-petition use, employment, single business, property and
other taxes.
B. RETENTION OF PROFESSIONALS
Since the Petition Date, the Debtors have continued to operate their businesses
in the ordinary course as debtors-in-possession under Sections 1107 and 1108 of
the Bankruptcy Code.
Both before and after the Petition Date, the Debtors have taken actions to
stabilize their operations. The Debtors' management actively and regularly
contacts the Debtors' customers, vendors and other business partners to assure
them that the Cases will not adversely affect the Debtors' ability to operate
and honor trade terms. At the same time, management has addressed and will
continue to address the many emergencies and other matters that are incidental
to the commencement of complex chapter 11 cases, including responding to a
multitude of inquiries by employees, unsecured Creditors, the Creditors'
Committee, the Equity Committee, various Professionals and others.
To represent the Debtors in these Cases, the Debtors retained Professionals,
including, without limitation, (i) the law firm of Foley & Lardner LLP, Detroit,
Michigan, as general bankruptcy counsel; (ii) Carson Fischer, P.L.C.,
Birmingham, Michigan, as special counsel primarily to handle conflicts of
interest; (iii) Conway Mackenzie &
54
Dunleavy ("CMD"), Birmingham, Michigan, as their financial advisors and
investment bankers; (iv) Ernst & Young LLP, in Detroit, Michigan, as independent
auditors; (v) KPMG LLP, in Detroit, Michigan, as SOX 404 consultants; (vi) Stout
Risius Ross as independent valuation consultants ("SRR"); and (vii) Lazard
Freres & Co. LLC, in New York City, as investment bankers ("Lazard"). In
addition, the Debtors have certain Professionals to act as special counsel in
limited matters, and numerous others to assist the Debtors in the ordinary
course of their businesses.
C. CASE ADMINISTRATION
1. Bar Date And Voting
By Local Rule of the Bankruptcy Court, February 7, 2005 was established as the
Claims Filing Bar Date, subject to certain exceptions described in the notice of
commencement of these Cases. By separate order, the Bankruptcy Court established
a Supplemental Bar Date of April 29, 2005 for certain Creditors under the
limited circumstances described therein.
Pursuant to Bankruptcy Rule 3003(c)(2), any Creditor: (a) whose Claim (i) was
not listed in the Schedules, or (ii) was listed in the Schedules as disputed,
contingent or unliquidated, and (b) who failed to file a Proof of Claim on or
before the Claims Filing Bar Date, or the Supplemental Bar Date, as applicable
(and except as otherwise ordered by the Bankruptcy Court), will not be treated
as a Creditor with respect to that Claim for purposes of voting on the Plan or
receiving a Distribution under the Plan. Further, unless a Proof of Claim was
filed on or before the Claims Filing Bar Date, or the Supplemental Bar Date, as
applicable (and except as otherwise ordered by the Bankruptcy Court), the Claim
amount listed in the Debtors' Schedules is dispositive, subject to any
amendments made thereto. Creditors are instructed to read any Bankruptcy Court
orders establishing or dealing with procedures with respect to voting on the
Plan, which are anticipated to be entered in conjunction with the hearing on the
approval of the Disclosure Statement. Any such order will be provided to
constituencies along with the approved Disclosure Statement at the appropriate
time.
If the Plan is confirmed, the Debtors will have up to 180 days from the
Effective Date to file any Claim objections, provided that such date may be
extended from time to time.
D. OPERATIONAL DEVELOPMENTS
Since the Petition Date, the Debtors have made substantial improvements to their
operations and administration which have resulted in significant cost savings
and increased revenues. Among other things, the Debtors have met all customer
requirements and schedules, and have renegotiated various customer agreements
to: (i) establish new scrap steel and magnesium alloy indices; (ii) secure new
surcharge agreements with ten (10) major customers (constituting approximately
78% of their total revenues and approximately 80% of their ferrous revenues) and
a significant portion of their other customers; (iii) obtain price increases on
some of their parts; (iv) obtain accelerated payment terms with 10 major
customers and the majority of their other customers for
55
limited time periods; and (v) recover various 2004 fourth quarter surcharges
from certain customers.
The Debtors also announced the closure of: their (i) Columbus Machining, (ii)
Racine Machining, and (iii) Racine Casting plants, all of which were completed
in or before June 2005, and (iv) Decatur plant, which the Debtors anticipate
will be completed by December 31, 2005.
Further, the Debtors have increased employee contribution amounts to their
benefits plans, increased co-pays for medical benefits, made changes to their
life insurance plans, and renegotiated union agreements with their Hibbing,
Columbus, New River and Archer Creek plants. Several of these developments are
discussed in more detail below.
1. Negotiations With Major Customers
Intermet and the other Debtors directly and indirectly provides products and
services to every major North American OEM, several major European and Japanese
OEMs, and several leading suppliers to the OEMs (also known as "Tier 1" or "Tier
2" suppliers). These parties make up approximately 78% of the Debtors' North
American business (and approximately 80% of their ferrous business) and are
considered major customers (the "Customers"). As part of their business of
supplying their Customers, the Debtors were parties to numerous pre-Petition
Date contracts with their Customers (the "Contracts"). In connection with these
Cases, the Debtors began the lengthy process of reviewing all of their supply
contracts in order to analyze the benefits and burdens of each for various
periods during the Cases. Through this process, the Debtors originally
determined that, absent specific changes, certain of the Contracts were
burdensome to the Debtors' Estates because the terms did not permit the Debtors
to generate sufficient profit and cash flow from their main business source -
the manufacture and supply of component parts.
This determination was based, in large part, on the fact that (a) the price of
raw materials, including scrap steel, one of the Debtors' primary raw materials,
rose substantially since the Debtors began producing the component parts under
the existing Contracts, and such Contracts either did not allow, or were
inadequate or not timely in allowing, the Debtors to pass such cost increases
through to such Customer, (b) in some cases, pricing for certain of the
component parts under certain Contracts was well below market and/or the cost to
produce such parts did not provide adequate profit margin, (c) the timing of
payments under certain Contracts was too slow, in light of the cash flow needs
of the Debtors, and (d) certain Customers pursuant to certain of the Contracts
required pricing give-backs or reductions for 2005, which were onerous to the
Debtors under the circumstances.
Furthermore, given the Debtors' large losses, the DIP Lender was not willing to
provide debtor-in-possession financing absent a commitment by the Debtors to
obtain concessions from the Debtors' Customers on renegotiated contract terms
acceptable to the lenders. In fact, the failure to obtain agreements with the
Customers comprising at least 75% of the Debtors' gross sales by December 31,
2004 (the "Amended Contract Deadline"), in form and substance satisfactory to
the DIP Lenders, would have been a
56
default under the Debtors' DIP Credit Agreement, which default would have
prohibited further borrowings and permitted the acceleration of all indebtedness
due.(6)
In light of the foregoing, the Debtors began negotiations with their Customers
to modify the terms of the Contracts and thereby relieve the burden on the
Estates. Because negotiations were not complete and the Amended Contract
Deadline was approaching, on November 17, 2004, the Debtors filed a motion for
authority to reject only those executory customer supply contracts with
Customers (to be subsequently identified) which could not be re-negotiated in a
manner acceptable to the Debtors and the respective Customers (the "Rejection
Motion").
Contracts with Ford at the Debtors' Racine plant were ultimately rejected by
agreement of the parties. As to the remaining Contracts, the Debtors and the
Customers agreed to amend the Contracts in a manner that was acceptable to the
Debtors, the Customers, and the DIP Lenders (the "Amended Contracts"). (The
Debtors and the DIP Lenders agreed to amend the DIP Credit Agreement and the
Amended Contract Deadline to allow sufficient time for Bankruptcy Court approval
of the Amended Contracts.) Substantially all of the Amended Contracts required
assumption under Section 365 of the Bankruptcy Code. On December 28, 2004, the
Debtors filed a motion to assume the Amended Contracts, which was granted by
order of the Bankruptcy Court dated January 13, 2005.
The Debtors believe that performance under the Amended Contracts will enhance
the Debtors' profitability and generate positive cash flow. While each of the
Amended Contracts is different, many of Amended Contracts include terms such as:
(a) scrap steel surcharge adjustments that more accurately reflect the Debtors'
cost of scrap steel;(7) (b) accelerated payment terms for specified time
periods; (c) prompt payment of outstanding accounts receivable;(8) (d) waiver of
certain price reductions; and (e) adjustments of certain part pricing.
The steel surcharge adjustments contained in the Amended Contracts are designed
to allow the Debtors to more fully capture the rising cost of scrap steel for
the life of the Amended Contracts such that rising cost of scrap steel does not
erode the profitability of the Amended Contracts. The Amended Contracts were
critical to the Debtors' ability to continue producing under the Contracts with
the Customers which make up nearly 80% of the Debtors' business.
2. Secondary Customer Negotiations
- ----------
(6) The Debtors have satisfied this condition pursuant to the DIP Credit
Agreement, as amended. See below.
(7) This term was included in all but one of the Amended Contracts, which had
an existing steel surcharge arrangement.
(8) Only one of the Amended Contracts holds the Customer to its original
payment terms and does not accelerate such terms.
57
The Debtors supply component parts to certain other customers who make up the
remaining business of the Debtors (the "Secondary Customers"). The Debtors were
parties to numerous pre-Petition Date contracts with these Secondary Customers
as well (the "Secondary Customer Contracts"). The Debtors reviewed their supply
contracts with Secondary Customers to analyze the benefits and burdens of each.
Like the Contracts with major Customers, as a result of this process, the
Debtors determined that, absent specific changes, certain of the Secondary
Customer Contracts were burdensome to the Debtors' Estates because the terms did
not permit the Debtors to generate sufficient profit and cash flow.
This determination was based, in large part, on (a) the substantial rise in the
cost of raw materials; (b) below market pricing for certain component parts; (c)
ineffective timing of payments in light of the cash flow needs of the Debtors;
and (d) the fact that certain Secondary Customer Contracts required pricing
give-backs or reductions for 2005, which were onerous to the Debtors under the
circumstances.
Accordingly, the Debtors engaged in extensive negotiations with their Secondary
Customers to modify the terms of the Secondary Customer Contracts and thereby
relieve the burden on the Estates. The Debtors and the Secondary Customers
ultimately agreed to amend the Secondary Customer Contracts in a manner that was
acceptable to the Debtors. In some instances, the amended Secondary Customer
Contracts required assumption. Thus, in such cases the Debtors have filed
motions as required by the Secondary Customer Contracts and have obtained the
necessary Bankruptcy Court approval.
The Debtors believe that performance under the amended Secondary Customer
Contracts will enhance the Debtors' profitability and generate positive cash
flow. Like the Contracts with the Debtors' Customers, while each of the amended
Secondary Customer Contracts is different, many of them include terms such as:
(a) scrap steel surcharge adjustments that more accurately reflect the Debtors'
cost of scrap steel; (b) accelerated payment terms for certain periods; (c)
prompt payment of outstanding accounts receivable; (d) waiver of certain price
reductions; and (e) adjustments of certain part pricing.
3. Racine Plant Closure
Ganton Technologies, Inc. manufactured, machined, and assembled high pressure
aluminum die castings for the automotive market at its Racine, Wisconsin plant
(the "Racine Plant"). On December 15, 2004, the Debtors announced their intent
to close the Racine Plant due to continued high costs and underutilized
machining and casting capacity. Since that date, Ganton Technologies, Inc. has
taken the steps necessary to ensure an orderly shutdown of the Racine
operations, which was completed in June 2005.
To ensure uninterrupted service to Ganton Technologies, Inc.'s customers, the
Racine Plant closing required movement of most of the work being performed at
Racine to other suppliers, or in some cases, to one of the Debtors' other
facilities. The transfer of work required accomplishment of three principal
objectives: (i) continued performance during
58
the wind-down period; (ii) the sale of certain assets needed by Ganton
Technologies, Inc.'s customers; and (iii) facilitation of negotiations with
employees of the Racine Plant.
A. Wind-Down Performance
To ensure uninterrupted production at the Racine Plant during the wind-down,
Ganton Technologies, Inc. agreed to continue producing component parts pursuant
to purchase orders with Ford and DaimlerChrysler until such customers could
resource their requirements for production to other suppliers. In exchange for
the Debtors' cooperation, Ford and DaimlerChrysler agreed to pay the Debtors
$800,000 and $240,000, respectively, to cover expenses in excess of the Debtors'
budget directly attributable to the wind-down agreements with Ford and
DaimlerChrysler. Ganton Technologies, Inc. completed Ford and DaimlerChrysler
production at the Racine Plant in April 2005.
B. Asset Transfers
On March 7, 2005, the Bankruptcy Court approved Ganton Technologies, Inc.'s sale
of assets used to manufacture component parts at the Racine Plant to certain
other suppliers of Ganton Technologies, Inc.'s customers, including
International Truck and Engine Corporation, Amcan Consolidated Technologies
Corporation, and ICG Castings, Inc. Ganton Technologies, Inc. believes that it
received an amount equal to, if not more than, the total net book value of the
equipment from the sales. In addition, Ganton Technologies, Inc. is currently in
the process of selling certain assets located at the Racine Plant which were not
dedicated to production for any particular customer. Ganton Technologies, Inc.
has received an appraisal for all of the assets located at the Racine Plant, and
all of the asset sales contemplated will deliver an amount within the appraisal
range for such assets. Ganton Technologies, Inc. plans to seek Bankruptcy Court
approval of any such sales.
Ganton Technologies, Inc. is also in the process of analyzing various executory
contracts and unexpired equipment leases pertaining to the Racine Plant to
determine whether it has a continuing need for such contracts or leases at any
of the Debtors' other facilities. Where appropriate, Ganton Technologies, Inc.
is seeking Bankruptcy Court approval of its decision to reject such executory
contracts and unexpired leases.
C. Negotiations With Racine Employees
The Racine Plant closing required negotiations with the International Union,
United Automobile, Aerospace and Agricultural Implement Workers of America,
U.A.W., Local 627, which represents employees of the Racine Plant (the "Racine
Union"), to ensure a smooth wind-down of operations and transfer of work. On
January 24, 2005, Ganton Technologies, Inc. entered into a closing agreement
with the Racine Union to induce hourly employees to remain employed through the
closing and to resolve the Racine Union's claim that a transfer of work would
violate the terms of their collective bargaining agreement (the "Racine Closing
Agreement").
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The Racine Closing Agreement modified the terms of the collective bargaining
agreement, and, among other things, effected the following: (i) a severance fund
of $1.4 million for distribution to eligible employees, to be paid following
each employee's separation date; (ii) employees separated under the Racine
Closing Agreement are eligible for medical benefits as if they were laid off
under the collective bargaining agreement; (iii) all non-vested participants in
Intermet's Hourly Employee Retirement Plan (as defined therein) who are
separated as a result of the Racine Plant closing are 100% vested in their
accrued benefits regardless of their years of service; (iv) the collective
bargaining agreement remains in full force and effect until the last employee
covered is separated due to the closing; and (v) the Racine Union, on behalf of
itself and the employees it represents, released the Debtors from any and all
claims arising from the employment relationship, including claims that the
Racine Plant closing violated the collective bargaining agreement.
To induce certain key salaried employees to remain employed at the Racine Plant
during the wind-down, Ganton Technologies, Inc. further agreed to pay severance
benefits pursuant to the pre-Petition Date severance plan approved by the
Bankruptcy Court on October 1, 2004, plus additional payments aggregating
$250,000 based on the salaried employee's position and years of seniority. The
Bankruptcy Court approved the Racine Closing Agreement by Order dated March 9,
2005.
D. Plant Sale
Together with its real estate broker, Ganton Technologies, Inc. has been
marketing its Racine Plant for sale, free and clear of all liens, claims and
encumbrances. Ganton Technologies has engaged in extensive solicitation of
potential purchasers of the property, and has, to date, received multiple
offers. Ganton Technologies anticipates executing a sale agreement in the near
future, and will seek Bankruptcy Court approval of any proposed sale.
4. Columbus Machining Closure
Intermet U.S. Holding, Inc. formerly operated a machining facility (the
"Columbus Machining Facility") on property located in Columbus, Muscogee County,
Georgia, consisting of approximately 40.636 acres (the "Columbus Property"). At
the Columbus Machining Facility, Intermet U.S. Holding, Inc. manufactured cast
metal automotive components, utilizing inter alia, CNC machining equipment,
assembly machines, conveyors, and parts washers. The Columbus Machining Facility
was not core to the Debtors' business, and because of declining sales and the
need for costly upgrades to the equipment on site, the Debtors closed the
Columbus Machining Facility as of March 31, 2005.
A. Asset Transfers
Following the announcement of the closure of the Columbus Machining Facility,
Intermet U.S. Holding, Inc. entered into negotiations with Honda for the
transfer of the Honda business to another supplier. To facilitate such transfer,
and to ensure the
60
continued supply of component parts to Honda (which remains an important
customer of the Debtors), the Debtors sold the S3V Steering Knuckle Cell (the
"Columbus Assets") to Honda for a purchase price of $970,000.
The fair market value of the assets sold based on an appraisal obtained by
Intermet U.S. Holding, Inc. was $1,090,700, and the liquidation value based on
the same was $892,500. The Bankruptcy Court approved the Honda sale on February
14, 2005.
At approximately the same time, Intermet U.S. Holding, Inc. entered into a
Commercial Real Estate Sales Agreement (the "Columbus Purchase Agreement") with
Jacoby Development, Inc. to sell the Columbus Property for a sale price of
$3,500,000 (the "Columbus Purchase Price").
Intermet U.S. Holding, Inc. had previously obtained an appraisal of the Columbus
Property dated May 13, 2003. The appraisal indicated that the value of the
Columbus Property was between $3,325,000 and $3,850,000. The Columbus Purchase
Price is within the appraisal's range of values for the Columbus Property.
The Bankruptcy Court approved the sale on June 7, 2005. Subject to satisfaction
of certain contingencies, the closing is scheduled to occur on or about October
31, 2005.
5. Decatur Plant Closure
Wagner Castings Company manufactures ductile iron chassis, powertrain and brake
castings at its Decatur, Illinois plant (the "Wagner Plant"). On March 29, 2005,
the Debtors announced their plans to close the Wagner Plant on or before
December 31, 2005. The Wagner Plant has experienced declining sales volumes and
decreased profitability in recent years.
A. Wind-Down Performance
Wagner Castings plans to consolidate the majority of the Wagner Plant business
into other facilities of the Debtors located around the country, and thereby
improve the Debtors' capacity utilization for the Ferrous Metals Group as a
whole. By transferring the business to other Debtors' facilities, Wagner
Castings will avoid administrative expense claims resulting from non-performance
of certain purchase orders after the closure. Substantially all of these
purchase orders with the Customers have already been assumed in the Customer
negotiations. In addition, many of these purchase orders are terminable at will
by the Customers.
B. Asset Transfers
Over the next several months, and where possible, Wagner Castings will transfer
the Wagner Plant equipment to other Debtor locations around the country. In
addition, Wagner Castings will explore their options of selling the land and
building from which the Wagner Plant operates. It is anticipated that all of
these Assets will be subject to liens in favor of the Exit Lenders, pursuant to
the Exit Financing Facility, due to the fact that
61
the proceeds of the Exit Financing Facility will be used to pay the
Distributions under the Plan, including those to the Pre-Petition Lenders, whose
liens currently attach to these Assets.
C. Negotiations With Decatur Employees
As of the closure announcement, the Wagner Plant had 320 active employees, many
of which were parties to a collective bargaining agreement which expired on June
30, 2005 (the "Wagner CBA"). Wagner Castings also provides retiree medical
benefits to approximately 200 retired employees of Wagner Castings and provides
life insurance to approximately 400 retirees (collectively, the "Wagner
Retirees").
In light of the impending closing, Wagner Castings cannot continue to fund
retiree health and life insurance benefits which are currently estimated to have
an actuarial present value of about $20 million. The Bankruptcy Court appointed
a retiree committee pursuant to Section 1114 of the Bankruptcy Code on May 24,
2005 (the "Wagner Retiree Committee"), to represent the interests of the Wagner
Staff Retirees in connection with Wagner Casting's modification or termination
of retiree benefits. In the 1114 process, the Local 6-728 of the United Steel,
Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service
Workers International Union (the "USW") represents the interests of the hourly
retirees. Wagner Castings has begun discussions with the Wagner Retiree
Committee and the USW to modify the benefits, and Wagner Castings hopes to reach
an agreement with the Wagner Retiree Committee and USW with respect to changes
in retiree health and life insurance obligations. To the extent that Wagner
Castings may hereafter be determined to be a member of a "controlled group" with
other Intermet affiliates, including Debtors, for certain purposes under the
federal "COBRA" statute, some or all members of the controlled group may be
determined to have ongoing liability to the Wagner Retirees for COBRA coverage.
In order to effect an orderly closing of the Wagner Plant and to induce hourly
employees to remain employed through the closing, Wagner Castings entered into a
closing agreement (the "Decatur Closing Agreement") with USW which took effect
on July 1, 2005, immediately following expiration of the Wagner CBA. Among other
things, the Decatur Closing Agreement provides that: (i) severance pay equal to
$250 for each full year of service will be paid to employees who remain employed
through their scheduled termination date, at an approximate cost to Wagner
Castings of $1,632,950; (ii) employees separated under the Decatur Closing
Agreement will be eligible for certain benefits, including health insurance, for
the month in which they are terminated and the following month; (iii) in
exchange for the benefits provided in the Decatur Closing Agreement, USW, on
behalf of itself and the employees whom it represents, agreed to release Wagner
Castings and its successors, assigns, officers, directors, employees, agents and
representatives from any and all claims arising out of the employment
relationship between Wagner Castings and the employees represented by USW, with
the exception of claimed violations of the Decatur Closing Agreement, grievances
filed under the Wagner CBA before its expiration, claims that employees may have
under a state workers' compensation statute, state unemployment statutes, or
under any separate benefit or retirement plan.
62
Wagner Castings also agreed to pay severance benefits to certain salaried
employees in addition to the severance benefits already provided salaried
employees under the Debtors' pre-Petition Date severance plan approved by the
Bankruptcy Court, in the amount of approximately $50,000.
Wagner Castings filed a motion seeking approval of the Decatur Closing Agreement
and the additional severance payments to salaried employees on July 28, 2005.
Bankruptcy Court approval is expected.
6. Hannibal Plant
Some customers of Diversified Diemakers, Inc.'s Hannibal facility have informed
Diversified Diemakers, Inc. that present product programs will end or that the
customers intend to move their magnesium die casting work from that facility to
other suppliers or transition to alternative processes. A portion of the work in
that facility will end on or about July 1, 2005. If the customers proceed with
plans to move the remaining work, Diversified Diemakers anticipates that this
would occur in late 2005 or early 2006. If Diversified Diemakers is unable to
secure new business for the Hannibal plant within that timeframe, such Debtor
anticipates that operations at the Hannibal plant would be suspended until
Diversified Diemakers is able to utilize that capacity, and all remaining work
would be transferred to the Palmyra facility, which also produces magnesium die
castings.
7. Other Significant Sales
Wagner Havana is currently negotiating sales of certain equipment located at the
Wagner Havana plant, and will seek Bankruptcy Court approval of such sales as
necessary. In addition, Alexander City Casting Company is currently marketing
the Alexander City plant for sale. As necessary, Bankruptcy Court approval will
be sought for the sale.
E. DEBTOR-IN-POSSESSION FINANCING
On October 22, 2004, the Debtors entered into the DIP Credit Agreement among the
Debtors, the DIP Lenders, and the DIP Agents. The DIP Facility matures on
October 21, 2005.
The DIP Facility provided for a $60 million commitment of debtor-in-possession
financing, and the ability to issue letters of credit up to a maximum amount of
$15 million, to fund the Debtors' working capital requirements and other
corporate purposes during the Cases. Advances have been and are currently being
made to the Debtors under the DIP Facility in accordance with a budget that has
been agreed upon by the Debtors and the DIP Agents, and are subject to a
borrowing base calculated as a percentage of the Debtors' accounts receivable,
inventory and fixed assets, less reserves and fees. Interest on borrowings under
the DIP Facility accrues at a base rate plus 2% per annum or at a Eurodollar
rate plus 3% per annum, as selected by the Debtors. Interest on borrowings made
under the base rate is payable on a monthly basis; for borrowings made under the
63
Eurodollar rate, interest is payable at the end of one, two or three months.
Obligations under the DIP Facility are secured by a super-priority lien over
substantially all of the Debtors' Assets in favor of the DIP Lenders.
The DIP Facility requires the Debtors to meet certain obligations, including the
delivery of weekly borrowing base certificates and cash flow statements, monthly
and yearly financial statements and periodic budget updates containing financial
forecasts. The Debtors are also subject to limitations on paying indebtedness,
creating liens against their property and making investments, and are prohibited
from paying dividends.
Amounts owed by the Debtors under the DIP Facility may be accelerated following
certain events of default, including: failure of the Debtors to make principal
or interest payments under the DIP Facility; failure to make principal or
interest payments on post-petition liabilities; breaches of certain covenants,
representations and warranties set forth in the DIP Facility; the conversion of
any of the Debtors' Cases to cases under Chapter 7 of the Bankruptcy Code or the
appointment of a trustee pursuant to Chapter 11 of the Bankruptcy Code; and the
occurrence of a material adverse effect impacting the business or property of
Intermet and its subsidiaries, taken as a whole.
The DIP Facility received interim approval from the Bankruptcy Court on October
19, 2004, and received final approval on November 8, 2004. On November 19, 2004,
the Creditors' Committee filed a notice of appeal to the United States District
Court for the Eastern District of Michigan (the "District Court") the DIP
Financing Order and a Bankruptcy Court order denying the Creditors' Committee's
motion to conduct certain discovery and adjourn the final hearing on approval of
the DIP Facility.
The Creditors' Committee raised multiple issues on appeal in an effort to
demonstrate that the Bankruptcy Court erred in approving the DIP Facility. On
March 2, 2005, following several extensions to the briefing schedule on appeal,
the Creditors' Committee agreed to dismiss the appeal. The District Court
dismissed the appeal on March 4, 2005.
Initially, the Debtors were only able to access $20 million of the DIP Facility
until such time as the Debtors entered into agreements with Customers consisting
of 75% of their revenues that were satisfactory to the DIP Agents (see Section
VII.D.1. "Negotiations With Major Customers" above) along with certain other
conditions including the completion of certain remaining collateral documents.
Those conditions were met in January 2005 and the Debtors were granted access to
the full $60 million, subject to a budget.
Over the course of the past several months, the Debtors have entered into
various amendments to the DIP Facility which amendments were intended to clarify
certain terms in the DIP Facility, revise certain covenants, extend the time
period for certain deliverables, and/or approve certain asset purchases and
sales, and other transactions.
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F. FORMATION OF THE OFFICIAL COMMITTEE OF EQUITY SECURITY HOLDERS AND THE
AD HOC INTERMET TRADE CLAIMS COMMITTEE
1. The Equity Committee
In October 2004, the SEC asked the U.S. Trustee to appoint an official committee
of equity security holders in these Chapter 11 Cases. The Debtors and the
Creditors' Committee opposed the appointment of an official equity committee
because, among other reasons, they believed it was unlikely that Holders of
Equity Interests would be entitled to a Distribution following application of
the absolute priority rule contemplated by Section 1129(b)(2)(B)(ii) of the
Bankruptcy Code.
At some point in late November 2004, the U.S. Trustee declined to appoint an
official equity committee. As a result, on November 23, 2004, certain
shareholders of Intermet filed a motion seeking Bankruptcy Court appointment of
an official equity committee pursuant to Section 1102(a)(2) of the Bankruptcy
Code. The hearing was set for December 14, 2004.
On December 9, 2004, before the hearing could be held on the shareholders'
motion, the U.S. Trustee appointed the Equity Committee. The U.S. Trustee's
action prompted the Debtors, the Creditors' Committee, the Pre-Petition Agent
and the DIP Agents to file a joint motion seeking disbandment of the Equity
Committee (the "Disband Motion").
On February 11, 2005, the Bankruptcy Court denied the Disband Motion on the
basis that the U.S. Trustee had not abused his discretion in appointing the
Equity Committee. The Bankruptcy Court authorized the Equity Committee to retain
counsel, but authorized counsel to be paid only upon filing fee applications
every 120 days as contemplated by 11 U.S.C. Section 331. The Bankruptcy Court
further authorized the Equity Committee to retain Deloitte & Touche as its
financial advisors, but capped Deloitte's fees at $90,000 for the period
beginning January 10, 2005 through June 30, 2005.
2. The Ad Hoc Committee
In April 2005, certain trade Creditors of the Debtors formed the Ad Hoc
Committee. In late July 2005, the Ad Hoc Committee filed, among other things, a
motion seeking appointment of an official trade creditor committee of the
Debtors, and a motion seeking authority to file a complaint seeking substantive
consolidation of the Debtors' Estates. These motions will be held in abeyance
following entry of an order approving this Disclosure Statement because the
Debtors have reached a settlement with the Ad Hoc Committee and the Creditors'
Committee which is more fully described in Section VIII.A. below and which will
be the subject of a motion to approve the compromise pursuant to Rule 9019 of
the Federal Rules of Bankruptcy Procedure. Upon the Effective Date, the Ad Hoc
Committee's motions will be withdrawn.
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G. APPROVAL OF THE KEY EMPLOYEE RETENTION PLAN
On September 20, 2004, the Board of Intermet adopted an employee retention plan
for certain key employees (the "Initial KERP") to create appropriate incentives
for key personnel of the Debtors to remain with them through a successful
reorganization or sale of the Debtors, to properly reward such key personnel,
and to enhance the value of the Debtors on behalf of all of their creditor
constituencies. The Initial KERP provided for the payment of bonuses to key
employees identified by the Board of Intermet, if the employees continued their
employment with Intermet through December 31, 2005. The amount of bonus a
participant in the Initial KERP might have received was calculated based on a
percentage of that person's annual salary as of September 20, 2004. In the event
that the participant's employment terminated prior to December 31, 2005, that
person might have been eligible for a pro rata bonus payment if certain
conditions set forth in the Initial KERP were met.
On December 8, 2004, the Board of Intermet approved the terms of the Key
Employee Retention Plan, or KERP, which replaced the Initial KERP and was
approved by the Bankruptcy Court on December 22, 2004. The Key Employee
Retention Plan preserves the basic payment provisions and criteria set forth in
the Initial KERP, but also links the timing of the payment of bonuses and the
calculation of the bonus amounts to the consummation of either a plan of
reorganization or a sale of any substantial portion of the Debtors' North
American assets or business of Intermet as a going concern. Under the Key
Employee Retention Plan, the maximum amount of stay bonuses payable is
approximately $5.1 million (payable in Cash). The timing and amount of stay
bonus payments will be calculated based on whether such plan of reorganization
or sale (i) is consummated after June 30, 2005, but on or before December 31,
2005, or (ii) is not consummated by December 31, 2005. One-third (1/3) of each
Key Employee Retention Plan participant's payment is due and payable upon the
Effective Date, and the remaining two-thirds (2/3) is due and payable between
January 1, 2006 and January 10, 2006.
The Key Employee Retention Plan also provides for severance benefits under
certain conditions set forth therein, based on a percentage of base salary for
certain participants. Other participants are entitled to severance benefits as
provided in Intermet's existing salaried employee severance plan. Currently,
approximately 100 Intermet employees have been designated by the Board of
Intermet as participants in the Key Employee Retention Plan, including executive
officers. The Board of Intermet, or a committee thereof authorized to act in the
circumstances, may designate additional participants in the Key Employee
Retention Plan.
1. Key Employee Rights Offering
Eligible Key Employees either: (i) may receive in cash any unpaid stay bonuses
to which they may be entitled in accordance with the terms and subject to the
conditions of the KERP, including, without limitation, the stay bonus payment
schedule set forth therein; or (ii) upon consummation of the Plan, may purchase
shares of New Common Stock in connection with the Key Employee Rights Offering
by authorizing Reorganized Intermet to apply, on their behalf, on a
dollar-for-dollar basis, any such stay bonuses toward the
66
purchase of the shares of New Common Stock covered by the Key Employee Rights
Offering.
The Key Employee Rights Offering allows eligible Key Employees to purchase, on a
Pro Rata basis and based upon payments due under the KERP, 181,249 shares of New
Common Stock, in consideration for Cash in the amount of $10.00 per share.
Eligible Key Employees will have the right of over-subscription with respect to
the Key Employee Rights Offering, provided that, in no event will the total
shares in the Key Employee Rights Offering exceed 181,249 shares. Moreover, the
rights to purchase shares of New Common Stock in connection with the Key
Employee Rights Offering will be non-transferable. Other terms and conditions of
the Key Employee Rights Offering are to be determined by the Debtors and the
Initial Committed Purchasers, in consultation with the Creditors' Committee.
Any New Common Stock issued pursuant to the Key Employee Rights Offering will be
subject to the Stockholders' Agreement. In addition, the shares of New Common
Stock issued pursuant to the Key Employee Rights Offering will have the effect
of diluting the ownership interest of the other Persons who receive New Common
Stock pursuant to the Plan.
H. GOODWILL AND ASSET IMPAIRMENT
1. Goodwill Impairment
On January 1, 2002, Intermet adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," under which goodwill is no longer amortized but is reviewed
for impairment at the reporting unit level annually, or more frequently if
certain events or changes in circumstances indicate that the carrying value may
not be recoverable. On or about November 17, 2004, Intermet retained SRR as an
"ordinary course professional" to determine whether the goodwill on Intermet's
balance sheet was impaired as of September 30, 2004.
SRR completed its goodwill report on March 21, 2005, concluding that the
goodwill of Intermet's Ferrous Metals and Light Metals manufacturing groups was
fully impaired. Intermet recorded a pre-tax goodwill impairment charge of $165.9
million in its statement of operations for 2004, of which amount approximately
$59.7 million was attributable to the Ferrous Metals unit and $106.2 million was
attributable to the Light Metals unit. As a result, the Debtors showed
approximate consolidated book equity of negative $50 million as of September 30,
2004.
2. Asset Impairment
The Debtors' decisions in 2003 and 2004 to close their Racine, Columbus
Machining, Decatur, and Radford facilities also made an impairment analysis of
the Debtors' fixed assets appropriate. On January 1, 2002, Intermet adopted SFAS
No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," under
which companies recognize impairment losses if the carrying amount of
"long-lived" assets is not recoverable
67
because it exceeds the estimate of the assets' undiscounted future cash flows.
The amount of impairment, if any, is equal to the difference between the
carrying amount of the long-lived assets and the fair value of those assets.
SRR completed its SFAS 144 report on March 9, 2005, estimating the approximate
amount of asset impairment with respect to total fixed assets (i.e. personal
property assets and real property assets), at each of these facilities as of
September 30, 2004, to be as follows:
- - Racine: $6.4 million
- - Columbus Machining: no impairment
- - Decatur: $10.8 million
- - Radford: no impairment
The impairment of the Debtors' fixed assets further reduced their consolidated
book equity position as of September 30, 2004, to approximately negative $67
million. SRR's conclusions about goodwill and asset impairment have been
reviewed by the Debtors' independent auditors, Ernst & Young, LLP.
In addition, the Debtors periodically evaluate "idle" equipment not in use at
their various facilities. As of September 30, 2004, the Debtors determined that
the value of such equipment at several plants was impaired--in particular
equipment owned by Wagner Havana, Inc. and Alexander City Casting Company, Inc.
The Debtors therefore recorded a fixed asset charge of approximately $9 million
for idle assets, which was recorded in addition to fixed asset impairment
charges indicated by the SRR reports. The Debtors' evaluation of equipment not
in use was based primarily on a change in expected future use of the now-idle
equipment, and also upon consideration of the risks and uncertainties created by
the Cases, closure of certain of the Debtors' manufacturing plants, and the
indefinite delay of projects for which such equipment would have been used. In
total, the Debtors recorded fixed asset impairment charges of approximately
$26.4 million as of September 30, 2004.
Finally, the Debtors recorded an additional $4 million asset impairment charge
related to Senior Note issuance costs, as required by applicable accounting
guidance for companies in Chapter 11 bankruptcy proceedings.
In sum, the Debtors' consolidated book equity position as of September 30, 2004,
was reduced to approximately negative $80.6 million. On June 24, 2005, Ernst &
Young issued their audit report for Intermet which concluded that the Debtors'
financial statements present fairly the consolidated financial position of
Intermet at December 31, 2004.
VIII. SUMMARY OF THE PLAN
The Debtors, the Creditors' Committee, the Pre-Petition Agent, the DIP Agents,
and the Initial Committed Purchasers believe that (i) through the Plan, Holders
of Allowed
68
Claims will obtain a recovery from the Estates of the Debtors that is at least
equal to, and likely greater than, the recovery they would receive if the Assets
of the Debtors were liquidated under Chapter 7 of the Bankruptcy Code, and (ii)
the Plan will afford the Debtors the opportunity and ability to continue in
business as viable going concerns for the benefit of all constituents.
The Plan is annexed hereto as Exhibit A and forms a part of this Disclosure
Statement. The summary of the Plan set forth below is qualified in its entirety
by reference to the provisions of the Plan.
The Plan classifies Claims and Equity Interests separately and provides
different treatment for different Classes of Claims and Equity Interests in
accordance with the Bankruptcy Code for each Debtor.
A. EIGHTEEN (18) DIFFERENT PLANS OF REORGANIZATION
THE PLAN IS PROPOSED JOINTLY BY ALL OF THE DEBTORS, BUT CONSTITUTES A SEPARATE
PLAN FOR EACH DEBTOR. THE ESTATES OF THE DEBTORS HAVE NOT BEEN CONSOLIDATED,
SUBSTANTIVELY OR OTHERWISE. ANY CLAIMS HELD AGAINST ONE OF THE DEBTORS WILL BE
SATISFIED SOLELY FROM THE CASH AND ASSETS OF SUCH DEBTOR. EXCEPT AS SPECIFICALLY
SET FORTH IN THE PLAN, NOTHING IN THE PLAN OR THIS DISCLOSURE STATEMENT WILL
CONSTITUTE OR BE DEEMED TO CONSTITUTE AN ADMISSION THAT ONE OF THE DEBTORS IS
SUBJECT TO OR LIABLE FOR ANY CLAIM AGAINST THE OTHER DEBTORS. THE CLAIMS OF
CREDITORS THAT HOLD CLAIMS AGAINST MULTIPLE DEBTORS WILL BE TREATED AS SEPARATE
CLAIMS WITH RESPECT TO EACH DEBTOR'S ESTATE FOR ALL PURPOSES (INCLUDING, BUT NOT
LIMITED TO, DISTRIBUTIONS AND VOTING), AND SUCH CLAIMS WILL BE ADMINISTERED AS
PROVIDED IN THE PLAN. THEREFORE, EXCEPT AS EXPRESSLY SPECIFIED IN THE PLAN, THE
CLASSIFICATIONS OF CLAIMS AND INTERESTS SET FORTH IN THE PLAN WILL BE DEEMED TO
APPLY SEPARATELY WITH RESPECT TO EACH PLAN PROPOSED BY EACH DEBTOR.
In conjunction with the Creditors' Committee, the Debtors have thoroughly
investigated whether or not substantive consolidation would be appropriate. The
Debtors concluded, and strongly believe, that substantive consolidation is not
appropriate. The Ad Hoc Committee disagrees, and has asked the Debtors to seek
substantive consolidation of the Debtors' Estates. The Ad Hoc Committee has also
filed a motion with the Bankruptcy Court seeking authority to prosecute a
substantive consolidation action against the Debtors. Set forth below is a brief
summary of the Debtors' responses to the Ad Hoc Committee's assertions about
substantive consolidation.(9)
- ----------
(9) This is only intended to be a summary of the Debtors' position in response
to specific points raised by the Ad Hoc Committee to date. The Debtors
reserve all of their rights to make any arguments they deem necessary in
response to any substantive consolidation argument raised by any
party-in-interest, and nothing herein shall be interpreted as a waiver of
the Debtors' rights.
69
1. "Substantial Identity Of Interest"
The Ad Hoc Committee alleges that there exists a substantial identity of
interests between the various Debtor entities. However, the Debtors and the
Creditors' Committee have reviewed a large number of facts that demonstrate that
there is no substantial identity of interest between the Debtor entities. Among
other things, (i) all of the Domestic Subsidiaries which correspond to
particular operating entities have their own businesses, issue their own
purchase orders, and have purchase orders issued to them in their own names;
(ii) the Domestic Subsidiaries hold their Assets in their own names, and Assets
are reflected on the individual books of the specific subsidiary; (iii) separate
minute books are maintained for each incorporated Domestic Subsidiary, and
separate corporate resolutions are prepared regarding bank accounts, loan
transactions, and the election of officers and directors; (iv) multiple bank
accounts are used for the operations of the Domestic Subsidiaries, and the
Domestic Subsidiaries all generate and possess stand alone financial statements;
(v) the Domestic Subsidiaries do not issue any dividends to Intermet, and
Intermet does not make capital contributions to the Domestic Subsidiaries, but
rather, Intermet lends capital to the Domestic Subsidiaries as necessary and
maintains intercompany payables and receivables arising from this process; (vi)
the operating Domestic Subsidiaries have their own distinct employees, payrolls
and benefit plans, and where applicable, collective bargaining agreements are
entered into by the appropriate Domestic Subsidiary; and (vii) the costs of
Intermet's engineering center and headquarters employees are allocated
appropriately among the Domestic Subsidiaries.
2. Benefits Versus Harms
The Debtors have analyzed the Ad Hoc Committee's assertions regarding the
benefits of substantive consolidation as compared to the harm caused by not
substantively consolidating the Estates. The Debtors have concluded that
substantive consolidation would not yield substantial benefits to all
parties-in-interest, and that the Plan is consistent with the Debtors' exercise
of their fiduciary duties to all creditors. Distributions in the Plan are based
upon the product of negotiation.
3. Reliance On Creditworthiness Of Separate Debtors
The Ad Hoc Committee has alleged that creditors relied on the creditworthiness
of the consolidated Intermet enterprise. The Debtors have reviewed this
allegation, and concluded otherwise. For example, in developing and executing
the Indenture, Intermet and its lenders relied upon the separate assets of each
individual Senior Note Guarantor. Separate security agreements were created for
and executed by each of the Domestic Subsidiaries. Separate UCC-1 forms were
filed for each operating Domestic Subsidiary. Separate mortgages in the case of
real estate assets were provided for each of the separate operating Domestic
Subsidiaries. In addition, the operating Domestic Subsidiaries are parties to
their own collective bargaining agreements, purchase orders, and other contracts
with third parties.
4. Conclusion, Settlement And Impact
70
Both the Debtors and the Creditors' Committee have considered and
investigated--and continue to continue and investigate--the prospect of
substantively consolidating the Estates. Based upon the facts of which the
Debtors are aware, and the paucity of evidence offered by the Ad Hoc Committee
to the contrary, the Debtors do not believe that substantive consolidation is
appropriate.
However, because these are fact-based issues, the Debtors, with the consent of
the Initial Committed Purchasers, have resolved the substantive consolidation
issues with the Ad Hoc Committee and the Creditors' Committee. The terms of this
resolution will be set forth in a motion for approval of the parties' compromise
that will be filed pursuant to Rule 9019 of the Federal Rules of Bankruptcy
Procedure. While such terms will be more fully described in the motion, the
primary consequence of the settlement is that Cash being distributed to Holders
of General Unsecured Claims electing to receive the Inducement Cash and Holders
of Unsecured Convenience Claims has been increased, in the aggregate, by
approximately $3.8 million more than the Distributions contemplated by the Plan
as initially filed on June 27, 2005. The increased Cash Distributions provide
approximately $6.7 million more value to Holders of General Unsecured Claims
(other than Noteholders) than what would have been distributed to such Creditors
in de-consolidated plans, and $23.9 million less value than such Creditors would
have received in a substantively consolidated plan. The additional $6.7 million
in consideration is being provided from Distributions that would have otherwise
been Distributed to Noteholders who, as discussed below, are the primary
beneficiaries of a de-consolidated Plan structure.
These increased Cash Distributions make the amount of Cash to be Distributed to
General Unsecured Creditors (other than Noteholders) and Holders of Unsecured
Convenience Claims (other than Noteholders) for all Debtors total, in the
aggregate, $12 million.
In addition, to the extent that any Noteholders make the Inducement Cash
Election, any dilution that would otherwise result from the participation (for
Distribution purposes) of the Noteholders in the Inducement Cash Pool will be
mitigated by the increase of Cash in such Pool resulting from the purchase of
Inducement Cash-Out Shares by the Initial Committed Purchasers. Similarly, to
the extent that any Noteholders make the Convenience Cash Election, any dilution
that would otherwise result from the participation (for Distribution purposes)
of the Noteholders in the Convenience Cash Pool will be mitigated by the
increase of the Convenience Cash Amount by the proceeds from the purchase of
Convenience Cash-Out Shares by the Initial Committed Purchasers.
Thus, the Distributions set forth in this Disclosure Statement and the Plan (and
the percentage recoveries disclosed herein) assume, by including the additional
Cash Distributions and other provisions contemplated by the settlement, that
Bankruptcy Court approval of the settlement will be obtained by the Rule 9019
motion discussed above or Confirmation of the Plan. The settlement will also
include the settlement of any issues relating to inter-company transfers between
the Debtors, including any Avoidance
71
Actions, and issues pertaining to the Senior Notes guarantees provided by the
Senior Note Guarantors.
In light of the settlement, the Ad Hoc Committee's motions for permission to
prosecute a substantive consolidation action against the Debtors and to appoint
an official trade creditor committee will be held in abeyance following entry of
an order approving this Disclosure Statement. Upon the Effective Date, the Ad
Hoc Committee's motions will be withdrawn.
The most significant impact of having 18 different Estates and plans of
reorganization is that, due to the guarantees discussed in Section V.C. above,
the Noteholder Claims will be recognized at Intermet and every Senior Note
Guarantor (every Debtor except Intermet International, Inc. and Intermet Holding
Company), thereby providing a significantly greater recovery to Holders of
Noteholder Claims than such Noteholders would otherwise receive if substantive
consolidation had been appropriate.
B. TREATMENT OF UNCLASSIFIED CLAIMS
In accordance with Section 1123(a)(1) of the Bankruptcy Code, Administrative
Claims, Tax Claims, DIP Facility Claims, U.S. Trustee Fees, Workers'
Compensation Claims (to the extent such Workers' Compensation Claims are not
General Unsecured Claims as described in Article 3.06 of the Plan), Pension
Claims, and Consignment Claims have not been classified, and the respective
treatment of such unclassified Claims is set forth below.
1. Administrative Claims Against Any Debtor
Administrative Claims are all post-Petition Date Claims or costs and expenses of
administration of the Cases with priority under Section 507(a)(1) of the
Bankruptcy Code, costs and expenses allowed under Section 503(b) of the
Bankruptcy Code, and any indebtedness or obligations entitled to such priority
under the Bankruptcy Code, including Professional Fees of the Debtors and any
official committee appointed in these Cases pursuant to Section 1102 of the
Bankruptcy Code, in each case to the extent allowed by a Final Order of the
Bankruptcy Court under Sections 330(a) or 331 of the Bankruptcy Code.
Except for Holders of DIP Facility Claims, each Holder of an Allowed
Administrative Claim will receive, in full satisfaction of such Allowed Claim,
Cash equal to the amount of such Claim on the later of (i) the Effective Date
and (ii) the date that is ten (10) days after the Allowance Date, unless such
Holder will have agreed to different treatment of such Allowed Claim; provided,
however, that Allowed Administrative Claims representing obligations incurred in
the ordinary course of business by a Debtor will be paid or performed in
accordance with the terms and conditions of the particular transactions and any
agreements relating thereto. Nothing in the Plan will be deemed to accelerate a
Debtor's obligation to make payment on account of any Administrative Claim that
is not due and owing as of the Confirmation Date, is not Allowed, or is subject
to ongoing objections in the Bankruptcy Court or other court of competent
jurisdiction.
72
The Debtors estimate that the aggregate amount of Allowed Administrative Claims
(not including required funding of the Pension Plans) that have not been paid in
the ordinary course of business is $240,889. Set forth below is a table which
shows the breakdown of the Debtors' estimates by each Debtor. The Debtors assert
rights of setoff with respect to certain Administrative Claims. In the event
such asserted setoff rights are not valid, the aggregate amount of Allowed
Administrative Claims may increase.
ESTIMATED ALLOWED ADMINISTRATIVE CLAIMS
DEBTOR NOT PAID IN ORDINARY COURSE OF BUSINESS
------ ---------------------------------------
Intermet Corporation $ 54,977
Alexander City Casting Company, Inc. $ 0
Cast-Matic Corporation $ 0
Columbus Foundry, L.P. $ 56,402
Diversified Diemakers, Inc. $ 73
Ganton Technologies, Inc. $ 52,652
Intermet Holding Company $ 0
Intermet Illinois, Inc. $ 0
Intermet International, Inc. $ 0
Intermet U.S. Holding, Inc. $ 0
Ironton Iron, Inc. $ 0
Lynchburg Foundry Company $ 76,785
Northern Castings Corporation $ 0
Sudbury, Inc. $ 0
SUDM, Inc. $ 0
Tool Products, Inc. $ 0
Wagner Castings Company $ 0
Wagner Havana, Inc. $ 0
--------
TOTAL: $240,889
========
2. Tax Claims Against Any Debtor
Each Holder of an Allowed Tax Claim against any Debtor will receive in full
satisfaction of such Allowed Tax Claim, at the election of the relevant Debtor,
in its sole discretion, either (i) Cash equal to the amount of such Claim on the
later of (1) the Effective Date, and (2) the date that is 10 days after the
Allowance Date, unless such Holder will have agreed to different treatment of
such Allowed Claim, or (ii) in accordance with Section 1129(a)(9)(C) of the
Bankruptcy Code, Cash payments in equal monthly installments commencing on the
first Business Day of the month succeeding the month in which the Effective Date
occurs and continuing on the first Business Day of each month thereafter, until
the month which is six (6) years after the date of assessment of such Claim
totaling the principal amount of such Claim plus interest on any outstanding
balance from the Effective Date calculated at the interest rate equal to the
applicable federal rate as determined in accordance with Section 1274(d) of the
Internal Revenue Code of 1986, as amended and the regulations promulgated
thereunder, or (iii) such other treatment as to which the Holder of such Allowed
Tax Claim will have agreed in writing; provided, however, that any Claim or
demand for payment of a penalty (other than a penalty of the
73
type specified in Section 507(a)(8)(G) of the Bankruptcy Code) will be
disallowed pursuant to the Plan and the Holder of an Allowed Tax Claim will not
assess or attempt to collect such penalty from the Debtors, their Estates, the
Reorganized Debtors, or their property.
The Debtors estimate that the amount of Allowed Tax Claims that have not
previously been paid pursuant to an order of the Bankruptcy Court will aggregate
approximately $2,378,876. Set forth below is a table showing the breakdown of
the Debtors' estimates by each Debtor:
ESTIMATED ALLOWED TAX CLAIMS NOT PREVIOUSLY
DEBTOR PAID PURSUANT TO BANKRUPTCY COURT ORDER
------ -------------------------------------------
Intermet Corporation $ 149,161
Alexander City Casting Company, Inc. $ 94,868
Cast-Matic Corporation $ 0
Columbus Foundry, L.P. $ 272,052
Diversified Diemakers, Inc. $ 558,855
Ganton Technologies, Inc. $ 272,564
Intermet Holding Company $ 0
Intermet Illinois, Inc. $ 0
Intermet International, Inc. $ 0
Intermet U.S. Holding, Inc. $ 419,747
Ironton Iron, Inc. $ 8,893
Lynchburg Foundry Company $ 439,729
Northern Castings Corporation $ 12,000
Sudbury, Inc. $ 27,007
SUDM, Inc. $ 0
Tool Products, Inc. $ 124,000
Wagner Castings Company $ 0
Wagner Havana, Inc. $ 0
----------
TOTAL: $2,378,876
----------
3. DIP Facility Claims Against Any Debtor
On the Effective Date, in full satisfaction of the DIP Facility Claims against
each Debtor, the DIP Agents (for the benefit of the DIP Lenders, as applicable)
will receive Cash in an amount equal to the then outstanding amount of the DIP
Facility Claims (including, without limitation, all accrued and unpaid interest,
fees and expenses and any other amounts that may then be due and payable under
the DIP Facility) and any undrawn letters of credit issued pursuant to the DIP
Facility will be returned and marked cancelled and will be replaced by letters
of credit issued under the Exit Financing Facility. On the Effective Date, the
DIP Agents' and the DIP Lenders' commitments and obligations under the DIP
Facility will be irrevocably terminated and the Debtors will be deemed to have
unconditionally and irrevocably released the DIP Lenders and the DIP Agents from
all obligations, claims and liabilities arising thereunder or relating thereto.
4. U.S. Trustee Fees Owed By Any Debtor
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The U.S. Trustee's quarterly fees owed by any Debtor will be paid in full
without prior approval pursuant to 28 U.S.C. Section 1930 on or before the
Effective Date. All fees payable pursuant to 28 U.S.C. Section 1930 will be paid
by each of the Reorganized Debtors in accordance therewith until the closing of
its respective Case pursuant to Section 350(a) of the Bankruptcy Code.
5. Workers' Compensation Claims Against Any Debtor
Upon the Effective Date of the Plan, with the exception of the Workers'
Compensation Program for the State of Ohio, which relates to Ironton Iron, Inc.
and Sudbury, Inc., the Reorganized Debtors will continue the Workers'
Compensation Programs for all states in which they operate. Nothing in the Plan
will be deemed to discharge, release, or relieve the Debtors or Reorganized
Debtors from any current or future liability with respect to any of its/their
obligations under the Workers' Compensation Programs, provided that in the case
of the Workers' Compensation Program for the State of Ohio, which relates to
Ironton Iron, Inc. and Sudbury, Inc., Claims arising thereunder will be General
Unsecured Claims. The Reorganized Debtors will be responsible for all valid
Claims for benefits and liabilities under the applicable Workers' Compensation
Programs, provided that, in the case of the Workers' Compensation Program for
the State of Ohio, which relates to Ironton Iron, Inc. and Sudbury, Inc., such
Claims arising thereunder will be General Unsecured Claims under the Plan,
regardless of when the applicable injuries occurred. All obligations under the
applicable Workers' Compensation Programs will be paid in accordance with the
terms and conditions of applicable Workers' Compensation Programs and all other
applicable laws other than the Workers' Compensation Program for the State of
Ohio, which relates to Ironton Iron, Inc. and Sudbury, Inc., which Claims will
be General Unsecured Claims under the Plan, regardless of when the applicable
injuries occurred. For all states in which the Debtors currently operate or have
operated, with the exception of the State of Ohio, the Workers Compensation
Programs are either (i) self-insured, or (ii) insured with a third party
insurance carrier, and are in all cases secured by letters of credit.
Accordingly, Claims resulting from the Workers' Compensation Program for the
State of Ohio, which relates to Ironton Iron, Inc. and Sudbury, Inc., will be
Class 4 General Unsecured Claims or Class 5 Unsecured Convenience Claims as
applicable.
6. Pension Claims Against Any Debtor
Upon Confirmation and substantial consummation of the Plan, the Reorganized
Debtors will continue all Pension Plans in accordance with applicable law, and
the Debtors' obligations under applicable law with respect to continued funding
of the Pension Plans will remain unaltered. Nothing in the Plan will be deemed
to discharge, release, or relieve the Debtors, the Reorganized Debtors, or their
control group of or from any current or future liability under applicable law
with respect to the Pension Plans. On the Effective Date, the Debtors will pay
into each Pension Plan the amount then due for the 2004 Pension Plan years
unless such payments have already been made by the Debtors in the ordinary
course. On the Effective Date, the Debtors will pay into each Pension Plan the
remaining amounts then due under applicable minimum funding standards and the
PBGC will be deemed to have withdrawn its Claims with respect to the Pension
Plans.
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The PBGC has asserted that due to the closing of Ganton Technologies, Inc.'s
Racine, Wisconsin facility and Wagner Castings' planned closing of its Decatur,
Illinois facility, the Debtors may be subject to 29 U.S.C. Sections 1362(e) and
1363, which authorizes the PBGC to make a demand for a payment of money in
escrow or the posting of a bond in the event that a facility closure results in
a reduction of 20% of more of the total number of the employees who are
participants in the plan. The payment in escrow is determined, under proposed
regulations, in an amount equal to the number of employees terminated due to the
closure who were plan participants, divided by the total number of employees who
were participants under the plan before the closure. The bond in lieu of the
escrow is 150% of that amount. The escrow or bond are intended to protect the
PBGC in the event of plan termination within the next five years and must be
maintained for that period. As a result of the closing of the Racine facility,
the PBGC estimates that under 29 U.S.C. Sections 1362(e) and 1363, the liability
relating to the Ganton Technologies salaried plan may be $1.0 million and the
liability relating to the Ganton Technologies hourly plan may be $6.4 million.
As a result of the closing of Wagner Castings' Decatur facility, the PBGC
estimates that under 29 U.S.C. Sections 1362(e) and 1363, the liability relating
to the Wagner Castings plan may be $27.6 million. All of the covered employees
participating in the Ganton Technologies hourly plan and the Wagner Decatur plan
have ceased, or will cease employment due to the closures and about 80% of the
Ganton Technologies salaried employees were terminated due to the Racine
facility closure.
However, the PBGC has agreed that it will refrain from assessing liability under
29 U.S.C. Sections 1362(e) and 1363 with respect to the Racine and Decatur
closings on the terms and conditions set forth below.
The PBGC is enjoined from seeking relief against the Reorganized Debtors under
29 U.S.C. Section 1362(e) as a consequence of the closure of the Debtors'
Racine, Wisconsin or Decatur, Illinois facilities so long as (i) the Debtors
remain current on minimum funding for all Pension Plans and do not apply for a
waiver; (ii) the Debtors achieve at least 90% of the EBITDA contained in the
financial projections that they have provided to their creditors in these Cases,
provided, however, that the Debtors will have 30 calendar days to show that
failure to meet such projections does not have a material adverse effect on PBGC
or any of the pension plans sponsored by Intermet or any member of its
controlled group; (iii) the Debtors remain current on their obligations to and
in compliance with all covenants with their lenders, provided, however, that the
Debtors will have 15 calendar days to show that the failure to meet an
obligation or comply with a covenant does not have a material adverse effect
PBGC or any of the pension plans sponsored by Intermet or any member of its
controlled group; (iv) no reportable event occurs under 29 C.F.R. Section
4043.29, provided, however, that the Debtors will have 30 calendar days to show
that if such a reportable event occurs, it will not have a material adverse
effect on PBGC or any of the Pension Plans sponsored by the Debtors or any
member of their controlled group; and (v) the Debtors provides the PBGC with any
reports that they provide to any lender relating to failure to meet an
obligation or comply with a covenant within 15 calendar days. In addition, the
Debtors agree to be treated as subject to and shall not be exempted from advance
reporting of reportable
76
events under 29 C.F.R. Section 4043.61. The Debtors also will provide to PBGC
Forms 5500 and the actuarial valuation reports annually; notice of changes in
actuarial assumptions; and notice of plan mergers or other plan transactions.
The Debtors will provide audited annual and unaudited quarterly financial
statements when provided to their lenders.
The Debtors estimate that the minimum Pension Plan funding amounts due in 2005
will be approximately $8.1 million, broken down by Debtor as shown in the table
below.
ESTIMATED PENSION PLAN
DEBTOR CONTRIBUTIONS REQUIRED IN 2005*
------ -------------------------------
Columbus Foundry, L.P. $1 million
Lynchburg Foundry Company $5.5 million
Wagner Castings Company $0
Ganton Technologies, Inc. - Racine Salaried Employees $300,000
Ganton Technologies, Inc. - Racine Hourly Employees $1 million
Ganton Technologies, Inc. - Pulaski Hourly Employees $200,000
--------------------------
TOTAL: APPROXIMATELY $8.1 MILLION
* These estimates are based, in part, on estimated quarterly payments due in
2005 which are subject to change. Approximately $6.6 million of the total
payments required in 2005 must be paid on or before September 15, 2005. The
remainder must be paid on or before October 15, 2005.
7. Consignment Claims Against Any Debtor
Notwithstanding Section 1141(c) or any other provision of the Bankruptcy Code,
all Liens, if any, of Persons who provided goods to any of the Debtors on
consignment (i) prior to the Petition Date and who hold valid, enforceable, and
perfected Liens in such goods (a) pursuant to a written agreement with a Debtor
and (b) in accordance with applicable law, or (ii) after the Petition Date
pursuant to any order of the Bankruptcy Court will, in each case, survive the
Effective Date and continue in accordance with the contractual terms of the
underlying agreements between the relevant Debtor and such Persons and will
remain enforceable as of the Effective Date with the same extent, validity and
priority as existed as of the Petition Date or pursuant to such order, as the
case may be. All other Persons who provided goods to any of the Debtors on
consignment will be deemed to hold General Unsecured Claims under the Plan.
C. TREATMENT OF CLASSES THAT ARE UNIMPAIRED UNDER THE PLAN
Classes 1, 2, and 3 are Unimpaired for all Debtors. Holders of Unimpaired Equity
Interests in the Unimpaired Equity Debtors are Unimpaired. Therefore, pursuant
to Section 1126(f) of the Bankruptcy Code, the Holders of Allowed Claims or
Equity Interests in such Classes are conclusively presumed to have accepted the
Plan. Nothing in the Plan will be deemed to accelerate any Debtor's obligation
to make payment on account of any Claim in a Class which is Unimpaired under the
Plan or affect the timing of payment under applicable non-bankruptcy law.
Additionally, the Debtors will retain all rights to dispute or challenge any
Claim which will constitute a Claim in a Class that is Unimpaired under the
Plan.
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1. Class 1 For All Debtors - Priority Claims Against Any Debtor
Class 1 for all Debtors is comprised of Priority Claims that are entitled to
priority pursuant to Section 507(a) of the Bankruptcy Code and that are not
Administrative Claims or Tax Claims. Many of the Priority Claims in Class 1 for
all Debtors have been paid pursuant to an order of the Bankruptcy Court entered
in connection with first day motions. The Debtors project that, at the time of
Confirmation, there will be approximately $2,458,860 of unpaid Priority Claims.
See Section I.C.2, above, for a breakdown by each Debtor.
Unless the Holder of a Priority Claim and the relevant Debtor agree to a
different treatment, each Holder of an Allowed Priority Claim against any Debtor
will receive, in full satisfaction of such Allowed Claim, Cash equal to the
amount of such Allowed Claim on the latest of (i) the Effective Date, (ii) the
date that is 10 days after the Allowance Date of such Claim, and (iii) the date
when such Allowed Claim becomes due and payable according to its terms and
conditions.
2. Class 2 For All Debtors - Pre-Petition Lender Claims Against Any
Debtor
Class 2 for all Debtors is comprised of Pre-Petition Lender Claims, which will
be Allowed against the relevant Debtor in an amount equal to the sum of (i) the
principal amount of the Pre-Petition Lender Claims as of the Petition Date, plus
all unpaid interest and fees accrued through the Petition Date, plus (ii) all
interest and fees (if any) to which the Pre-Petition Lenders are entitled under
Section 506(b) of the Bankruptcy Code, and (iii) any other amounts owed by the
Debtors under the DIP Order, to the extent not already paid to the Pre-Petition
Lenders as adequate protection pursuant to the DIP Financing Order. On the
Effective Date, in full satisfaction of all of the obligations of the Debtors in
respect of the Pre-Petition Lender Claims, the Disbursing Agent will distribute
to the Pre-Petition Agent (for the benefit of the Pre-Petition Lenders) and
without further notice, application or hearing, Cash in an amount equal to all
principal and interest accrued on the Pre-Petition Lender Claims through the
Effective Date plus all unreimbursed fees and expenses incurred by the
Pre-Petition Agent through the Effective Date (to the extent not already paid as
adequate protection pursuant to the DIP Financing Order and regardless of
whether such interest and fees are Allowed, or allowable, pursuant to Section
506(b) of the Bankruptcy Code). The Pre-Petition Lenders will be entitled to
retain all payments made to the Pre-Petition Lenders prior to the Effective
Date. In addition, as of the Effective Date, the Consenting Pre-Petition Lenders
will be deemed to have been unconditionally and irrevocably released from all
obligations, claims and liabilities arising under or related to the Pre-Petition
Credit Facility or its lending relationship to the Debtors, whether arising
before or after the Petition Date.
See Section I.C.2, above, for a breakdown by each Debtor.
3. Class 3- Secured Claims Against Any Debtor Except Claims In Class
3a As To Wagner Castings Company
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Class 3 for all Debtors is comprised of Secured Claims except those in Class 3a,
as to Wagner Castings. Unless the Holder of an Allowed Secured Claim and the
relevant Debtor agree to a different treatment, either (a) the legal, equitable,
and contractual rights of Holders of Secured Claims will be reinstated on the
Effective Date, or (b) the relevant Debtor will (i) Cure any pre-petition
default (other than defaults of the kind specified in Section 365(b)(2) of the
Bankruptcy Code), (ii) reinstate the maturity of such Secured Claim, (iii)
compensate the Holder of an Allowed Secured Claim for any damage satisfying
Section 1124(2)(c) of the Bankruptcy Code, and (iv) not otherwise alter the
legal, equitable or contractual rights to which such Secured Claim entitles the
Holder. The relevant Debtor's failure to object to such Secured Claims in the
Cases will be without prejudice to the Debtors' right to contest or otherwise
defend against such Claims in the Bankruptcy Court or other appropriate
non-bankruptcy forum (at the option of the Debtors) when and if such Claims are
sought to be enforced by the Holder of the Secured Claim. All pre-Petition Date
Liens on property of any Debtor held by or on behalf of the Holder of Secured
Claims with respect to such Claims will survive the Effective Date and continue
in accordance with the contractual terms of the underlying agreements with such
Holders until, as to each such Holder, the Allowed Claims of such Holder of such
Secured Claims are paid in full.
See Section I.C.2, above, for a breakdown by each Debtor.
4. Class 6a For The Unimpaired Equity Debtors - Unimpaired Equity
Interests In The Unimpaired Equity Debtors
On the Effective Date, all of the Class 6a Unimpaired Equity Interests in the
Unimpaired Equity Debtors will be Allowed and retained by the applicable
Reorganized Debtor. Holders of Unimpaired Equity Interests in the Unimpaired
Equity Debtors will not be entitled to vote and are deemed to have accepted the
Plan. See Section I.C.2. "Classified Claims," above, for breakdown by each
Debtor.
D. TREATMENT OF CLASSES THAT ARE IMPAIRED UNDER THE PLAN
Classes 3a, 4, 4a, 4b, 4c, 5 and Class 6b Impaired Equity Interests are
Impaired. Holders of Allowed Claims in Classes 3a, 4, 4a, 4b, 4c, and 5 are
allowed to vote as a Class to accept or reject the Plan. Holders of Class 6b
Impaired Equity Interests in the Impaired Equity Debtors are deemed to have
rejected the Plan pursuant to Section 1126(g) of the Bankruptcy Code.
1. Class 3a - Secured Claims Held By Dana Corporation Against Wagner
Castings Company
On the Effective Date, in full satisfaction of its Allowed Secured Claim for
setoff, Dana will be allowed to setoff such Claim from amounts owed to Wagner
Castings, Columbus Foundry, L.P., Lynchburg Foundry Company, and Intermet, on
the condition that Dana provides the amendments to its purchase orders with the
aforementioned Debtors, set forth in an agreement by and among such Debtors and
Dana, dated April 2005.
79
2. Class 4 - General Unsecured Claims Other Than Those In Classes
4a, 4b, or 4c
On or as soon as reasonably practicable after the Effective Date, in full
satisfaction of its Allowed General Unsecured Claims in such Class, the
Indenture Trustee, on behalf of each of the Noteholders, or each Holder of the
Allowed General Unsecured Claims, respectively, will receive in full
satisfaction of its Claims against such Debtor:
(a) the Cash-Out Amount; OR
(b) at the option of each such Holder of a General Unsecured Claim and
only to the extent that such Holder of General Unsecured Claims so elects on the
Ballot:
(i) a Pro Rata portion of shares of New Common Stock allocated to
the applicable Debtor as indicated in Exhibit B to the Plan, and
(ii) its Pro Rata share of the Rights allocated to the applicable
Debtor as indicated on Exhibit B to the Plan; OR
(c) at the option of each such Holder of a General Unsecured Claim and
only to the extent that such Holder of General Unsecured Claims makes the
Inducement Cash Election for such Debtor on the Ballot, the Inducement Cash
Amount.
For the avoidance of doubt, in the event a Holder of a General Unsecured Claim
fails to elect the options set forth in subsections (b) or (c) of this section,
such Holder will receive Cash equal to the Cash-Out Amount.
See Section I.C.2, above, for a breakdown by each Debtor, as well as Exhibit B
to the Plan.
A. Explanation Of Creditor Treatment In Class 4
Holders of General Unsecured Claims have two primary options of treatment
provided in Class 4 under the Plan. Should Holders of General Unsecured Claims
not vote, or not make an election, they will receive the Cash-Out Amount of
$10.00 per share of New Common Stock they would have otherwise received had they
elected to receive New Common Stock in lieu of Cash. In the event that they make
an election, such Holders have two options. They may either: (a) elect to
receive their Pro Rata share of New Common Stock allocated to the relevant
Debtor and their Pro Rata share of the Rights allocated to such Debtor, or (b)
make the Inducement Cash Election. Holders of General Unsecured Claims also have
the right to make the Convenience Class Election.
If Holders of General Unsecured Claims elect to receive New Common Stock, they
will receive, in exchange for their Claims, a Pro Rata portion of 2.5 million
shares in the aggregate, as allocated to each Debtor as indicated in Exhibit B
to the Plan, and Exhibit I hereto, based upon the value of each Debtor. By
electing to receive New Common Stock in lieu of Cash, Holders of General
Unsecured Claims will also have the option of
80
purchasing additional shares of New Common Stock in the Rights Offering (a Pro
Rata portion of an additional 7.5 million shares in the aggregate, as allocated
to each Debtor as indicated in Exhibit B to the Plan, and Exhibit I hereto,
based upon the value of each Debtor). These Distributions as set forth in
Exhibit B to the Plan evidence the Substantive Consolidation Settlement as
described in Section VIII.A. of this Disclosure Statement.
The Inducement Cash Election is designed to give Holders of General Unsecured
Claims a greater percentage recovery than they would have received by electing
the Cash-Out Amount, as an incentive to have such Holders: (x) agree to
prosecute their Claim(s) exclusively against the Debtor that is the primary
obligor according to the Debtors' books and records (as shown in the Schedules),
(y) agree to waive their rights to seek recovery from any other Debtor on
account of such Claim(s), and (z) vote in favor of the Plan. However, depending
on the amount of Allowed Claims for such Debtor, it is possible that Creditors
making the Inducement Cash Election will receive less or more than the
percentage of Inducement Cash Amount shown for each Debtor in Exhibit B to the
Plan, and Exhibit I hereto, as they will receive their Pro Rata portion of the
Inducement Cash Pool allocated to each such Debtor. Furthermore, as part of the
substantive consolidation settlement described in Section VIII.A. of this
Disclosure Statement, to the extent that any Noteholders make the Inducement
Cash Election, any dilution that would otherwise result from the participation
(for Distribution purposes) of the Noteholders in the Inducement Cash Pool will
be mitigated by the increase of Cash in such Pool (in an amount sufficient to
ensure that $12 million will be in the General Unsecured Cash Pool) resulting
from the purchase of Inducement Cash-Out Shares by the Initial Committed
Purchasers. These Distributions as set forth in Exhibit B to the Plan evidence
the Substantive Consolidation Settlement as described in Section VIII.A. of this
Disclosure Statement.
The primary assumption the Debtors have made in allocating funds to the
Inducement Cash Pools at each Debtor relate to (i) the likelihood that the
Noteholders will not make the Inducement Cash Election on their Ballots, and
(ii) the total dollar amount of General Unsecured Claims.
As to Noteholder participation in the Inducement Cash Election, the fact that
the Senior Notes are guaranteed by all Debtors except Intermet International,
Inc. and Intermet Holding Company would serve as a disincentive for the
Noteholders to waive their Claims against any other Debtors, which they would be
required to do if they made the Inducement Cash Election. Accordingly, the
dollar amounts allocated to the Inducement Cash Pools for each Debtor were
initially determined by estimating (based on a review of the Schedules and
Proofs of Claims filed to date and discounting duplicate Claims and Claims
reasonably believed to be disallowable)(10) the total Cash Distributions
required if all Holders of General Unsecured Claims other than the Noteholders
actually made the
- ----------
(10) The Claims estimates set forth herein reflect current estimates of Claims
at each Debtor. Actual distributions may be higher or lower based on the
resolution of Disputed Claims and actual Allowed Claims at each Debtor.
81
Inducement Cash Election. As a result of the Substantive Consolidation
Settlement described in Section VIII.A. of this Disclosure Statement, if
Noteholders do make the Inducement Cash Election, it has now been agreed that
the Inducement Cash Pool will be augmented by funds (in an amount sufficient to
ensure that $12 million will be in the General Unsecured Cash Pool) from the
purchase of the Inducement Cash-Out Shares by the Initial Committed Purchasers.
Thus, there should be sufficient funds in the Inducement Cash Pools to meet the
fixed percentage Inducement Cash payouts shown in Exhibit B to the Plan, and
Exhibit I hereto.
If, however, the Debtors underestimated the total dollar number of General
Unsecured Claims for any particular Debtor, then Creditors making the Inducement
Cash Election for Claims against such Debtor (including Noteholders who have
made the Inducement Cash Election) may ultimately receive less than the
estimated recoveries shown with respect to the Inducement Cash Amounts in
Exhibit B to the Plan, and Exhibit I hereto, absent an increase in the
Inducement Cash Pools. If, however, the Debtors overestimated the total dollar
amount of General Unsecured Claims for any particular Debtor, then Creditors
making the Inducement Cash Election for Claims against such Debtor may
ultimately receive more than the estimated recoveries shown in Exhibit B to the
Plan. In any event, each Holder of an Allowed General Unsecured Claim making the
Inducement Cash Election will receive its Pro Rata portion of the Inducement
Cash Pool for such Debtor.
3. Class 4a - General Unsecured Claims Against Wagner Castings
Company
Class 4a is comprised of General Unsecured Claims against Wagner Castings
Company. However, Class 4a shall only exist in the event that the Liquidating
Plan Condition is satisfied. If the Liquidating Plan Condition is not satisfied,
there will be no Class 4a, and Creditors of Wagner Castings will be treated as
Class 4 Creditors.
On or as soon as reasonably practicable after the Effective Date, in full
satisfaction of the Allowed General Unsecured Claims in such Class, the
Indenture Trustee, on behalf of each of the Noteholders, or each Holder of the
Allowed General Unsecured Claims, respectively, will receive in full
satisfaction of their Claims against Wagner Castings:
Cash equal to each Holder's Pro Rata share of all proceeds remaining
after liquidation of all assets of Wagner Castings and the satisfaction of all
Liens thereon, including those arising after the Effective Date, such as the
Liens arising under the Exit Financing Facility.
4. Class 4b - General Unsecured Claims Against SUDM, Inc.
Class 4b is comprised of General Unsecured Claims against SUDM, Inc. On or as
soon as reasonably practicable after the Effective Date, in full satisfaction of
its Allowed General Unsecured Claims in such Class, the Indenture Trustee, on
behalf of each of the Noteholders, or each Holder of the Allowed General
Unsecured Claims, respectively, will receive:
82
(a) the Cash-Out Amount with respect to SUDM as indicated in Exhibit B
to the Plan; OR
(b) at the option of each such Holder of a General Unsecured Claim and
only to the extent that such Holder of a General Unsecured Claim so elects on
the Ballot:
(i) a Pro Rata portion of shares of New Common Stock allocated to
SUDM as indicated in Exhibit B to the Plan, and
(ii) its Pro Rata share of the Rights allocated to SUDM and
indicated on Exhibit B to the Plan; OR
(c) at the option of each such Holder of a General Unsecured Claim and
only to the extent that such Holder of a General Unsecured Claim makes the
Inducement Cash Election for SUDM on the Ballot, the Inducement Cash Amount with
respect to SUDM.
For the avoidance of doubt, in the event a Holder of a General Unsecured Claim
fails to elect the options set forth in subsections (b) or (c) of this Section,
such Holder will receive Cash equal to the Cash-Out Amount.
5. Class 4c - General Unsecured Claims Against Wagner Havana, Inc.
Class 4c is comprised of General Unsecured Claims and Unsecured Convenience
Claims against Wagner Havana, Inc., but only in the event that the Liquidating
Plan Condition is satisfied. If the Liquidating Plan Condition is not satisfied,
there will be no Class 4c, and Creditors of Wagner Havana, Inc. will be treated
as Class 4 Creditors.
On the Effective Date, the Indenture Trustee, on behalf of each of the
Noteholders, or a Holder of Allowed General Unsecured Claims against Wagner
Havana, Inc., will receive in full satisfaction of their Claims:
(a) the Cash-Out Amount with respect to Wagner Havana as indicated in
Exhibit B to the Plan; OR
(b) at the option of each such Holder of a General Unsecured Claim and
only to the extent that such Holder of General Unsecured Claims so elects on the
Ballot:
(i) a Pro Rata portion of shares of the New Common Stock
allocated to Wagner Havana as indicated in Exhibit B to the Plan,
(ii) its Pro Rata share of the Rights allocated to Wagner Havana
and indicated on Exhibit B to the Plan; and
83
(iii) its Pro Rata share of the Reorganized Wagner Havana New
Common Stock which will be conveyed immediately to Reorganized Intermet upon the
Effective Date; OR
(c) at the option of each such Holder of a General Unsecured Claim and
only to the extent that such Holder of General Unsecured Claims makes the
Inducement Cash Election for Wagner Havana on the Ballot, the Inducement Cash
Amount with respect to Wagner Havana as indicated in Exhibit B to the Plan.
In the event a Holder of a General Unsecured Claim fails to elect the options
set forth in subsections (b) or (c) of this Section, such Holder will receive
the Cash-Out Amount.
6. Class 5 For All Debtors - Unsecured Convenience Claims Against
Any Debtor
Class 5 for all Debtors (except Wagner Castings and Wagner Havana in the event
that the Liquidating Plan Condition is satisfied) is comprised of Unsecured
Convenience Claims. On the Effective Date, each Holder of an Allowed Unsecured
Convenience Claim against any Debtor will be paid, in full satisfaction of such
Claims, the Convenience Cash Amount as indicated on Exhibit B to the Plan and
Section I.C.2, above. These Distributions as set forth in Exhibit B to the Plan
evidence the Substantive Consolidation Settlement as described in Section
VIII.A. of this Disclosure Statement.
A. Explanation Of Creditor Treatment in Class 5
Holders of Unsecured Convenience Claims, and Holders of General Unsecured Claims
who make a Convenience Class Election, will receive the Convenience Cash Amount
identified in Exhibit B to the Plan and Exhibit J hereto. The Convenience Cash
Amount will be such Creditor's Pro Rata share of the Convenience Cash Pool for
the relevant Debtor. Furthermore, as part of the Substantive Consolidation
Settlement described in Section VIII.A. of this Disclosure Statement, to the
extent that any Noteholders make the Convenience Cash Election, any dilution
that would otherwise result from the participation (for Distribution purposes)
of the Noteholders in the Convenience Cash Pool will be mitigated by the
increase of Cash in such Pool (in an amount sufficient to ensure that $12
million will be in the General Unsecured Cash Pool) resulting from the purchase
of Convenience Cash-Out Shares by the Initial Committed Purchasers.
Subject to the mitigation described above, the primary assumption the Debtors
have made in allocating funds to the Convenience Cash Pools at each Debtor
relate to (i) the likelihood that the Noteholders will not make the Convenience
Cash Election on their Ballots, and (ii) the total dollar amount of Unsecured
Convenience Claims.
As to Noteholder participation in the Convenience Cash Election, the fact that
the Senior Notes are guaranteed by all Debtors except Intermet International,
Inc. and Intermet Holding Company would serve as a disincentive for the
Noteholders to waive their Claims against any other Debtors, which they would be
required to do if they made the Convenience Cash Election.
84
The estimated recovery for Convenience Class Claims is based on the a review of
the Schedules and Proofs of Claims filed to date and discounting duplicate
Claims and Claims reasonably believed to be disallowable.(11) If, however, the
total dollar number of estimated Unsecured Convenience Claims for any particular
Debtor is different than estimated based on such review, then Creditors making
the Convenience Cash Election for Claims against such Debtor (including
Noteholders who have made the Convenience Cash Election) may ultimately receive
more or less than the estimated recoveries shown with respect to the Convenience
Cash Amounts in Exhibit B to the Plan, and Exhibit I hereto.
7. Class 6b For The Impaired Equity Debtors - Impaired Equity
Interests In Such Debtors
On the Effective Date, all of the Class 6b Impaired Equity Interests in the
Impaired Equity Debtors, will be cancelled without consideration therefor and
will be deemed to have rejected the Plan. See Section I.C.2. "Classified
Claims," above, for breakdown by each Debtor. Ironton Iron, Inc. is an Impaired
Equity Debtor but only with respect to its shares of Existing Preferred Stock.
Wagner Castings Company and Wagner Havana, Inc. are Unimpaired Equity Debtors,
unless the Liquidating Plan Condition is satisfied, when they both become
Impaired Equity Debtors and all Impaired Equity Interests in both entities will
be cancelled. If the Liquidating Plan Condition is satisfied, one (1) share of
Reorganized Wagner Castings New Common Stock will be issued and delivered to a
third-party liquidating trustee acceptable to the Reorganized Debtors, the
Initial Committed Purchasers, and the Creditors' Committee for the purpose of
liquidating Wagner Castings and making the Distributions set forth in Class 4a.
Further, if the Liquidating Plan Condition is satisfied, 1000 shares of the
Reorganized Wagner Havana New Common Stock will be issued to Holders of Claims
against Wagner Havana, which such Holders will immediately transfer to
Reorganized Intermet.
A. Explanation Of Impaired Equity Interest Treatment In Class
6b For Wagner Castings Company And Wagner Havana, Inc.
As demonstrated in the Liquidation Analysis attached hereto as Exhibit F, both
Wagner Castings and Wagner Havana, Inc. are insolvent. Consequently, none of the
Impaired Equity Interests in either entity have any value. Sudbury, Inc. is the
sole Holder of Equity Interests in Wagner Castings, while Wagner Castings is the
sole Holder of Equity Interests in Wagner Havana, Inc.
- ----------
(11) The Claims estimates set forth herein reflect current estimates of Claims
at each Debtor. Actual distributions may be higher or lower based on the
resolution of Disputed Claims and actual Allowed Claims at each Debtor.
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The Plan contemplates that both Wagner Castings and Wagner Havana, Inc. will be
reorganized, and that all Impaired Classes of Claims against each of these
Debtors will accept the Plans proposed by each. In such event, the Equity
Interests in Wagner Castings and Wagner Havana, Inc. will, by consent of the
Impaired Classes eligible to vote on those Plans, be Allowed and retained by
Reorganized Sudbury, Inc. and Reorganized Wagner Castings Company, respectively.
If, however, the Liquidating Plan Condition is satisfied such that Classes 4 and
5 against Wagner Castings do not accept the Plan proposed by Wagner Castings,
and Wagner Castings is unable to Confirm its Plan under the cram-down provisions
set forth in Section 1129(b) of the Bankruptcy Code, then all Equity Interests
in Wagner Castings will be cancelled, and one (1) share of Reorganized Wagner
Castings New Common Stock will be transferred to a third-party liquidating
trustee for the sole purpose of liquidating Wagner Castings Company. In such
event, (i) Equity Interests in Wagner Havana, Inc. will be cancelled in their
entirety, and (ii) on the Effective Date, Holders of Claims against Wagner
Havana, Inc. will receive a Distribution of 1000 shares of Reorganized Wagner
Havana New Common Stock, which such Holders will immediately transfer to
Reorganized Intermet, thereby retaining the value, if any, of Wagner Havana in
Reorganized Intermet. This value, if any, will be preserved for the Holders of
General Unsecured Claims by the Distribution of New Common Stock and Rights
under the Plan.
Equity Interests in Wagner Havana, Inc. (held exclusively by Wagner Castings
Company) will be cancelled because the Holder of such Equity Interests is not
entitled to any Distribution on account of its Equity Interests before Creditors
of Wagner Havana, Inc. are paid in full (which the Plan does not contemplate).
Consequently, Holders of Claims against (not Equity Interests in) Wagner Havana,
Inc. will receive a Distribution of 1000 shares of Reorganized Wagner Havana New
Common Stock.
By voting to accept the Wagner Havana Plan, Creditors of Wagner Havana will have
consented to transfer all of their shares of Reorganized Wagner Havana New
Common Stock to Reorganized Intermet.
E. INTERCOMPANY CLAIMS
All Intercompany Claims will be released, waived and discharged as of the
Effective Date. Claims held by Non-Debtor Affiliates against the Debtors will,
with the consent of the Initial Committed Purchasers, to the maximum extent
practicable, be (a) released, waived, and discharged as of the Effective Date,
(b) offset against claims held by Debtors against Non-Debtor Affiliates, or (c)
converted to equity with respect to the obligee Debtor.
IX. EFFECT OF CONFIRMATION AND IMPLEMENTATION OF THE PLAN
The Plan provides for the treatment of Claims and Equity Interests as described
above as well as other provisions relating to acceptance or rejection of the
Plan, treatment of
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Executory Contracts, Distributions, procedures for resolving disputed,
contingent, and unliquidated Claims, retention of jurisdiction and other
miscellaneous provisions.
A. CONFIRMATION
Section 1129(a) of the Bankruptcy Code establishes conditions for the
confirmation of a plan. These conditions are too numerous and detailed to be
fully explained here. Parties are encouraged to seek independent legal counsel
to answer any questions concerning the Chapter 11 process.
Among the several conditions for Confirmation of the Plan under Section 1129(a)
of the Bankruptcy Code are these:
1. Each Class of Impaired Claims must accept the Plan; provided,
however, that Section 1129(b) of the Bankruptcy Code allows a
plan to be confirmed if one class of impaired claims accepts the
plan and no class junior to a rejecting class takes anything
under the plan.
2. Either each Holder of a Claim in a Class must accept the Plan, or
the Plan must provide at least as much value as would be received
upon liquidation under Chapter 7 of the Bankruptcy Code. In this
regard, attached as Exhibit F is the Liquidation Analysis showing
the anticipated distribution to Creditors in a Chapter 7
liquidation of the Debtors. Pursuant to the Liquidation Analysis,
Creditors would receive far less in a Chapter 7 liquidation than
they would under the Plan, and, therefore this requirement is
satisfied.
3. Confirmation of the Plan is not likely to be followed by the
liquidation or the need for further financial reorganization of
the Debtors, unless such liquidation is proposed in the Plan.
Attached as Exhibit G are the Projections of the Debtors, on a
consolidated basis. They demonstrate that Confirmation of the
Plan will not be followed by the liquidation or the need for
further financial reorganization of the Debtors.
B. EFFECTS OF PLAN CONFIRMATION
1. Discharge of Claims; Related Injunction
Except as may otherwise be provided herein or in the Confirmation Order, the
rights afforded and the payments and Distributions to be made and the treatment
under the Plan will be in complete exchange for, and in full and unconditional
settlement, satisfaction, discharge, and release of any and all existing debts
and Claims and termination of all Equity Interests of any kind, nature, or
description whatsoever against the Debtors, the Reorganized Debtors, the Assets,
their property or their Estates, and will effect a full and complete release,
discharge, and termination of all Liens, security interests, or other
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claims, interests, or encumbrances upon all of the Debtors' Assets and property.
Further, all Persons are precluded from asserting, against any of the Debtors or
the Reorganized Debtors or their respective successors, or any property that is
to be Distributed under the terms of the Plan, any Claims, obligations, rights,
causes of action, liabilities, or Equity Interests based upon any act, omission,
transaction, or other activity of any kind or nature that occurred prior to the
Effective Date, other than as expressly provided for in the Plan, or the
Confirmation Order, whether or not (a) a Proof of Claim based upon such debt is
filed or deemed filed under Section 501 of the Bankruptcy Code; (b) a Claim
based upon such debt is Allowed; or (c) the Holder of a Claim based upon such
debt has accepted the Plan.
Except as otherwise provided in the Plan or the Confirmation Order, all Holders
of Allowed Claims and Equity Interests arising prior to the Effective Date will
be permanently barred and enjoined from asserting against the Reorganized
Debtors or any of the Debtors, or their successors or property, or the Assets,
any of the following actions on account of such Allowed Claim or Equity
Interest:
- - commencing or continuing in any manner any action or other proceeding on
account of such Claim or Equity Interest against the Reorganized Debtors,
any of the Debtors, or the property to be distributed under the terms of
the Plan, other than to enforce any right to Distribution with respect to
such property under the Plan;
- - enforcing, attaching, collecting, or recovering in any manner any judgment,
award, decree, or order against the Reorganized Debtors, the Debtors or any
of the property to be distributed under the terms of the Plan, other than
as permitted under the first bullet-point listed above;
- - creating, perfecting, or enforcing any Lien or encumbrance against property
of the Reorganized Debtors, any of the Debtors, or any property to be
Distributed under the terms of the Plan;
- - asserting any right of setoff, subrogation, or recoupment of any kind,
directly or indirectly, against any obligation due any Debtor, the
Reorganized Debtors, the Assets or any other property of the Debtors, the
Reorganized Debtors, or any direct or indirect transferee of any property
of, or successor in interest to, any of the foregoing Persons; and
- - acting or proceeding in any manner, in any place whatsoever, that does not
conform to, or comply with, the provisions of the Plan.
The foregoing discharge, release and injunction are an integral part of the Plan
and are essential to its implementation. Each of the Debtors and the Reorganized
Debtors will have the right to independently seek the enforcement of the
discharge, release and injunction set forth in Article 10.02 of the Plan.
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Except as otherwise specifically provided in the Plan, nothing in the Plan will
be deemed to waive, limit, or restrict in any way the discharge granted to the
Debtors upon Confirmation of the Plan by Section 1141 of the Bankruptcy Code.
2. Vesting Of Property
Except as otherwise provided in the Plan or the Confirmation Order, upon the
Effective Date, (a) the Debtors will continue to exist as the Reorganized
Debtors, with all the powers of corporations under applicable law and without
prejudice to any right to alter or terminate such existence (whether by merger
or otherwise) under applicable state law, and (b) all property of the Estates,
wherever situated, will vest in the relevant Reorganized Debtor, as appropriate,
subject to the provisions of the Plan and the Confirmation Order. Thereafter,
the Reorganized Debtors may operate their businesses and may use, acquire, and
dispose of property free of any restrictions of the Bankruptcy Code, the
Bankruptcy Rules, and the Bankruptcy Court.
After the Effective Date, all property retained by the Reorganized Debtors
pursuant hereto will be free and clear of all Claims, debts, Liens, security
interests, encumbrances, and interests, except as contemplated by the Plan and
except for the obligation to perform according to the Plan and the Confirmation
Order.
3. Retention Of Bankruptcy Court Jurisdiction
Following the Effective Date, the Bankruptcy Court will retain such jurisdiction
over these Cases as is legally permissible, including without limitation, such
jurisdiction as is necessary to ensure that the purposes and intent of the Plan
are carried out. The Bankruptcy Court will also expressly retain jurisdiction to
hear and determine all Claims against the Debtors, to hear, determine and
enforce all Causes of Action that may exist on behalf of any Debtor, and for all
purposes pertaining to the treatment, allowance or classification of Claims and
Equity Interests, including issues arising under Section 502(c) of the
Bankruptcy Code proceedings for estimation of Claims. The Bankruptcy Court will
further retain jurisdiction for the following additional purposes:
- - to determine all questions and disputes regarding title to the Assets of
the Debtors, all Causes of Action, controversies, disputes, or conflicts,
whether or not subject to any pending action as of the Effective Date,
between any Debtor and any other party, including, without limitation, the
Causes of Actions, the Avoidance Actions, and any other right to recover
Assets pursuant to the provisions of the Bankruptcy Code;
- - to modify the Plan after the Confirmation Date in accordance with the terms
of the Plan and pursuant to the Bankruptcy Code and the Bankruptcy Rules;
- - to enforce and interpret the terms and conditions of the Plan;
- - to enter such orders, including, but not limited to, such future
injunctions as are necessary to enforce the respective title, rights, and
powers of the Debtors, the terms of the Plan, and to impose such
limitations, restrictions, terms, and
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conditions on such title, rights, and powers as the Bankruptcy Court may
deem necessary;
- - to enter an order closing these Cases;
- - to correct any defect, cure any omission, or reconcile any inconsistency in
the Plan or the Confirmation Order as may be necessary to implement the
purposes and intent of the Plan;
- - to determine any and all applications for allowances of compensation and
reimbursement of expenses and the reasonableness of any fees and expenses
authorized to be paid or reimbursed under the Bankruptcy Code or the Plan
or resolve any disputes regarding fees to be paid pursuant to the Plan;
- - to determine any applications or motions pending on the Effective Date or
thereafter for the rejection of any Executory Contract and to hear and
determine, and, if need be, to liquidate any and all Claims arising
therefrom;
- - to determine any and all motions, applications, adversary proceedings, and
contested matters that may be pending on the Effective Date;
- - to consider any modification of the Plan, whether or not the Plan has been
substantially consummated, and to remedy any defect or omission or to
reconcile any inconsistency in any order of the Bankruptcy Court, to the
extent authorized by the Plan or the Bankruptcy Court and all matters
pertinent to modification;
- - to determine all controversies, suits, and disputes that may arise in
connection with the interpretation, enforcement, or consummation of the
Plan or the Reorganization Documents;
- - to consider and act on the compromise and settlement of any Claim against
or Cause of Action by or against any Debtor or Reorganized Debtor arising
under or in connection with the Plan;
- - to issue such orders in aid of execution of the Plan as may be authorized
by Section 1142 of the Bankruptcy Code;
- - to determine such other matters or proceedings as may be provided for under
Title 28 or any other title of the United States Code, the Bankruptcy Code,
the Bankruptcy Rules, other applicable law, the Plan, or in any order or
orders of the Bankruptcy Court, including, but not limited to, the
Confirmation Order or any order that may arise in connection with the Plan,
the Cases, or the Confirmation Order; and
- - to interpret and enforce, and determine all questions and disputes
regarding, the injunctions, releases, exculpations, and indemnifications
provided for or set forth in the Plan (including, without limitation,
Articles 10.02, 10.05, 10.06 and 13.08 of the Plan) or the Confirmation
Order.
4. Releases
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A. On the Effective Date, effective as of the Confirmation
Date, and except as otherwise provided in the Plan or in the
Confirmation Order, Intermet, Reorganized Intermet, the
Debtors, the Reorganized Debtors, each Initial Committed
Purchaser, the Pre-Petition Agent, the Consenting
Pre-Petition Lenders, the DIP Agents on their own behalf and
on behalf of each of the DIP Lenders, the Creditors'
Committee and its members in such capacity and only in such
capacity, and the Indenture Trustee will have, and will be
deemed to have, conclusively, absolutely unconditionally,
irrevocably, forever and completely released and discharged
each of the current and former directors and officers,
employees, agents, managers, advisors, attorneys or
representatives (in their capacity as such and in no other
capacity) of each of the Debtors from any and all Released
Actions and Avoidance Actions based in whole or in part upon
any act, omission, transaction, event or other occurrence
taking place at any time on or before the Effective Date,
with the sole exception of acts or omissions resulting from
intentional fraud or willful misconduct as determined by a
Final Order of the Bankruptcy Court.
B. On the Effective Date, effective as of the Confirmation
Date, and except as otherwise provided in the Plan or in the
Confirmation Order, Intermet, Reorganized Intermet, the
Debtors and the Reorganized Debtors as Releasing Parties
have and will be deemed to have, conclusively, absolutely,
unconditionally, irrevocably, forever and completely
released and discharged each Initial Committed Purchaser,
the Pre-Petition Agent, the Consenting Pre-Petition Lenders,
the DIP Agents on their own behalf and on behalf of each of
the DIP Lenders, the Creditors' Committee, and the Indenture
Trustee, and each of their respective current and former
members, officers, directors, agents, financial advisors,
attorneys, employees, equity holders, partners, affiliates
and representatives (in their capacity as such and in no
other capacity) and their respective properties, from any
and all Released Actions other than Avoidance Actions based
in whole or in part upon any act, omission, transaction,
event or other occurrence taking place at any time after the
Petition Date through and including the Effective Date, with
the sole exception of acts or omissions resulting from
intentional fraud or willful misconduct as determined by a
Final Order of the Bankruptcy Court.
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C. On the Effective Date, effective as of the Confirmation
Date, and except as otherwise provided in the Plan or in the
Confirmation Order, (i) each Person that votes to accept the
Plan, (ii) all Holders of Claims, in consideration for the
obligations of the Debtors and the Reorganized Debtors under
the Plan and the Cash and other contracts, instruments,
releases, agreements or documents to be delivered in
connection with the Plan, and the treatment under the Plan,
and (iii) each Person (other than the Debtors) that has
held, holds or may hold a claim, as applicable, will have,
and will be deemed to have, conclusively, absolutely,
unconditionally, irrevocably, forever and completely,
released and discharged each Released Party from any and all
of Released Actions based in whole or in part upon any act,
omission, transaction, event or other occurrence taking
place at any time on or before the Effective Date, with the
sole exception of acts or omissions resulting from
intentional fraud or willful misconduct as determined by a
Final Order of the Bankruptcy Court, and in all respects,
each Released Party will be entitled to rely upon the advice
of counsel with respect to their duties and
responsibilities, if any, under the Plan; provided, however,
that any party in interest may enforce the terms of the
Plan. Nothing in the Plan will prejudice any right, remedy,
defense, claim, cross-claim, counterclaim, or third party
claim that any Person may have against any Person other than
with respect to the Released Actions against the Released
Parties.
D. Notwithstanding any provision of the Plan to the contrary,
the foregoing releases in subsections (b) and (c) will not
apply to (i) any indebtedness of any Person to the Debtors
for money borrowed by such Person, (ii) any setoff or
counterclaim that the Debtors may have or assert against any
Person, provided that the aggregate amount thereof will not
exceed the aggregate amount of any Claims held or asserted
by such Person against the Debtors, and (iii) any
garnishments. Notwithstanding any provision in the Plan to
the contrary, the releases contained in Article 10.05 (b) of
the Plan will not be construed as or operate as a release of
any Retained Actions, including Avoidance Actions.
E. On the Effective Date, effective as of the Confirmation
Date, and except as otherwise provided herein or in the
Confirmation Order, all Persons that hold, have held, or may
hold a Released Action (or, to the extent applicable an
Avoidance Action) or other action, proceeding, cause of
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action, suit, account, controversy, promise to pay, right to
legal remedies, right to equitable remedies, right to
payment, claim, obligation, litigation, judgment, damage,
right or liability of any nature whatsoever (including,
without limitation, those arising under the Bankruptcy Code)
that is released pursuant to the provisions of the Plan
(including, without limitation, Articles 10.05(a), (b) and
(c) of the Plan) are hereby and will be permanently enjoined
and barred from taking any of the following actions on
account of, relating to or based upon any such Released
Action (or, to the extent applicable, an Avoidance Action)
or other action, proceeding, cause of action, suit, account,
controversy, promise to pay, right to legal remedies, right
to equitable remedies, right to payment, claim, obligation,
litigation, judgment, damage, right or liability of any
nature whatsoever (including, without limitation, those
arising under the Bankruptcy Code): (i) commencing or
continuing in any manner any action or other proceeding
against any of the Released Parties or its respective
property; (ii) enforcing, attaching, collecting or
recovering in any manner any judgment, award, decree or
order against any of the Released Parties or its respective
property; (iii) creating, perfecting or enforcing any Lien
or encumbrance against any of the Released Parties or its
respective property; (iv) asserting any setoff, right of
subrogation or recoupment of any kind directly or indirectly
against any debt, liability or obligation due any of the
Released Parties or against its respective property; and (v)
acting or proceeding in any manner, in any place whatsoever,
that does not conform to, or comply with, the provisions of
the Plan or the Confirmation Order.
F. Each of the releases and the injunction provided in Article
10.05 of the Plan is an integral part of the Plan and is
essential to its implementation. Each of the Released
Parties and any other Persons being released under, or
protected by the injunction set forth in Article 10.05 of
the Plan will have the right to independently seek the
enforcement of such release and injunction.
As to the Debtors' directors, officers and employees, the consideration for the
releases provided in Article 10.05 of the Plan is the service rendered by such
individuals during the pendency of the Chapter 11 Cases and the need for their
continued dedication to fully consummate a successful reorganization. The
Debtors will be hampered in their consummation efforts if their directors,
officers and employees are subject to claims and potential litigation that will
distract their attention from operational and other business matters. None of
such individuals are currently the target of any actual claim or
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litigation, and the Debtors are not aware of any credible theory on which any
claims or litigation might be pursued against such individuals.
5. Insurance And Indemnification
Notwithstanding anything provided in the Plan to the contrary, the Plan will not
be deemed in any way to diminish or impair the enforceability of any insurance
policies that may cover claims against a Debtor or any other Person. Effective
as of the Effective Date, the Reorganized Debtors will obtain and maintain in
full force tail insurance covering such risks as are presently covered for a
period of not less than 5 years after the Effective Date in favor of the former
and current officers and directors of the Debtors on terms no less favorable to
the officers and directors than the terms of the existing insurance policies
covering the officers and directors and otherwise on terms and conditions
acceptable to the Debtors and the Initial Committed Purchasers; provided,
however, that the aggregate cost of such tail insurance will not exceed $1.5
million. Effective on the Effective Date and at all relevant times thereafter,
the Reorganized Debtors will indemnify all officers and directors of the Debtors
who served in such capacity at any time prior to the Effective Date for any
amounts such officers and directors are required to pay as a result of any
retentions or deductibles applicable under policies of insurance in effect on
the date hereof or as contemplated by Article 10.06 of the Plan, which policies
(or extensions thereof having terms no less favorable to the officers and
directors) will be (and are hereby deemed to be) assumed by Reorganized Intermet
in the Plan. The indemnity described in Article 10.06 of the Plan will not
include liability relating to any action, omission, transaction, event,
occurrence or other circumstance that would constitute an exclusion under the
applicable policies of insurance or liability in excess of the limits of such
policies. Furthermore, the amounts payable by the Reorganized Debtors pursuant
to Article 10.06 of the Plan will be paid on a current basis on behalf of the
officers and directors, without requiring the officers and directors to first
pay such amounts from their own funds and then seek reimbursement from the
Reorganized Debtors, so long as the Reorganized Debtors have received a written
undertaking by each such officer and director to repay such amounts to the
Reorganized Debtors if it is determined by a court of competent jurisdiction
pursuant to a final, non-appealable order that such officer or director is not
entitled to coverage under such policies of insurance. Each of the provisions
set forth in Article 10.06 of the Plan is an integral part of the Plan and is
essential to its implementation. Each Person entitled to indemnification and
insurance pursuant to Article 10.06 of the Plan will have the right to
independently seek the enforcement of each of the terms of Article 10.06 of the
Plan.
C. EXIT FINANCING
On the Effective Date, the Reorganized Debtors will enter into the Exit
Financing Facility in order to obtain the funds necessary to: (a) repay in full
the DIP Facility Claims and replace any letters of credit issued pursuant to the
DIP Facility, or in the alternative the Exit Lenders may issue letters of credit
to the DIP Lenders to secure payment of any undrawn letters of credit issued
pursuant to the DIP Facility which may remain outstanding after the Effective
Date; (b) make other payments required to be made on the Effective Date,
including, but not limited to, the payment in full in Cash of the Pre-
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Petition Lender Claims and any undrawn letters of credit issued pursuant to the
Pre-Petition Credit Facility will be returned and marked cancelled and will be
replaced by letters of credit issued under the Exit Financing Facility or in the
alternative the Exit Lenders may issue letters of credit to the Pre-Petition
Lender to secure payment of any undrawn letters of credit issued pursuant to the
Pre-Petition Credit Facility which may remain outstanding after the Effective
Date. In the Confirmation Order, the Bankruptcy Court will approve the Exit
Financing Facility in substantially the form filed with the Bankruptcy Court and
authorize the Reorganized Debtors to execute the same together with such other
documents as the Exit Lenders may reasonably require to effectuate the treatment
afforded to such parties under the Exit Financing Facility.
1. Efforts To Procure Exit Financing
Initially, the Debtors met with and sought exit financing proposals from 12
institutions. Based on the relative merits of proposals received, this group of
lenders was narrowed to six institutions. Following further diligence on the
part of the six lenders and subsequent to receiving revised proposals from each,
the Debtors selected two institutions with which to move forward and seek exit
financing commitments.
The Debtors have received unexecuted commitments from both lenders for a fully
underwritten transaction of at least $260 million, which is sufficient to meet
the requirements of the Plan and the business plan outlined in the Projections
contained within this Disclosure Statement. With respect to each lender's
commitment, the credit facilities consist of both revolving credit debt and term
loans with maturities ranging from 60 months to 78 months. In each case, the
credit facilities provide for sufficient ongoing liquidity by virtue of unused,
but available borrowing capacity beyond what is necessary to meet the
obligations of the Debtors at exit. Additionally, both lenders have provided for
only minor amortization requirements on the term facilities which will lessen
the Debtors' cash flow requirements to meet their debt service obligations. Both
commitment letters contain, as conditions precedent to funding, clauses
requiring the Debtors to obtain $75 million of financing through the Rights
Offering.
As they have at each step in the process, the Debtors continue to negotiate with
both parties in an effort to gain the most optimal terms for their exit
financing, both economically and structurally. The Debtors will sign one of the
commitment letters prior to the Confirmation Hearing.
D. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. Assumption And Rejection Of Executory Contracts And Unexpired
Leases.
As of the Confirmation Date, but subject to the occurrence of the Effective
Date, all Executory Contracts (and all insurance contracts and/or policies
providing coverage to the Debtors' current and former directors, officers,
shareholders, agents, employees, representatives, and others for conduct in
connection with the Debtors will be deemed assumed by the relevant Debtor and
retained by the applicable Reorganized Debtor, as
95
appropriate, in accordance with the provisions and requirements of Sections 365
and 1123 of the Bankruptcy Code, except those Executory Contracts and unexpired
leases that (i) have been rejected by or pursuant to an order of the Bankruptcy
Court, (ii) are the subject of a motion to reject pending on the Confirmation
Date which is later granted by the Bankruptcy Court, (iii) which are identified
on Exhibit L to the Plan, which will be deemed rejected as of the Confirmation
Date or as of the date set forth in such Exhibit, or (iv) Executory Contracts
which are identified in any modifications made pursuant to Article 13.05 of the
Plan. Entry of the Confirmation Order by the Bankruptcy Court will constitute
approval of such assumptions pursuant to Sections 365(a) and 1123 of the
Bankruptcy Code, subject to the occurrence of the Effective Date. Each Executory
Contract assumed pursuant to Article 8 of the Plan will revest in and be fully
enforceable by Reorganized Intermet or the relevant Reorganized Debtor, as
appropriate, in accordance with its terms, except as may be modified by (i) the
provisions of the Plan, (ii) any order of the Bankruptcy Court approving and
authorizing its assumption, (iii) applicable law, or (iv) agreement of the
parties to such Executory Contracts.
2. Cure Of Defaults Of Assumed Executory Contracts And Unexpired
Leases.
Any monetary amounts by which each Executory Contract or unexpired lease to be
assumed pursuant to the Plan is in default will be Cured, pursuant to Section
365(b)(1) of the Bankruptcy Code, by the relevant Debtor, by payment of the Cure
amount (as such amount has been agreed upon by Reorganized Intermet, or in the
event of a dispute regarding such Cure amount, as such amount has been
determined by a Final Order of the Bankruptcy Court) in Cash on or before thirty
(30) days after the Effective Date or on such other terms as the parties to such
Executory Contracts may otherwise agree. Notice of the Cure amount is either set
forth in Exhibit M to the Plan. If no Cure amount is set forth in Exhibit M to
the Plan, the Debtors believe that no Cure amount is due. Notwithstanding the
foregoing, in the event of a dispute regarding: (1) the amount of any Cure
payments, (2) the ability of Reorganized Intermet, the relevant Reorganized
Debtor or any assignee to provide "adequate assurance of future performance"
(within the meaning of Section 365 of the Bankruptcy Code) under the Executory
Contract to be assumed, or (3) any other matter pertaining to assumption, the
Cure payments required by Section 365(b)(1) of the Bankruptcy Code will be made
following the entry of a Final Order resolving the dispute and approving the
assumption.
3. Cure Procedure.
The Plan will constitute notice to any non-Debtor party to any Executory
Contract to be assumed pursuant to the Plan of the amount of any Cure amount
owed, if any, under the applicable Executory Contract. Any non-Debtor party that
fails to respond or object on or before the deadline scheduled by the Bankruptcy
Court for objections to the Plan, will be deemed to have consented to such
proposed amount.
4. Rejection Claims.
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Each Person who is a party to an Executory Contract rejected pursuant to Article
8 of the Plan will be entitled to file, not later than thirty (30) days after
the Confirmation Date, a Proof of Claim for alleged Rejection Claims. If no such
Proof of Claim for Rejection Claims is timely filed, any such Claim will be
forever barred and will not be enforceable against any Debtor, any Reorganized
Debtor, or any of the Estates. The Bankruptcy Court will retain jurisdiction to
determine any objections to Rejection Claims.
5. Classification Of Rejection Claims.
Except as otherwise provided under the Plan, Rejection Claims against any Debtor
will be treated as Allowed General Unsecured Claims against such Debtor to the
extent they are deemed to be Allowed Claims, and will be satisfied in accordance
with the Plan and the Confirmation Order.
E. DISTRIBUTIONS
1. Distributions
The Disbursing Agent will make all Distributions required under the Plan except
with respect to (i) the Claims of the Pre-Petition Lenders, such Distributions
will be made by the Disbursing Agent to the Pre-Petition Agent; and (ii) the
Claims of Noteholders, which Distributions will be made by the Disbursing Agent
to the Indenture Trustee for further distribution to or for the benefit of the
Noteholders as of the Distribution Record Date (subject to payments or reserves
provided for in Section 6.21 of the Plan) pursuant to the terms of the
Indenture. The Distribution Record Date will be used as the record date for
distributions pursuant to the Indenture. Distributions will be made at the times
provided in the Plan or as otherwise ordered by the Bankruptcy Court.
2. No Interest On Claims Or Equity Interests
Unless otherwise specifically provided for in the Plan, the Confirmation Order,
the DIP Financing Order, or the DIP Facility, post-Petition Date interest will
not accrue or be paid on Claims or Equity Interests, and no Holder of any Claim
or Equity Interest will be entitled to interest accruing on or after the
Petition Date.
3. Claims Administration Responsibility
The Reorganized Debtors will retain responsibility for administering, disputing,
objecting to, compromising or otherwise resolving, subject to Bankruptcy Court
approval, except as provided herein, with respect to all Claims against the
Debtors. The Reorganized Debtors will retain any counter-claims which the
Debtors may have to any Claims. Pursuant to Bankruptcy Rule 9019(a) and Section
363 of the Bankruptcy Code, the Debtors may, up to and including the Effective
Date, compromise and settle various (i) Claims against them, and (ii) Causes of
Action that they have against other Persons without Bankruptcy Court approval if
the amount in controversy is less than $300,000. After the Effective Date, such
rights will pass to the Reorganized Debtors as contemplated by Article 10.01 of
the Plan, without the need for further approval of the
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Bankruptcy Court, except as otherwise set forth in the Plan. Unless otherwise
extended by the Bankruptcy Court, any objections to Claims will be served and
filed on or before the Claims Objection Deadline.
4. Delivery of Distributions
Other than Distributions made to the Pre-Petition Agent on behalf of the
Pre-Petition Lenders and the Indenture Trustee on behalf of the Noteholders,
Distributions to Holders of Allowed Claims will be made by the Disbursing Agent
(a) at the addresses set forth on the Proofs of Claim filed by such Holders (or
at the last known addresses of such Holders if no Proof of Claim is filed or if
the Debtors have been notified in writing of a change of address), (b) at the
addresses set forth in any written notices of address changes delivered to the
Disbursing Agent after the date of any related Proof of Claim, or (c) at the
addresses reflected in the Schedules if no Proof of Claim has been filed and the
Disbursing Agent has not received a written notice of a change of address. Other
than Distributions made to the Pre-Petition Agent on behalf of the Pre-Petition
Lenders and the Indenture Trustee on behalf of the Noteholders, (a) if any
Creditor's Distribution is returned as undeliverable, no further Distribution to
such Creditor will be made unless and until the Disbursing Agent is notified of
such Creditor's then-current address, at which time all missed Distributions
will be made to such Creditor without interest; (b) amounts in respect of
undeliverable Distributions will be returned to the Reorganized Debtors until
such Distributions are claimed; (c) all funds or other undeliverable
Distributions returned to the Reorganized Debtors and not claimed within three
(3) months of return will be Distributed to the other Creditors of the Class of
which the Creditor to whom the Distribution was originally made is a member in
accordance with the provisions of the Plan applicable to Distributions to that
Class; and (d) upon such reversion, the Claim of any Creditor or their
successors with respect to such property will be discharged and forever barred
notwithstanding any federal or state escheat laws to the contrary. Nothing
contained in the Plan will require the Disbursing Agent and the Indenture
Trustee to attempt to locate any Creditor holding an Allowed Claim, other than
as set forth above.
5. Procedures For Treating And Resolving Disputed Claims
Except as provided in Article 7.05 of the Plan, no Distributions will be made
with respect to all or any portion of a Disputed Claim unless and until all
objections to such Disputed Claim have been settled or withdrawn or have been
determined by a Final Order, and the Disputed Claim has become an Allowed Claim.
The Disbursing Agent, after consultation with Reorganized Intermet, will create
a reserve from the property to be distributed by the Disbursing Agent under the
Plan (including, without limitation, the Inducement Cash Amounts and Convenience
Cash Amounts, but excluding the Rights, attributable to Disputed Claims) to
Holders of Disputed Claims. For avoidance of doubt, there will be no
distribution reserve with respect to the Rights.
Payments and Distributions from any reserve created under Section 7.05(b) of the
Plan to a Creditor on account of a Disputed Claim, to the extent that it
ultimately becomes an
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Allowed Claim, will be made in accordance with provisions of the Plan that
govern Distributions to such Creditor.
Upon resolution of all Disputed Claims, any funds remaining in any reserve
created under Section 7.05(b) of the Plan with respect to Inducement Cash
Amounts and Convenience Cash Amounts attributable to Disputed Claims that do not
ultimately become Allowed Claims will be distributed on a Pro Rata basis to (i)
holders of Class 4 Claims that have previously made the Inducement Cash Election
or the Convenience Cash Election and (ii) holders of Class 5 Claims.
6. Manner of Cash Distribution Under The Plan
Any Cash payment to be made by the Disbursing Agent as a Distribution pursuant
to the Plan may be made by a check or wire transfer on a United States bank
selected by the Disbursing Agent. Cash paid as the Subscription Purchase Price
for the Rights Offering Shares must be payable in immediately available funds,
such as a wire transfer, bank or cashier's check.
7. Direction To Parties
From and after the Effective Date, the Disbursing Agent, or Reorganized Intermet
may apply to the Bankruptcy Court for an order directing any necessary party to
execute or deliver or to join in the execution or delivery of any instrument
required to effect a transfer of property dealt with by the Plan, and to perform
any other act, including the satisfaction of any Lien, that is necessary for the
consummation of the Plan, pursuant to Section 1142(b) of the Bankruptcy Code.
8. Setoffs
The Reorganized Debtors may set off against any Allowed Claim and the
Distributions to be made pursuant to the Plan on account of such Allowed Claim,
all claims, rights, and Causes of Action of any nature that any such Debtor may
hold against the Holder of such Allowed Claim that are not otherwise waived,
released, or compromised in accordance with the Plan; provided, however, that
neither the failure to effect such a setoff nor the allowance of any Claim under
the Plan will constitute a waiver or release by such Debtor of any such claims,
rights, and Causes of Action that the Debtor may possess against such Holder,
notwithstanding any compulsory counterclaim rules or requirements to the
contrary.
9. Exemption From Certain Transfer Taxes
Pursuant to Section 1146(c) of the Bankruptcy Code and applicable non-bankruptcy
law, any transfers from the Debtors to Reorganized Intermet, or any other Person
or entity pursuant to the Plan in the United States will not be subject to any
document recording tax, stamp tax, conveyance fee, intangibles or similar tax,
mortgage tax, real estate transfer tax, mortgage recording tax or other similar
tax or governmental assessment. The Confirmation Order will direct the
appropriate state or local governmental officials
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or agents to forego the collection of any such tax or governmental assessment
and to accept for filing and recordation any of the foregoing instruments or
other documents without the payment of any such tax or governmental assessment.
10. Withholding And Reporting Requirements
In connection with the Plan and all Distributions thereunder, the Disbursing
Agent will comply with all applicable tax withholding and reporting requirements
imposed by any federal, state, provincial, local or foreign taxing authority,
and all Distributions thereunder will be subject to any such withholding and
reporting requirements. The Disbursing Agent will be authorized to take any and
all actions that may be necessary or appropriate to comply with such withholding
and reporting requirements. Notwithstanding any other provision of the Plan,
each Holder of an Allowed Claim or Interest that is to receive a Distribution
pursuant to the Plan will have sole and exclusive responsibility for the
satisfaction and payment of any tax obligations imposed by any governmental
unit, including income, withholding and other tax obligations, on account of
such Distribution.
11. No Fractional Distributions
No fractional shares or amounts of the Plan Securities will be issued or
Distributed under the Plan. Each Person entitled to receive Plan Securities will
receive the total whole number of shares to which such Person is entitled.
Whenever any Distributions to a Person would otherwise call for Distribution of
a fraction of any Plan Security, the actual Distribution of such Plan Security
will be rounded to the next higher or lower whole number with fractions of less
than or equal to one-half (1/2) being rounded to the next lower whole number. No
consideration will be provided in lieu of fractional amounts of Plan Securities
that are rounded down. The total amount of Plan Securities to be Distributed to
each Class of Claims will be adjusted as necessary to account for the rounding
provided herein. Any other provision of the Plan notwithstanding, neither the
Debtors, nor the Disbursing Agent will be required to make Distributions or
payments of fractions of dollars. Whenever any payment of a fraction of one
dollar under the Plan would otherwise be called for, the actual payment made
will reflect a rounding of such fraction to the nearest whole dollar (up or
down), with one-half (1/2) dollars being rounded down.
F. RETIREE BENEFITS
All payments of Retiree Benefits will continue as they existed prior to the
Petition Date at the level established pursuant to subsection (e)(1)(B) or (g)
of Section 1114 of the Bankruptcy Code as such payments may be modified prior to
the Effective Date, for the duration of the period the applicable Debtor has
obligated itself to provide such benefits. After the Effective Date, the
Reorganized Debtors will retain their rights to amend, modify or terminate
Retiree Benefits in accordance with all relevant agreements and applicable law.
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As indicated in Section VII.D.5.c. above, Wagner Castings has begun negotiating
with the Wagner Retiree Committee and the USW to modify Retiree Benefits at
Wagner Castings. In the near future, Wagner Castings intends to file a motion
seeking modification of the Wagner Retirees' Retiree Benefits in accordance with
Section 1114 of the Bankruptcy Code (the "Wagner 1114 Motion"). If the
Bankruptcy Court grants the Wagner 1114 Motion upon or prior to Confirmation,
the payments contemplated by the Wagner 1114 Motion (the "Modified Wagner
Castings Benefits") will be paid by Reorganized Intermet and each of the
operating Reorganized Domestic Subsidiaries on a year-to-year basis after the
Effective Date, with liability for such payments being split equally between
Reorganized Intermet and each of the operating Reorganized Domestic
Subsidiaries.
As indicated in Section VII.D.5.c. above, the Wagner Retirees' Retiree Benefits
are currently estimated to have an actuarial present value of approximately $20
million. The Debtors estimate that the Modified Wagner Castings Benefits will be
significantly less than $20 million.
If, however, the Bankruptcy Court does not grant the Wagner 1114 Motion on or
before Confirmation, then the Liquidating Plan Condition will have been
satisfied, and Wagner Castings will be liquidated. See Article 5.05 of the Plan
for treatment of Claims against Wagner Castings in the event that the
Liquidating Plan Condition is satisfied. In such event, and as indicated above
in Section VII.D.5.c., Intermet or any of its Affiliates that are hereafter
determined to be a member of a "controlled group" with Wagner Castings (for
certain purposes under the federal "COBRA" statute) may be determined to have
ongoing liability to the Wagner Retirees for COBRA coverage. The amount of such
COBRA coverage is currently undetermined, but Wagner Castings believes that it
will have a present actuarial value of no more than approximately $2.5 million.
G. CORPORATE GOVERNANCE
On the Effective Date, the Board of Directors of Reorganized Intermet will be
composed of seven members. On the Effective Date, (i) five of such members will
be selected by the Initial Committed Purchasers, (ii) one of such members will
be the Chief Executive Officer of Reorganized Intermet, and (iii) one of such
members will be selected by the Creditors' Committee. The member selected by the
Creditors' Committee will be acceptable to the Initial Committed Purchasers. Two
of the five members selected by the Initial Committed Purchasers may not be
officers, directors or employees of either of the Initial Committed Purchasers.
The Effective Date Executive Officers will become employed by Reorganized
Intermet on the Effective Date pursuant to the Employment Agreements. The other
officers of the Debtors immediately prior to the Effective Date will serve as
the officers of the applicable Reorganized Debtor until their successors are
duly appointed in accordance with Reorganized Intermet's governance documents
and applicable law. Each officer will serve from and after the Effective Date
pursuant to the terms of Reorganized Intermet's governance documents and
applicable law. The Employment Agreements will
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be in form and substance satisfactory to the Initial Committed Purchasers and
will supercede such officer's pre-Effective Date employment agreement.
H. REORGANIZED DEBTORS
Except as discussed in the Plan and Section I.B., above, each of the Debtors
will continue to exist after the Effective Date as a separate entity, except as
otherwise provided in the Plan, with all the powers under applicable law in the
jurisdiction in which each applicable Debtor is incorporated or otherwise formed
and pursuant to its certificate of incorporation and bylaws or other
organizational documents in effect on the Effective Date, without prejudice to
any right to terminate such existence (whether by merger or otherwise) under
applicable law after the Effective Date. On the Effective Date, Reorganized
Intermet will re-domesticate, by merger or other appropriate means, as a new
corporation under the laws of the State of Delaware with a new Certificate of
Incorporation and Bylaws. The Articles of Incorporation and Bylaws for all other
Debtors continuing after the Effective Date will be amended and restated but
such Debtors will remain subject to the laws of the jurisdictions in which such
Debtors were incorporated or formed prior to the Effective Date.
I. CORPORATE ACTION
- - The Certificate of Incorporation and Bylaws of Reorganized Intermet, will,
among other things: (i) authorize the issuance of the New Common Stock,
(ii) prohibit the issuance of nonvoting equity securities, as required by
Section 1123(a)(6) of the Bankruptcy Code, subject to amendment of such
certificate of incorporation and bylaws as permitted by applicable law, and
(iii) effectuate the provisions of the Plan, in each case without any
further action by the officers, stockholders or directors of the Debtors or
the Reorganized Debtors.
- - The Certificate of Incorporation (or other similar document) and Bylaws of
all of the Debtors other than Reorganized Intermet, will, among other
things: (i) prohibit the issuance of nonvoting equity securities, as
required by Section 1123(a)(6) of the Bankruptcy Code, subject to amendment
of such certificate of incorporation and bylaws as permitted by applicable
law, and (ii) effectuate the provisions of the Plan, in each case without
any further action by the officers, stockholders or directors of the
Debtors or the Reorganized Debtors.
- - On the Effective Date, the execution and delivery of each agreement on the
Effective Date and any other document necessary to effectuate the
transactions contemplated herein and therein, and all other actions
contemplated by the Plan, or such other documents will be authorized and
approved in all respects (subject to the provisions of the Plan). All
matters provided for in the Plan involving the corporate structure of the
Reorganized Debtors, and any corporate action required by the Debtors or
Reorganized Debtors in connection with the Plan, will be deemed to have
occurred and will be in effect, without any requirement of further action
by the security holders or directors of the Debtors or
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Reorganized Debtors. On the Effective Date, the appropriate officers of the
Reorganized Debtors and members of the Boards of the Reorganized Debtors
are authorized and directed to issue, execute and deliver the agreements,
documents, securities and instruments contemplated by the Plan in the name
of, and on behalf of, the Reorganized Debtors.
- - On or as soon as reasonably practicable after the Effective Date,
Reorganized Intermet will issue shares of the New Common Stock to those
Persons entitled to receive such pursuant to the Plan.
- - On or as soon as reasonably practicable after the Effective Date, if the
Liquidating Plan Condition is satisfied, then the Articles of Incorporation
and Bylaws of Wagner Castings will authorize the issuance of one (1) share
of Reorganized Wagner Castings New Common Stock and such share will be
issued and delivered to a third-party liquidating trustee acceptable to the
Reorganized Debtors, the Initial Committed Purchasers, and the Creditors'
Committee for the purpose of liquidating Wagner Castings and making the
Distributions set forth in Class 4a.
- - On or as soon as reasonably practicable after the Effective Date, if the
Liquidating Plan Condition is satisfied, then the Articles of Incorporation
and Bylaws of Wagner Havana will authorize the issuance of the Reorganized
Wagner Havana New Common Stock and Reorganized Wagner Havana will issue
Reorganized Wagner Havana New Common Stock to Holders of Claims against
Wagner Havana which such Holders will immediately transfer to Reorganized
Intermet.
J. NON-DEBTOR AFFILIATES
There are certain Non-Debtor Affiliates of the Debtors that are not Debtors in
these Chapter 11 Cases. The continued existence, operation and ownership of such
Non-Debtor Affiliates is a material component of the Debtors' businesses, and,
as set forth in Article 10.1 of the Plan, substantially all of the Debtors'
Equity Interests and other property interests in such Non-Debtor Affiliates will
revest in the applicable Reorganized Debtor or its successor on the Effective
Date.
K. STOCKHOLDERS' AGREEMENT
All recipients of New Common Stock (including all those who receive New Common
Stock pursuant to the Plan, the Rights Offering, the Key Employee Rights
Offering, stock options, as well as any Persons who acquire New Common Stock
from any of the foregoing persons) will be subject to the Stockholders'
Agreement which will, among other things, govern each recipient's access to
information with respect to the Reorganized Debtors and ability to transfer such
recipient's New Common Stock. The Stockholders' Agreement is attached to the
Plan as Exhibit F. An election by a Person to
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receive New Common Stock on the Ballot will constitute such Person's agreement
to be bound by the Stockholders' Agreement. Each certificate representing
share(s) of New Common Stock will bear a legend indicating that the New Common
Stock is subject to the Stockholders' Agreement. The Stockholders' Agreement
will be approved by the Bankruptcy Court in connection with Confirmation and
will be effective as of the Effective Date.
The Stockholders' Agreement primarily addresses transferability and information
access by the stockholders. The Stockholders' Agreement requires that every
proposed transfer of New Common Stock be submitted to Reorganized Intermet for
approval or rejection by the general counsel or CEO. Proposed transfers to an
existing stockholder or transfers of all a stockholder's interest to only one
person will be authorized. Any transfers that could cause the number of
stockholders to reach the trigger for registering as a public company under the
Securities Act will be rejected. The Stockholders' Agreement also provides that
Reorganized Intermet will distribute to stockholders that so request audited
annual financial statements and requires that the stockholders maintain the
confidentiality of non-public information they receive from Reorganized
Intermet, including any financial information, subject to certain exceptions,
including disclosure to proposed transferees of the New Common Stock or as
required by law. Any amendments to the Stockholders' Agreement in a manner which
would adversely effect the rights or obligations of a stockholder must be
accepted by holders of at least 66 2/3% of the outstanding shares.
L. APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS
Holders of General Unsecured Claims will have the option of receiving New Common
Stock under the Plan. Section 1145 of the Bankruptcy Code creates certain
exemptions from the registration requirements of federal and state securities
laws with respect to the distribution of securities pursuant to a plan of
reorganization.
1. Issuance Of Securities Under The Plan
The Debtors intend to rely on Section 1145(a) of the Bankruptcy Code to exempt
from registration under the Securities Act, and any applicable state securities
laws, (i) the issuance of any New Common Stock pursuant to the Plan to Holders
of Claims in exchange for their Claims, (ii) the issuance of any Reorganized
Wagner Havana New Common Stock pursuant to the Plan to Holders of Claims in
exchange for their Claims, and (iii) the issuance of Rights Offering Shares in
connection with the Rights Offering, except that the issuance of New Common
Stock to the Initial Committed Purchasers is not expected to be eligible for the
Section 1145(a) exemption, and therefore will be issued pursuant to the private
placement exemption or another applicable exemption from registration under the
Securities Act.
Generally, Section 1145 of the Bankruptcy Code exempts the issuance of
securities under a plan of reorganization from registration under the Securities
Act and under state securities laws if three principal requirements are
satisfied: (i) the securities must be issued under a plan of reorganization by
the debtor or its successors under a plan or an
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affiliate participating in a joint plan of reorganization with the debtor; (ii)
the recipients of the securities must hold a claim against the debtors, an
interest in the debtor or a claim for an administrative expense against the
debtor; and (iii) the securities must be issued entirely in exchange for the
recipient's claim against or interest in the debtor, or "principally" in such
exchange and "partly" for cash or property. Although the issuance of the New
Common Stock and the Reorganized Wagner Havana New Common Stock pursuant to the
Plan satisfies the requirements of Section 1145(a)(1) of the Bankruptcy Code and
is, therefore, exempt from registration under federal and state securities laws,
under certain circumstances subsequent transfer of such securities may be
subject to registration requirements under such securities laws.
2. Transfers Of New Common Stock
Subject to compliance with the Stockholders' Agreement, which imposes
significant restrictions with regard to the sale or transfer of the New Common
Stock, the New Common Stock to be issued pursuant to the Plan (other than the
New Common Stock issued to the Initial Committed Purchasers pursuant to the
Private Placement Purchase Agreement and the Cash-Out Purchase Agreement), and
all resales and subsequent transactions in such New Common Stock, are exempt
from registration under federal and state securities laws, unless the Holder is
an "underwriter" with respect to such securities. Section 1145(b) of the
Bankruptcy Code defines four types of "underwriters":
(i) persons who purchase a claim against, an interest in, or a claim
for an administrative expense against the debtor with a view to distributing any
security received or to be received in exchange for such a claim or interest;
(ii) persons who offer to sell securities offered or sold under a plan
for the holders of such securities;
(iii) persons who offer to buy such securities from the holders of
such securities, if the offer to buy is (a) with a view to distribution of such
securities, and (b) under an agreement made in connection with the Plan, with
the consummation of the Plan, or with the offer or sale of securities under the
Plan; and
(iv) persons who are an "issuer" with respect to the securities, as
the term "issuer" is defined in Section 2(11) of the Securities Act. Under
Section 2(11) of the Securities Act, an "issuer" includes any persons directly
or indirectly controlling or controlled by the issuer, or any person under
direct or indirect common control with the issuer.
To the extent that Persons deemed to be "underwriters" receive securities
pursuant to the Plan, resales by such Persons would not be exempted by Section
1145 of the Bankruptcy Code from registration under the Securities Act or other
applicable law. Persons deemed to be underwriters, however, may be able to sell
such securities without registration subject to the provisions of Rule 144 under
the Securities Act (which permits the public sale of securities received
pursuant to the Plan by "underwriters", subject to the
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availability to the public of current information regarding the issuer and to
volume limitations, method of sale restrictions, and certain other conditions).
Whether or not any particular Person would be deemed to be an "underwriter" with
respect to any security to be issued pursuant to the Plan would depend upon
various facts and circumstances applicable to that Person. Accordingly, the
Debtors express no view as to whether any Person would be an "underwriter" with
respect to any security to be issued pursuant to the Plan.
GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR
PERSON MAY BE AN UNDERWRITER, THE DEBTORS MAKE NO REPRESENTATIONS CONCERNING THE
RIGHT OF ANY PERSON TO OFFER OR SELL IN THE NEW COMMON STOCK TO BE DISTRIBUTED
PURSUANT TO THE PLAN. THE DEBTORS RECOMMEND THAT POTENTIAL RECIPIENTS OF THE NEW
COMMON STOCK CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY OFFER
OR SELL SUCH SECURITIES.
3. Transfers Of Reorganized Wagner Havana New Common Stock
The Plan provides that immediately after issuance on the Effective Date, the
shares of Reorganized Wagner Havana New Common Stock, if any, will be
transferred by the holders thereof to Reorganized Intermet. Therefore, any
Reorganized Wagner Havana New Common Stock transferred pursuant to the Plan will
not be transferable except pursuant to the transfer discussed above.
M. REGISTRATION RIGHTS AGREEMENT
Reorganized Intermet will be obligated to register certain shares of New Common
Stock for resale under the Securities Act pursuant to the terms and conditions
of the Registration Rights Agreement. The Registration Rights Agreement must be
acceptable to the Initial Committed Purchasers, and will provide, among other
things:
- - That within 60 days after the date on which Reorganized Intermet will
receive a written request, signed by either of the Initial Committed
Purchasers, pursuant to which such Initial Committed Purchaser will request
that Reorganized Intermet register the resale of the shares of New Common
Stock held by such Initial Committed Purchaser under the Securities Act,
Reorganized Intermet will prepare and file, and will use its reasonable
best efforts to have declared effective within 60 days thereafter, a
registration statement under the Securities Act for the offering on a
continuous basis pursuant to Rule 415 of the Securities Act, of the shares
of New Common Stock held by such Initial Committed Purchaser (the "Shelf
Registration");
- - That Reorganized Intermet will keep the Shelf Registration effective for a
period ending on the earlier of (a) the date that is the two-year
anniversary of the date upon which such registration statement is declared
effective by the SEC, (b)
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the date such Registrable Securities have been disposed of pursuant to an
effective registration statement, (c) the date such Registrable Securities
have been disposed of (1) pursuant to and in accordance with SEC Rule 144
(or any similar provision then in force) under the Securities Act, or (2)
pursuant to another exemption from the registration requirements of the
Securities Act pursuant to which the Registrable Securities are thereafter
freely tradeable without restriction under the Securities Act, (d) the date
such Registrable Securities may be disposed of pursuant to SEC Rule 144 (or
any similar provision then in force) within the volume limitations
thereunder within a 90 day period or pursuant to SEC Rule 144(k) (or any
similar provision then in force) under the Securities Act, or (e) such
Registrable Securities cease to be outstanding;
- - For indemnification and contribution and the payment by Reorganized
Intermet of the fees and expenses incurred by the Initial Committed
Purchasers, customarily included in registration rights agreements entered
into in connection with similar financings; and
- - That any person holding more than 10% of the outstanding New Common Stock
on the Effective Date will be entitled to piggy-back registration rights.
N. CANCELLATION OF EXISTING COMMON STOCK AND EXISTING PREFERRED STOCK
On or as soon as reasonably practicable after the Effective Date, except as
otherwise specifically provided for in the Plan (a) the Existing Common Stock of
the Impaired Equity Debtors and any other note, bond, indenture, or other
instrument or document evidencing or creating any indebtedness or obligation of
or ownership interest in the Impaired Equity Debtors, except such notes or other
instruments evidencing indebtedness or obligations of the Impaired Equity
Debtors that are reinstated under the Plan, will be cancelled, and (b) the
Existing Preferred Stock will be cancelled; and (c) obligations of, Claims
against, and/or Equity Interests in the Impaired Equity Debtors under, relating,
or pertaining to any agreements, indentures, certificates of designation,
bylaws, or certificates or articles of incorporation or similar documents
evidencing or creating any indebtedness or obligation of the Impaired Equity
Debtors, except such notes, instruments, or other documents evidencing
indebtedness or obligations of the Impaired Equity Debtors that are reinstated
or otherwise expressly assumed or preserved under the Plan will be released and
discharged. The Unimpaired Equity Interests will be retained by the applicable
Reorganized Debtor.
O. MANAGEMENT INCENTIVE PLAN
On or as soon as reasonably practicable after the Effective Date, the Management
Incentive Plan will be implemented to reserve for designated members of senior
management of the Reorganized Debtors equity interests (including, without
limitation, restricted common stock and/or options) in Reorganized Intermet in
an amount up to 5.0% of the New Common Stock issued on the Effective Date. The
Management Incentive Plan will contain terms and conditions that will be
determined by the Board of
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Reorganized Intermet. The shares of New Common Stock issued pursuant to the
Management Incentive Plan will have the effect of diluting the ownership
interest of the other Persons who receive New Common Stock pursuant to the Plan.
P. KEY EMPLOYEE RIGHTS OFFERING
The Reorganized Debtors will conduct the Key Employee Rights Offering in
connection with which Reorganized Intermet will offer to the eligible Key
Employees the right to purchase, on a Pro Rata basis (based upon payments due to
Key Employees under the KERP), 181,249 shares of New Common Stock, in
consideration for Cash in the amount of $10.00 per share. Eligible Key Employees
will have the right of over subscription with respect to the Key Employee Rights
Offering, provided that, in no event will the total shares in the Key Employee
Rights Offering exceed 181,249 shares. Moreover, the rights to purchase shares
of New Common Stock in connection with the Key Employee Rights Offering will be
non-transferable. Other terms and conditions of the Key Employee Rights Offering
are to be determined by the Debtors and the Initial Committed Purchasers, in
consultation with the Creditors' Committee. The eligible Key Employees either:
(i) may receive in cash any unpaid stay bonuses to which they may be entitled in
accordance with the terms and subject to the conditions of the KERP, including,
without limitation, the stay bonus payment schedule set forth therein; or (ii)
upon consummation of the Plan, may purchase shares of New Common Stock in
connection with the Key Employee Rights Offering by authorizing Reorganized
Intermet to apply, on their behalf, on a dollar-for-dollar basis, any such stay
bonuses toward the purchase of the shares of New Common Stock covered by the Key
Employee Rights Offering.
Any New Common Stock issued pursuant to the Key Employee Rights Offering will be
subject to the Stockholders' Agreement. In addition, the shares of New Common
Stock issued pursuant to the Key Employee Rights Offering will have the effect
of diluting the ownership interest of the other Persons who receive New Common
Stock pursuant to the Plan.
Q. CONTINUATION OF BUSINESS
Except as discussed herein, on and after the Effective Date, the Reorganized
Debtors will continue to engage in the Debtors' businesses, including, without
limitation, performing under all purchase orders existing as of the Effective
Date and assumed. Except as provided herein, the Reorganized Debtors retain all
claims, defenses, counterclaims and offsets with respect to such purchase orders
in existence as of the Effective Date.
Debtors Alexander City Casting Company, Inc., Ironton Iron, Inc., Wagner Havana,
Inc. and Intermet Illinois, Inc., are non-operating entities which currently own
Assets. It is each such Debtor's intention to sell such Assets after the
Effective Date. The proceeds of such sales will be paid to the Exit Lenders. It
is anticipated that all of these Assets will be subject to liens in favor of the
Exit Lenders, pursuant to the Exit Financing Facility, due to the fact that the
proceeds of the Exit Financing Facility will be used to pay the Distributions
under the Plan, including those to the Pre-Petition Lenders, whose liens
currently attach to these Assets.
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R. EMPLOYMENT AGREEMENTS
On or before the Effective Date, the Employment Agreements will be entered into
by Reorganized Intermet and deemed approved by the Bankruptcy Court.
S. DISBANDMENT OF OFFICIAL COMMITTEES
On the Effective Date, all committees, including the Creditors' Committee, the
Equity Committee, and the Retiree Committee, will be disbanded and their members
will be discharged from all further authority, duties, responsibilities and
obligations relating to the Cases, and the retention and employment of the
Professionals retained by such committees will also terminate as of the
Effective Date; provided however, that the Creditors' Committee and the Equity
Committee and their Professionals will be maintained solely with respect to
applications filed pursuant to Sections 330 and 331 of the Bankruptcy Code and
will be compensated for reasonable fees and expenses incurred with respect to
such applications as approved by the Bankruptcy Court. The Reorganized Debtors
will not be responsible for fees or expenses of any committees, including the
Creditors' Committee, Equity Committee, or Retiree Committee or of their
Professionals and agents, incurred after the Effective Date.
T. DISBURSING AGENT
As soon as practicable after the Effective Date, the Disbursing Agent will be
paid all of its fees and expenses incurred in connection with performing its
duties under the Plan.
U. POST-CONFIRMATION EFFECT OF INDENTURE
Anything in the Plan, the Confirmation Order, or any other document to the
contrary notwithstanding, and notwithstanding the confirmation and effectiveness
of and distributions under the Plan and the discharge of the Debtors, the
Indenture will remain in effect, except that after the Effective Date the
Indenture Trustee's duties and obligations thereunder will be limited to making
distributions as provided in Section 7.01 of the Plan. In particular, and
without limitation, any rights of the Indenture Trustee to reasonable
compensation, reimbursement and indemnification (including without limitation
reasonable compensation, reimbursement and indemnification for reasonable fees
and expenses, including reasonable attorneys' fees) under the Indenture, and any
lien pursuant to the Indenture on any money or property held or collected by it
securing such right to reasonable compensation, reimbursement and
indemnification, will remain in effect, and the Indenture Trustee may at any
time, and from time to time, pay or reserve for such reasonable compensation,
reimbursement and indemnification from any such money or property at any time
held by the Indenture Trustee to the extent provided for in the Indenture. No
lien will exist with respect to any compensation, reimbursement and
indemnification that is not reasonable. To the extent a dispute arises with
respect to any compensation, reimbursement and indemnification, or extent of any
asserted lien, such dispute will be resolved by the Bankruptcy Court after
notice and a hearing. However,
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the liability of the Debtors under the Indenture will be discharged pursuant to
the Plan and Section 1141 of the Bankruptcy Code on the Effective Date.
1. Liquidity To Pay Indenture Trustee Fees
The Indenture Trustee will pay or reserve for the reasonable Indenture Trustee
Fees and expenses from Cash and New Common Stock for the benefit of the
Noteholders, which will be allocated ratably among the Noteholders to the extent
practicable. On the Effective Date, the portion of the New Common Stock, if any,
to be used for this purpose will be purchased by the Initial Committed
Purchasers from Reorganized Intermet at a purchase price of $10.00 per share,
and the cash so generated will be distributed to the Indenture Trustee.
V. APPROVAL OF SETTLEMENTS
The Distributions set forth in the Plan and the provisions of the Plan
incorporate and assume the terms of any compromises and settlements approved by
order of the Bankruptcy Court pursuant to Rule 9019 of the Federal Rules of
Bankruptcy Procedure, including, but not limited to the settlement (the
"Substantive Consolidation Settlement") resolving issues raised relating to
substantive consolidation (as discussed in Section VIII.A. of this Disclosure
Statement), set forth more fully in the Ad Hoc Committee's motion pertaining to
the settlement placed on the record on August 9, 2005. The entry of the
Confirmation Order will constitute the Bankruptcy Court's finding and
determination that the settlements reflected in the Plan, including all issues
pertaining to claims for substantive consolidation (which are settled by the
Distributions in the Plan) are (a) in the best interests of the Debtors and
their Estates, (b) fair, equitable, and reasonable, (c) made in good faith, and
(d) approved by the Bankruptcy Court. As an integral component of the
Substantive Consolidation Settlement, the Debtors will (a) pay the fees and
expenses incurred by the Ad Hoc Committee in an amount of up to $150,000; and
(b) the Ad Hoc Committee may file an application pursuant to 11 U.S.C. Section
503(b)(4) with respect to any fees and expenses incurred in excess of $150,000.
W. PRESERVATION OF CERTAIN CAUSES OF ACTION
In accordance with Section 1123(b)(3) of the Bankruptcy Code, and except as
otherwise provided in the Plan and/or the Confirmation Order, the Reorganized
Debtors will retain and may (but are not required to) enforce all Retained
Actions, including Avoidance Actions and other similar claims arising under
applicable state laws, including, without limitation, fraudulent transfer
claims, if any, and all other Causes of Action of a trustee and debtor-in
possession under the Bankruptcy Code. The Debtors or the Reorganized Debtors, in
their sole discretion, will determine whether to bring, settle, release,
compromise, or enforce any rights (or decline to do any of the foregoing) with
respect to the Retained Actions, other than the Avoidance Actions. The
Reorganized Debtors or any successor may pursue such litigation claims in
accordance with the best interests of the Reorganized Debtors or any successors
holding such rights of action. The failure of the Debtors to specifically list
any Claim, Causes of Action, right of action, suit or proceeding in the
Schedules, this Disclosure Statement, or on Exhibit J to the Plan does
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not, and will not be deemed to, constitute a waiver or release by the Debtors of
such Claim, Causes of Action, right of action, suit or proceedings, and the
Reorganized Debtors will retain the right to pursue such Claims, Causes of
Action, rights of action, suits or proceedings in their sole discretion and,
therefore, no preclusion doctrine, collateral estoppel, issue preclusion, claim
preclusion, estoppel (judicial, equitable or otherwise) or laches will apply to
such claim, right of action, suit or proceeding upon or after the confirmation
or consummation of the Plan. Further, recovery of any proceeds of Causes of
Action will be deemed "for the benefit of the Estates" as set forth in Section
550(a) of the Bankruptcy Code.
X. THE RESTRUCTURING COMMITMENT LETTER AND THE RIGHTS OFFERING
A. INITIAL COMMITTED PURCHASERS
The Initial Committed Purchasers are R2 Investments, LDC and/or one or more of
its related or associated entities, and Stanfield Capital Partners LLC and/or
one or more of its related or associated entities. As reported by the Initial
Committed Purchasers, they hold, as of the date of this Disclosure Statement, in
the aggregate approximately $79 million in unsecured claims and $113 million in
secured claims against the Debtors. Except as set forth in this Disclosure
Statement, neither R2 nor Stanfield have any known relationship to the Debtors,
the Board of Intermet, or the Debtors' management. Further information about the
Initial Committed Purchasers and their holdings is available in the statement
filed with the Bankruptcy Court by their counsel pursuant to Rule 2019 of the
Federal Rules of Bankruptcy Procedure, which is available online at
www.administar.net.
Pursuant to the terms of the Restructuring Commitment Letter, which is attached
as Exhibit A to the Plan, and provided that (i) all conditions precedent set
forth therein have been satisfied or waived, including but not limited to the
negotiation and execution of the Private Placement Purchase Agreement and the
Cash-Out Purchase Agreement, and (ii) the Restructuring Commitment Letter has
not been previously terminated pursuant to the terms of the Restructuring
Commitment Letter, the Initial Committed Purchasers will be obligated to
purchase, on the Effective Date, any and all of the Private Placement Purchase
Shares. This means that the Initial Committed Purchasers have agreed to
guarantee that any shares not purchased in the Rights Offering will be purchased
by the Initial Committed Purchasers. Through this mechanism: (i) the Debtors are
ensured that they will receive an aggregate capital infusion of $75 million in
cash on the Effective Date, regardless of the source of those funds; and (ii)
the Debtors' capital structure will be better than it would otherwise be, given
the equity nature of the investment prescribed in the Restructuring Commitment
Letter, because the Debtors will not be required to take on additional debt to
obtain the additional $75 million.
Accordingly, the Initial Committed Purchasers will pay to Reorganized Intermet,
by wire transfer in immediately available funds on or prior to the Effective
Date, cash in an amount equal to the Subscription Purchase Price for the Private
Placement Purchase Shares.
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1. Underwriting Fee
In consideration for the Restructuring Commitment Letter, the Initial Committed
Purchasers will receive an aggregate fee of $3 million on the Effective Date
(the "Commitment Amount") plus the payment of its reimburseable expenses, as
described below. In the event that the Restructuring Commitment Letter is
terminated prior to the Effective Date, for whatever reason, the Commitment
Amount will not be payable and the Initial Committed Purchasers' sole and
exclusive remedy will be limited to the payment of the reimburseable expenses
described below, as accrued up until the date of termination, and the
indemnification obligations described below.
2. Reimburseable Expenses
Intermet is obligated to reimburse the Initial Committed Purchasers for the
reimburseable expenses incurred by the Initial Committed Purchasers and the fees
and expenses of their legal counsel on and after January 10, 2005, in connection
with the Restructuring (as defined therein), plus all of the reasonable and
documented fees and expenses incurred by the Initial Committed Purchasers and
their legal counsel in connection with the drafting, negotiation, prosecution or
defense of the Restructuring Commitment Letter, the Private Placement Purchase
Agreement, the Rights Offering, corporate governance documents, the Cash-Out
Purchase Agreement, the Plan, the Confirmation Order, the Disclosure Statement,
the Stockholders' Agreement, the Exit Financing Facility agreements and related
documents and any and all agreements and other documents ancillary thereto,
including any fees and expenses incurred by the Initial Committed Purchasers in
connection with obtaining all required regulatory approvals. As of July 31,
2005, approximately $670,000 of reimburseable expenses have accrued.
3. Indemnification Obligations
Subject to Bankruptcy Court approval, Intermet is required to indemnify and hold
harmless the Initial Committed Purchasers and their respective affiliates,
directors, officers, partners, members, employees, attorneys, agents and
assignees (including affiliates thereof) from and against any and all losses,
claims, damages, liabilities (or actions or other proceedings commenced or
threatened in respect thereof) or other expenses insofar as such losses, claims,
damages, liabilities (or actions or other proceedings commenced or threatened in
respect thereof) or other expenses arise out of or in any way relate to or
result from the Restructuring Commitment Letter or the proceeds of the Initial
Committed Purchasers' agreement to purchase shares of New Common Stock under the
Private Placement Purchase Agreement and the Cash-Out Purchase Agreement.
Intermet is further required to reimburse (on an as-incurred monthly basis) each
party indemnified for any reasonable legal or other out-of-pocket expenses
incurred in connection with investigating, defending or participating in any
such loss, claim, damage, liability or action or other proceeding (whether or
not such indemnified party is a party to any action or proceeding out of which
such indemnified expenses arise), but excluding
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therefrom all losses, claims, damages, liabilities and expenses that are finally
determined in a non-appealable decision of a court of competent jurisdiction to
have resulted solely from the gross negligence or willful misconduct of such
indemnified party. In the event of any litigation or dispute involving the
Restructuring Commitment Letter, the Initial Committed Purchasers are not
responsible or liable to Intermet or any other person or entity for any special,
indirect, consequential, incidental or punitive damages.
The obligations of Intermet described above and set forth in the Restructuring
Commitment Letter will remain effective whether or not (i) any of the
transactions contemplated in the Restructuring Commitment Letter are
consummated, (ii) any Definitive Investment Documents (as defined in the
Restructuring Commitment Letter) with respect to the Initial Committed
Purchasers' obligation to purchase shares of New Common Stock under the Private
Placement Purchase Agreement and the Cash-Out Purchase Agreement are executed,
and notwithstanding any termination of the Restructuring Commitment Letter, and
(iii) any plan of reorganization of Intermet is consummated.
Notwithstanding the foregoing, any indemnity claim arising solely from an
indemnified party's breach of the Restructuring Commitment Letter or breach of
any other agreements between an indemnified party and Intermet, or among an
indemnified party and Reorganized Intermet, are excluded from Intermet's
indemnity obligations.
B. TERMS AND CONDITIONS OF THE RESTRUCTURING COMMITMENT LETTER(12)
The Initial Committed Purchasers' and the Debtors' performance under the
Restructuring Commitment Letter are subject to terms and conditions, including
termination rights, that are reasonable and customary for standby purchase
commitments generally. Additionally, the Initial Committed Purchasers'
performance under the Restructuring Commitment Letter is conditioned on, among
other things, the Debtors realizing year-to-date consolidated EBITDA for 2005,
excluding administrative fees and expenses associated with the Cases, through
the latest calendar month ending at least 25 days prior to the Effective Date,
in an amount that is no less than the amount specified for such calendar month
on Exhibit A to the Restructuring Commitment Letter (ranging from $15,230,000 in
June 2005 to $27,459,000 in December 2005).
Furthermore, the Initial Committed Purchasers may terminate the Restructuring
Commitment Letter if, among other things, (i) the Plan is not Confirmed by the
Bankruptcy Court within 75 days of the entry of a Bankruptcy Court order
approving the Restructuring Commitment Letter, (ii) the Effective Date does not
occur on or before the 20th day following Confirmation of the Plan, or (iii)
upon the occurrence of a "material adverse change," or "MAC," as that phrase is
used and defined in the Restructuring Commitment Letter.(13)
- ----------
(12) The summary of terms and conditions contained herein is qualified in its
entirety by reference to the Restructuring Commitment Letter.
(13) A "material adverse change" means any change, effect, event, occurrence,
state of facts or
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The Debtors may terminate the Restructuring Commitment Letter if, among other
things, the Debtors receive a binding offer with respect to a financial
restructuring that (a) pays the Debtors' existing secured Creditors in full in
cash, and (b) delivers a dollar recovery to all unsecured Creditors in excess of
the implied dollar recovery to unsecured Creditors as set forth in the
Disclosure Statement.
As stated above, in the event that the Restructuring Commitment Letter is
terminated prior to the Effective Date, for any reason, the Commitment Amount
shall not be payable and the Initial Committed Purchasers' sole and exclusive
remedy will be limited to the payment of reimburseable expenses described above,
and the indemnification obligations described above.
C. ABILITY TO PARTICIPATE IN THE RIGHTS OFFERING
Holders of General Unsecured Claims against any Debtor on the Subscription
Record Date are entitled to participate in the Rights Offering solely to the
extent of their Rights Participation Claim Amount, as described below. If a
General Unsecured Claim is Allowed, the Holder of such Claim will be entitled to
participate to the extent of the amount of such Allowed General Unsecured Claim.
If a General Unsecured Claim is Disputed, the Holder of such Claim will be
entitled to participate in the Rights Offering, in the amount of the Rights
Offering Participation Claim Amount, as described below.
The chart below summarizes the right of each Holder of a General Unsecured Claim
on the Subscription Record Date to participate in the Rights Offering, subject
to the paragraph below the chart, which describes the determination of the
Rights Offering Participation Claim Amount for Noteholder Claims. Please see the
Plan for the definition of "Rights Offering Participation Claim Amount."
CHARACTERISTICS OF RIGHTS OFFERING PARTICIPATION CLAIM
GENERAL UNSECURED CLAIM AMOUNT
- ----------------------------------------- ------------------------------------
Listed on Debtors' Schedules as Disputed, The undisputed portion of the Claim,
Contingent or Unliquidated and a proof of unless otherwise allowed by
claim was timely filed Bankruptcy Court order for purposes
of participating in
- ----------
development, either alone or in combination, and either known or unknown by the
Debtors as of June 21, 2005, that is materially adverse to the business,
financial condition or results of operation of the Debtors, taken as a whole;
provided, however, that in no event will any change, effect, event, occurrence,
state of facts or development that is disclosed in Intermet's Annual Report on
Form 10-K for the twelve month period ended December 31, 2003, or in Intermet's
Quarterly Reports on Form 10-Q for the three month periods ended March 31, 2004,
June 30, 2004, and September 30, 2004, or on any filing on Form 8-K made by
Intermet prior to June 21, 2005, each in the form first filed by Intermet with
the SEC, or any other information delivered in writing by the Debtors to the
Initial Committed Purchasers prior to June 21, 2005, be considered a "material
adverse change"; and provided further, that in no event will the prosecution of
the Cases on terms and conditions consistent with the terms and conditions set
forth in the Restructuring Commitment Letter be considered a "material adverse
change."
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CHARACTERISTICS OF RIGHTS OFFERING PARTICIPATION CLAIM
GENERAL UNSECURED CLAIM AMOUNT
- ----------------------------------------- ------------------------------------
the Rights Offering.
Objection to Claim has been filed The undisputed portion of the Claim,
unless otherwise allowed by
Bankruptcy Court order for purposes
of participating in the Rights
Offering.
Claim is listed on Disputed Claims List The undisputed portion of the Claim,
to be filed with the Bankruptcy Court by unless otherwise allowed by Court
the Debtors order for purposes of participating
in the Rights Offering.
IF GENERAL UNSECURED CLAIM DOES NOT MEET ANY OF THREE CRITERIA ABOVE (I.E. NOT
DISPUTED AND NOT LISTED ON DISPUTED CLAIMS LIST):
Holder has filed Claim, but no The lesser of the undisputed portion
corresponding Claim listed on Debtors' or the amount of filed Claim, unless
Schedules otherwise allowed by Bankruptcy
Court order for purposes of
participating in the Rights
Offering.
Holder has filed Claim, but corresponding The lesser of the undisputed portion
Scheduled amount is different or the amount on Schedules, unless
otherwise allowed by Court order for
purposes of participating in the
Rights Offering.
Holder has not filed Claim or holder has The lesser of the undisputed portion
filed Claim and Claim is same as or the amount on Schedules, unless
Scheduled Amount otherwise allowed by Court order for
purposes of participating in the
Rights Offering.
With respect to claims of Noteholders, the Rights Participation Claim Amount
will be (i) the amount certified by the relevant Nominee in the applicable
Master Noteholder Ballot, and (ii) the amount tendered into the appropriate
election account at DTC established for that purpose (with the amount so
tendered governing in the event of a discrepancy).
A holder will be bound, for the purpose of the Rights Offering, by (i) the
amount of its Rights Offering Participation Claim Amount listed in its Ballot,
or, in the case of a Noteholder, the Rights Offering Participation Amount for
such Noteholder as provided in the above paragraph and (ii) the holder's status
as disputed, whether due to its inclusion on the Disputed Claims List to be
filed by the Debtors and served on affected Creditors, or otherwise, except to
the extent the holder timely obtains an order from the Court to the contrary
pursuant to a temporary allowance motion timely filed in accordance with the
procedures established by the Court.
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D. ISSUANCE OF RIGHTS
The Rights will entitle Holders of General Unsecured Claims on the Subscription
Record Date the right to purchase, on a Pro Rata basis using the Rights Offering
Participation Claim Amount, the Rights Offering Shares at a price of $10.00 per
share pursuant to the terms and conditions set forth in Article 6.12 of the
Plan, provided that the Holder executes the Subscription Form portions of its
Ballot. The number of Rights Offering Shares will not exceed 7,500,000 shares.
Each Holder of a Rights Offering Participation Claim Amount as of the
Subscription Record Date will be able to purchase its Pro Rata portion of the
Rights Offering Shares.
E. SUBSCRIPTION PERIOD
The Rights Offering will commence on the Subscription Commencement Date and will
expire on the Subscription Expiration Date. After the Subscription Expiration
Date, unexercised Rights will terminate and any purported exercise of any such
unexercised Rights by any Person will be null and void and Reorganized Intermet
will not honor any such purported exercise received by the Subscription Agent
after the Subscription Expiration Date, regardless of when the documents
relating to such exercise were sent.
F. SUBSCRIPTION PRICE
The Subscription Price for Rights will be $10.00 per share of New Common Stock,
payable in Cash.
G. SUBSCRIPTION RECORD DATE
The Subscription Record Date is September 1, 2005.
H. SUBSCRIPTION AGENT
The Subscription Agents have been engaged by the Debtors to administer the
Rights Offering, as applicable. Their addresses and phone numbers are:
With respect to non-Noteholders:
JP Morgan Trust Company a/k/a Administar
at
JP Morgan Trust Company, N.A.,
P.O. Box 56636
Jacksonville, FL 32241
(904) 807-3023
OR
With respect to Noteholders:
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Financial Balloting Group LLC,
Attn: Intermet Balloting Tabulation
757 Third Avenue, 3rd Floor
New York, NY 10017
(646) 282-1800
I. EXERCISE OF RIGHTS
In order to exercise the Rights, each Holder thereof on the Subscription Record
Date must: (i) duly complete the Ballot, including making the New Common Stock
and Rights Offering Election and completing the Subscription Form provisions
therein, and return the Ballot to (a) if the Holder is not a Noteholder, JP
Morgan, or (b) if the Holder is a Noteholder, its Nominee, so that the Nominee
may send a Master Ballot, which Master Ballot must be received by the applicable
Subscription Agent on or before the Subscription Expiration Date; and (ii) pay
to JP Morgan, or if the Holder is a Noteholder, arrange for its Nominee to pay
to JP Morgan (on behalf of the Debtors), immediately available funds in an
amount equal to such Holder's aggregated Subscription Purchase Price to the
Subscription Agent on or before the Subscription Expiration Date, such payment
to be made by wire transfer in accordance with the wire instructions set forth
in the Ballot. If, on or prior to the Subscription Expiration Date, the
Subscription Agent for any reason has not received from a given Holder (or, with
respect to a Noteholder, such Noteholder's Nominee) both a duly completed
Ballot, including without limitation Subscription Form provisions, and Cash, in
an amount equal to such Holder's aggregate Subscription Purchase Price, such
Holder will be deemed to have not exercised its Rights and to have relinquished
and waived its ability to participate in the Rights Offering. By completing and
submitting the Subscription Form provisions of the Ballot, a Holder will be
agreeing to be bound by the Stockholders' Agreement. The Subscription Form
provisions of the Ballots must also be accompanied by sufficient indication of
ownership of the Claim giving rise to the Rights, as well as appropriate
executed representations as to ownership on the Subscription Record Date. The
payments made in accordance with the Rights Offering will be deposited and held
by the Subscription Agent in a trust account, escrow account, or similar
segregated account or accounts which will be separate and apart from Reorganized
Intermet's general operating funds and any other funds subject to any cash
collateral arrangements, and which segregated account or accounts will be
maintained for the purpose of holding the money for administration of the Rights
Offering until the Effective Date, or such other later date, at the option of
the Reorganized Debtors, but not later than 20 days after the Effective Date,
subject to any existing or future Order of the Court.
J. TRANSFER RESTRICTION; REVOCATION
The Rights are non-transferable, but Holders of General Unsecured Claims may
transfer such Claims on or prior to the Subscription Record Date. Although
Holders of General Unsecured Claims may transfer their Claims after the
Subscription Record Date, the Holder of any such Claim on the Subscription
Record Date is the only Person entitled to
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participate in the Rights Offering with respect to such Claim, assuming such
Person does not transfer the Claim and continues to hold the Claim.
Additionally, once a Holder of Rights has properly exercised its Rights such
exercise cannot to be revoked for any reason.
K. DISTRIBUTION OF RIGHTS OFFERING SHARES
A. Distribution To Exercising Claimants
On the Effective Date, the Disbursing Agent will distribute to the exercising
claimants certificates representing the Rights Offering Shares.
B. Distribution to Initial Committed Purchasers
On the Effective Date, Reorganized Intermet will distribute directly to the
Initial Committed Purchasers certificates representing the Rights Offering
Shares and the Private Placement Purchase Shares purchased by the Initial
Committed Purchasers.
L. SUBSEQUENT ADJUSTMENTS TO THE RIGHTS OFFERING PARTICIPATION CLAIM
AMOUNT
Holders of Disputed Claims will be entitled to participate in the Rights
Offering solely to the extent of their Rights Offering Participation Claim
Amounts. If any Holder of such Claim has obtained an order of the Bankruptcy
Court estimating its General Unsecured Claim for the purpose of participating in
the Rights Offering prior to the Subscription Expiration Date, such Holder will
be entitled to participate in the Rights Offering, subject to any other
requirements for eligibility, including without limitation that such party is a
Holder of an eligible Claim as of the Subscription Record Date and that such
party's Ballot, or any applicable Master Ballot, was duly executed and received
by the applicable Subscription Agent on or before the Voting Deadline. In the
event that any such estimation occurs, each exercising claimant will be cut back
Pro Rata and the difference between the price paid by such exercising claimant
and the adjusted Subscription Purchase Price will be refunded to such exercising
claimant, without interest, as soon as practicable after the Effective Date.
M. NO INTEREST
In the event any Subscription Purchase Price is repaid to any Person making such
payment, no interest will be paid thereon.
N. VALIDITY OF EXERCISE OF RIGHTS
All questions concerning the timeliness, viability, form and eligibility of any
exercise of Rights will be determined by Reorganized Intermet, with the consent
of the Initial Committed Purchasers, in consultation with the Creditors'
Committee. Such determinations will be final and binding. Reorganized Intermet,
with the consent of the Initial Committed Purchasers, may waive any defect or
irregularity, or permit a defect or
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irregularity to be corrected within such times as it may determine, or reject
the purported exercise of any Rights. Subscription Forms will be deemed not to
have been received or accepted until all irregularities have been waived or
cured within such time as Reorganized Intermet with the consent of the Initial
Committed Purchasers determines. Neither Reorganized Intermet nor the
Subscription Agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of Subscription Forms or incur
any liability for failure to give such notification.
O. USE OF PROCEEDS
On the Effective Date, the proceeds received by Reorganized Intermet from the
Rights Offering will be used to fund the Cash payments required under the Plan
and for general corporate purposes.
P. MARKETING TO OTHER POTENTIAL INVESTORS AND ALTERNATIVES
Lazard directly approached and solicited offers from 6 parties regarding an
equity investment in the Reorganized Debtors. Potential investors who expressed
an interest in the investment were provided with confidentiality agreements to
facilitate their review of sensitive financial information in connection with
the equity investment, and were asked to provide a proposed term sheet by a date
certain. Prior to publication of the Debtors' first Disclosure Statement and
Plan, none of these parties with whom the Debtors executed a confidentiality
agreement and provided confidential information memoranda submitted a proposed
term sheet for underwriting a new equity investment.
In addition to directly approaching these parties, Lazard responded to
approximately 3 unsolicited expressions of interest from potential investors. In
those instances in which such parties expressed a willingness to receive
non-public information with regard to the Debtors, Lazard provided these parties
a confidentiality agreement. Upon execution of a confidentiality agreement, a
confidential information memorandum was provided to the parties, with a
requested date by which they were asked to submit a proposed term sheet for the
investment. Prior to publication of the Debtors' first Disclosure Statement and
Plan of Reorganization, none of these parties submitted a proposed term sheet
for underwriting a new equity investment in the Reorganized Debtors.
Since publication of the Debtors' first Disclosure Statement on June 27, 2005,
no parties, including those that Lazard directly approached or those from whom
Lazard received unsolicited expressions of interest, have provided Lazard or the
Debtors any proposals regarding a potential investment in the Reorganized
Debtors.
In addition to soliciting interest from third parties regarding an equity
investment in the Reorganized Debtors, the Debtors pursued other alternatives to
the equity investment structure contemplated by the Plan. In conjunction with
the negotiation of the Restructuring Commitment Letter, the Debtors also pursued
an alternative transaction with the Creditors' Committee and the Pre-Petition
Agent. In this alternative transaction there would be still be a rights offering
pursuant to the Plan, but to the extent that the full $75 million was not
subscribed for, the Pre-Petition Lenders would accept, in partial
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satisfaction of their Claims, a shortfall in the form of New Common Stock. This
New Common stock would be in exchange for a commitment fee and an additional fee
to the extent that the Pre-Petition Lenders had to accept any such New Common
Stock in partial satisfaction of their Claims. Ultimately, the Debtors
determined that pursuing the Restructuring Commitment Letter was a better
alternative.
Q. JURISDICTION
Each Holder of Rights participating in the Rights Offering consents to the
exclusive jurisdiction and venue of the Bankruptcy Court for the resolution of
any dispute arising thereunder, including, without limitation, in respect of the
Subscription Purchase Price and in respect of the terms of the Rights Offering
set forth in the Plan and the manner of execution of the Rights Offering
pursuant to those terms.
XI. VALUATION ANALYSIS
A. VALUATION OF THE REORGANIZED DEBTORS
THE VALUATION INFORMATION CONTAINED IN THIS SECTION WITH REGARD TO THE
REORGANIZED DEBTORS IS NOT A PREDICTION OR GUARANTEE OF THE ACTUAL MARKET VALUE
THAT MAY BE REALIZED THROUGH THE SALE OF ANY SECURITIES TO BE ISSUED PURSUANT TO
THE PLAN.
1. Overview
The Debtors have been advised by Lazard, its financial advisor, with respect to
the consolidated Enterprise Value (as hereinafter defined) of the Reorganized
Debtors on a going-concern basis. Lazard undertook this valuation analysis for
the purpose of determining value available for Distribution to Holders of
Allowed Claims pursuant to the Plan and to analyze the relative recoveries to
such Holders thereunder. The estimated total value available for Distribution
(the "Distributable Value") to Holders of Allowed Claims is comprised of two
components: (a) an estimated value of the Reorganized Debtors' operations on a
going concern basis (the "Enterprise Value," as identified above), and (b) the
value of certain projected tax attributes such as net operating losses ("NOLs"),
with which the Debtors will emerge from bankruptcy.
Based in part on information provided by the Debtors, Lazard has concluded
solely for purposes of the Plan that the Distributable Value of the Reorganized
Debtors ranges from approximately $307.5 to $357.5 million, with a midpoint of
approximately $332.5 million as of an assumed Effective Date of August 31, 2005.
Based on an assumed August 31, 2005 debt balance, net of cash, of approximately
$165.0 million, Lazard's mid-point estimated Enterprise Value implies a value
for the New Common Stock of $167.5 million. Assuming approximately 9,900,000
shares of New Common Stock are Distributed to the Holders of Allowed Claims
pursuant to the Plan, the value of New Common Stock is equal to $16.91 per
share.(14) These values do not give effect to the
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(14) As previously described, under the Plan, creditors have the option of
electing an Inducement Cash
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potentially dilutive impact of any shares issued upon exercise of any options
that may be granted under a long-term incentive plan which the Board of
Directors of Reorganized Intermet may authorize for management of Reorganized
Intermet. Lazard's estimate of Enterprise Value does not constitute an opinion
as to fairness from a financial point of view of the consideration to be
received under the Plan or of the terms and provisions of the Plan.
THE ASSUMED DISTRIBUTABLE VALUE RANGE, AS OF THE ASSUMED EFFECTIVE DATE OF
AUGUST 31, 2005, REFLECTS WORK PERFORMED BY LAZARD ON THE BASIS OF INFORMATION
AVAILABLE TO LAZARD CURRENT AS OF THE DATE OF THIS DISCLOSURE STATEMENT.
ALTHOUGH SUBSEQUENT DEVELOPMENTS MAY AFFECT LAZARD'S CONCLUSIONS, NEITHER LAZARD
NOR THE DEBTORS HAVE ANY OBLIGATION TO UPDATE, REVISE OR REAFFIRM ITS ESTIMATE.
With respect to the Projections prepared by the management of the Debtors and
included in this Disclosure Statement, Lazard assumed that such Projections were
reasonably prepared in good faith and on a basis reflecting the Debtors' most
accurate currently available estimates and judgments as to the future operating
and financial performance of the Reorganized Debtors. Lazard's Distributable
Value range assumes the Reorganized Debtors will achieve their Projections in
all material respects, including gross profit growth and improvements in
operating margins, earnings and cash flow. If the business performs at levels
below those set forth in the Projections, such performance may have a materially
negative impact on Enterprise Value.
In estimating the Enterprise Value and equity value of the Reorganized Debtors,
Lazard: (a) reviewed certain historical financial information of the Debtors for
recent years and interim periods; (b) reviewed certain internal financial and
operating data of the Debtors, including the Projections as described in this
Disclosure Statement, which data were prepared and provided to Lazard by the
management of the Debtors and which relate to the Reorganized Debtors' business
and its prospects; (c) met with members of senior management to discuss the
Debtors' operations and future prospects; (d) reviewed extensive publicly
available financial data for, and considered the market value of, public
companies that Lazard deemed generally comparable to the operating business of
the
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Amount in lieu of a combination of stock and rights to purchase stock in the
Reorganized Intermet in satisfaction of their claims against the Debtors. In
making this election, creditors must release all other Debtors with respect to
their claim. In the event all creditors other than Noteholders elect to receive
cash under the Inducement Cash Option, approximately 100,000 of the 2,500,000
shares issuable to unsecured creditors will not be issued. To the extent,
however, all such creditors elect to receive stock and rights to purchase stock
in the Reorganized Intermet, in satisfaction of their claims, the total number
of outstanding common shares of the Reorganized Intermet upon emergence from
bankruptcy will total 10,000,000. The equity value identified above as well as
the total shares outstanding (approximately 9,900,000) and value per each such
share ($16.91) assume all creditors, other than noteholders, elect to receive
the Inducement Cash Amount. As the actual, ultimate future election by creditors
to receive cash in lieu of common stock and rights, or vice versa, cannot be
known at the time of publication of the Disclosure Statement, this analysis
presents a simplifying assumption.
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Debtors; (e) considered certain economic and industry information relevant to
the operating business; and (f) conducted such other studies, analyses,
inquiries and investigations as it deemed appropriate. Although Lazard conducted
a review and analysis of the Debtors' business, operating assets and liabilities
and the Reorganized Debtors' business plan, it assumed and relied on the
accuracy and completeness of all financial and other information furnished to it
by the Debtors, as well as publicly available information.
In addition, Lazard did not independently verify management's Projections in
connection with preparing estimates of Enterprise Value, and no independent
valuations or appraisals of the Debtors were sought or obtained in connection
herewith. Such estimates were developed solely for purposes of the formulation
and negotiation of the Plan and the analysis of implied relative recoveries to
Holders of Allowed Claims thereunder.
Lazard's analysis addresses the estimated going concern Enterprise Value of the
Debtors and the value of certain expected tax attributes, including NOLs. It
does not address other aspects of the proposed reorganization, the Plan or any
other transactions, and it does not address the Debtors' underlying business
decision to effect the reorganization set forth in the Plan. Lazard's estimated
Enterprise Value of the Debtors does not constitute a recommendation to any
Holder of Allowed Claims as to how such person should vote or otherwise act with
respect to the Plan. Lazard has not been asked to nor did Lazard express any
view as to what the value of the Debtors' securities will be when issued
pursuant to the Plan or the prices at which they may trade in the future. The
estimated Enterprise Value of the Debtors set forth herein does not constitute
an opinion as to fairness from a financial point of view to any person of the
consideration to be received by such person under the Plan or of the terms and
provisions of the Plan.
Such estimates reflect the application of various valuation techniques and do
not purport to reflect or constitute appraisals, liquidation values or estimates
of the actual market value that may be realized through the sale of any
securities to be issued pursuant to the Plan, which may be significantly
different than the amounts set forth herein. The value of an operating business
is subject to numerous uncertainties and contingencies which are difficult to
predict and will fluctuate with changes in factors affecting the financial
condition and prospects of such a business. As a result, the estimated
Enterprise Value range of the Reorganized Debtors set forth herein is not
necessarily indicative of actual outcomes, which may be significantly more or
less favorable than those set forth herein. Neither the Debtors, Lazard, nor any
other person assumes responsibility for their accuracy. In addition, the
valuation of newly issued securities is subject to additional uncertainties and
contingencies, all of which are difficult to predict. Actual market prices of
such securities at issuance will depend upon, among other things, the operating
performance of the Debtors, prevailing interest rates, conditions in the
financial markets, the anticipated holding period of securities received by
pre-petition creditors (some of whom may prefer to liquidate their investment
rather than hold it on a long-term basis), and other factors which generally
influence the prices of securities.
2. Valuation Methodology
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The following is a brief summary of certain financial analyses performed by
Lazard to arrive at its range of estimated Enterprise Values and Distributable
Values for the Reorganized Debtors. Lazard performed certain procedures,
including each of the financial analyses described below, and reviewed with the
management of the Debtors the assumptions on which such analyses were based.
Lazard's valuation analysis must be considered as a whole and selecting just one
methodology or portions of the analysis could create a misleading or incomplete
conclusion as to Enterprise Value.
Under the valuation methodologies summarized below, Lazard derived a range of
Enterprise Values assuming the Reorganized Debtors are full taxpayers. Lazard
separately analyzed the value of the Debtors' tax attributes, including NOLs, as
of the assumed Effective Date. To the extent such attributes were valued
positively, they were added to the Enterprise Value range to calculate a
Distributable Value range. A discussion of Lazard's analysis of such tax
attributes, including the methodology used to value them, is presented below in
section (ii)(d).
A. Comparable Company Analysis
Comparable company analysis estimates the value of a company based on a relative
comparison with other publicly traded companies with similar operating and
financial characteristics. Under this methodology, observed Enterprise Values
and equity values for selected public companies are commonly expressed as
multiples of various measures of earnings, most commonly earnings before
interest, taxes, depreciation and amortization ("EBITDA"), earnings before
interest and taxes ("EBIT") and net income. In addition, each company's
operational performance, operating margins, profitability, leverage and business
trends are examined. Based on these analyses, financial multiples and ratios are
calculated to measure each company's relative performance and valuation. A key
factor to this approach is the selection of companies with relatively similar
business and operational characteristics to the Debtors. Common criteria for
selecting comparable companies for the analysis include, among other relevant
characteristics, similar lines of businesses, business risks, growth prospects,
maturity of businesses, location, market presence and size and scale of
operations. The selection of truly comparable companies is often difficult and
subject to limitations due to sample size and the availability of meaningful
market-based information. However, the underlying concept is to develop a
premise for relative value, which, when coupled with other approaches, presents
a foundation for determining Enterprise Value.
Lazard selected the following publicly traded companies (the "Peer Group") on
the basis of general comparability to the Debtors in one or more of the factors
described above: American Axle & Manufacturing Holdings, Inc., ArvinMeritor,
Inc., Dana Corporation, Hayes Lemmerz International, Inc., Linamar Corporation,
Magna International Inc., Noble International Ltd., Shiloh Industries, Inc.,
Superior Industries International, Inc., Tenneco Automotive Inc., and TRW
Automotive Holdings Corp.
Lazard calculated multiples of Enterprise Value to 2005 and 2006 EBITDA for the
Peer Group by dividing the Enterprise Values of each comparable company as of
June 14, 2005, by their projected 2005 EBITDA and 2006 EBITDA, as estimated in
current equity
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and fixed income research. This analysis produced multiples of Enterprise Value
to estimated 2005 EBITDA ranging from a low of approximately 4.2x to a high of
approximately 7.0x, with a mean of approximately 5.5x and a mid-point or median
of approximately 5.3x. Multiples of Enterprise Value as of June 14, 2005 to
estimated 2006 EBITDA ranged from a low of approximately 3.9x to a high of
approximately 6.3x, with a mean of approximately 5.1x and a mid-point or median
of approximately 5.3x.
Having calculated these statistics, Lazard then applied a range of multiples to
the Debtors' forecasted Adjusted 2005 EBITDA and Adjusted 2006 EBITDA ($63.1
million and $75.3 million, respectively) to determine a range of Enterprise
Values. (To calculate Adjusted EBITDA, Lazard adjusted the Debtors' projected
2005 and 2006 earnings before interest, taxes, depreciation and amortization to
exclude forecasted non-recurring expenses/charges, restructuring fees, losses
from discontinued or inactive operations, plant closure costs, and KERP
payments. This calculation is presented in Exhibit G - "Projected Financial
Information For The Reorganized Debtors".)
In applying a range of multiples, Lazard based the range for both 2005 and 2006
EBITDA multiples on the 25th percentile and the mean, using the statistics
observed for the Peer Group. These multiples specifically ranged from 4.4x to
5.5x of 2005 Adjusted EBITDA and 4.3x to 5.1x of 2006 Adjusted EBITDA. In
applying these ranges, Lazard considered a variety of factors, including both
qualitative attributes and quantitative measures such as historical and
projected revenue and EBITDA results; historical Enterprise Value/EBITDA trading
multiples; EBITDA margins; capital efficiency; size; and projected long-term
earnings growth.
B. Precedent Transactions Analysis
Precedent transactions analysis estimates value by examining public merger and
acquisition transactions. An analysis of a company's transaction value as a
multiple of various operating statistics provides industry-wide valuation
multiples for companies in similar lines of business to the Debtors. Transaction
multiples are calculated based on the purchase price (including any debt
assumed) paid to acquire companies that are comparable to the Debtors. Lazard
specifically focused on prices paid as a multiple of Revenue, EBIT, and EBITDA
in determining a range of values for the Debtors. The derived multiples are then
applied to the Debtors' key operating statistics to determine the Enterprise
Value or value to a potential strategic buyer.
Unlike the comparable public company analysis, the valuation in this methodology
reflects a "control" premium, representing the purchase of a majority or
controlling position in a company's assets. Thus, this methodology generally
produces higher valuations than the comparable public company analysis. Other
aspects of value that are manifest in a precedent transaction analysis include
the following: (a) circumstances surrounding a merger transaction may introduce
"diffusive quantitative results" into the analysis (e.g., an additional premium
may be extracted from a buyer in a case of a competitive bidding contest); (b)
the market environment is not identical for transactions occurring at different
periods of time; and (c) circumstances pertaining to the financial position of
the company may have an impact on the resulting purchase price (e.g., a
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company in financial distress may receive a lower price due to perceived
weakness in its bargaining leverage).
As with the comparable public company analysis, because no acquisition used in
any analysis is identical to a target transaction, valuation conclusions cannot
be based solely on quantitative results. The reasons for and circumstances
surrounding each acquisition transaction are specific to such transaction, and
there are inherent differences between the businesses, operations, and prospects
of each. Therefore, qualitative judgments must be made concerning the
differences between the characteristics of these transactions and other factors
and issues that could affect the price an acquirer is willing to pay in an
acquisition. The number of completed transactions for which public data is
available also limits this analysis. Because the precedent transaction analysis
explains other aspects of value besides the inherent value of a company, there
are limitations as to its use in the valuation of the Debtors.
In deriving a range of Enterprise Values for Intermet under this methodology,
Lazard calculated multiples of total transaction value ("Transaction Value") to
the latest twelve months ("LTM") EBITDA of the acquired companies and applied
these multiples to Intermet's Adjusted LTM EBITDA. The calculation of Intermet's
Adjusted LTM EBITDA, as defined in the preceding section, is shown in Exhibit G
- - "Projected Financial Information For The Reorganized Debtors."
Lazard evaluated various merger and acquisition transactions that have occurred
in the automotive supply industry between 2002 and 2005. Lazard calculated
multiples of Transaction Value to LTM EBITDA of the target companies by dividing
the disclosed purchase price of the target's equity, plus any debt assumed as
part of the transaction, by disclosed LTM EBITDA. This analysis produced
multiples of Transaction Value to LTM EBITDA ranging from a low of approximately
3.8x to a high of approximately 7.2x, with a mean of approximately 5.6x and a
mid-point or median of approximately 5.6x.
Lazard then applied a range of multiples to the Debtors' LTM Adjusted EBITDA to
determine a range of Enterprise Values. As it did in its comparable company
analysis, Lazard established a range between the 25th percentile and the mean
(4.9x to 5.6x) of the Transaction Value/EBITDA statistic for the observed
transactions. The use of this range implies Lazard's assumption that Intermet's
relative value among the target companies in this analysis is the same as was
determined for Intermet relative to the Peer Group.
C. Discounted Cash Flow Analysis
The Discounted Cash Flow ("DCF") analysis is a forward-looking enterprise
valuation methodology that relates the value of an asset or business to the
present value of expected future cash flows to be generated by that asset or
business. Under this methodology, projected future cash flows are discounted by
the business' weighted average cost of capital (the "Discount Rate"). The
Discount Rate reflects the estimated blended rate of return debt and equity
investors would require to invest in the business based on its capital
structure. The value of the firm (or Enterprise Value) is determined by
calculating
125
the present value of the Reorganized Debtors' unlevered after-tax free cash
flows based on in its business plan (the Projections) plus an estimate for the
value of the firm beyond the period of 2005 to 2009 (the "Projection Period")
known as the terminal value. The terminal value is derived by applying a
multiple to the Reorganized Debtors' projected EBITDA in the final year of the
Projection Period, discounted back to the assumed date of emergence by the
Discount Rate.
To estimate the Discount Rate, Lazard used the cost of equity and the after-tax
cost of debt for the Reorganized Debtors, assuming a range of targeted long-term
capital structure of 30% to 40% debt to total capital. Lazard calculated the
cost of equity based on the Capital Asset Pricing Model, which assumes that the
required equity return is a function of the risk-free cost of capital and the
correlation of a publicly traded stock's performance to the return on the
broader market. To estimate the cost of debt, Lazard considered the debt
financing costs for comparable companies with leverage similar to the
Reorganized Debtors' target capital structure. In determining the terminal
multiple, Lazard considered the fact that the projections indicated a steady
rise in profitability and no cyclicality of earnings, as would commonly be
encountered in the automotive industry. Lazard therefore selected an exit
multiple range which reflected a peak earnings environment.
Although formulaic methods are used to derive the key estimates for the DCF
methodology, their application and interpretation still involve complex
considerations and judgments concerning potential variances in the projected
financial and operating characteristics of the Reorganized Debtors, which in
turn affect its cost of capital and terminal multiples. Lazard calculated its
DCF valuation on a range of Discount Rates between 13.5% and 14.5% and an EBITDA
multiple range used to derive a terminal value of 3.75x to 4.25x.
In applying the above methodology, Lazard utilized management's detailed
Projections for the period beginning September 1, 2005 and ending December 31,
2009 to derive unlevered after-tax free cash flows. Free cash flow includes
sources and uses of cash not reflected in the income statement, such as changes
in working capital and capital expenditures. For purposes of the DCF, the
Reorganized Debtors are assumed to be full taxpayers; the value of their tax
attributes, including NOLs, is calculated separately as described below. These
cash flows, along with the terminal value, are discounted back to the assumed
Effective Date using the range of Discount Rates described above to arrive at a
range of Enterprise Values.
D. Analysis Of Post-Emergence Tax Attributes
In developing Intermet's Plan, the Debtors, with the assistance of certain tax,
accounting and financial advisors conducted a detailed analysis of the impact of
various (1) debt cancellation strategies and (2) alternatives for restructuring
the Debtors' domestic operations (the "Domestic Restructuring"). In particular,
the Debtors' reviewed alternatives for canceling certain inter-company notes
owing from Intermet Holding Co. (US) to Intermet Holding BV and from Intermet
Corporation to Intermet Europe KG. Tax consequences, which were identified for
each such inter-company note cancellation
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and Domestic Restructuring strategy were numerous, and included, but were not
limited to, the following: the impact of cancellation of indebtedness income on
the Debtors' tax attributes, specifically NOLs and tax basis in depreciable
assets; the creation of bad debt deductions in foreign jurisdictions; the
ability of Intermet and its foreign subsidiaries to continue to shelter
inter-company interest income by interest expense; and the impact of various
inter-company debt cancellation strategies on deferred foreign currency gains.
In analyzing the tax consequences of the different debt cancellation and
Domestic Restructuring strategies, the Debtors' management and its advisors
focused on the impact of projected reductions in the tax basis of assets of
certain Debtors. Forecasted reductions to the tax basis of depreciable assets
varied with different debt cancellation and Domestic Restructuring alternatives,
reflecting differing levels of cancellation of indebtedness income. Management
specifically analyzed the impact of such basis reductions on projected taxable
income that would result from decreases in future expected depreciation and
amortization deductions. (Reduced depreciation and amortization deductions would
result in lower future depreciation tax shields, thereby increasing projected
taxable income).
Based on a detailed analysis of such tax consequences, the Debtors' management
has elected to pursue a strategy whereby (1) the inter-company notes identified
above will either be cancelled through offsetting transactions and (2) the
Debtors' domestic operations will be restructured as described in Section I.B.,
"Summary Of Debtors' Corporate Structure." The particular strategy the Debtors
are pursuing is expected to minimize reductions to the tax bases of assets of
Reorganized Intermet's U.S. legal entities.
The debt cancellation strategy the Debtors' management will pursue, while
minimizing expected reductions to the tax basis of assets, is also expected to
reduce existing NOLs which would be available to offset expected future taxable
income following the Debtors' emergence from bankruptcy. Lazard has valued those
NOLs with which the Debtors expect to emerge from bankruptcy by calculating the
present value of the tax savings they would provide relative to the taxes the
Reorganized Debtors would otherwise pay absent the application of such NOLs.
With regard to pre-emergence NOLs with which Intermet will emerge from
bankruptcy, the NOL valuation analysis assumed that the annual limitation of
such NOL utilization, per Section 382 of the Tax Code, would be approximately $7
million. The cash tax savings resulting from the application of the NOLs were
discounted at the Debtors' cost of equity.
Because Lazard's calculation of Reorganized Intermet's Enterprise Value does not
consider or reflect either the benefit of those NOLs which survive the Debtors'
restructuring or the negative impact of reductions to asset tax bases, Lazard
separately valued the impact of both of these tax consequences. Specifically,
Lazard valued, as described above, the present value of post-emergence NOLs
subject to limitations under Section 382 of the Tax Code. Similarly, Lazard
valued the slight negative cash tax impact of minor reductions to asset tax
bases and the resulting declines in projected future depreciation tax shields.
Based on this analysis, Lazard estimates the value of
127
Reorganized Intermet's NOLs exceeds any negative impact resulting from
reductions to asset tax bases by approximately $7.5 million on a NPV basis. As a
result, Lazard has, in its valuation analysis, added an incremental $7.5 million
of value to Reorganized Intermet's Enterprise Value to calculate a total
Distributable Value in a range of $307.5 to $357.5 million.
3. Value Allocation
As described earlier, the Plan provides for the treatment of both classified and
unclassified Claims against and Equity Interests in each of the Debtors. Though
the Plan is proposed jointly by all of the Debtors, it constitutes a separate
Plan for each Debtor. The Estates of the Debtors have not been consolidated,
substantively or otherwise. Any Claims held against one of the Debtors will be
satisfied solely based on the value of the Assets of such Debtor. As a result of
the deconsolidated nature of the plan, Lazard has allocated Enterprise Value for
Reorganized Intermet across all of its legal entities, including the Debtors.
This allocation of value will generally determine ultimate recoveries by
Creditors at each of the Debtors.(15) In deriving this allocation, Lazard
conducted a detailed analysis of the following factors: revenue forecasts /
results of (or contribution by) each Intermet legal entity for the years ending
2005, 2006, and 2007; projected EBITDA contribution by each Intermet legal
entity for the years ending 2005, 2006, and 2007; projected EBIT contribution by
each Intermet legal entity for the years ending 2005, 2006, and 2007; and the
book value of total assets of each Intermet legal entity at December 31, 2004.
This data is presented in tabular format in Exhibit G - "Projected Financial
Information For The Reorganized Debtors." In deriving an allocation of
enterprise values based on this data, Lazard weighted most heavily earnings
measures for the Debtors, specifically EBITDA and EBIT.
THE SUMMARY SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE
ANALYSES PERFORMED BY LAZARD. THE PREPARATION OF A VALUATION ESTIMATE INVOLVES
VARIOUS DETERMINATIONS AS TO THE MOST APPROPRIATE AND RELEVANT METHODS OF
FINANCIAL ANALYSIS AND THE APPLICATION OF THESE METHODS IN THE PARTICULAR
CIRCUMSTANCES AND, THEREFORE, SUCH AN ESTIMATE IS NOT READILY SUITABLE TO
SUMMARY DESCRIPTION. IN PERFORMING THESE ANALYSES, LAZARD AND THE DEBTORS MADE
NUMEROUS ASSUMPTIONS WITH RESPECT TO INDUSTRY PERFORMANCE, BUSINESS AND ECONOMIC
CONDITIONS AND OTHER MATTERS. THE ANALYSES PERFORMED BY LAZARD ARE NOT
NECESSARILY INDICATIVE OF ACTUAL VALUES OR FUTURE RESULTS, WHICH MAY BE
SIGNIFICANTLY MORE OR LESS FAVORABLE THAN SUGGESTED BY SUCH ANALYSES.
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(15) The allocation of value to each Debtor is implicit in the distribution
schedule attached to the Disclosure Statement as Exhibit I, and attached to
the Plan as Exhibit B.
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XII. CERTAIN FACTORS TO BE CONSIDERED
A. CERTAIN BANKRUPTCY CONSIDERATIONS
Even if the requisite acceptances are received, there can be no assurance that
the Bankruptcy Court, which sits as a court of equity with substantial
discretion, will confirm the Plan. A non-accepting Creditor of the Debtors might
challenge the adequacy of the disclosure or the balloting procedures and results
as not being in compliance with the Bankruptcy Code. Even if the Bankruptcy
Court were to determine that the disclosure and the balloting procedures and
results were appropriate, the Bankruptcy Court could still decline to confirm
the Plan if it were to find that any statutory conditions to Confirmation had
not been met. Section 1129 of the Bankruptcy Code sets forth the requirements
for Confirmation and requires, among other things, a finding by the Bankruptcy
Court that the Confirmation of the Plan is not likely to be followed by a
liquidation or a need for further financial reorganization (except as
contemplated in the Plan) and that the value of Distributions to non-accepting
Creditors will not be less than the value of Distributions such Creditors would
receive if the Debtors were liquidated under Chapter 7 of the Bankruptcy Code.
SEE SECTION XIV - "FEASIBILITY OF THE PLAN AND THE BEST INTERESTS OF CREDITORS
TEST - Chapter 7 Liquidation Analysis." There can be no assurance that the
Bankruptcy Court will conclude that these requirements have been met, but the
Debtors believe that the Bankruptcy Court should find that the Plan will not be
followed by a need for further financial reorganization or liquidation (other
than as contemplated) and that non-accepting Creditors will receive
Distributions at least as great as would be received following a liquidation
pursuant to Chapter 7 of the Bankruptcy Code.
Additionally, even if the required acceptances of Classes are received, the
Bankruptcy Court might find that the solicitation did not comply with the
solicitation requirements made applicable by Section 1125(b) of the Bankruptcy
Code and Bankruptcy Rule 3018(a). In such an event, the Debtors may seek to
re-solicit acceptances, but Confirmation of the Plan could be substantially
delayed and possibly jeopardized. However, the Debtors believe that their
solicitation of acceptances of the Plan complies with the requirements of
Section 1125(b) of the Bankruptcy Code and Bankruptcy Rule 3018(a), that duly
executed Ballots will be in compliance with applicable provisions of the
Bankruptcy Code and the Bankruptcy Rules, and that, if sufficient acceptances
are received, the Plan should be confirmed by the Bankruptcy Court. SEE SECTION
XV -"SOLICITATION OF THE PLAN."
The consummation of the Plan also is subject to certain conditions. SEE SECTION
VIII - "SUMMARY OF THE PLAN." If the Plan were not to be confirmed, it is
unclear whether a reorganization could be implemented and what Holders of Claims
would ultimately receive with respect to their Claims. If an alternative
reorganization could not be effected, it is possible that the Debtors would have
to liquidate their assets, in which case Holders of Claims would very likely
receive less than they would have received pursuant to the Plan.
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B. RISKS RELATING TO THE NEW COMMON STOCK
1. Variances From Projections
The assumptions and estimates underlying the Projections set forth in Exhibit G
attached to this Disclosure Statement are inherently uncertain and, though
considered reasonable by management as of the date hereof, are subject to a wide
variety of significant business, economic, competitive and political risks and
uncertainties. The Projections are not necessarily indicative of the future
financial position or results of operations of the Debtors, which may vary
significantly from those set forth in the Projections. Consequently, the
Projections contained herein should not be regarded as a representation by the
Debtors or any of their Affiliates, advisors or any other person that the
projected financial position or results of operations can or will be achieved.
The Projections are also "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Factors that could cause
actual results to differ materially include, but are not limited to, those
identified in the first paragraph of Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," of Intermet's
Annual Report on Form 10-K for the fiscal year ended December 31, 2004, which
are incorporated herein by reference.
2. Lack Of Trading Market
On the Effective Date, Reorganized Intermet will seek to terminate, or obtain an
exemption from, its reporting and filing obligations under the Securities Act.
Consequently, if permitted, from and after the Effective Date, Reorganized
Intermet will no longer be a public company. Pursuant to the Plan, the Existing
Common Stock will be cancelled and the New Common Stock will not be listed or
traded on any nationally recognized market or exchange. Moreover, the
Stockholders Agreement, which will become effective on the Effective Date,
imposes significant restrictions with regard to the sale or transfer of the New
Common Stock. Accordingly, from and after the Effective Date, the
transferability of the New Common Stock will be severely limited.
3. Dividend Policies
The Debtors do not anticipate that Reorganized Intermet will pay dividends on
the New Common Stock in the near future.
4. Restrictions On Transfer
The Stockholders' Agreement imposes significant restrictions with regard to the
sale or transfer of the New Common Stock. Therefore, from and after the
Effective Date, the transferability of the New Common Stock will be severely
limited.
In addition, holders of New Common Stock who are deemed to be "underwriters" as
defined in Section 1145(b) of the Bankruptcy Code, including Holders who are
deemed to be "affiliates" or "control persons" within the meaning of the
Securities Act, will be unable freely to transfer or to sell their securities
except pursuant to (i) "ordinary trading
130
transactions" by a Holder that is not an "issuer" within the meaning of Section
1145(b), (ii) an effective registration of such securities under the Securities
Act and under equivalent state securities or "blue sky" laws, or (iii) pursuant
to the provisions of Rule 144 under the Securities Act or other available
exemption from registration requirements.
5. Control By Initial Committed Purchasers
As a result of Confirmation and consummation of the Plan, the Initial Committed
Purchasers will together initially own at least 40% of the shares of outstanding
New Common Stock. In addition, the Initial Committed Purchasers will have the
right to appoint certain members of the Board of Reorganized Intermet.
Accordingly, the Initial Committed Purchasers will exercise a controlling
influence over the business and affairs of Reorganized Intermet and the
Reorganized Debtors and, although they may not have a majority of the voting
rights, they are likely to have effective control over future shareholder
elections of directors, and hence Reorganized Intermet and the Reorganized
Debtors. Additionally, if the Initial Committed Purchasers are required to
purchase Cash-Out Shares and Rights Offering Shares, the Initial Committed
Purchasers could own sufficient shares of New Common Stock to have effective
power to approve significant corporate transactions such as amendments to the
Articles of Incorporation and Bylaws, mergers, and the sale of all or
substantially all of the assets of Reorganized Intermet. The Initial Committed
Purchasers' voting power could have the effect of deterring or preventing a
change in control of Reorganized Intermet.
C. RISKS ASSOCIATED WITH THE BUSINESSES
A discussion of factors that could negatively impact the Debtors' businesses are
set forth in Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," to Intermet's Annual Report on Form 10-K
for the fiscal year ended December 31, 2004.
XIII. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IF THE PLAN IS CONFIRMED
The following is a summary of certain U.S. federal income tax consequences to
the Debtors and to certain Holders of Claims that are expected to result from
implementation of the Plan. This discussion does not address the federal income
tax consequences to Holders of Claims who are deemed to have rejected the Plan
in accordance with the provisions of Section 1126 of the Bankruptcy Code (i.e.,
Holders of Impaired Equity Interests in the Impaired Equity Debtors) or the
consequences of the Plan to Holders who are deemed to have accepted the Plan
(i.e., Holders of Priority Claims, Pre-Petition Lender Claims, Secured Claims
other than Secured Claims against Wagner Castings, and Unimpaired Equity
Interests in the Unimpaired Equity Debtors). Additionally, this summary does not
address the federal income tax consequences of the Key Employee Rights Offering.
This discussion is based on the IRC, as amended, Treasury Regulations in effect
(or, in some cases, proposed) on the date of this Disclosure Statement, and
administrative and
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judicial interpretations thereof available on or before such date. All of the
foregoing are subject to change, including changes which could apply
retroactively and could affect the federal income tax consequences described
below. There can be no assurance that the IRS will not take a contrary view with
respect to one or more of the issues discussed below. No ruling has been applied
for or received from the IRS with respect to any of the tax aspects of the Plan
and no opinion of counsel has been requested or received by the Debtors with
respect thereto.
The following summary is for general information only and does not purport to
address all of the U.S. federal income tax consequences that may be applicable
to any particular Holder. The tax consequences to Holders may vary based upon
the individual circumstances of each Holder. This summary does not address the
special tax considerations that may apply to Holders that are subject to special
rules, such as foreign companies, nonresident alien individuals, S corporations,
banks, financial institutions, broker-dealers, dealers or traders in securities
who are subject to mark-to-market taxation, mutual funds, small business
investment companies, regulated investment companies, insurance companies,
tax-exempt organizations, Persons holding Claims as part of a hedging or
conversion transaction, straddle, or other integrated transaction, Persons who
have a "functional currency" other than the U.S. dollar, Persons who acquired an
Equity Interest in connection with the performance of services, certain
expatriates and former long-term residents of the United States, pass-through
entities, or investors in pass-through entities. In addition, this discussion
does not address any aspect of state, local or foreign taxation, or any estate
or gift tax consequences of the Plan.
The following discussion assumes that the Plan will be implemented as described
herein, and does not address the tax consequences if the Plan is not carried
out. This discussion further assumes that the various debt and other
arrangements to which the Debtors are parties and any Distributions and
allocations provided for under the Plan will be respected for federal income tax
purposes in accordance with their form or as described below.
THE TAX CONSEQUENCES OF THE PLAN ARE COMPLEX, AND SUBJECT TO SIGNIFICANT
UNCERTAINTIES DUE TO THE LACK OF APPLICABLE LEGAL PRECEDENT AND THE POSSIBILITY
OF CHANGES IN THE LAW. THIS DISCUSSION DOES NOT CONSTITUTE TAX ADVICE OR A TAX
OPINION CONCERNING THE MATTERS DESCRIBED. THERE CAN BE NO ASSURANCE THAT THE IRS
WILL NOT CHALLENGE ANY OR ALL OF THE TAX CONSEQUENCES DESCRIBED HEREIN, OR THAT
SUCH A CHALLENGE, IF ASSERTED, WOULD NOT BE SUSTAINED. EACH HOLDER OF A CLAIM OR
EQUITY INTEREST IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISOR REGARDING
THE FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES OF HOLDING CLAIMS
OR EQUITY INTERESTS AND OF THE PLAN.
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A. U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS
Intermet, the other Debtors, and certain of their corporate subsidiaries are
members of an affiliated group of corporations (the "Intermet Tax Group") that
join in the filing of consolidated federal income tax returns. The Intermet Tax
Group has reported substantial consolidated net operating loss ("NOL")
carryforwards for federal income tax purposes as of December 31, 2003, and
expects to report tax losses for the taxable year that ended on December 31,
2004. Consequently, the Debtors expect the Intermet Tax Group to have NOL
carryforwards to the year ended December 31, 2005 and, to the extent not used or
eliminated in that year, to subsequent years. The amount of such NOLs and NOL
carryforwards remains subject to review and adjustment by the IRS and to
limitations imposed by Sections 108 and 382 of the IRC, as discussed below.
1. Cancellation Of Debt Income
Although the Debtors will realize cancellation of debt ("COD") income as a
result of the discharge of Allowed Claims under the Plan, they will qualify for
an exception under which the Debtors will be permitted to exclude the COD income
from taxable income because they are debtors in cases under the Bankruptcy Code.
However, the Debtors will be required to reduce certain of their tax attributes
by the amount of the COD income so excluded. COD income is generally the amount
by which the adjusted issue price of indebtedness discharged exceeds the amount
of cash, the issue price of any debt instrument, and the fair market value of
any other property given in exchange for the debt instrument. However, certain
statutory or judicial exceptions can apply to limit the amount of COD (such as
where the payment of the cancelled debt would have given rise to a tax deduction
or the cancellation of the debt is treated as a purchase price adjustment).
Under the general rules of Section 108 of the IRC, the excluded COD income must
generally be applied to reduce the Debtors' current year's NOL and NOL
carryforwards, general business credits, minimum tax credits, capital loss
carryovers, and the tax basis of their property, in that order. However, the
Debtors can elect under Section 108(b)(5) of the IRC to apply the tax attribute
reduction first to reduce the tax basis of the Debtors' depreciable property and
then to reduce NOLs and certain other tax attributes. It is unlikely that the
Debtors will make this election. A reduction in tax attributes under the
foregoing rules does not occur until the end of the taxable year or, in the case
of an asset basis reduction, the first day of the taxable year following the
taxable year, in which the COD income is realized.
Recently finalized regulations address the method for applying tax attribute
reduction to an affiliated group of corporations that files consolidated returns
(such as the Intermet Tax Group). Under these regulations, the tax attributes of
each group member that is excluding COD income is first subject to reduction.
These tax attributes include (1) consolidated attributes attributable to the
debtor member, (2) tax attributes that arose in separate return limitation years
of the debtor member, and (3) the tax basis of property of the debtor member. To
the extent the debtor member's tax basis in stock of a lower-tier member of the
affiliated group is reduced, a "look through rule" requires that a
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corresponding reduction be made to the tax attributes of the lower-tier member.
To the extent that a debtor-member's excluded COD income exceeds its tax
attributes, the regulations require the excess to be applied to the reduction of
the remaining consolidated tax attributes of the affiliated group, including tax
attributes of members other than the debtor members that arose or are treated as
arising in certain separate return limitation years.
The Debtors expect the reduction in tax attributes that result from COD income
produced by the Plan to include significant reductions in NOLs and the tax basis
of non-depreciable, non-amortizable assets, and smaller reductions in the tax
basis of current assets and depreciable or amortizable assets. However, the
amount and allocation of tax attribute reduction remain subject to review and
adjustment by the IRS.
If a member of the Intermet Tax Group (the "Parent Member") owns stock in
another member of the Intermet Tax Group (the "Subsidiary Member") in which it
has an "excess loss account" (generally, negative tax basis reflecting the
Intermet Tax Group's use of debt-financed losses of the Subsidiary Member in
excess of the Parent Member's investment in the stock of the Subsidiary Member),
the Parent Member is required to include the excess loss account in its taxable
income if it is considered to have disposed of the stock in the Subsidiary
Member. A disposition will be considered to occur if, among other things, the
Subsidiary Member excludes COD income which is not fully matched by a reduction
in tax attributes of the Subsidiary Member and the Intermet Tax Group.
Applicable Treasury regulations may limit the amount of losses of the Subsidiary
Member and the Intermet Tax Group that can be used to offset such excess loss
account income.
Several members of the Intermet Tax Group currently have excess loss accounts in
Subsidiary Members. The Debtors expect that most if not all of these excess loss
accounts will be eliminated by recapitalizing the Subsidiary Members. To the
extent that an excess loss account of any Subsidiary Member cannot be
eliminated, the Debtors believe that the Parent Member will be able to avoid a
disposition of the Subsidiary Member's stock.
Under existing law, COD income arising out of the cancellation of a debt of a
member of an affiliated group (such as the Intermet Tax Group) by another member
of the affiliated group is not eligible for exclusion from income under the
bankruptcy exception described above. Thus, COD income (if any) resulting from
the discharge of Intercompany Claims will be recognized, but is expected to be
offset fully by the bad debt or other losses realized by Intermet Tax Group
members with respect to such Intercompany Claims. It is anticipated that Claims
against Debtors that are held by foreign Non-Debtor Affiliates will be satisfied
by transfers (or offsets) of notes receivable or other claims against foreign
Non-Debtor Affiliates. These transactions are not expected to generate
significant amounts of COD income, but they are likely to produce other types of
reportable income, including taxable foreign exchange gains.
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2. Limitation On Net Operating Loss Carryforwards And Other Tax
Attributes
Under Section 382 of the IRC, if a corporation (or consolidated group) undergoes
an "ownership change," and the corporation does not qualify for (or elects out
of) a special bankruptcy exception described below, the amount of prechange
losses (NOL carryforwards from periods before the ownership change and certain
"built-in" losses and deductions that are economically accrued but unrecognized
as of the date of the ownership change) that may be utilized to offset future
taxable income is subject to an annual limitation (the "Annual Limitation").
Section 383 of the IRC extends and applies the Annual Limitation to
carryforwards of general business credits, minimum tax credits, capital losses,
and foreign tax credits, so that the total reduction in tax in a post-change
year from the carryover of such additional items, along with the NOLs and
recognized built-in losses, from pre-change periods is, in the aggregate,
limited by the Annual Limitation.
The issuance of New Common Stock to Holders of certain Claims pursuant to the
Plan, the purchase of New Common Stock pursuant to the Rights Offering, and/or
the Restructuring Commitment Letter, and the cancellation of Equity Interests in
Intermet will together constitute an ownership change of the Intermet Tax Group
for purposes of IRC Section 382. Moreover, the Debtors are investigating whether
an ownership change occurred in earlier years, which could limit the
availability of certain loss and credit carryforwards from periods prior to any
such earlier ownership change.
In general, the amount of the Annual Limitation to which a corporation (or
consolidated group) that has undergone an ownership change is subject under IRC
Sections 382 and 383 is equal to the product of (a) the fair market value of
stock of the corporation (or, in the case of a consolidated group, the common
parent) immediately before the ownership change (subject to various
adjustments), multiplied by (b) the highest of the adjusted federal long-term
tax-exempt rates in effect for any month in the 3-calendar months ending with
the month in which the ownership change occurs. Any unused Annual Limitation may
be carried forward, thereby increasing the Annual Limitation in the subsequent
taxable year. For any corporation (or consolidated group) in bankruptcy that
undergoes an ownership change pursuant to a confirmed bankruptcy plan, the stock
value is generally determined immediately after (rather than before) the
ownership change by taking into account the increase in stock value from the
surrender or cancellation of any creditors' claims, with certain adjustments.
As noted, in addition to limiting the use of NOLs carried forward from periods
prior to the ownership change, IRC Section 382 limits the deductibility of
"built-in losses" recognized after the date of the ownership change. If a loss
corporation (or consolidated group) has a net unrealized built-in loss at the
time of an ownership change (taking into account most assets and items of
"built-in" income and deduction), then any built-in losses recognized during the
following five years (up to the amount of the original net unrealized built-in
loss) generally will be treated as pre-change losses and will be subject to the
Annual Limitation. Conversely, if the loss corporation (or consolidated group)
has a net unrealized built-in gain at the time of an ownership change, any
built-in gains
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recognized during the following five years (up to the amount of the original net
unrealized built-in gain) generally will increase the Annual Limitation in the
year recognized, thereby permitting the loss corporation (or consolidated group)
to use its pre-change losses and credits against such built-in gains (or tax
thereon) in addition to its regular annual allowance. Although the rule
applicable to net unrealized built-in losses generally applies to consolidated
groups on a consolidated basis, certain corporations that join the consolidated
group within the preceding five years may not be able to be taken into account
in the group computation of net unrealized built-in loss. Such corporations
would nevertheless still be taken into account in determining whether the
consolidated group has a net unrealized built-in gain. In general, the loss
corporation's or consolidated group's net unrealized built-in gain or loss will
be deemed to be zero unless it is greater than the lesser of (a) $10 million or
(b) 15% of the fair market value of its assets (with certain adjustments) before
the ownership change.
Section 382(1)(5) of the IRC provides an exception (the "382 Bankruptcy
Exception") to the Annual Limitation where the stockholders and "historic"
creditors receive, in respect of their claims, at least 50% of the vote and
value of the stock of the reorganized debtor. Under this exception, a debtor's
pre-change losses are not limited on an annual basis but, instead, its NOL
carryforwards are required to be reduced by the amount of the debtor's interest
deductions during the three taxable years preceding the taxable year in which
the ownership change occurs and during the portion of the taxable year prior to
and including the reorganization. The ownership change of Intermet on the
Effective Date that results from the issuance of New Common Stock to eligible
Holders of Claims pursuant to the Plan, the purchase of New Common Stock
pursuant to the Rights Offering and/or the Restructuring Commitment Letter, and
the cancellation of Equity Interests in Intermet, may qualify for the 382
Bankruptcy Exception. However, Intermet does not believe that the 382 Bankruptcy
Exception will be advantageous to it and is not expected to make the election.
Accordingly, the Projections assume that the Debtors' pre-change tax attributes
will be subject to the Annual Limitation. If the Debtors determine that the
requirements of the 382 Bankruptcy Exception are met and that it provides
significant tax savings as compared to the Annual Limitation, the Debtors may
choose to apply the 382 Bankruptcy Exception.
3. Alternative Minimum Tax
A federal alternative minimum tax ("AMT") is imposed on a corporation's
alternative minimum taxable income at a 20% tax rate to the extent such tax
exceeds the corporation's regular federal income tax. For purposes of computing
alternative minimum taxable income, certain tax deductions and other beneficial
allowances are modified or eliminated. In particular, even though for regular
tax purposes a corporation might otherwise be able to offset all of its taxable
income by NOL carryovers from prior years, it is generally not allowed to offset
more than 90% of its taxable income for federal AMT purposes by available NOL
carryforwards (as computed for AMT purposes).
If a corporation (or consolidated group) undergoes an "ownership change" within
the meaning of IRC Section 382, the Section 382 rules discussed above (i.e., the
Annual Limitation with 382 Bankruptcy Exception) also apply to its NOL
carryforwards for
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AMT purposes. In addition, if the corporation is in a net unrealized built-in
loss position (as determined for AMT purposes) on the date of the ownership
change, the corporation's (or consolidated group's) tax basis in its assets must
be reduced for certain AMT purposes to reflect the fair market value of such
assets as of the change date. Although not entirely clear, it appears that the
application of this basis reduction to the Debtors would be unaffected by
whether the Debtors otherwise qualify for the 382 Bankruptcy Exception to the
Annual Limitation.
Any AMT tax that a corporation pays is generally allowed as a nonrefundable
credit against its regular federal income tax liability in future taxable years
to the extent the corporation is no longer subject to AMT.
B. U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CERTAIN CLAIMS
The U.S. federal income tax consequences to Holders of Claims arising from the
Distributions to be made under the Plan may vary depending upon, among other
things, the type of consideration received by the Holder in exchange for the
indebtedness it holds, the nature of the indebtedness owing to it, whether the
Holder is a corporation, whether the Holder has previously claimed a bad debt or
worthless security deduction in respect of its Claim, whether such Claim
constitutes a "security" for purposes of the reorganization provisions or other
provisions of the IRC, whether the Holder is a resident of the United States for
tax purposes, whether the Holder reports income on the accrual or cash basis,
and whether the Holder receives Distributions under the Plan in more than one
taxable year. In some cases, the modification of a Claim may represent for tax
purposes an exchange of the Claim for a modified Claim, even though no actual
transfer takes place. In addition, the tax consequences will depend on the
actual implementation of the Plan as a taxable or tax-free reorganization.
1. Recognition Of Gain Or Loss
Under the Plan certain Holders of Impaired Claims will receive New Common Stock
or Cash in exchange for their Claims. In addition, certain Holders of Impaired
Claims will receive the Right to purchase New Common Stock pursuant to the
Rights Offering. It is unclear, as a legal and factual matter, whether the
receipt of the Rights, or the acquisition of New Common Stock pursuant to the
exercise of such Rights, will be deemed to be additional consideration received
in exchange for their Claims. Accordingly, each Holder should consult its own
tax advisor as to whether the Holder is required to take the Rights into account
in computing any gain or loss realized from the Plan. The remainder of this
discussion assumes that the Rights are treated as consideration received in the
exchange.
The receipt of New Common Stock and Rights in exchange for Claims against
Intermet (but not against any subsidiary) that constitute "securities" (within
the meaning of the reorganization provisions of the IRC) pursuant to the Plan
will constitute a recapitalization and a reorganization within the meaning of
Section 368(a)(1)(E) of the IRC. A Holder who receives New Common Stock and
Rights in an exchange qualifying
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as a reorganization will not recognize gain or loss on such exchange, except
that income or loss may be reportable in respect of unpaid interest that accrued
during such Holder's holding period. See Section XIII.B.2., "Distributions in
Discharge of Accrued but Unpaid Interest," for more information. The aggregate
tax basis of New Common Stock and Rights that are received by a Holder in an
exchange treated as a reorganization for tax purposes will equal the Holder's
tax basis in his Claim (allocated between the New Common Stock and the Rights in
proportion to their fair market values), and the holding period of such New
Common Stock and Rights will include the period for which the Holder held the
Claim surrendered in exchange therefor, provided such Claim is held as a capital
asset at the time of the exchange.
There is no precise definition under the tax law of what constitutes a
"security" for purposes of determining whether the receipt of New Common Stock
and Rights under the Rights Offering in exchange for Claims is a
"reorganization", and all facts and circumstances pertaining to the origin and
character of a Claim are relevant in determining its status. A prominent factor
that courts have relied upon in determining whether a debt instrument
constitutes a "security" is the term of the instrument, i.e., the longer the
term of the debt instrument, the more likely it is a "security." Each Holder of
a Claim should consult its own tax advisor to determine whether its Claim
constitutes a "security" for federal income tax purposes and whether
reorganization treatment may be applicable to it.
Each Holder of a Claim who receives New Common Stock and Rights in an exchange
not qualifying as a reorganization (including any Holder of a Claim against a
subsidiary of Intermet), and each Holder of a Claim who receives Cash with
respect to such Claim, will recognize gain or loss equal to the difference
between (i) such Holder's amount realized in respect of its Claim, which is the
amount of Cash and the fair market value of any property (including New Common
Stock and Rights) received by the Holder in satisfaction of its Claim (other
than in respect of any Claim for accrued but unpaid interest) and (ii) the
Holder's adjusted tax basis in its Claim (other than basis attributable to any
Claim for accrued but unpaid interest). See Section XIII.B.2., "Distributions in
Discharge of Accrued but Unpaid Interest," for more information. The tax basis
of New Common Stock and Rights received by a Holder who is required to report
gain or loss under these rules will be the fair market value of such New Common
Stock and Rights on the Effective Date, and the holding period of the New Common
Stock and Rights will commence the day following the Effective Date.
Where gain or loss is recognized by a Holder of a Claim in respect of its Claim,
the character of such gain or loss as long-term or short-term capital gain or
loss or as ordinary income or loss will be determined by a number of factors,
including the tax status of the Holder, whether the Claim constitutes a capital
asset in the hands of the Holder and how long it has been held, whether the
Claim was acquired at a market discount, and whether and to what extent the
Holder can claim a bad debt deduction.
Subject to certain limitations, IRC Section 166 and the regulations thereunder
allow a deduction for a debt which becomes worthless, or in some cases partially
worthless,
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during the year. The amount of the bad debt deduction is limited to the
Creditor's tax basis in the indebtedness underlying the Claim. No deduction is
allowed under IRC Section 166 for a debt evidenced by a "security" as defined in
IRC Section 165(g)(2)(C). Instead, IRC Section 165(g) provides that if a
security which is a capital asset becomes worthless during a year, the loss
resulting therefrom is treated as a loss from the sale or exchange, on the last
day of the taxable year, of a capital asset. For this purpose, the term
"security" is defined in IRC Section 165(g)(2)(C) as a bond, debenture, note, or
certificate, or other evidence of indebtedness, issued by a corporation, with
interest coupons or in registered form. Holders of Claims are urged to consult
their tax advisors with respect to their ability to take a bad debt deduction.
A Holder who purchased its Claim from a prior Holder at a market discount may be
subject to the market discount rules of the IRC, under which gain from the
disposition of the Claim may be characterized as ordinary income to the extent
of the market discount that is deemed to have accrued under those rules.
Holders of General Unsecured Claims are urged to consult their tax advisors to
determine the character of any gain or loss recognized in connection with the
implementation of the Plan.
2. Distributions In Discharge Of Accrued But Unpaid Interest
In general, to the extent that money or property (including New Common Stock and
Rights) received by a Holder of a General Unsecured Claim is received in
satisfaction of interest accrued during its holding period, such amount will be
taxable to the Holder as interest income (if not previously included in the
Holder's gross income). Conversely, such a Holder will recognize a deductible
loss to the extent any accrued interest claimed or amortized OID was previously
included in its gross income and is not paid in full. It is unclear whether a
Holder of a Claim with previously included OID that is not paid in full would be
required to recognize a capital loss, rather than an ordinary loss. Holders of
claims for accrued interest including amortized OID should consult their own tax
advisors.
Pursuant to the Plan, all Distributions in respect of any Claim will be
allocated first to the principal amount of such Claim and thereafter, to accrued
but unpaid interest, if any. However, there is no assurance that such allocation
will be respected by the IRS for federal income tax purposes.
Each Holder of a General Unsecured Claim is urged to consult its tax advisor
regarding the allocation of consideration and the deductibility of previously
included unpaid interest and OID for tax purposes.
3. Exercise Of Rights
A Holder will not recognize gain or loss upon the exercise of Rights. The basis
of the New Common Stock acquired through a Holder's exercise of such Rights will
be equal to the price paid for the New Common Stock acquired by the exercise of
the Rights, plus the
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basis of such Rights, if any. The holding period for the New Common Stock
acquired through the exercise of Rights will begin on the day after the New
Common Stock is acquired.
C. U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF NEW COMMON STOCK
1. U.S. Holders
The following is a description of the principal U.S. federal income tax
consequences that may be relevant with respect to the acquisition, ownership,
and disposition of New Common Stock. This description addresses only the U.S.
federal income tax considerations of Holders that will receive New Common Stock
under the Plan and that will hold such New Common Stock as capital assets. For
purposes of this description, a "U.S. Holder" is a beneficial owner of New
Common Stock that, for U.S, federal income tax purposes, is:
- - a citizen or resident of the United States, including an alien individual
who is a lawful permanent resident of the United States under the
"substantial presence" test set forth in IRC Section 7701(b);
- - a corporation (or other business entity treated as a corporation for U.S.
federal income tax purposes) created or organized in or under the laws of
the United States or any state thereof (including the District of
Columbia);
- - an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- - a trust if (1) the trust validly elects to be treated as a United States
person for U.S. federal income tax purposes or (2) a U.S. court is able to
exercise primary supervision over its administration and one or more United
States persons have the authority to control all of the substantial
decisions of such trust.
A "Non-U.S. Holder" is a beneficial owner of New Common Stock that is not a U.S.
Holder.
If a partnership (or any other entity treated as a partnership for U.S. federal
income tax purposes) holds New Common Stock, the tax treatment of a partner in
such partnership will generally depend on the status of the partner and the
activities of the partnership. Such a partner should consult its tax advisor as
to its tax consequences.
2. Dividends And Other Distributions
The gross amount of any distribution by Reorganized Intermet of Cash or property
with respect to the New Common Stock, other than tax-free stock dividends,
spin-offs, and distributions in redemption of stock or in complete or partial
liquidation, will be includible in income by a U.S. Holder as dividend income
when received or accrued (in
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accordance with the holder's method of accounting) to the extent such
distributions are paid out of the current or accumulated earnings and profits of
Reorganized Intermet as determined under U.S. federal income tax principles. To
the extent, if any, that the amount of any distribution by Reorganized Intermet
exceeds Reorganized Intermet's current and accumulated earnings and profits as
determined under U.S. federal income tax principles, it will be treated first as
a tax-free return of the U.S. Holder's adjusted tax basis in the New Common
Stock and thereafter as gain from an exchange of the stock (which is capital
gain if the stock is held as a capital asset).
Under current law, noncorporate U.S. Holders will be taxed on dividends paid by
Reorganized Intermet in taxable years beginning on or before December 31, 2008
at the lower rates applicable to long-term capital gains if such individuals
satisfy certain holding period and risk requirements. Holders should consult
their own tax advisors regarding the rate at which dividend income will be
taxed, based on their circumstances.
Subject to certain limitations, a corporate U.S. Holder will generally be
eligible for the dividends received deduction, but the benefit of such deduction
may be reduced by the AMT. Corporate U.S. Holders should consult their tax
advisor regarding the availability of, and limitations on, the dividends
received deduction.
Distributions made on New Common Stock held by a Non-U.S. Holder (other than
dividends that are effectively connected to a U.S. trade or business of the
Non-U.S. Holder) will generally be subject to withholding tax at a 30% rate,
subject to reduction under an applicable income tax treaty. In order to obtain a
reduced rate of withholding under a treaty or by virtue of the dividend's
connection with a U.S. trade or business, a Non-U.S. Holder will be required to
provide a properly executed IRS Form W-8BEN certifying its entitlement to the
benefits of the treaty, or W-8ECI certifying its connection with a U.S. trade or
business, which forms must be updated periodically. A Non-U.S. Holder that is
claiming the benefits of an income tax treaty may be required in certain
circumstances to provide a taxpayer identification number or certain documentary
evidence to prove residence in the treaty country.
3. Sale Or Exchange Of Reorganized Intermet Common Stock
A U.S. Holder generally will recognize gain or loss on the sale or exchange of
New Common Stock equal to the difference between the amount realized on such
sale or exchange and the U.S. Holder's adjusted tax basis in the New Common
Stock. Such gain or loss will be capital gain or loss if the stock is held as a
capital asset. However, in any case where a Holder claims a bad debt deduction
under IRC Section 166 or other ordinary loss with respect to the Claim exchanged
for the New Common Stock, or uses the cash method of accounting and does not
include in taxable income the amount that would have been included had the Claim
been paid in full, gain from the subsequent sale or exchange of the New Common
Stock will be "recaptured" as ordinary income to the extent of the previously
allowed deduction or excluded income, reduced in each case by any income
recognized by the Holder on receipt of the New Common Stock in exchange for the
Claim.
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Under current law, the maximum marginal U.S. federal income tax rate applicable
to long term capital gain of a noncorporate U.S. Holder is lower than the
maximum marginal U.S. federal income tax rate applicable to ordinary income
(other than certain dividends) if such U.S. Holder's holding period for such New
Common Stock exceeds one year.
Subject to the discussion in Section XIII.B.4., "Backup Withholding Tax and
Information Reporting Requirements," a Non-U.S. Holder of New Common Stock
generally will not be subject to U.S. federal income or withholding tax on any
gain realized on the sale or exchange of such New Common Stock unless (1) such
gain is effectively connected with the conduct by such Non-U.S. Holder of a
trade or business in the United States, (2) in the case of any gain realized by
an individual Non-U.S. Holder, such Non-U.S. Holder is present in the United
States for 183 days or more in the taxable year of such sale or exchange and
certain other conditions are met, (3) the Non-U.S. Holder is subject to tax
pursuant to the provisions of U.S. tax law applicable to expatriates; or (4)
Reorganized Intermet is or has been a U.S. real property holding corporation
within the meaning of IRC Section 897 within the shorter of the five-year period
preceding the sale, exchange or other disposition of the New Common Stock or the
period the Non-U.S. Holder held the New Common Stock. It is not anticipated that
Reorganized Intermet will be treated as a U.S. real property holding corporation
for U.S. federal income tax purposes.
If a Non-U.S. Holder of New Common Stock is engaged in a trade or business in
the United States, and gain from the sale of New Common Stock is effectively
connected with the conduct of that trade or business, the Non-U.S. Holder may be
subject to tax on such gain in the same manner as a U.S. Holder. Non-U.S.
Holders should consult their tax advisors with regard to U.S. taxation of gain
from the sale of New Common Stock.
4. Backup Withholding Tax And Information Reporting Requirements
United States backup withholding tax and information reporting requirements
generally apply to certain payments to certain noncorporate Holders of Intermet
common stock or Claims. Information reporting generally will apply to payments
under the Plan of interest, compensation and other reportable payments to
Holders of Claims, and payments of dividends on or proceeds from the sale or
redemption of, New Common Stock made within the United States to a Holder of New
Common Stock or a Holder of a Claim, other than an exempt recipient, such as a
corporation or non-United States Person that provides an appropriate
certification. A payor will be required to withhold backup withholding tax from
any such payment to a Holder, if the Holder fails to furnish its correct
taxpayer identification number or otherwise fails to comply with, or establish
an exemption from, such backup withholding tax requirements. The backup
withholding tax rate is 28% for years 2003 through 2010.
In the case of such payments made within the United States to a foreign simple
trust, a foreign grantor trust or a foreign partnership (other than payments to
a foreign simple trust, a foreign grantor trust or a foreign partnership that
qualifies as a "withholding foreign trust" or a "withholding foreign
partnership" within the meaning of certain U.S. Treasury Regulations) that are
not effectively connected with the conduct of a trade or
142
business in the United States, the beneficiaries of the foreign simple trust,
the persons treated as the owners of the foreign grantor trust, or the partners
of the foreign partnership, as the case may be, will be required to provide the
certification discussed above in order to establish an exemption from backup
withholding tax and information reporting requirements. Moreover, a payor may
rely on a certification provided by a payee that is not a United States Person
only if such payor does not have actual knowledge or a reason to know that any
information or certification stated in such certificate is incorrect.
5. Importance Of Obtaining Professional Tax Advice
THE FOREGOING DISCUSSION IS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE
USED BY ANY PERSON, FOR THE PURPOSE OF AVOIDING FEDERAL TAX PENALTIES THAT MAY
BE IMPOSED ON ANY TAXPAYER. THIS DISCUSSION WAS WRITTEN TO SUPPORT THE PROMOTION
OR MARKETING OF THE MATTERS ADDRESSED HEREIN. THE FOREGOING IS INTENDED TO BE
ONLY A SUMMARY OF CERTAIN OF THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
OF THE PLAN AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX
PROFESSIONAL. THE FEDERAL, STATE, AND LOCAL INCOME AND OTHER TAX CONSEQUENCES OF
THE PLAN ARE COMPLEX AND UNCERTAIN AND MAY VARY BASED ON THE INDIVIDUAL
CIRCUMSTANCES OF EACH HOLDER OF A CLAIM. ACCORDINGLY, EACH HOLDER OF A CLAIM OR
EQUITY INTEREST IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISOR REGARDING
THE FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES UNDER
THE PLAN BASED ON ITS OWN PARTICULAR CIRCUMSTANCES.
XIV. FEASIBILITY OF THE PLAN AND THE BEST INTERESTS OF CREDITORS TEST
A. FEASIBILITY OF THE PLAN
In connection with Confirmation of the Plan, Section 1129(a)(11) of the
Bankruptcy Code requires that the Bankruptcy Court find that Confirmation of the
Plan is not likely to be followed by the liquidation or the need for further
financial reorganization of the Debtors, unless proposed by the Plan. This is
the so-called "feasibility" test. The Debtors believe that with a de-leveraged
capital structure their businesses will return to viability. The decrease in the
amount of debt on Reorganized Intermet's balance sheet will significantly reduce
interest expense and principal requirements. Based on the terms of the Plan, at
emergence Reorganized Intermet will have approximately $190 million of debt,
including amounts funded under the Exit Financing Facility, in contrast to more
than $400 million of debt prior to the restructuring (before considering accrued
interest).
As described in detail in Section IX, "Effect Of Confirmation And Implementation
Of The Plan," the Reorganized Debtors will enter into, on the Effective Date,
the Exit
143
Financing Facility in order to repay in full the DIP Facility Claims and to make
other payments required to be made on the Effective Date. The Debtors initiated
discussions with potential exit lenders in early 2005 and received initial
proposals for the financing by such exit lenders in March. As of the date of
publication of this Disclosure Statement, the Debtors have received unexecuted
commitments from two lenders for a fully underwritten transaction of at least
$260 million for the Exit Financing Facility, not all of which the Debtors
expect to be drawn on the Effective Date, as indicated in the Projections. Both
commitment letters contain, as conditions precedent to funding, clauses
requiring the Debtors to obtain $75 million of financing through the Rights
Offering.
To support their belief in the feasibility of the Plan, the Debtors have
prepared the Projections for the period from 2005 through 2009. The
Professionals have not performed an independent investigation of the accuracy or
completeness of such financial Projections and disclaim any responsibility for
or liability with respect to such Projections. SEE EXHIBIT G - "PROJECTED
FINANCIAL INFORMATION FOR THE REORGANIZED DEBTORS."
The Projections indicate that Reorganized Intermet should have sufficient cash
flow to make the payments required under the Plan on the Effective Date and to
repay and service its post-Confirmation debt obligations and to maintain its
operations during this period. Accordingly, the Debtors believe that the Plan
complies with the standard of Section 1129(a)(11) of the Bankruptcy Code. As
noted in the Projections, however, the Debtors caution that no representations
can be made as to the accuracy of the Projections or as to Reorganized
Intermet's ability to achieve the projected results. Many of the assumptions
upon which the Projections are based are subject to uncertainties outside of the
control of the Debtors. Some assumptions inevitably will not materialize, and
events and circumstances occurring after the date on which the Projections were
prepared may be different from those assumed or may be unanticipated, and may
adversely affect the Debtors' financial results. As discussed elsewhere in this
Disclosure Statement, there are numerous circumstances that may cause actual
results to vary from the projected results, and the variations may be material
and adverse. SEE SECTION XII - "CERTAIN FACTORS TO BE CONSIDERED" for a
discussion of certain risk factors that may affect financial feasibility of the
Plan.
THE PROJECTIONS ARE QUALIFIED BY AND SUBJECT TO THE ASSUMPTIONS SET FORTH HEREIN
AND THE OTHER INFORMATION CONTAINED HEREIN. THE PROJECTIONS WERE NOT PREPARED
WITH A VIEW TOWARD COMPLIANCE WITH THE GUIDELINES ESTABLISHED BY THE SEC, AICPA
OR ANY OTHER REGULATORY OR PROFESSIONAL AGENCY OR BODY, GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES OR CONSISTENCY WITH THE AUDITED FINANCIAL STATEMENTS
REFERENCED IN THIS DISCLOSURE STATEMENT. FURTHERMORE, THE PROJECTIONS HAVE NOT
BEEN, AND WILL NOT BE, AUDITED BY THE DEBTORS' INDEPENDENT CERTIFIED
ACCOUNTANTS. ALTHOUGH PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE
BASED ON A VARIETY
144
OF ASSUMPTIONS, SOME OF WHICH HAVE NOT BEEN ACHIEVED TO DATE AND MAY NOT BE
REALIZED IN THE FUTURE, AND ARE SUBJECT TO SIGNIFICANT BUSINESS, LITIGATION,
ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE
BEYOND THE CONTROL OF THE DEBTORS. CONSEQUENTLY, THE PROJECTIONS SHOULD NOT BE
REGARDED AS A REPRESENTATION OR WARRANTY BY THE DEBTORS, OR ANY OTHER PERSON,
THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL RESULTS MAY VARY MATERIALLY FROM
THOSE PRESENTED IN THE PROJECTIONS. THE PROJECTIONS SHOULD BE READ TOGETHER WITH
THE INFORMATION CONTAINED UNDER THE HEADINGS "OPERATIONS OF THE DEBTORS," AND
"CERTAIN FACTORS TO BE CONSIDERED," AND THE OTHER INFORMATION CONTAINED IN
EXHIBITS G & H -"PROJECTED FINANCIAL INFORMATION FOR THE REORGANIZED DEBTORS"
AND "SELECTED HISTORICAL FINANCIAL INFORMATION."
B. BEST INTERESTS TEST
Even if the Plan is accepted by each class of Claims, the Bankruptcy Code
requires that the Bankruptcy Court find that the Plan is in the best interests
of all Classes of Creditors and Equity Interest Holders. The "best interests"
test requires that the Bankruptcy Court find either that all members of an
Impaired Class of Claims or Equity Interests have accepted the Plan or that the
Plan will provide each member who has not accepted the Plan with a recovery of
property of a value, as of the Effective Date of the Plan, that is not less than
the amount that such Holder would receive or retain if the Debtors were
liquidated under Chapter 7 of the Bankruptcy Code.
To calculate the Distribution to members of each Impaired Class of Holders of
Claims and Interests if the Debtors were liquidated, the Bankruptcy Court must
first determine the aggregate dollar amount that would be generated from the
Debtors' assets if the Cases were converted to Chapter 7 cases under the
Bankruptcy Code. This "liquidation value" would consist primarily of the
proceeds from a sale of the Debtors' Assets by a Chapter 7 trustee and the cash
held by the Debtors at the time of the commencement of the Chapter 7 cases.
The amount of liquidation value generated from the liquidation of the Debtors'
Assets and properties would be reduced by the amount of any Claims secured by
such Assets and the costs and expenses of liquidation, as well as by other
administrative expenses and costs (including any break-up or termination fees
approved by the Bankruptcy Court) of both the Chapter 7 cases and the Chapter 11
Cases. Costs of liquidation under Chapter 7 of the Bankruptcy Code would include
the compensation of a trustee, as well as of counsel and other professionals
retained by the trustee, asset disposition expenses, all unpaid expenses
incurred by the Debtors in the Cases (such as compensation of attorneys,
financial advisors and accountants) that are allowed in the Chapter 7 cases and
litigation costs and claims arising from the operations of the Debtors during
the pendency of the Cases. The liquidation itself could trigger certain priority
payments that otherwise would be due in the ordinary course of business. The
priority claims which may arise in liquidation cases would be paid in full from
the liquidation proceeds before the balance
145
would be made available to pay pre-Chapter 11 priority and general Claims or to
make any distribution in respect of equity interests. The liquidation would also
prompt the rejection of any Executory Contracts and unexpired leases and thereby
create higher amounts of General Unsecured Claims.
In applying the "best interests" test, it is possible that Claims and Interests
in the Chapter 7 cases may not be classified according to the seniority of such
Claims and Interests as provided in the Plan. In the absence of a contrary
determination by the Bankruptcy Court, all pre-Chapter 11 unsecured Claims which
have the same rights upon liquidation would be treated as one Class for purposes
of determining the potential distributions of the liquidation proceeds resulting
from the Debtors' Chapter 7 cases. The distributions from the liquidation
proceeds would be calculated ratably according to the amount of the Claim held
by each Creditor. Therefore, Creditors who claim to be third-party beneficiaries
of any contractual subordination provisions might be required to seek to enforce
such contractual subordination provisions in the Bankruptcy Court or otherwise.
Section 510(a) of the Bankruptcy Code provides that subordination agreements are
enforceable in a bankruptcy case to the same extent that such subordination is
enforceable under applicable non-bankruptcy law. Therefore, no Class of Claims
that is contractually subordinated to another Class would receive any payment on
account of its Claims, unless and until such senior Class were paid in full.
Once the Bankruptcy Court ascertains the recoveries in liquidation of secured
Creditors and priority claimants, it must determine the probable distribution to
General Unsecured Creditors from the remaining available proceeds in
liquidation. If such probable distribution has a value greater than the
Distributions to be received by such Creditors under the Plan, then the Plan is
not in the best interests of Creditors and cannot be confirmed by the Bankruptcy
Court. As shown in the Liquidation Analysis, the Debtors currently believe that
each Holder of Claims in an Impaired Class will likely receive at least as much
under the Plan as they would receive if the Debtors were liquidated, and that
the Plan should therefore meet the requirements of Section 1129(a)(7) of the
Bankruptcy Code.
C. CHAPTER 7 LIQUIDATION ANALYSIS
As noted above, the Debtors believe that under the Plan all Claims against any
of the Debtors will receive property with a value not less than the value such
Holder would receive in a liquidation of the Debtors under Chapter 7 of the
Bankruptcy Code. The Debtors' belief is based primarily on:
(i) consideration of the effects that a Chapter 7 liquidation would have on the
ultimate proceeds available for Distribution to Holders of Claims and Equity
Interests, including:
- - The increased costs and expenses of a liquidation under Chapter 7 arising
from fees payable to a Chapter 7 trustee and professional advisors to the
trustee, all of which take priority over Chapter 11 expenses
146
- - The erosion in value of assets in a Chapter 7 case in the context of the
rapid liquidation required under Chapter 7 and the "forced sale" atmosphere
that would prevail,
- - The adverse effects on the Debtors' businesses as a result of the likely
departure of key employees and the probable loss of customers,
- - The substantial increases in Claims, such as estimated contingent Claims,
which would be satisfied on a priority basis or on parity with existing
Claims against the Debtors, and
- - The substantial delay in Distributions to the Holders of Claims and Equity
Interests that would likely ensue in a Chapter 7 liquidation; and
(ii) the Liquidation Analysis prepared by the Debtors and described below, which
is attached hereto as Exhibit F.
The Liquidation Analysis is provided solely to discuss the effects of a
hypothetical Chapter 7 liquidation of the Debtors and is subject to the
assumptions set forth herein. The Liquidation Analysis has not been
independently audited or verified and there can be no assurance that such
assumptions would be accepted by the Bankruptcy Court.
The Liquidation Analysis reflects the estimated cash proceeds, net of
liquidation-related costs, that would be available to Creditors if the Debtors
were liquidated in Chapter 7 proceedings. Underlying the Liquidation Analysis
are a number of estimates and assumptions that, although developed and
considered reasonable by the Debtors' management and Lazard, are inherently
subject to significant business, economic and competitive uncertainties and
contingencies beyond the control the Debtors and their management. Accordingly,
while the Liquidation Analysis is necessarily presented with numerical
specificity, there can be no assurance that the values assumed would be realized
if the Debtors were in fact liquidated, nor can there be any assurance that the
Bankruptcy Court would accept this analysis or concur with such assumptions in
making its determinations under Section 1129(a) of the Bankruptcy Code. Because
the actual proceeds from the liquidation of the Debtors could be materially
lower or higher than the amounts set forth below, no representation or warranty
can be or is being made with respect to the actual proceeds that could be
received in a Chapter 7 liquidation of the Debtors. The Liquidation Analysis was
prepared solely for purposes of estimating proceeds available in Chapter 7
liquidations of the Estates and does not represent values that may be
appropriate for any other purpose. Nothing contained in these valuations is
intended to or may constitute a concession or admission of the Debtors for any
other purpose. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE VALUES REFLECTED
IN THE LIQUIDATION ANALYSIS WOULD BE REALIZED IF THE DEBTORS WERE, IN FACT, TO
UNDERGO SUCH A LIQUIDATION, AND ACTUAL RESULTS COULD VARY MATERIALLY FROM THOSE
SHOWN HERE.
The table in Exhibit F details the computation of the Debtors' liquidation value
and the estimated distributions to Holders of Impaired Claims in a Chapter 7
liquidation of the
147
Debtors. The Liquidation Analysis was prepared by Lazard and the Debtors'
management based upon the Debtors' North American unaudited balance sheets of
each of the Debtors as of December 31, 2004. The Liquidation Analysis assumes
that the actual December 31, 2004, balance sheets, on which the analysis is
based, is a proxy for the balance sheets on the date on which a liquidation
would commence. The Liquidation Analysis also assumes that the liquidation of
the Debtors would be shepherded by a Bankruptcy Court-appointed trustee and
would continue for approximately six to nine months (the "Liquidation Period"),
during which time all of the Debtors' major Assets would either be sold or
conveyed to the respective Lien Holders and the cash proceeds, net of
liquidation-related costs, would be distributed to Creditors. Although some of
the Debtors' assets might be liquidated during a shorter period of time, other
assets may be more difficult to collect or sell, thus expanding the Liquidation
Period.
During the Liquidation Period, the Debtors' receivables would be collected and
other assets would be sold in a commercially reasonable manner. If the Debtors
failed to perform under existing contracts, massive setoffs would ensue. In the
Liquidation Analysis, the liquidation values of certain assets were determined
by general classes of assets by disposition. The Liquidation Analysis was
performed on the Debtors' North American operations, and assumes that
liquidation proceeds would be distributed in accordance with Bankruptcy Code
Sections 726 and 1129(b). The Liquidation Analysis does not assume proceeds from
recoveries of any Avoidance Actions or other Causes of Action. The Liquidation
Analysis does not assume proceeds from recoveries resulting from bank Liens on
assets held outside of the Debtors and its subsidiaries. Additionally, the
Liquidation Analysis does not assume proceeds from litigation which may provide
awards in favor of the Debtors. These claims could have substantial value.
In summary, subject to all of the assumptions, conditions, and limitations set
forth above, the Debtors believe that Chapter 7 liquidations of the Debtors
could result in a diminution in the value to be realized by the Holders of
Claims and, as set forth in the table found in Exhibit F, the Debtors'
management estimates that in a liquidation, the Holders of General Unsecured
Claims would not receive distributions on such claims.
XV. SOLICITATION OF THE PLAN
A. PARTIES IN INTEREST ENTITLED TO VOTE
Under Section 1124 of the Bankruptcy Code, a class of claims or interests is
deemed to be "impaired" under a plan unless (i) the plan leaves unaltered the
legal, equitable, and contractual rights to which such claim or interest
entitles the holder thereof or (ii) notwithstanding any contractual provision or
applicable law that entitles the holder of such claim or interest to demand or
receive accelerated payment of such claim or interest, the plan cures all
existing defaults (other than defaults resulting from the occurrence of the
bankruptcy); reinstates the maturity of such claim or interest as it existed
before the default; compensates the holder of such claim or interest for any
damages incurred as a result of any reasonable reliance by such holder on such
contractual provision or such applicable law; and does not otherwise alter the
legal, equitable, or contractual rights to which such claim or interest entitles
the holder of such claim or interest.
148
Generally, subject to other restrictions of the Bankruptcy Code and the
procedures approved by the court with respect to solicitation of confirmation of
the plan, a holder of a claim or equity interest may vote to accept or to reject
a plan if (i) the claim or interest is "allowed," which means generally that no
party in interest has objected to such claim or interest, and (ii) the claim or
interest is impaired by the plan. If, however, the holder of an impaired claim
or interest will not receive or retain any distribution under the plan on
account of such claim or interest, the Bankruptcy Code deems such holder to have
rejected the plan, and, accordingly, holders of such claims and interests do not
actually vote on the plan. If a claim or interest is not impaired by the plan,
the Bankruptcy Code deems the holder of such claim or interest to have accepted
the plan and, accordingly, holders of such claims and interests are not entitled
to vote on the plan.
By signing and returning the Ballot, each Holder of a Class 3a, 4, 4a, 4b, 4c or
5 Claim will also be confirming that (i) such Holder and/or legal and financial
advisors acting on its behalf has had the opportunity to ask questions of and
receive answers from the Debtors concerning the terms of the Plan, the
businesses of the Debtors and other related matters, (ii) the Debtors have made
available to such Holder or its agents all documents and information relating to
the Plan and related matters reasonably requested by or on behalf of such
Holder, (iii) except for information provided by the Debtors in writing, and by
its own agents, such Holder has not relied on any statements made or other
information received from any person with respect to the Plan; and (iv) if such
Creditor elects to receive New Common Stock, they agree to be bound by the
Stockholders' Agreement as described in Section II.B., above.
By signing and returning the Ballot each Holder of a Class 4, 4a, 4b, 4c or 5
Claim also acknowledges that the securities being offered pursuant to the Plan
are not being offered pursuant to a registration statement filed with the SEC
and represents that any such securities will be acquired for its own account and
not with a view to any distribution of such securities in violation of the
Securities Act. It is expected that when issued pursuant to the Plan such
securities will be exempt from the registration requirements of the Securities
Act by virtue of Section 1145 of the Bankruptcy Code and may be resold by the
holders thereof subject to the provisions of such Section 1145 and the
Stockholders' Agreement.
B. CLASSES IMPAIRED UNDER THE PLAN
Pursuant to Section 1126 of the Bankruptcy Code, Classes 3a, 4, 4a, 4b, 4c, and
5 are entitled to vote to accept or reject the Plan. Further, pursuant to
Section 1126 of the Bankruptcy Code, each Unimpaired Class of Claims (Classes 1,
2, 3 and 6a) is deemed to have accepted the Plan and, therefore, is not entitled
to vote to accept or reject the Plan. In addition, because Holders of Class 6b
Impaired Equity Interests will not receive or retain any property under the Plan
on account of their interests, Holders of Class 6b Claims are deemed to have
rejected the Plan and are not entitled to vote.
149
C. WAIVERS OF DEFECTS, IRREGULARITIES, ETC.
Unless otherwise directed by the Bankruptcy Court, all questions as to the
validity, form, eligibility (including time of receipt), acceptance, and
revocation or withdrawal of Ballots will be determined by the Balloting Agents
and the Debtors in their sole discretion, which determination will be final and
binding. As indicated below under "Withdrawal of Ballots; Revocation," effective
withdrawals of Ballots must be delivered to the Balloting Agent prior to the
Voting Deadline. The Debtors reserve the absolute right to contest the validity
of any such withdrawal. The Debtors also reserve the right to reject any and all
Ballots not in proper form, the acceptance of which would, in the opinion of the
Debtors or their counsel, be unlawful. The Debtors further reserve the right to
waive any defects or irregularities or conditions of delivery as to any
particular Ballot. The interpretation (including the Ballot and the respective
instructions thereto) by the Debtors, unless otherwise directed by the
Bankruptcy Court, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with deliveries of Ballots must be cured
within such time as the Debtors (or the Bankruptcy Court) determine. Neither the
Debtors nor any other person will be under any duty to provide notification of
defects or irregularities with respect to deliveries of Ballots nor will any of
them incur any liabilities for failure to provide such notification. Unless
otherwise directed by the Bankruptcy Court, delivery of such Ballots will not be
deemed to have been made until such irregularities have been cured or waived.
Ballots previously furnished (and as to which any irregularities have not
theretofore been cured or waived) will be invalidated.
D. WITHDRAWAL OF BALLOTS; REVOCATION
Any party who has delivered a valid Ballot for the acceptance or rejection of
the Plan may withdraw such acceptance or rejection by delivering a written
notice of withdrawal to the Balloting Agent at any time prior to the Voting
Deadline. A notice of withdrawal, to be valid, must (i) contain the description
of the Claim(s) to which it relates and the aggregate principal amount
represented by such Claim(s), (ii) be signed by the withdrawing party in the
same manner as the Ballot being withdrawn, (iii) contain a certification that
the withdrawing party owns the Claim(s) and possesses the right to withdraw the
vote sought to be withdrawn and (iv) be received by the Balloting Agents in a
timely manner at the address set forth below. The Debtors intend to consult with
the Balloting Agent to determine whether any withdrawals of Ballots were
received and whether the requisite acceptances of the Plan have been received.
As stated above, the Debtors expressly reserve the absolute right to contest the
validity of any such withdrawals of Ballots.
Unless otherwise directed by the Bankruptcy Court, a purported notice of
withdrawal of Ballots which is not received in a timely manner by the applicable
Balloting Agent will not be effective to withdraw a previously cast Ballot.
Any party who has previously submitted to the applicable Balloting Agent prior
to the Voting Deadline a properly completed Ballot may revoke such Ballot and
change his or its vote by submitting to such Balloting Agent prior to the Voting
Deadline a subsequent properly completed ballot for acceptance or rejection of
the Plan. In the case where more
150
than one timely, properly completed Ballot is received, only the Ballot which
bears the latest date of receipt by the Balloting Agent will he counted for
purposes of determining whether the requisite acceptances have been received.
E. FURTHER INFORMATION; ADDITIONAL COPIES
1. HOLDERS OF IMPAIRED CLAIMS
If you have any questions or require further information about the voting
procedure or voting your Claim or about the packet of material you received, or
if you wish to obtain an additional copy of the Plan, the Disclosure Statement,
or any exhibits or appendices to such documents (at your own expense, unless
otherwise specifically required by Bankruptcy Rule 3017(d)), please contact the
applicable Balloting Agent, i.e., IF YOU ARE NOT A NOTEHOLDER, CONTACT JP MORGAN
AT (904) 807-3023 AND IF YOU ARE A NOTEHOLDER, CONTACT FINANCIAL BALLOTING GROUP
AT (646) 282-1800.
XVI. CONCLUSION
THE DEBTORS AND THE CREDITORS' COMMITTEE BELIEVE THAT THE PLAN REPRESENTS THE
MOST VALUE TO THE DEBTORS' CREDITORS. THEY URGE EACH CREDITOR TO VOTE IN FAVOR
OF THE PLAN. BASED ON THE SETTLEMENT DESCRIBED IN SECTION VIII.A. OF THIS
DISCLOSURE STATEMENT, THE AD HOC COMMITTEE ALSO SUPPORTS THE PLAN.
(signatures start on next page)
DATED: AUGUST 12, 2005
151
Signature Pages For Amended Disclosure Statement Of Intermet Corporation
And Certain Of Its Domestic Subsidiaries Dated August 12, 2005
INTERMET CORPORATION,
a Georgia corporation
By: /s/ Gary Ruff
-----------------------------
Its: Chairman & CEO
ALEXANDER CITY CASTING COMPANY, INC.,
an Alabama corporation
By: /s/ Alan J. Miller
-----------------------------
Its: Vice President
CAST-MATIC CORPORATION,
a Michigan corporation
By: /s/ Alan J. Miller
-----------------------------
Its: Vice President
COLUMBUS FOUNDRY, L.P.,
a Delaware limited partnership
By: /s/ Alan J. Miller
-----------------------------
Its: Vice President, Intermet U.S.
Holding, Inc.,
General Partner
DIVERSIFIED DIEMAKERS, INC.,
a Delaware corporation
By: /s/ Alan J. Miller
-----------------------------
Its: Vice President
GANTON TECHNOLOGIES, INC.,
an Illinois corporation
By: /s/ Alan J. Miller
-----------------------------
Its: Vice President
Signature Pages For Amended Disclosure Statement Of Intermet Corporation
And Certain Of Its Domestic Subsidiaries Dated August 12, 2005
INTERMET HOLDING COMPANY,
a Delaware corporation
By: /s/ Alan J. Miller
----------------------------
Its: Vice President
INTERMET ILLINOIS, INC.,
an Illinois corporation
By: /s/ Alan J. Miller
----------------------------
Its: Vice President
INTERMET INTERNATIONAL, INC.,
a Georgia corporation
By: /s/ Alan J. Miller
----------------------------
Its: Vice President
INTERMET U.S. HOLDING, INC.,
a Delaware corporation
By: /s/ Alan J. Miller
----------------------------
Its: Vice President
IRONTON IRON, INC.,
an Ohio corporation
By: /s/ Alan J. Miller
----------------------------
Its: Vice President
LYNCHBURG FOUNDRY COMPANY,
a Virginia corporation
By: /s/ Alan J. Miller
----------------------------
Its: Vice President
Signature Pages For Amended Disclosure Statement Of Intermet Corporation
And Certain Of Its Domestic Subsidiaries Dated August 12, 2005
NORTHERN CASTINGS CORPORATION,
a Georgia corporation
By: /s/ Alan J. Miller
----------------------------
Its: Vice President
SUDBURY, INC.,
a Delaware corporation
By: /s/ Alan J. Miller
----------------------------
Its: Vice President
SUDM, INC.,
a Michigan corporation
By: /s/ Alan J. Miller
----------------------------
Its: Vice President
TOOL PRODUCTS, INC.,
a Delaware corporation
By: /s/ Alan J. Miller
----------------------------
Its: Vice President
WAGNER CASTINGS COMPANY,
a Delaware corporation
By: /s/ Alan J. Miller
----------------------------
Its: Vice President
WAGNER HAVANA, INC.,
a Delaware corporation
By: /s/ Alan J. Miller
----------------------------
Its: Vice President
EXHIBIT A
DEBTORS' AMENDED PLANS OF REORGANIZATION
Please See Exhibit 99.1 to this Form 8-K.
EXHIBIT B
CORPORATE STRUCTURE CHART
EXHIBIT B 1
POST-EMERGENCE CORPORATE STRUCTURE CHART
INTERMET CORPORATION
DOMESTIC STRUCTURE - POST EMERGENCE
[FLOW CHART]
EXHIBIT C
LIST OF DEBTORS' PROPERTIES
Ferrous Metals Segment
Owned/ Approximate Approximate
Name Location Leased Type of Products Square Footage Land Area
- -------------------- -------------- ------ --------------------- -------------------------------------- -----------
Archer Creek Foundry Lynchburg, VA Owned Ductile Iron Castings 234,000 sq. ft. manufacturing facility 184 acres
19,000 sq. ft. office space
110,000 sq. ft. warehouse space
Columbus Foundry Columbus, GA Leased Ductile Iron Castings 235,000 sq. ft. manufacturing facility 9 acres
Columbus Machining Midland, GA Owned Machined & Assembled 109,000 sq. ft. manufacturing facility 40 acres
Components
Decatur Foundry Decatur, IL Owned Ductile Iron Castings 373,000 sq. ft. manufacturing facility 30 acres
Hibbing Foundry Hibbing, MN Owned Ductile Iron Castings 47,000 sq. ft. manufacturing facility 11 acres
Neunkirchen Foundry Neunkirchen, Owned Ductile Iron Castings 237,000 sq. ft. manufacturing facility 16 acres
Germany
New River Foundry Radford, VA Owned Ductile Iron Castings 176,000 sq. ft. manufacturing facility 35 acres
Porto Foundry Maia, Portugal Owned Iron Castings 217,000 sq. ft. manufacturing facility 12 acres
Ueckermunde Foundry Ueckermunde, Owned Ductile and Gray Iron 134,000 sq. ft. manufacturing facility 13 acres
Germany Castings
Light Metals Segment
Owned/ Approximate Approximate
Name Location Leased Type of Products Square Footage Land Area
- ------------------ --------------- ------ ---------------------------- --------------------------------------- -----------
Hannibal Plant Hannibal, MO Owned Magnesium Die Castings 58,000 sq. ft. manufacturing facility 20 acres
Jackson Plant Jackson, TN Leased Precision-Engineered, Close- 120,000 sq. ft. manufacturing facilities 23 acres
Tolerance, Aluminum Die (2 buildings)
Castings
Minneapolis Minneapolis, MN Owned Precision-Engineered, Close- 98,000 sq. ft. manufacturing facility 9 acres
Tolerance, Aluminum Die
Castings
Monroe City Plant Monroe City, MO Owned Aluminum and Zinc Die 140,000 sq. ft. manufacturing facilities 23 acres
Castings (multiple buildings)
Paimyra Plant Paimyra, MO Owned Magnesium Die Castings 164,000 sq. ft. manufacturing facility 15 acres
Pulaski Plant Pulaski, TN Owned Aluminum Die Castings 115,000 sq. ft. manufacturing facility 25 acres
Racine Machining Racine, WI Owned Machined and Assembled 155,000 sq. ft. manufacturing facility 60 acres
Components 24,000 sq. ft. office building (vacant)
Racine Plant Racine, WI Owned Aluminum Die Castings 178,000 sq. ft. manufacturing facility 17 acres
Stevensville Plant Stevensville, MI Owned Aluminum Pressure/ 58,000 sq. ft. manufacturing facility 3 acres
Counter-Pressure Castings
Other
Owned/ Approximate Approximate
Name Location Leased Operations Square Footage Land Area
- ------------------------ --------------- ------ -------------------------- ------------------------------------- -----------
Central Pattern Shop Lynchburg, VA Owned Pattern Construction and 17,000 sq. ft. manufacturing facility
Maintenance
Flight Operations Waterford, MI Leased Office/Hangar Facility
Executive Offices Troy, MI Leased Corporate Headquarters 33,000 sq. ft. office facility
(Until approximately
10/31/05)
Executive Offices (after Troy, MI Leased Corporate Headquarters 35,619 sq. ft. office facility
approximately 10/31/05)
Europe Headquarters Saarbrucken, Leased European Corporate Offices 8,000 sq. ft. office facility
Germany
Former Addison Plant Addison, IL Owned Former Addison Plant 47,000 sq. ft. vacant manufacturing 2 acres
facility
Former Alexander City Alexander City, Owned Former Alexander City Vacant 9 acres
Plant AL Plant
Former Ironton Ironton, OH Owned Former Ironton Foundry 25,000 sq. ft. vacant office facility 25 acres
Foundry
Former Radford Radford, VA Owned Former Radford Foundry Vacant 113 acres
Foundry
Management Columbus, GA Leased Offices & Data Center 10,000 sq. ft. office facility
Information Systems
Research Foundry Lynchburg, VA Owned Research Facility 10,000 sq. ft. research building
Owned/ Approximate Approximate
Name Location Leased Operations Square Footage Land Area
- ------------------------ --------------- ------ -------------------------- -------------------------------------- -----------
Technical Center Lynchburg, VA Leased Design & Engineering, 22,000 sq. ft. office/testing facility
Technical Support
EXHIBIT D
LIST OF PENDING LITIGATION
CASE CAPTION DESCRIPTION DEBTORS
- ------------------------------- ----------------------------------------- -----------------------
Compass Bank v. Intermet Action to recover possession of Intermet Corporation
Corporation machining center by a bank alleging a
Muscogee County, Georgia. lien that has priority over the
purchaser.
Factory Mutual Insurance v. Claim by subrogated insurer of a Intermet Corporation,
Intermet International, customer for damages of approximately Intermet International,
Inc.,et al. $2.2 million for breach of contract for Inc.
U.S. District Court for the failure to deliver product.
Western District of Virginia
Intermet v. American Axle, Complaint for declaratory judgment that Intermet Corporation,
et al. no amounts are owing in the above- Intermet International,
Oakland County, Mi. described case titled Factory Mutual Inc.
Insurance v. Intermet International, Inc.
Lemelson Foundation v. Butler Claim for patent infringement of bar Intermet Corporation
Mfg., et al. coding and machine vision patents.
U.S. District Court for the
District of Arizona.
Parrish, Inc. v. Intermet Complaint to recover alleged Intermet Corporation
Corporation transportation costs of approximately
St. Clair County, Illinois $65,000 incurred by plaintiff trucking
company.
Spanhook v. Intermet Injury claim by employee of contractor Intermet Corporation,
Corporation due to condition of premises. Wagner-Havana, Inc.
Macon County, Illinois
Merchut v. Frisby P.M.C., Inc. Complaint alleging age and national Intermet Corporation,
U.S. District Court for the origin discrimination. Intermet Illinois, Inc.
Northern District of Illinois
CASE CAPTION DESCRIPTION DEBTORS
- ------------------------------- ----------------------------------------- -----------------------
Ramos v. Intermet Corporation, Complaint alleging sexual harassment. Intermet Corporation,
et al. Northern Castings
U.S. District Court for the Corporation
District of Minnesota
Moore, et al. v. Airco, Inc., et Complaint alleging injury due to asbestos Lynchburg Foundry
al. exposure. Company
Fulton County, Ga.
Colopy, et al. v. Intermet Age discrimination complaint brought by Intermet Corporation,
Corporation two employees. Intermet International,
U.S. District Court for the Inc.
Middle District of Georgia
Huffman v. Frisby P.M.C., Complaint for alleged wrongful Intermet Corporation,
Incorporated, et al. termination. Intermet Illinois, Inc.
Cook County, Illinois
UAW v. Cast-Matic Appeal to National Labor Relations Cast-Matic
National Labor Relations Board Board from administrative law judge Corporation
decision granting bargaining order in
favor of UAW.
UAW v. Cast-Matic Unfair labor practice charges. Cast-Matic
National Labor Relations Board Corporation
Edwards, et al. v. Air Products Alleged injury due to exposure to Intermet Corporation,
and Chemicals, Inc., et al. benzene. Wagner Castings
Madison County, Illinois Company
Johnson v. Air Products and Alleged injury due to exposure to Intermet Corporation,
Chemicals, Inc., et al. benzene. Wagner Castings
Madison County, Illinois Company
CASE CAPTION DESCRIPTION DEBTORS
- ------------------------------- ----------------------------------------- -----------------------
McDonald, et al. v. Air Alleged injury due to exposure to Intermet Corporation,
Products and Chemicals, Inc., benzene. Wagner Castings
et al. Company
Madison County, Illinois
O'Brien, et al. v. Alleged injury due to exposure to Intermet Corporation,
Air Products and benzene. Wagner Castings
Chemicals, Inc., et al. Company
Madison County, Illinois
Rose, et al. v. Air Products Alleged injury due to exposure to Intermet Corporation,
and Chemicals, Inc., et al. benzene. Wagner Castings
Madison County, Illinois Company
Financial Federal Credit, Inc. Alleged damages for quantum meriut, Intermet Corporation
v. Intermet Corporation unjust enrichment etc. arising from use
U.S. District Court for the of machining center at Columbus Machining
Northern District of Georgia plan.
Huffman v. Frisby P.M.C., Alleged wrongful termination. Intermet Corporation,
Incorporated, et al. Intermet Illinois, Inc.
Cook County, Illinois
Fitch v. Waste Wrongful death action against SDB, SUDM,Inc.,
Management, Inc., et al. Inc./Accurate Industries. successor to SDB, Inc.
Orange County, Florida
EXHIBIT E
LIST OF FIRST DAY MOTIONS
DATE
ORDER
FIRST DAY MOTION ENTERED
- ---------------------------------------------------------------------------- -------
Debtors' Ex Parte Motion for Immediate and Expedited Hearings on First 9/29/04
Day Motions
Ex Parte Motion for Expedited Hearing on Emergency Motion for 9/29/04
Approval and Entry of Stipulated Interim Order (I) Authorizing Use of
Cash Collateral of the Pre-Petition Lenders Pursuant to 11 U.S.C. Section
363 and Grant of Adequate Protection Pursuant to 11 U.S.C. Sections 363 and
364; and (II) Scheduling a Final Hearing Pursuant to Bankruptcy Rule 4001(B)
Emergency Motion for Approval and Entry of Stipulated Interim Order (I) 10/1/04
Authorizing Use of Cash Collateral of the Pre-Petition Lenders Pursuant to
11 U.S.C. Section 363 and Grant of Adequate Protection Pursuant to 11
U.S.C. Sections 363 and 364, and (II) Scheduling a Final Hearing Pursuant
to Bankruptcy Rule 4001(b)
Debtors' Motion for Order Directing the Joint Administration of the Debtors' 10/1/04
Chapter 11 Cases Pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy
Procedure
Debtors' Motion for Entry of an Order Authorizing Payment of Pre-Petition 10/1/04
Wages, Salaries, Payroll Taxes, and Other Compensation, Employee Benefits and
Reimburseable Employee Expenses and Certain Other Relief
Debtors' Motion for an Order Authorizing Limited Notice Procedures with 10/1/04
Respect to All Proceedings
Debtors' Motion for Order (I) Authorizing Continued Use of Existing (A) 10/1/04
Bank Accounts, (B) Business Forms and Checks, and (C) Cash Management
System; (II) Authorizing fee Continuation of Intercompany Transactions and
According Administrative Expense Status to Claims for Such Transactions; and
(III) Waiving the Investment and Deposit Requirements of Section 345(b) of
the Bankruptcy Code
Debtors' Application to Employ Foley & Lardner LLP as General Counsel 10/8/04
Pursuant to 11 U.S.C. Sections 327(a), 328(a), 329 and 1107, Rules 2014(a)
and 2016(b) of the Federal Rules of Bankruptcy Procedure and Local
Bankruptcy Rule 2014-1
Application for Order Authorizing Employment and Retention of JPMorgan Trust 10/8/04
Company, National Association, as the Official Claims and Noticing Agent of
the Bankruptcy Court Pursuant to 28 U.S.C. Section 156(c)
DATE
ORDER
FIRST DAY MOTION ENTERED
- ---------------------------------------------------------------------------- --------
Debtors' Motion for an Order Under 11 U.S.C. Sections 105, 503(b), 507(a), 10/8/04
and 366 (I) Prohibiting Utilities From Altering, Refusing or Discontinuing
Services on Account of Pre-Petition Claims; (II) Deeming Utilities
Adequately Assured of Future Performance; and (III) Establishing Procedures
for Determining Requests for Additional Adequate Assurance
Debtors' Motion for an Order Under 11 U.S.C. Sections 105(a) and 541 10/8/04
Confirming Authority to Pay Pre-Petition Use, Employment, Single Business,
Property and Other Taxes
Application of the Debtors to Employ Conway MacKenzie & Dunleavy as 10/13/04
Financial Advisors and Investment Bankers Nunc Pro Tune to the Petition Date
Motion for Entry of an Order Authorizing the Debtors to Obtain Post- 10/19/04
Petition, Debtor-in-Possession Financing Pursuant to 11 USC 363 and 364,
Granting Priming Liens and Superpriority Claims to the DIP Lenders,
Approving and Confirming the Grant of Adequate Protection to the Pre-
Petition Lenders and Setting a Hearing for Entry of a Final Order
EXHIBIT F
LIQUIDATION ANALYSIS
LIQUIDATION ANALYSIS
Pursuant to section 1129(a)(7) of the Bankruptcy Code (often called the "Best
Interests Test"), Holders of Allowed Claims must either (a) accept the Plan or
(b) receive or retain under the Plan property of value, as of the Plan's assumed
Effective Date, that is not less than the value such non-accepting Holder would
receive or retain if the Debtors were to be liquidated under Chapter 7 of the
Bankruptcy Code. In determining whether the Best Interests Test has been met,
the first step is to determine the dollar amount that would be generated from a
hypothetical liquidation of the Debtors' Assets under Chapter 7. The gross
amount of cash available would be the sum of the proceeds from the disposition
of the Debtors' Assets and the cash held by the Debtors at the commencement of
their Chapter 7 cases. Prior to delivering any proceeds to General Unsecured
Creditors, available cash and asset liquidation proceeds would first be applied
to DIP Facility Claims, Pre-Petition Lender Claims, Secured Claims and amounts
necessary to satisfy any Chapter 7 fees, other professional fees and wind-down
costs (including any incremental Administrative Claims that may result from the
termination of the Debtors' business and the liquidation of the Debtors'
Assets). Any remaining cash and asset liquidation proceeds after satisfaction of
DIP Facility Claims, Pre-Petition Lender Claims, Secured Claims, Administrative
Claims and Priority Claims would be available for distribution to General
Unsecured Creditors and Holders of Equity Interests in accordance with the
distribution hierarchy established by Section 726 of the Bankruptcy Code.
Underlying the Liquidation Analysis are a number of estimates and assumptions
regarding liquidation proceeds that, although developed and considered
reasonable by the Debtors' management, Lazard and the Debtors' legal advisors,
are inherently subject to significant business, economic and competitive
uncertainties and contingencies beyond the control of the Debtors and
management. ACCORDINGLY, WHILE THE LIQUIDATION ANALYSIS IS NECESSARILY PRESENTED
WITH NUMERICAL SPECIFICITY, THERE CAN BE NO ASSURANCE THAT THE VALUES REFLECTED
IN THE LIQUIDATION ANALYSIS WOULD BE REALIZED IF THE DEBTORS WERE, IN FACT, TO
UNDERGO SUCH A LIQUIDATION; ACTUAL RESULTS COULD VARY MATERIALLY FROM THOSE
SHOWN HERE.
Lazard prepared the Liquidation Analysis with the assistance of the Debtors'
management, based upon the Debtors' unaudited actual balance sheets as of
December 31, 2004. The Liquidation Analysis assumes these unaudited actual
balance sheets are a proxy for the balance sheets on the date on which a
liquidation would commence. The Liquidation Analysis also assumes that the
liquidation of the Debtors would commence under the direction of a Bankruptcy
Court-appointed trustee and would continue for six to nine months (the
"Liquidation Period"), during which time all of the Debtors' major Assets would
either be sold or conveyed to the respective Lien Holders and the cash proceeds
or surplus, if any, net of liquidation-related costs, would be distributed to
Creditors in order of priority. Additionally, the Liquidation Analysis assumes a
distressed sale of the Debtors' equity ownership in its European business with
such cash proceeds, net of liquidation-related costs, being distributed to the
Creditors of the Debtor owning equity interests in the European operations.
Although some of the Debtors' Assets might be liquidated during a
shorter period of time, other Assets may be more difficult to collect or sell,
thus expanding the Liquidation Period.
During the Liquidation Period, the Debtors' receivables would be collected and
other Assets would be sold in a commercially reasonable manner. In the
Liquidation Analysis, liquidation values for certain Assets were determined by
general classes of Assets. The Liquidation Analysis was performed on a
Debtor-by-Debtor basis and assumes that liquidation proceeds would be
distributed in accordance with Bankruptcy Code Sections 726 and 1129(b). The
Liquidation Analysis does not assume proceeds from recoveries of any Avoidance
Actions or other Causes of Action. The Liquidation Analysis does not assume
proceeds from recoveries resulting from bank Liens on assets held outside of the
Debtors and its subsidiaries. Additionally, the Liquidation Analysis does not
assume proceeds from litigation which may provide awards in favor of the
Debtors. These claims could have substantial value.
The Liquidation Analysis is prepared on a Debtor-by-Debtor basis consistent with
the deconsolidated structure of the Plan. Therefore, certain Claims not already
allocated to a specific Debtor, including DIP Facility Claims, Pre-Petition
Lender Claims, Secured Claims, Administrative Claims, and Priority Claims, have
been allocated proportionally to each Debtor based on the net liquidation
proceeds available to satisfy those Claims at each Debtor.
Subject to all of the assumptions, conditions, and limitations set forth above,
the Debtors believe that Chapter 7 liquidations of the Debtors could result in a
diminution in the value to be realized by the Holders of Claims and, as set
forth below, the Debtors' management estimates that in a liquidation, the
Pre-Petition Lender Claims, Holders of Secured Claims, Administrative Claims and
Priority Claims would be Impaired. Furthermore, Holders of General Unsecured
Claims would not receive distributions on such Claims.
I. IMPORTANT CONSIDERATIONS AND ASSUMPTIONS
A. ESTIMATE OF NET PROCEEDS
The Liquidation Analysis assumes that a liquidation of the Debtors' assets would
occur under the direction of a Bankruptcy Court-appointed Chapter 7 trustee.
Liquidation values were generally assessed for classes of Assets by estimating
the percentage recoveries that a Chapter 7 might achieve through the Assets'
disposition. In the cases of machinery/equipment and inventory, Lazard utilized
appraisals produced by a third party appraiser as of December 31, 2004 to
determine liquidation values at some of the Debtors. The proceeds of these sale
transactions would be conveyed to the Debtors' Creditors in order of priority.
Proceeds from the sale of stock of foreign subsidiaries owned by one Debtor were
also estimated. Such sales are assumed to occur on a going concern basis, based
on Transaction Value-to-EBITDA multiples which reflect a distressed sale.
The Liquidation Period, estimated to be a minimum of six months to a maximum of
twelve months, would allow for an expedited sale process and the documentation
and closing of such sale transactions.
B. ESTIMATES OF COSTS
The Debtors' liquidation costs under Chapter 7 would include fees payable to a
Chapter 7 trustee as well as those that might be payable to attorneys, financial
advisors, appraisers, accountants, and other professionals in connection with
the Chapter 7 liquidation. Additionally, the Debtors would incur certain costs
of winding down operations during the Liquidation Period.
C. ALLOCATION OF CLAIMS AND DISTRIBUTION OF NET PROCEEDS BY DEBTOR
The Liquidation Analysis is prepared on a Debtor-by-Debtor basis consistent with
the deconsolidated structure of the Plan. Consequently, certain Claims not
already allocated to a specific Debtor, including certain DIP Facility Claims,
Pre-Petition Lender Claims, Secured Claims, Administrative Claims, and Priority
Claims, have been allocated proportionally to each Debtor based on the net
liquidation proceeds available to satisfy those Claims at each Debtor. This
allocation methodology allows Claims to maximize their recovery across all of
the Debtors.
DIP Facility Claims, Pre-Petition Lender Claims, and Secured Claims have
security interests in the North American Assets being liquidated and therefore
receive recovery from each Debtor before Administrative Claims, Priority Claims,
or General Unsecured Claims. Similarly, the DIP Lenders and the Pre-Petition
Lenders have security interests in two-thirds of the equity ownership of the
Debtors' European operations, the sole asset of Intermet International, Inc.
Therefore, DIP Facility Claims and Pre-Petition Lender Claims are allocated to
Intermet International, Inc. in an amount equal to two-thirds of the assumed
purchase price of the equity of the European operations, net of transaction
fees, relative to all proceeds available to DIP Facility Claims and Pre-Petition
Lender Claims. Administrative Claims and Priority Claims not already allocated
to specific Debtors are allocated proportionally to Debtors with the highest net
proceeds available for distribution, after payments to DIP Facility Claims,
Pre-Petition Lender Claims and Secured Claims. Lastly, General Unsecured Claims
not already allocated to specific Debtors, including mainly Noteholder Claims,
are granted claims in their full amount at every Debtor, except Intermet
International, Inc. and Intermet Holding Company, based on guarantees provided
by all other Debtors. It is assumed that any deficiency claim is treated as pari
passu with General Unsecured Claims at each entity.
The liquidation analysis should be analyzed in conjunction with the footnotes
that follow it. Footnotes (a) through (k) refer to the same items in each
schedule of individual Debtors' build-up to net liquidation proceeds.
II. CLAIMS BY DEBTOR
In preparing the Liquidation Analysis, Lazard, the Debtors and the Debtors'
legal advisors estimated the amount of allowed Claims by Debtor on the
commencement of a hypothetical Chapter 7 liquidation. The following schedule
contains these estimated Claims by Debtor and by class. In the event of an
actual Chapter 7 liquidation, allowed claims may vary materially from those
presented below.
ESTIMATED CLAIMS UNDER HYPOTHETICAL LIQUIDATION AS OF JUNE 2005
- --------------------------------------------------------------------------------------------------
($ in 000s)
Administrative Priority Secured Unsecured Total
-------------- -------- ------- --------- -----
INTERMET CORPORATION ET AL. $ 39,622 $ 534 $200,382(a) $ 180,544 $421,082
ALEXANDER CITY CASTING COMPANY, INC. 0 95 0 0 95
CAST-MATIC 413 127 7 4,436 4,984
COLUMBUS FOUNDRY 2,138 374 202 6,186 15,929
DIVERSIFIED DIEMAKERS 349 606 51 6,106 7,192
GANTON 7,029 430 2,841 11,523 21,824
INTERMET CORPORATION 2,361 1,487 322 12,281 16,451
INTERMET HOLDING CO 0 0 0 0 0
INTERMET ILLINOIS 0 0 0 1,400 1,400
INTERMET INTERNATIONAL 0 7 0 7 14
INTERMET U.S. HOLDING, INC. 1,695 433 23 8,321 10,472
IRONTON 0 9 0 2,807 2,816
LYNCHBURG 416 466 158 12,377 13,416
NORTHERN CASTINGS 259 40 1 2,669 2,968
SUDBURY 0 27 0 2,880 2,907
SUDM 0 0 0 0 0
TOOL PRODUCTS 389 194 618 9,304 10,505
WAGNER CASTINGS 26,559 15 331 27,599 54,504
WAGNER HAVANA 0 0 0 1,691 1,699
-------- -------- -------- --------- --------
TOTAL $ 81,238 $ 4,845 $204,935 $ 297,242 $588,260
(a) Includes DIP Facility Claim as of the anticipated commencement of the
Liquidation Period equal to $45.3 million.
III. CONCLUSIONS
After consideration of the effects that a Chapter 7 liquidation would have on
the ultimate proceeds available for distribution to Creditors at each Debtor,
including (i) the increased costs and expenses of a liquidation under Chapter 7
arising from fees payable to a trustee in bankruptcy and professional advisors
to such trustee, (ii) the erosion in value of Assets in a Chapter 7 case in the
context of the expeditious liquidation required under Chapter 7, and (iii)
potential increases in claims which may arise in a liquidation, the Debtors have
determined, as summarized on the charts below, that Confirmation of the Plan
will provide Creditors with a recovery that is not less than they would receive
pursuant to a liquidation of the Debtors under Chapter 7 of the Bankruptcy Code.
IV. RECOVERIES UNDER A HYPOTHETICAL CHAPTER 7 LIQUIDATION
Distribution of Liquidation Proceeds (Low - High)
($ in 000s)
Alexander City Cast-Matic Columbus
Castings Co., Inc. Corporation Foundry, L.P.
------------------- ------------------- -------------------
Low High Low High Low High
-------- -------- -------- -------- -------- --------
Net Estimated Proceeds $ 215 $ 333 $ 6,577 $ 8,366 $ 17,981 $ 24,747
Net Estimated Proceeds from
Subsidiary (1) 0 0 0 0 0 0
-------- -------- -------- -------- -------- --------
Total Net Estimated
Proceeds $ 215 $ 333 $ 6,577 $ 8,366 $ 17,981 $ 24,747
DIP Facility Claims (m) 67 77 2,056 1,940 5,621 5,739
-------- -------- -------- -------- -------- --------
Recovery ($) 67 77 2,056 1,940 5,621 5,739
Recovery (%) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Secured Claims (n) 241 273 7,372 6,850 20,037 20,251
-------- -------- -------- -------- -------- --------
Recovery ($) 148 256 4,521 6,425 12,360 19,008
Recovery (%) 61.3% 93.8% 61.3% 93.8% 61.7% 93.9%
Admin Claims 0 0 413 413 2,138 2,138
-------- -------- -------- -------- -------- --------
Recovery ($) 0 0 0 0 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Priority Claims 95 95 127 127 374 374
-------- -------- -------- -------- -------- --------
Recovery ($) 0 0 0 0 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Unsecured Claims 180,544 180,544 184,980 184,980 193,759 193,759
-------- -------- -------- -------- -------- --------
Recovery ($) 0 0 0 0 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Residual Value 0 0 0 0 0 0
Diversified Ganton Intermet
Diemakers, Inc. Tech, Inc. Corporation
------------------- ------------------- -------------------
Low High Low High Low High
-------- -------- -------- -------- -------- --------
Net Estimated Proceeds $ 19,457 $ 25,433 $ 11,015 $ 14,558 $ 4,180 $ 8,651
Net Estimated Proceeds from
Subsidiary (l) 0 0 0 0 19,927 23,735
-------- -------- -------- -------- -------- --------
Total Net Estimated
Proceeds $ 19,457 $ 25,433 $ 11,015 $ 14,558 $ 24,107 $ 32,386
DIP Facility Claims (m) 6,082 5,898 3,443 3,376 1,307 2,006
-------- -------- -------- -------- -------- --------
Recovery ($) 6,082 5,898 3,443 3,376 1,307 2,006
Recovery (%) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Secured Claims (n) 21,788 20,822 10,558 11,733 4,484 7,062
-------- -------- -------- -------- -------- --------
Recovery ($) 13,375 19,535 7,572 11,182 2,874 6,644
Recovery (%) 61.4% 93.8% 71.7% 95.3% 64.1% 94.1%
Admin Claims 349 349 7,029 7,029 41,983 41,983
-------- -------- -------- -------- -------- --------
Recovery ($) 0 0 0 0 19,927 23,735
Recovery (%) 0.0% 0.0% 0.0% 0.0% 47.5% 56.5%
Priority Claims 606 606 430 430 2,022 2,022
-------- -------- -------- -------- -------- --------
Recovery ($) 0 0 0 0 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Unsecured Claims 186,730 186,730 192,067 192,067 192,825 192,825
-------- -------- -------- -------- -------- --------
Recovery ($) 0 0 0 0 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Residual Value 0 0 0 0 0 0
Distribution of Liquidation Proceeds (Low - High)
($ in 000s)
Intermet Holding Company Intermet Illinois, Inc. Intermet International, Inc. Intermet U.S Holding, Inc.
------------------------ ----------------------- ---------------------------- --------------------------
Low High Low High Low High Low High
---- ---- -------- -------- ------- -------- --------- --------
Net Estimated Proceeds $ 0 $ 0 $ 0 $ 0 $59,823 $ 71,248 $ 14,444 $ 22,114
Net Estimated Proceeds
from Subsidiary (l) 0 0 0 0 0 0 0 0
---- ---- -------- -------- ------- -------- --------- --------
Total Net Estimated
Proceeds $ 0 $ 0 $ 0 $ 0 $59,823 $ 71,248 $ 14,444 $ 22,114
DIP Facility Claims (m) 0 0 0 0 12,467 11,016 4,515 5,129
---- ---- -------- -------- ------- -------- --------- --------
Recovery ($) 0 0 0 0 12,467 11,016 4,515 5,129
Recovery (%) 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 100.0% 100.0%
Secured Claims (n) 0 0 0 0 44,726 38,894 16,184 18,106
---- ---- -------- -------- ------- -------- --------- --------
Recovery ($) 0 0 0 0 27,415 36,483 9,929 16,986
Recovery (%) 0.0% 0.0% 0.0% 0.0% 61.3% 93.8% 61.4% 93.8%
Admin Claims 0 0 0 0 0 0 1,695 1,695
---- ---- -------- -------- ------- -------- --------- --------
Recovery ($) 0 0 0 0 0 0 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Priority Claims 0 0 0 0 7 7 433 433
---- ---- -------- -------- ------- -------- --------- --------
Recovery ($) 0 0 0 0 7 7 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 0.0% 0.0%
Unsecured Claims 0 0 181,944 181,944 7 7 188,865 188,865
---- ---- -------- -------- ------- -------- --------- --------
Recovery ($) 0 0 0 0 7 7 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 0.0% 0.0%
Residual Value 0 0 0 0 19,927 23,735 0 0
Ironton Iron, Inc. Lynchburg Foundry Company
-------------------- -------------------------
Low High Low High
-------- -------- -------- --------
Net Estimated Proceeds $ 0 $ 0 $ 8,343 $ 11,046
Net Estimated Proceeds
from Subsidiary (l) 0 0 0 0
-------- -------- -------- --------
Total Net Estimated
Proceeds $ 0 $ 0 $ 8,343 $ 11,046
DIP Facility Claims (m) 0 0 2,608 2,562
-------- -------- -------- --------
Recovery ($) 0 0 2,608 2,562
Recovery (%) 0.0% 0.0% 100.0% 100.0%
Secured Claims (n) 0 0 9,257 9,035
-------- -------- -------- --------
Recovery ($) 0 0 5,735 8,484
Recovery (%) 0.0% 0.0% 62.0% 93.9%
Admin Claims 0 0 416 416
-------- -------- -------- --------
Recovery ($) 0 0 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0%
Priority Claims 9 9 466 466
-------- -------- -------- --------
Recovery ($) 0 0 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0%
Unsecured Claims 183,351 183,351 192,921 192,921
-------- -------- -------- --------
Recovery ($) 0 0 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0%
Residual Value 0 0 0 0
Distribution of Liquidation Proceeds (Low - High)
($ in 000s)
Northern Castings Wagner Castings
Corporation Sudbury, Inc. SUDM, Inc. Tool Products,Inc. Company
------------------- ------------------- ------------------- ------------------- -------------------
Low High Low High Low High low High Low High
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Estimated Proceeds $ 1,706 $ 2,548 $ 4 $ 5 $ 0 $ O $ 12,085 $ 16,808 $ 8,328 $ 11,948
Net Estimated Proceeds from
Subsidiary (l) 0 0 0 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Net Estimated Proceeds $ 1,706 $ 2,548 $ 4 $ 5 $ 0 $ 0 $ 12,085 $ 16,808 $ 8,328 $ 11,948
DIP Facility Claims (m) 533 591 1 1 0 0 3,778 3,898 2,603 2,771
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Recovery ($) 533 591 1 1 0 0 3,778 3,898 2,603 2,771
Recovery (%) 100.0% 100.0% 100.0% 100.0% 0.0% 0.0% 100.0% 100.0% 100.0% 100.0%
Secured Claims (n) 1,913 2,086 4 4 0 0 13,163 13,722 9,131 9,762
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Recovery ($) 1,173 1,957 3 4 0 0 8,307 12,910 5,725 9,177
Recovery (%) 61.3% 93.8% 61.3% 93.8% 0.0% 0.0% 63.1% 94.1% 62.7% 94.0%
Admin Claims 259 259 0 0 0 0 389 389 26,559 26,559
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Recovery ($) 0 0 0 0 0 0 0 0 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Priority Claims 40 40 27 27 0 0 194 194 15 15
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Recovery ($) 0 0 0 0 0 0 0 0 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Unsecured Claims 183,212 183,212 183,424 183,424 180,544 180,544 189,848 189,848 208,143 208.143
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Recovery ($) 0 0 0 0 0 0 0 0 0 0
Recovery (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Residual Value 0 0 0 0 0 0 0 0 0 0
Wagner
Havana, Inc.
-------------------
Low High
--------- ---------
Net Estimated Proceeds $ 693 $ 1,267
Net Estimated Proceeds from
Subsidiary (l) 0 0
-------- --------
Total Net Estimated Proceeds $ 693 $ 1,267
DIP Facility Claims (m) 217 294
-------- --------
Recovery ($) 217 294
Recovery (%) 100.0% 100.0%
Secured Claims (n) 777 1,038
-------- --------
Recovery ($) 476 973
Recovery (%) 61.3% 93.8%
Admin Claims 8 8
-------- --------
Recovery ($) 0 0
Recovery (%) 0.0% 0.0%
Priority Claims 0 0
-------- --------
Recovery ($) 0 0
Recovery (%) 0.0% 0.0%
Unsecured Claims 182,235 182,235
-------- --------
Recovery ($) 0 0
Recovery (%) 0.0% 0.0%
Residual Value 0 0
V. NET LIQUIDATION PROCEEDS DETAIL BY DEBTOR
HYPOTHETICAL LIQUIDATION ANALYSIS ALEXANDER CITY
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
Book Value -------------------------------------
12/31/2004 (a) Recovery % Amount
--------------------- --------------- -------------
Low High Low High
----- ----- ---- ------
Cash and Equivalents (b) $ 0 100.0% 100.0% $ 0 $ 0
Accounts Receivable, Net (c) 0 65.0% 75.0% 0 0
Inventory (d) 134 40.0% 50.0% 54 67
Land (e) 37 100.0% 100.0% 37 37
Building and Improvements (net) (f) 500 30.0% 50.0% 150 250
Machinery and Equipment (net) (g) 20 20.0% 40.0% 4 8
Construction in Progress (h) 0 0.0% 25.0% 0 0
Other Assets (i) 0 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------ ---- ------
Total $ 691 $245 $ 362
============ ==== ======
Liquidation Fees, Expenses and Wind Down Costs (k) 12.0% 8.0% ($ 29) ($ 29)
Net Estimated Proceeds Available for
Distribution to Stakeholders $215 $ 333
HYPOTHETICAL LIQUIDATION ANALYSIS CAST-MATIC
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
Book Value -------------------------------------
12/31/2004 (a) Recovery % Amount
--------------- --------------- ---------------
Low High Low High
----- ----- ------ ------
Cash and Equivalents (b) $ 0 100.0% 100.0% $ 0 $ 0
Accounts Receivable, Net (c) 5,601 65.0% 75.0% 3,641 4,201
Inventory (d) 2,436 30.0% 30.0% 731 731
Land (e) 42 100.0% 100.0% 42 42
Building and Improvements (net) (f) 1,876 30.0% 50.0% 563 938
Machinery and Equipment (net) (g) 11,806 21.2% 26.7% 2,498 3,149
Construction in Progress (h) 128 0.0% 25.0% 0 32
Other Assets (i) 0 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------- ------- -------
Total $ 21,889 $7,474 $9,093
============= ======= =======
Liquidation Fees, Expenses and Wind Down Costs (k) 12.0% 8.0% ($ 897) ($ 727)
Net Estimated Proceeds Available for
Distribution to Stakeholders $6,577 $8,366
HYPOTHETICAL LIQUIDATION ANALYSIS COLUMBUS FOUNDRY
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
Book Value -------------------------------------
12/31/2004 (a) Recovery % Amount
-------------- --------------- ------------------
Low High Low High
----- ----- ------- -------
Cash and Equivalents (b) $ l 100.0% 100.0% $ 1 $ 1
Accounts Receivable, Net (c) 19,253 65.0% 75.0% $12,514 $14,440
Inventory (d) 7,279 45.9% 48.4% 3,341 3,524
Land (e) 345 100.0% 100.0% 345 345
Building and Improvements (net) (f) 3,609 30.0% 50.0% 1,083 1,805
Machinery and Equipment (net) (g) 27,054 11.6% 25.0% 3,149 6,773
Construction in Progress (h) 51 0.0% 25.0% 0 13
Other Assets (i) 635 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------- ------- --------
Total $ 58,227 $20,432 $26,899
============= ======= ========
Liquidation Fees, Expenses and Wind Down Costs (k) 12.0% 8.0% ($2,452) ($2,152)
Net Estimated Proceeds Available for
Distribution to Stakeholders $17,981 $24,747
HYPOTHETICAL LIQUIDATION ANALYSIS DIVERSIFIED DIEMAKERS
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
Book Value -------------------------------------
12/31/2004 (a) Recovery % Amount
-------------- --------------- ------------------
Low High Low High
----- ----- ------- -------
Cash and Equivalents (b) $ 30 100.0% 100.0% $ 30 $ 90
Accounts Receivable, Net (c) 10,702 65.0% 75.0% $ 6,956 $ 8,927
Inventory (d) 11,432 43.7% 45.0% 4,999 5,240
Land (e) 890 100.0% 100.0% 890 890
Building and Improvements (net) (f) 10,197 30.0% 50.0% 3,059 5,098
Machinery and Equipment (net) (g) 23,211 26.6% 34.9% 6,176 8,110
Construction in Progress (h) 1,000 0.0% 25.0% 0 250
Other Assets (i) 430 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------- ------- -------
Total $ 57,892 $22,110 $27,645
============= ======= =======
Liquidation Fees, Expenses and Wind Down Costs (k) 12.0% 8.0% ($2,653) ($2,212)
Net Estimated Proceeds Available for
Distribution to Stakeholders $19,457 $25,433
HYPOTHETICAL LIQUIDATION ANALYSIS GANTON TECHNOLOGIES
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
Book Value -------------------------------------
12/31/2004 (a) Recovery % Amount
-------------- --------------- ------------------
Low High Low High
----- ----- ------- -------
Cash and Equivalents (b) $ 185 100.0% 100.0% $ 185 $ 185
Accounts Receivable, Net (c) 9,897 65.0% 75.0% 6,433 7,423
Inventory (d) 5,329 14.2% 16.1% 758 859
Land (e) 630 100.0% 100.0% 630 630
Building and Improvements (net) (f) 7,595 30.0% 50.0% 2,279 3,798
Machinery and Equipment (net) (g) 11,674 19.1% 23.3% 2,232 2,721
Construction in Progress (h) 831 0.0% 25.0% 0 208
Other Assets (i) 734 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------- ------- --------
Total $ 36,925 $12,517 $15,824
============= ======= ========
Liquidation Fees, Expenses and Wind Down Costs (k) 12.0% 8.0% ($ 1,502) ($ 1,266)
Net Estimated Proceeds Available for
Distribution to Stakeholders $11,015 $14,558
HYPOTHETICAL LIQUIDATION ANALYSIS INTERMET CORPORATION
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
Book Value -------------------------------------
12/31/2004 (a) Recovery % Amount
-------------- --------------- ------------------
Low High Low High
----- ----- ------- -------
Cash and Equivalents (b) $ 1,477 100.0% 100.0% $ 1,477 $ 1,477
Accounts Receivable, Net (c) 1,579 65.0% 75.0% 1,026 1,184
Inventory (d) 0 0.0% 0.0% 0 0
Land (e) 0 100.0% 100.0% 0 0
Building and Improvements (net) (f) 0 30.0% 50.0% 0 0
Machinery and Equipment(net) (g) 0 0.0% 0.0% 0 0
Construction in Progress (h) 0 0.0% 25.0% 0 0
Other Assets (i) 22,474 10.0% 30.0% 2,247 6,742
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------- ------- -------
Total $ 25,529 $ 4,750 $ 9,403
============= ======= =======
Liquidation Fees, Expenses and Wind Down Costs (k) 12.0% 8.0% ($ 570) ($ 752)
Net Estimated Proceeds Available for
Distribution to Stakeholders $ 4,180 ($8,651)
HYPOTHETICAL LIQUIDATION ANALYSIS INTERMET HOLDING CO.
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
Book Value -------------------------------------
12/31/2004(a) Recovery % Amount
--------------- --------------- ------------------
Low High Low High
----- ----- ------- -------
Cash and Equivalents (b) $ 0 100.0% 100.0% $ 0 $ 0
Accounts Receivable, Net (c) 0 65.0% 75.0% 0 0
Inventory (d) 0 0.0% 0.0% 0 0
Land (e) 0 100.0% 100.0% 0 0
Building and Improvements (net) (f) 0 30.0% 50.0% 0 0
Machinery and Equipment (net) (g) 0 0.0% 0.0% 0 0
Construction in Progress (h) 0 0.0% 25.0% 0 0
Other Asset (i) 0 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------- ------- -------
Total $ 0 $ 0 $ 0
============= ======= =======
Liquidation Fees, Expenses and Wind Down Costs (k) 12.0% 8.0% $ 0 $ 0
Net Estimated Proceeds Available for
Distribution to Stakeholders $ 0 $ 0
HYPOTHETICAL LIQUIDATION ANALYSIS INTERMET ILLINOIS
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
Book Value -------------------------------------
12/31/2004(a) Recovery % Amount
--------------- --------------- ------------------
Low High Low High
----- ----- ------- -------
Cash and Equivalents (b) $ 0 100.0% 100.0% $ 0 $ 0
Accounts Receivable, Net (c) 0 65.0% 75.0% 0 0
Inventory (d) 0 0.0% 0.0% 0 0
Land (e) 0 100.0% 100.0% 0 0
Building and Improvements (net) (f) 0 30.0% 50.0% 0 0
Machinery and Equipment (net) (g) 0 0.0% 0.0% 0 0
Construction in Progress (h) 0 0.0% 25.0% 0 0
Other Assets (i) 0 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------- ------- -------
Total $ 0 $ 0 $ 0
============= ======= =======
Liquidation Fees, Expenses and Wind Down Costs (k) 12.0% 8.0% $ 0 $ 0
Net Estimated Proceeds Available for $ 0 $ 0
Distribution to Stakeholders
HYPOTHETICAL LIQUIDATION ANALYSIS INTERMET INTERNATIONAL
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
------------------------------------
Recovery % Amount
Book Value -------------- ------------------
12/31/2004 (a) Low High Low High
------------- ----- ----- -------- -------
Cash and Equivalents (b) $ 0 100.0% 100.0% $ 0 $ 0
Accounts Receivable, Net (c) 0 65.0% 75.0% 0 0
Inventory (d) 0 0.0% 0.0% 0 0
Land (e) 0 100.0% 100.0% 0 0
Building and Improvements (net) (f) 0 30.0% 50.0% 0 0
Machinery and Equipment (net) (g) 0 0.0% 0.0% 0 0
Construction in Progress (h) 0 0.0% 0.0% 0 0
Other Assets (i) 0 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 30,144 206.7% 241.2% 62,316 72,702
--------- -------- --------
Total $ 30,144 $ 62,316 $ 72,702
========= ======== ========
Liquidation Fees, Expenses and
Wind Down Costs (k) 4.0% 2.0% ($2,493) ($1,454)
Net Estimated Proceeds
Available for Distribution to Stakeholders $59,823 $71,248
HYPOTHETICAL LIQUIDATION ANALYSIS INTERMET U.S. HOLDINGS
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
--------------------------------------
Recovery % Amount
Book Value ---------------- ------------------
12/31/2004 (a) Low High Low High
------------ ------- ----- ------- -------
Cash and Equivalents (b) $ 1 100.0% 100.0% $ 1 $ 1
Accounts Receivable, Net (c) 8,667 65.0% 75.0% 5,634 6,900
Inventory (d) 6,120 15.5% 16.8% 948 1,026
Land (e) $ 862 100.0% 100.0% 862 862
Building and Improvements (net) (f) 23,381 30.0% 50.0% 7,014 11,691
Machinery and Equipment (net) (g) 20,381 9.6% 19.4% 1,955 3,990
Construction in Progress (h) 29 0.0% 25.0% 0 7
Other Assets (i) 1,438 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------- ------- -------
Total $ 60,879 $16,414 $24,037
============= ======= =======
Liquidation Fees, Expenses and
Wind Down Costs (k) 12.0% 8.0% ($1,970) $ 1,923
Net Estimated Proceeds Available
for Distribution to Stakeholders $14,444 $22,114
HYPOTHETICAL LIQUIDATION ANALYSIS IRONTON IRON
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
--------------------------------------
Recovery % Amount
Book Value ---------------- -------------------
12/31/2004 (a) Low High Low High
------------ ------- ----- ------- -------
Cash and Equivalents (b) $ 0 100.0% 100.0% $ 0 $ 0
Accounts Receivable Net (c) 0 65.0% 75.0% 0 0
Inventory (d) 0 0.0% 0.0% 0 0
Land (e) 0 100.0% 100.0% 0 0
Building and Improvements (net) (f) 0 30.0% 50.0% 0 0
Machinery and Equipment (net) (g) 0 0.0% 0.0% 0 0
Construction in Progress (h) 0 0.0% 25.0% 0 0
Other Assets (i) 0 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------- ------- --------
Total $ 0 $ 0 $ 0
============= ======= ========
Liquidation Fees, Expenses and Wind
Down Costs (k) 12.0% 8.0% $ 0 $ 0
Net Estimated Proceeds Available for
Distribution to Stakeholders $ 0 $ 0
HYPOTHETICAL LIQUIDATION ANALYSIS: LYNCHBURG FOUNDRY
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
--------------------------------------
Recovery % Amount
Book Value ---------------- -------------------
12/31/2004(a) Low High Low High
------------- ------- ------ ------- --------
Cash and Equivalents (b) $ 0 100.0% 100.0% $ 0 $ 0
Accounts Receivable, Net (c) 6,540 65.0% 75.0% 4,251 4,905
Inventory (d) 3,722 66.7% 74.5% 2,481 2,774
Land (e) 670 100.0% 100.0% 670 670
Building and Improvements (net) (f) 2,348 30.0% 50.0% 704 1,174
Machinery and Equipment (net) (g) 11,705 11.7% 20.7% 1,375 2,419
Construction in Progress (h) 261 0.0% 25.0% 0 65
Other Assets (i) 495 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------- ------- --------
Total $ 25,741 $ 9,481 $ 12,007
============= ======= ========
Liquidation Fees, Expenses and Wind
Down Costs (k) 12.0% 8.0% ($ 1,138) ($ 961)
Net Estimated Proceeds Available for
Distribution to Stakeholders $ 8,343 $ 11,046
HYPOTHETICAL LIQUIDATION ANALYSIS: NORTHERN CASTINGS
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
--------------------------------------
Recovery % Amount
Book Value ---------------- -------------------
12/31/2004(a) Low High Low High
------------- ------- ------ ------- --------
Cash and Equivalents (b) $ 0 100.0% 100.0% $ 0 $ 0
Accounts Receivable, Net (c) 1,723 65.0% 75.0% 1,120 1,292
Inventory (d) 536 61.4% 71.6% 329 384
Land (e) 12 100.0% 100.0% 12 12
Building and Improvements (net) (f) 706 30.0% 50.0% 212 353
Machinery and Equipment (net) (g) 1,037 25.7% 70.3% 266 729
Construction in Progress (h) 0 0.0% 25.0% 0 0
Other Assets (i) 129 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------- ------- --------
Total $ 4,143 $ 1,939 $ 2,770
============= ======= ========
Liquidation Fees, Expenses and Wind
Down Costs (k) 12.0% 8.0% ($ 233) ($ 222)
Net Estimated Proceeds Available for
Distribution to Stakeholders $ 1,706 $ 2,548
HYPOTHETICAL LIQUIDATION ANALYSIS: SUDBURY
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
--------------------------------------
Recovery % Amount
Book Value ---------------- -------------------
12/31/2004(a) Low High Low High
------------- ------- ------ ------- --------
Cash and Equivalents (b) $ 0 100.0% 100.0% $ 0 $ 0
Accounts Receivable, Net (c) 7 65.0% 75.0% 5 5
Inventory (d) 0 0.0% 0.0% 0 0
Land (e) 0 100.0% 100.0% 0 0
Building and Improvements (net) (f) 0 30.0% 50.0% 0 0
Machinery and Equipment (net) (g) 0 0.0% 0.0% 0 0
Construction in Progress (h) 0 0.0% 25.0% 0 0
Other Assets (i) 77 0.0% 0.0% 0 0
Investment in Subsidiaries (j) 0 0.0% 0.0% 0 0
------------- ------- --------
Total $ 84 $ 5 $ 5
============= ======= ========
Liquidation Fees, Expenses and Wind
Down Costs (k) 12.0% 8.0% ($ 1) ($ 0)
Net Estimated Proceeds Available for
Distribution to Stakeholders $ 4 $ 5
Hypothetical Liquidation Analysis: SUDM, Inc.
Estimated Liquidation Proceeds
HYPOTHETICAL LIQUIDATION VALUE RANGE
------------------------------------
Recovery % Amount
Book Value ------------- -----------
12/31/2004(a) Low High Low High
--------------- ----- ------ --- ----
Cash and Equivalents(b) $0 100.0% 100.0% $0 $0
Accounts Receivable, Net(c) 0 65.0% 75.0% 0 0
Inventory(d) 0 0.0% 0.0% 0 0
Land(e) 0 100.0% 100.0% 0 0
Building and Improvements (net)(f) 0 30.0% 50.0% 0 0
Machinery and Equipment (net)(g) 0 0.0% 0.0% 0 0
Construction in Progress(h) 0 0.0% 25.0% 0 0
Other Assets(i) 0 0.0% 0.0% 0 0
Investment in Subsidiaries(j) 0 0.0% 0.0% 0 0
-- -- --
Total $0 $0 $0
== == ==
Liquidation Fees, Expenses and Wind Down
Costs(k) 12.0% 8.0% $0 $0
Net Estimated Proceeds Available for
Distribution to Stakeholders $0 $0
HYPOTHETICAL LIQUIDATION ANALYSIS: TOLL PRODUCTS
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
------------------------------------
Recovery % Amount
Book Value ------------- -----------------
12/31/2004(a) Low High Low High
--------------- ----- ------ ------- --------
Cash and Equivalents(b) $ 3 100.0% 100.0% $ 3 $ 3
Accounts Receivable, Net(c) 7,316 65.0% 75.0% 4,755 5,487
Inventory(d) 3,908 41.5% 62.8% 1,624 2,456
Land(e) 356 100.0% 100.0% 356 356
Building and Improvements (net)(f) 8,041 30.0% 50.0% 2,412 4,021
Machinery and Equipment (net)(g) 13,414 34.2% 43.0% 4,582 5,765
Construction in Progress(h) 729 0.0% 25.0% 0 182
Other Assets(i) 590 0.0% 0.0% 0 0
Investment in Subsidiaries(j) 0 0.0% 0.0% 0 0
-------- ------- --------
Total $ 34,357 $13,733 $ 18,269
======== ======= ========
Liquidation Fees, Expenses and Wind Down
Costs(k) 12.0% 8.0% ($ 1,648)($ 1,462)
Net Estimated Proceeds Available for
Distribution to Stakeholders $12,085 $ 16,308
HYPOTHETICAL LIQUIDATION ANALYSIS: WAGNER CASTINGS
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
------------------------------------
Recovery % Amount
Book Value ------------- ------------------
12/31/2004(a) Low High Low High
--------------- ----- ------ ------- --------
Cash and Equivalents(b) $ 32 100.0% 100.0% $ 32 $ 32
Accounts Receivable, Net(c) 8,041 65.0% 75.0% 5,227 6,031
Inventory(d) 5,096 33.3% 33.6% 1,699 1,965
Land(e) 343 100.0% 100.0% 343 343
Building and Improvements (net)(f) 816 30.0% 50.0% 245 406
Machinery and Equipment (net)(g) 12,203 15.7% 32.6% 1,919 3,984
Construction in Progress(h) 899 0.0% 25.0% 0 225
Other Assets(i) 1,264 0.0% 0.0% 0 0
Investment in Subsidiaries(j) 0 0.0% 0.0% 0 0
----------- ------- --------
Total $ 28,694 $ 9,464 $ 12,987
=========== ======= ========
Liquidation Fees, Expenses and Wind
Down Costs(k) 12.0% 8.0% ($ 1,136) ($ 1,039)
Net Estimated Proceeds Available for
Distribution to Stakeholders $ 8,328 $ 11,948
HYPOTHETICAL LIQUIDATION ANALYSIS: WAGNER HAVANA
Estimated Liquidation Proceeds
Hypothetical Liquidation Value Range
-------------------------------------
Recovery % Amount
Book Value ---------------- ----------------
12/31/2004(a) Low High Low High
------------- ----- ----- ----- ------
Cash and Equivalents(b) $ 0 100.0% 100.0% $ 0 $ 0
Accounts Receivable, Net(c) 68 65.0% 75.0% 44 51
Inventory(d) 248 40.0% 50.0% 99 124
Land(e) 6 100.0% 100.0% 6 6
Building and Improvements(net)(f) 793 30.0% 50.0% 238 397
Machinery and Equipment (net)(g) 2,000 20.0% 40.0% 400 800
Construction in Progress(h) 0 0.0% 25.0% 0 0
Other Assets(i) 0 0.0% 0.0% 0 0
Investment in Subsidiaries(j) 0 0.0% 0.0% 0 0
------- ----- ------
Total $ 3,115 $ 787 $1,378
======= ===== ======
Liquidation Fees, Expenses and Wind Down Costs(k) 12.0% 8.0% ($ 94) ($ 110)
----- ------
Net Estimated Proceeds Available for Distribution to Stakeholders $ 693 $1,267
NOTES TO LIQUIDATION ANALYSIS
(a) BOOK VALUES AS OF DECEMBER 31, 2004. Unless otherwise stated, the book
values contained/presented in the Liquidation Analysis are book values as
of December 31, 2004. These actual balances are used as a reference point
for the analysis and, as described in the introduction to the Liquidation
Analysis, are used as the value for which percentage recoveries for the
liquidation of certain assets (e.g., accounts receivable) are based.
Management of the Debtors provided all December 31, 2004 book values.
(b) CASH AND EQUIVALENTS. Cash consists of all cash in banks or operating
accounts and liquid investments with maturities of three months or less.
Cash is assumed to be fully recoverable.
(c) ACCOUNTS RECEIVABLE. Estimated proceeds realizable from short-term and
long-term accounts receivable under a liquidation are based on
management's assessment of the ability of the Debtors to collect on their
accounts, taking into consideration the credit quality and aging of the
accounts. The liquidation range of 65%-75% of book value is an estimate of
the proceeds that would be available in a "forced sale" or liquidation
scenario. This range conservatively takes into account the inevitable
difficulty in collecting receivables and any concessions or off-sets which
might be required to facilitate the collection of certain accounts.
(d) INVENTORY. Inventory includes finished goods, work-in-progress and raw
materials. The range of liquidation values is derived from an inventory
appraisal recently produced by a third party appraiser for the following
Debtors based on December 31, 2004 account balances: Cast-Matic
Corporation, Columbus Foundry, L.P., Diversified Diemakers, Inc., Ganton
Technologies, Inc., Intermet U.S. Holding, Inc., Lynchburg Foundry
Company, Northern Castings Corporation, Tool Products, Inc. and Wagner
Castings Company. The low point of the range reflects the forced sale of
all inventory including work-in-progress in "as is" condition. The high
point of the range reflects the conversion of certain work-in-progress
inventory into finished goods. For the remaining entities for which
appraisals were not available, estimates were based on the average range
of liquidation values/recoveries at the Debtors listed above. Those
Debtors for which inventory appraisals were unavailable include Alexander
City Casting Company, Inc., Intermet Corporation, Intermet Holding
Company, Intermet Illinois, Inc., Intermet International, Inc., Ironton
Iron, Inc., Sudbury, Inc., SUDM, Inc., and Wagner Havana, Inc.
(e) LAND. Estimated proceeds realizable from the liquidation of land/real
estate reflect 100% of book value. No appraisals of land/real estate
assets were available for use in the liquidation analysis, and no
provision for environmental costs related to, for example, remediation
were taken into account.
(f) BUILDINGS AND IMPROVEMENTS. Estimated proceeds realizable from the sale of
building and improvements reflect a range of 30% - 50%.
(g) MACHINERY AND EQUIPMENT. Machinery and equipment includes machinery,
equipment and inventory of spare parts and safety equipment. The range of
liquidation proceeds is derived from machinery and equipment appraisals
recently produced by a third party appraiser for the
following Debtors based on December 31, 2004 account balances: Cast-Matic
Corporation, Columbus Foundry, L.P., Diversified Diemakers, Inc., Ganton
Technologies, Inc., Intermet U.S. Holding, Inc., Lynchburg Foundry
Company, Northern Castings Corporation, Tool Products, Inc. and Wagner
Castings Company. The low range reflects a forced liquidation over an
abbreviated period whereas the high range reflects an orderly liquidation
over a longer timeframe. For the remaining entities for which appraisals
were not available, estimates were based on the average range of
liquidation values/recoveries at the debtors listed above. Those Debtors
for which appraisals were unavailable include Alexander City Casting
Company, Inc., Intermet Corporation, Intermet Holding Company, Intermet
Illinois, Inc., Intermet International, Inc., Ironton Iron, Inc., Sudbury,
Inc., SUDM, Inc., and Wagner Havana, Inc.
(h) CONSTRUCTION IN PROGRESS. Management estimates that fixed assets under
construction would yield limited to no value in a forced liquidation
scenario, resulting in a recovery range of 0%-25%.
(i) OTHER ASSETS. Management estimates that other assets, which include
tooling intangibles, prepaid assets, deposits, and unamortized bank fees
would not yield significant value in a forced liquidation scenario, and
accordingly have been ascribed 0% recovery. Other assets at Intermet
Corporation, however, do include items, such as cash deposits, which have
some tangible value. Consequently, the recoveries for other assets at
Intermet Corporation ranges from 10%-30%.
(j) INVESTMENTS IN SUBSIDIARIES. Reflects the book value of the equity
ownership in the Debtors' European operations at Intermet International,
Inc.
(k) LIQUIDATION FEES AND EXPENSES. Chapter 7 trustee fees, other professional
fees and wind-down costs are estimated to be 8%-12% of gross sales
proceeds. In the case of Intermet International, liquidation fees and
expenses reflect professional fees that would be incurred in the sale of
the European operations, which are estimated at 2%-4% of gross sales
proceeds.
(l) NET ESTIMATED PROCEEDS FROM SUBSIDIARY. Applies only to Intermet
Corporation's recovery of value from its stock ownership in Intermet
International which, in turn, recovers value from its stock ownership in
Intermet's European subsidiaries. The Liquidation Analysis assumes a
distressed sale of these European subsidiaries, with proceeds, after
payment of net debt and transaction fees, going to Intermet International.
(m) DIP FACILITY CLAIMS. Reflects the projected DIP balance as of the
anticipated commencement of the Liquidation Period.
(n) SECURED CLAIMS. Pre-Petition Lender Claims and Secured Claims have
security interests in the domestic entities as well as two-thirds of the
equity value of the European operations. These Claims are allocated
proportionally by Debtor based on the net proceeds available at each
Debtor to satisfy Secured Claims.
EXHIBIT G
PROJECTED FINANCIAL INFORMATION FOR THE REORGANIZED DEBTORS
I. PRINCIPAL ASSUMPTIONS FOR THE PROJECTIONS
A. GENERAL
1. Methodology. The Projections are based upon detailed operating
budgets for the Debtors for the three-year period ending December
31, 2007, which were developed by management of the Debtors and CMD
at the plant level in North America and on a consolidated basis in
Europe. The projections for the calendar years 2008 through 2009
were developed by management of the Debtors and Lazard and were
prepared on the same basis as 2005 through 2007, but through
trending analysis using key top-down assumptions. Sales for all
periods were developed by management of the Debtors on a
part-by-part buildup at each plant based on current booked business
as well as estimates for future business opportunities.
2. Plan Consummation. The operating assumptions assume the Plan will be
confirmed and consummated by August 31, 2005.
3. Macroeconomic and Industry Environment. The Projections reflect
currently forecasted build volumes per recent OEM estimates, steel
prices consistent with current levels experienced by the Debtors and
a rising interest rate environment.
B. PROJECTED STATEMENTS OF OPERATIONS
1. Net Sales. Consolidated revenues, estimated to be $837.2 million in
2004, are projected to increase by 0.8% in 2005 to $844.2 million,
and then to continue to grow through the projection period, peaking
in 2009 at $1,050.7 million. Sales for all periods were developed on
a part-by-part buildup at each plant based on current booked
business as well as estimates for future business opportunities.
2. Gross Margin. Gross margin is projected to be 4.1% in 2005,
increasing to 10.9% in 2009 based on more efficient production as
unprofitable facilities are closed or sold and optimum capacities
and efficiencies are realized at the continuing facilities. Gross
margin also improves as a larger sales base absorbs fixed costs.
3. Selling, General and Administrative Expenses ("SG&A"). SG&A includes
corporate, research and development and customer support expenses.
These expenses decrease from $43.4 million in 2005 to $40.2 million
in 2006, reflecting cost savings relating to the closure of multiple
facilities in 2005. By 2009, selling, general and administrative
expenses grow to $43.7 million, consistent with the increase in
sales experienced during the 2006-2009 period.
4. Other Operating Costs. Reflects legacy costs at the Debtors'
inactive and discontinued operations including property taxes,
utility expense, insurance premiums, and general maintenance
expense.
5. Interest Expense. Interest expense reflects the accrual and payment
of interest on the Debtors' Pre-Petition Credit Facility and DIP
Facility until the Effective Date; and on a $170 million
floating-rate term loan, a $90 million floating-rate revolving
credit facility after the Effective Date, and on various credit
facilities in Europe. The European debt is assumed to be paid down
with European cash in excess of $20 million and interest expense is
affected accordingly. Interest expense also includes letters of
credit fees and agency fees.
6. Other Expense. Reflects interest expense and interest income on
certain intercompany obligations, charges to and from affiliates and
gains and losses on foreign exchange transactions.
7. Restructuring Costs. Includes fees paid to professionals advising
the Debtors, fees paid to DIP Lenders and Exit Lenders, fees paid to
the Initial Committed Purchasers, payments pursuant to the KERP and
other one-time charges / expenses. Cancellation of indebtedness
income which is incurred on the Effective Date is also included as
income in this line item.
8. Income Tax Provision. Income taxes in North America and Europe were
prepared by management of the Debtors, with the assistance of tax
and financial advisors. North American taxes reflect the impact of
cancellation of debt income on the Effective Date and differences
between tax and book pretax income are adjusted accordingly. Taxes
presented in North America reflect these differences as well as the
application of pre-petition tax attributes to offset taxable income
subject to Section 382(1)(6) limitations. Income taxes in Europe
were approximated by the Debtors' tax advisors. Book taxes in Europe
are assumed to equal cash taxes.
C. PROJECTED STATEMENTS OF CASH FLOW
1. Working Capital. Accounts receivable are projected to be outstanding
for 50-60 days during the projection period, reflecting historical
trends. Accounts payable are projected to be outstanding for 5 days
in 2005 in North America. The days outstanding in North America
increases thereafter to 30 days by 2007 and remains constant through
2009. Inventory days-on-hand are based on historical trends of
approximately 20 days in North America and 45 days in Europe.
2. Capital Expenditures. Capital expenditures are expected to total
$43.6 million for 2005. This figure is projected to increase to
$50.5 million in 2006 reflecting certain catch-up expenditures and
continue in a normalized range of $40-$50 million per year in
2007-2009. Capital expenditure projections were developed by
management of the Debtors based on specific capital projects and
planned improvements at specific facilities.
3. Proceeds from Asset Sales. Reflects the estimated sale proceeds from
certain property, machinery and equipment and other assets related
to discontinued or inactive facilities.
4. Increase/(Decrease) in Borrowings. Reflects seasonal borrowings and
repayments on the DIP and post-emergence revolving credit facility
as well as repayments of debt in Europe based on a $20 million
minimum cash balance in Europe.
5. Changes in Other Financing. Reflects the $75 million Rights Offering
on the Effective Date and some miscellaneous debt borrowing and
repayments in Europe.
II. PROJECTED BALANCE SHEET STATEMENT
Fresh Start Accounting
The American Institute of Certified Public Accountants ("AICPA") has
issued Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The Projections have
been prepared in accordance with the fresh-start reporting principles set forth
in the SOP 90-7, giving effect thereto as of August 31, 2005, subject to
significant simplifying assumptions.
The Pro Forma Reorganized Balance Sheet ("Reorganized Balance Sheet") is
based on an Estimated Pre-Reorganization Balance Sheet, as modified by
"Reorganization" and "Fresh-Start" adjustments. The Pre-Reorganization Balance
Sheet provides estimates of assets and liabilities just prior to confirmation,
including liabilities subject to compromise recorded in accordance with the SOP
90-7. The Reorganization Adjustments adjust the Pre-Reorganization Balance Sheet
for the discharge of administrative claims and of estimated claims allowed by
the Court upon confirmation. The Fresh-Start Adjustments further adjusts the
Pre-Reorganization Balance Sheet of the emerging entity to:
1. Reflect the reorganization value of the assets;
2. Allocate the reorganization value among the assets; and
3. Reflect each liability at the plan confirmation date at its fair value.
Reorganization value approximates the fair value of the entity before
considering liabilities and approximates the amount a willing buyer would pay
for the assets immediately after restructuring. Determination of the
reorganization value requires a detailed valuation of all of the Reorganized
Debtors' identifiable assets as of the Effective Date, including working capital
assets, fixed assets and identifiable intangible assets such as third-party
contracts. Allocation of the reorganization value among assets involves
revaluing each of these assets at its fair value. Each liability of the emerging
entity is reflected at its fair value.
The foregoing assumptions and resulting computations were made solely for
purposes of preparing the Projections. The Reorganized Debtors' will be required
to determine their reorganization value as of the Effective Date. Reorganization
value may change depending on the amount of cash retained upon emergence. The
actual reorganization and fresh start adjustments will depend on the balance
sheet as of the actual confirmation date and a final determination of the fair
value appraisals. Such fair value appraisals could be materially higher or lower
than the values assumed in the foregoing computations. In all events, the
determination of reorganization value and the fair value of Reorganized Debtors'
assets, as well as the determination of their actual liabilities, will be made
as of the Effective Date. Furthermore, the changes between the amounts of any or
all of the foregoing items as assumed in the Projections and the actual amounts
thereof as of the Effective Date may be material.
PRO FORMA PROJECTED BALANCE SHEET (UNAUDITED)
(AS OF AUGUST 31, 2005)
INTERMET CORPORATION
($ in millions)
Estimated Pro Forma
Pre-Reorganization Reorganized
Balance Reorganization "Fresh Start" Balance
Sheet Adj. Adj. Sheet(a)
------------------ -------------- ------------- -----------
ASSETS
CURRENT ASSETS
Cash and Equivalents $ 19.4 $ 6.3(b) - $ 25.6
Total Receivables 125.9 - - 125.9
Inventory 64.5 - - 64.5
Other Current Assets 9.1 - - 9.1
------ ------- ----- -------
Total Current Assets $218.8 $ 6.3 $ 0.0 $ 225.1
NON CURRENT ASSETS
Fixed Assets, Net 271.9 - - 271.9
Other Assets 23.5 - 53.3(c) 76.8
------ ------- ----- -------
TOTAL ASSETS $514.2 $ 6.3 $53.3 $ 573.8
====== ======= ===== =======
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 22.1 - - $ 22.1
Accrued Liabilities 62.0 (1.7)(d) - 60.2
Accrued Interest 1.2 - - 1.2
------ ------- ----- -------
Total Current Liabilities $ 85.2 ($ 1.7) $ 0.0 $ 83.5
NON-CURRENT LIABILITIES
DIP $ 45.3 ($ 45.3)(e) - -
Exit Revolver 0.0 - - -
Long Term Debt 20.2 170.0 (f) - 190.2
Pre-Petition Liabilities 166.5 (166.5)(g) 39.3(k) -
Retirement Benefits 88.7 (5.2)(h) - 122.8
Other Long-Term Liabilities 9.9 - - 9.9
------ ------- ----- -------
Total Non-Current Liabilities 330.6 (47.0) 39.3 322.9
Liabilities Subject To Compromise 248.3 (248.3)(i) - -
------ ------- ----- -------
TOTAL LIABILITIES $664.1 ($ 297.1) $39.3 $ 406.3
Shareholders' Equity ($149.8) $ 303.3 (j) $14.0(l) $ 167.5
------ ------- ----- -------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $514.2 $ 6.3 $53.3 $ 573.8
====== ======= ===== =======
NOTES TO PRO FORMA PROJECTED BALANCE SHEET
(a) The pro forma balance sheet adjustments contained herein account for (i)
the reorganization and related transactions pursuant to the Plan and (ii)
the implementation of "fresh start" accounting pursuant to SOP 90-7,
Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code, as issued by the AICPA. The fresh start adjustments are based on a
total equity value of $167.5 million consistent with the mid-point of
Lazard's Enterprise Valuation.
(b) Reflects $6.3 million in cash created in North America by proceeds
received from the Exit Facility financing and the Rights Offering,
partially offset by the repayment of the DIP facility, Pre-Petition Credit
Facility, Pre-Petition Senior Bonds, payments made to unsecured creditors,
fees paid to various professionals, lenders and the Backstop Parties, KERP
payments and pension payments.
(c) Reflects a $53.3 million increase in intangible assets due to the excess
value of the Reorganized Intermet over the fair value of its assets.
(d) Reflects a $1.7 million KERP cash payment.
(e) Reflects repayment of the DIP Facility in cash.
(f) Reflects issuance of a $170 million Exit Term Loan.
(g) Reflects repayment of the Pre-Petition Credit Facility and associated
post-petition interest in cash.
(h) Reflects a $5.2 million cash pension payment.
(i) Reflects extinguishment of pre-petition accounts payable and pre-petition
Senior Notes and pre-petition accrued interest.
(j) Reflects cancellation of indebtedness income, the issuance of the New
Common Stock, Rights Offering, and various cash payments.
(k) Increase in pension liability due to unrealized actuarial loss and prior
service costs / benefits.
(l) Reflects adjustments to shareholders' equity based on the estimated equity
value of the Reorganized Intermet ($167.5 million) in accordance with
"fresh start" accounting provisions of SOP 90-7.
1. PROJECTED STATEMENTS OF OPERATIONS
INTERMET CORPORATION
($ in millions)
Fiscal Year Ending December 31,
--------------------------------------------------------
2005E 2006E 2007E 2008E 2009E
--------- -------- -------- -------- --------
NET SALES
North America $ 626.3 $ 606.6 $ 663.0 $ 728.4 $ 745.8
Europe 217.9 252.2 265.5 291.7 304.9
-------- -------- -------- -------- --------
Total Sales 844.2 858.8 928.5 1,020.2 1,050.7
Cost of Sales 809.8 783.5 838.6 909.9 936.3
-------- -------- -------- -------- --------
GROSS MARGIN $ 34.4 $ 75.3 $ 89.9 $ 110.3 $ 114.4
Selling, General and Administrative Expense 43.4 40.2 40.3 42.2 43.7
Other Operating Expense 1.2 0.4 0.4 0.4 0.4
-------- -------- -------- -------- --------
OPERATING INCOME ($ 10.2) $ 34.7 $ 49.2 $ 67.7 $ 70.3
Interest Expense, Net 20.7 20.5 20.2 19.5 19.2
Other Expense 3.7 0.5 0.6 0.6 0.6
Restructuring Expense(a) (111.2) 0.0 0.0 0.0 0.0
-------- -------- -------- -------- --------
Pre-Tax Income 76.6 13.7 28.4 47.6 50.5
Income Taxes - Current 4.4 6.3 6.9 14.8 17.5
Income Taxes - Deferred 0.0 0.0 0.0 1.9 (0.6)
-------- -------- -------- -------- --------
Total Income Taxes 4.4 6.3 6.9 16.7 16.9
Minority Interest 0.1 0.0 0.0 0.0 0.0
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 72.3 $ 7.4 $ 21.5 $ 30.9 $ 33.6
======== ======== ======== ======== ========
(a) Includes cancellation of indebtedness income in 2005 of $145.8 million.
2. PROJECTED BALANCE SHEETS
INTERMET CORPORATION
FISCAL YEAR ENDING DECEMBER 31,
----------------------------------------------------
2005E 2006E 2007E 2008E 2009E
($ in millions) -------- -------- -------- -------- --------
ASSETS
CURRENT ASSETS
Cash and Equivalents $ 22.0 $ 26.6 $ 34.5 $ 47.2 $ 71.2
Total Receivables 120.3 121.1 125.0 137.3 141.4
Inventory 67.4 67.3 68.8 67.3 67.7
Other Current Assets 8.2 7.8 7.5 7.5 7.5
-------- -------- -------- -------- --------
Total Current Assets $ 217.9 $ 222.8 $ 235.7 $ 259.3 $ 287.8
NON CURRENT ASSETS
Fixed Assets, Net 269.6 274.1 271.3 276.9 278.2
Other Assets 76.2 74.2 72.2 68.3 66.9
-------- -------- -------- -------- --------
Total Assets $ 563.7 $ 571.1 $ 579.1 $ 604.5 $ 632.9
======== ======== ======== ======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 28.2 $ 47.3 $ 50.5 $ 61.1 $ 63.4
Accrued Liabilities 64.1 56.5 55.0 55.0 55.0
Accrued Interest 0.9 0.9 0.9 0.9 0.9
-------- -------- -------- -------- --------
Total Current Liabilities $ 93.2 $ 104.7 $ 106.4 $ 117.0 $ 119.3
Long Term Debt 188.2 184.7 175.7 164.6 162.6
Retirement Benefits 120.6 112.5 106.4 101.3 95.9
Other Long-Term Liabilities 9.9 9.9 9.9 9.9 9.9
-------- -------- -------- -------- --------
Total Liabilities 411.8 411.8 398.4 392.8 387.7
Shareholders' Equity 151.8 159.2 180.8 211.6 245.2
-------- -------- -------- -------- --------
Total Liabilities & Shareholders' Equity $ 563.7 $ 571.1 $ 579.1 $ 604.5 $ 632.9
======== ======== ======== ======== ========
3. PROJECTED STATEMENTS OF CASH FLOW
INTERMET CORPORATION
FISCAL YEAR ENDING DECEMBER 31,
--------------------------------------------------------
2005E 2006E 2007E 2008E 2009E
($ in millions) --------- --------- --------- --------- ---------
FUNDS FROM OPERATIONS:
Net Income $ 72.3 $ 7.4 $ 21.5 $ 30.9 $ 33.6
Depreciation 45.6 41.1 42.7 43.4 44.0
Deferred Taxes 0.0 0.0 0.0 1.9 (0.6)
COD Income (145.8) 0.0 0.0 0.0 0.0
Cash Payment to Unsecured Creditors (10.0) 0.0 0.0 0.0 0.0
WORKING CAPITAL
(Increase)/Decrease in Net A/R (4.1) (0.7) (3.9) (12.3) (4.1)
(Increase)/Decrease in Net Inventory 4.4 0.1 (1.4) 1.5 (0.4)
(Increase)/Decrease in Other Assets 5.6 2.3 2.3 2.0 2.0
Increase/Decrease) in Accounts Payable 3.1 19.1 3.1 10.6 2.4
Increase/Decrease) in Accrued Liabilities 3.9 (7.6) (1.5) 0.0 0.0
Increase/(Decrease) in Other LT Liabilities (3.6) (8.0) (6.1) (5.1) (5.5)
Changes in Working Capital 9.4 5.2 (7.5) (3.3) (5.6)
-------- -------- -------- -------- --------
Total ($ 28.5) $ 53.7 $ 56.8 $ 72.8 $ 71.4
FUNDS PROVIDED BY INVESTING ACTIVITIES:
Capital Expenditures (43.6) (50.5) (39.9) (49.0) (45.4)
Proceeds from Asset Sales 8.0 5.0 0.0 0.0 0.0
Other Changes in Investing 4.3 0.0 0.0 0.0 0.0
-------- -------- -------- -------- --------
Total ($ 31.3) ($ 45.5) ($ 39.9) ($ 49.0) ($ 45.4)
FUNDS PROVIDED BY FINANCING ACTIVITIES:
Increase/(Decrease) in Borrowings (2.0) (3.5) (9.0) (11.0) (2.1)
Changes in Other Financing (a) 72.6 0.0 0.0 0.0 0.0
-------- -------- -------- -------- --------
Total $ 70.5 ($ 3.5) ($ 9.0) ($ 11.0) ($ 2.1)
CHANGE IN CASH AND EQUIVALENTS $ 10.7 $ 4.6 $ 7.9 $ 12.7 $ 24.8
Beginning Cash 11.2 22.0 26.6 34.5 47.2
-------- -------- -------- -------- --------
Ending Cash $ 22.0 $ 26.6 $ 34.5 $ 47.2 $ 71.2
======== ======== ======== ======== ========
(a) Reflects new equity investment of $75 million via a rights offering.
4. ADJUSTED EBITDA CALCULATION
INTERMET CORPORATION
INTERMET ADJUSTED EBITDA BUILD-UP
----------------------------------------
LTM 2005E 2006E
($ in millions) ------------ ------------- ---------
EBIT ($ 234.4) ($ 10.2) $ 34.7
Plus: Depreciation & Amortization 47.9 45.6 41.1
Less: Other Expense(a) 0.0 (2.9) (0.5)
-------- --------- --------
EBITDA ($ 186.4) $ 32.5 $ 75.3
======== ========= ========
Plus: Pro-Forma Adjustments 209.5 (b) 0.0 0.0
Plus: KERP Charge 2.7 3.8 0.0
Less: Impairment Adjustment (1.7) 0.0 0.0
Plus: Pricing and Surcharge Related Adjustments(c) 23.2 0.0 0.0
Plus: Plant Closure / Restructuring Costs 9.8 (d) 26.8 (e) 0.0
-------- --------- --------
Adjusted EBITDA $ 56.9 $ 63.1 $ 75.3
======== ========= ========
(a) Reflects interest expense and interest income on intercompany obligations,
charges to and from affiliates and gains and losses on foreign exchange
transactions.
(b) Includes goodwill and asset impairment charges and reorganization costs.
(c) Includes both North American and European surcharge adjustments.
(d) Includes charges for the closure of the Havana and Decatur facilities and
adjustments related to the Radford and Racine operations.
(e) Includes charges for the closure of the Decatur facilities and adjustments
related to the Columbus Machining, Radford and Racine operations.
5. SUMMARY DEBTOR OPERATING / FINANCIAL STATISTICS
Below are key income statement items by Debtor for the periods 2005-2007
as well as the book value of assets by Debtor entity based on unaudited balance
sheets as of 12/31/04. The value of Intermet Corporation is attributable to the
equity value of Intermet International, the parent of Intermet's foreign.
Revenue, EBITDA and EBIT totals do not include corporate expenses, corporate
eliminations, or any other items not allocated on an entity-by-entity basis.
CONTRIBUTION ANALYSIS
--------------------------------------------------------------------------------------
REVENUE EBITDA EBIT
---------------------- ------------------------- -------------------------- BOOK VALUE
DEBTOR 2005 2006 2007 2005 2006 2007 2005 2006 2007 12/31/04
- ------------------------------------- ------ ------ ------ ------- ------- ------- -------- ------- ------- ----------
Intermet Corporation $217.9 $252.2 $265.5 $ 20.8 $ 30.4 $ 33.2 $ 11.3 $ 19.5 $ 21.4 $155.6
Columbus Foundry, L.P. 147.1 166.6 180.0 22.5 23.6 26.3 17.4 18.5 21.2 84.2
Diversified Diemakers, Inc. 87.3 78.1 84.6 11.8 11.5 13.3 3.4 3.0 4.4 100.7
Tool Products, Inc. 78.2 80.5 98.5 3.2 8.8 13.3 0.4 5.6 9.4 44.1
Northern Castings Corporation 28.4 33.0 33.1 5.3 6.3 6.1 4.7 5.6 5.4 15.8
Cast-Matic Corporation 47.4 36.3 37.2 4.6 6.7 6.8 2.7 4.7 4.6 21.9
Intermet U.S. Holding, Inc. 79.4 103.6 111.7 1.5 4.1 4.7 (4.6) (1.3) (0.2) 61.5
Ganton Technologies, Inc. 44.1 36.6 44.7 (12.9) 1.3 3.0 (16.6) (0.0) 1.5 43.5
Lynchburg Foundry Company 88.5 73.0 73.9 (0.4) (3.0) (2.8) (3.0) (5.7) (5.4) 29.8
Sudbury, Inc. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 12.9
Wagner Havana, Inc. 0.0 0.0 0.0 (1.0) (0.8) (0.7) (1.0) (0.8) (0.7) 3.1
Alexander City Castings Company, Inc. 0.0 0.0 0.0 (0.2) (0.1) (0.1) (0.2) (0.1) (0.1) 0.7
Intermet Illinois, Inc. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
SUDM, Inc. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Intermet Holding Company 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Ironton Iron, Inc. 0.0 0.0 0.0 (0.5) (0.1) (0.1) (0.5) (0.1) (0.1) 0.0
Wagner Castings Company 47.8 0.0 0.0 (14.2) (4.7) (3.3) (17.9) (4.7) (3.3) 28.8
------ ------ ------ ------ ------ ------ ------- ------ ------ ------
Total $866.0 $859.8 $929.0 $ 40.6 $ 84.1 $ 99.8 ($ 3.8) $ 44.2 $ 58.2 $602.6
EXHIBIT H
SELECTED HISTORICAL FINANCIAL INFORMATION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM_____________________
TO______________________
Commission File No. 0-13787
INTERMET CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1563873
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
5445 Corporate 48098-2683
Drive, Suite 200, (Zip Code)
Troy, Michigan
(Address of
principal executive
offices)
(248) 952-2500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2003 was $88,281,674 based on $3.45 per share, the
closing sale price of the common stock as quoted on the Nasdaq National Market.
For purposes of determining the aggregate market value of the Registrant's
voting stock held by non-affiliates, shares held by all current directors and
executive officers of the Registrant have been excluded. The exclusion of such
shares is not intended to, and shall not, constitute a determination as to which
persons or entities may be "affiliates" of the Registrant as defined by the
Securities and Exchange Commission.
At March 1, 2004 there were 25,655,266 shares of common stock, $0.10 par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 2003 are incorporated by reference into Parts I and II.
Portions of the registrant's definitive proxy statement for the 2003 annual
meeting of shareholders to be held April 15, 2004 are incorporated by reference
into Part III.
TABLE OF CONTENTS
Part I
Item 1. Business
Item 2. Properties
Item 3 Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risks
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 9A. Controls and Procedures
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services.
Part IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Schedule II Valuation and Qualitative Accounts
Signatures
Certifications
Exhibit Index
By-Laws of Intermet
8th Amend. To and Waiver Under 5-Yr, Credit Agrmt
First Amended and Restated Credit Agreement
Letter of Credit Facility Agreement
Employment Agreement -- Laurence Vine-Chatterton
Employment Agreement -- Robert E. Belts
Employment Agreement -- Thomas E. Procha
Employment Agreement -- Jesus M. Bonilla
Code of Conduct
Subsidiaries of Intermet
Consent of Independent Auditors
Power of Attorney
Certification of CEO
Certification of CFO
Certification of Periodic Financial Report
1
ITEM 8. Financial Statements and Supplementary Data
INTERMET Corporation
Consolidated Statements of Operation
Years ended December 31,
---------------------------------------------
2003 2002 2001
--------- --------- ---------
(In thousands of dollars, except per share
data)
Net sales $ 731,167 $ 755,737 $ 782,854
Cost of sales 667,327 683,234 720,423
--------- --------- ---------
Gross profit 63,840 72,503 62,461
Operating expense:
Selling, general and administrative 39,406 32,826 28,381
Goodwill impairment charge 51,083 - -
Restructuring and impairment charges 9,968 - 13,540
Goodwill amortization - - 6,328
--------- --------- ---------
Total operating expenses 100,457 32,826 48,249
--------- --------- ---------
Operating (loss) profit (36,617) 39,677 14,212
Other expenses (income):
Interest expense, net 29,895 28,270 29,822
Other income, net (1,959) (161) (3,441)
--------- --------- ---------
Total other expenses 27,936 28,109 26,381
--------- --------- ---------
(Loss) income from continuing operations before income
taxes and equity interest in a joint venture (64,553) 11,568 (12,169)
Income tax (expense) benefit (18,536) (2,665) 4,259
Equity interest in a joint venture 752 1,573 946
--------- --------- ---------
(Loss) income from continuing operations (82,337) 10,476 (6,964)
Loss from discontinued operations, net of tax:
Loss from operation (16,535) (1,954) (1,739)
Loss from sale (41) - -
--------- --------- ---------
(Loss) income before cumulative effect of change in
accounting (98,913) 8,522 (8,703)
Cumulative effect of change in accounting, net of tax - 481 -
--------- --------- ---------
Net (loss) income $ (98,913) $ 9,003 $ (8,703)
========= ========= =========
Net (loss) income per common share -- basic:
Net (loss) income from continuing operations $ (3.22) $ 0.41 $ (0.27)
Loss from discontinued operations, net of tax (0.65) (0.08) (0.07)
Cumulative effect of change in accounting, net of tax - 0.02 -
--------- --------- ---------
Net (loss) income $ (3.87) $ 0.35 $ (0.34)
========= ========= =========
Net (loss) income per common share -- assuming dilution
Net (loss) income from continuing operations $ (3.22) $ 0.40 $ (0.27)
Loss from discontinued operations, net of tax (0.65) (0.07) (0.07)
Cumulative effect of change in accounting, net of tax - 0.02 -
--------- --------- ---------
Net (loss) income $ (3.87) $ 0.35 $ (0.34)
========= ========= =========
See accompanying notes.
INTERMET Corporation
Consolidated Statements of Comprehensive Income
Years ended December 31,
---------------------------------------------
2003 2002 2001
--------- --------- ---------
(In thousands of dollars)
Net (loss) income $ (98,913) $ 9,003 $ (8,703)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 10,537 9,793 (4,278)
Derivative instrument liability adjustment 1,343 515 (1,858)
Minimum pension liability adjustment (4,312) (11,481) (6,890)
--------- --------- ---------
Total other comprehensive income (loss) 7,568 (1,173) (13,026)
--------- --------- ---------
Comprehensive (loss) income $ (91,345) $ 7,830 $ (21,729)
========= ========= =========
Set accompanying notes.
29
INTERMET Corporation
Consolidated Balance Sheets
December 31,
-------------------------
2003 2002
--------- ---------
(In thousands of dollars,
except per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 1,035 $ 3,298
Accounts receivable:
Trade, less allowances of $6,528 in 2003 and $9,229 in 2002 76,218 74,025
Other 10,555 12,754
--------- ---------
86,773 86,779
Inventories 77,411 65,456
Deferred income tax assets -- 20,230
Other current assets 10,748 4,645
--------- ---------
Total current assets 175,967 180,408
--------- ---------
Property, plant and equipment, net 324,080 332,034
Goodwill 165,933 217,016
Deferred income tax assets 147 5,443
Other noncurrent assets 20,557 29,197
--------- ---------
Total noncurrent assets 510,717 583,690
--------- ---------
Total assets $ 686,684 $ 764,098
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 80,737 $ 70,933
Accrued payroll and benefits 33,885 31,148
Other accrued liabilities 25,657 34,057
Short-term lines of credit 9,992 --
Long-term debt due within one year 4,303 1,567
--------- ---------
Total current liabilities 154,574 137,705
Noncurrent liabilities:
Long-term debt due after one year 279,248 278,536
Retirement benefits 85,309 77,571
Deferred income tax liabilities -- 2,913
Other noncurrent liabilities 5,416 9,804
--------- ---------
Total noncurrent liabilities 369,973 368,824
Shareholders' equity:
Preferred stock; 5,000,000 shares authorized; none issued in
2003 and 2002 -- --
Common stock; $0.10 par value; 50,000,000 shares
authorized in 2003 and 2002; 25,593,391 and
25,491,178 shares issued and outstanding in 2003 and 2002 2,601 2,601
Capital in excess of par value 57,165 57,124
Retained earnings 109,428 212,437
Accumulated other comprehensive loss (6,994) (14,562)
Unearned restricted stock (63) (31)
--------- ---------
Total shareholders' equity 162,137 257,569
--------- ---------
Total liabilities and shareholders' equity $ 686,684 $ 764,098
========= =========
See accompanying notes.
30
INTERMET Corporation
Consolidated Statements of Cash Flows
Years ended December 31,
----------------------------------------
2003 2002 2001
-------- --------- ---------
(in thousands of dollars)
OPERATING ACTIVITIES:
(Loss) income from continuing operations $(82,337) $ 10,476 $ (6,964)
Adjustments to reconcile net (Loss) income to cash provided by operating activities:
Cumulative effect of changes in accounting -- 481 --
Depreciation and amortization 50,251 47,120 48,263
Amortization of debt discount and issuance costs 2,211 2,083 1,476
Amortization of goodwill -- -- 6,328
Goodwill impairment charge 51,083 --
Restructuring and impairment charges 9,506 -- 11,734
Results of equity investment (752) (1,573) (946)
Deferred income tax provision (benefit) 22,613 548 (4,086)
(Gain) loss on disposal of property, plant and equipment (1,526) 3,109 --
Gain on insurance proceeds from involuntary conversion of assets -- -- (3,220)
Changes in operating assets and liabilities:
Accounts receivable 6,772 28,538 16,750
Inventories (6,657) 6,968 20,293
Accounts payable and current liabilities (11,233) (15,818) (39,465)
Other assets and liabilities (2,758) 4,497 13,207
-------- --------- ---------
Cash provided by continuing operating activities 37,173 86,429 63,370
Cash (used in) provided by discontinued operations (4,066) 2,946 8,224
-------- --------- ---------
Cash provided by operating activities 33,107 89,375 71,594
INVESTING ACTIVITIES:
Additions to property, plant and equipment (19,533) (8,427) (35,526)
Additions to property, plant and equipment from insurance -- -- (3,389)
Additions to property, plant and equipment by discontinued operations (145) (1,018) (842)
Proceeds from insurance for replacement of property, plant and equipment -- -- 3,389
proceeds from sale of property, plant and equipment 1,700 -- --
Purchase of shares of a subsidiary (5,571) --
Proceeds from sale of assets of a subsidiary 3,925 -- --
-------- --------- ---------
Cash used in investing activities (19,624) (9,445) (36,368)
FINANCING ACTIVITIES:
Net (decrease) increase in revolving credit facility (3,000) (85,000) 9,000
Proceeds from term loan -- -- 182,750
Proceeds from debt offering -- 175,000 --
Repayment of term loan -- (171,750) (211,000)
Repayments of other debts (4,417) (1,646) (16,494)
Payments of debt issuance costs (2,110) (6,022) --
Issuance (purchase) of common stock -- 374 (349)
Dividends paid (4,096) (4,075) (3,183)
-------- --------- ---------
Cash used in financing activities (13,623) (93,119) (39,276)
Effect of exchange rate changes on cash and cash equivalents (2,123) 2,621 (1,821)
-------- --------- ---------
Net decrease in cash and cash equivalents (2,263) (10,568) (5,871)
Cash and cash equivalents at beginning of year 3,298 13,866 19,737
-------- --------- ---------
Cash and cash equivalents at end of year $ 1,035 $ 3,298 $ 13,866
======== ========= =========
See accompanying notes.
31
INTERMET Corporation
Consolidated Statements of Shareholders' Equity
Years ended December 31,
----------------------------------------------------
2003 2002 2001
----------- ----------- -------------
(In thousands of dollars, except share and per share
data)
Common stock, $0.10 par value
Balance as of January 1 $ 2,601 $ 2,590 $ 2,590
Issued in connection with exercise of options to purchase 19,750 shares of
common stock -- 2 --
Issued in connection with deferred compensation plan -- 9 --
----------- ----------- -----------
Balance as of December 31 2,601 2,601 2,590
Capital in excess of par value
Balance as of January 1 57,124 56,761 57,110
Amounts in excess of par value of common stock issued in connection with
exercise of options to purchase shares -- 189 --
Amounts in excess of par value of common stock issued in connection with stock
compensation plan 41 174 --
Purchase of 104,000 shares for deferred compensation plan -- -- (349)
----------- ----------- -----------
Balance as of December 31 57,165 57,124 56,761
Retained earnings
Balance as of January 1 212,437 207,512 220,279
Net (loss) income (98,913) 9,003 (8,703)
Cash dividends of $0.16 per share in 2003, 2002 and 2001 (4,096) (4,078) (4,064)
----------- ----------- -----------
Balance as of December 31 109,428 212,437 207,512
Accumulated translation
Balance as of January 1 5,152 (4,641) (363)
Foreign currency translation adjustment 16,213 14,932 (6,582)
Related income tax (expense) credit (5,676) (5,139) 2,304
----------- ----------- -----------
Balance as of December 31 15,689 5,152 (4,641)
Derivative instrument liability
Balance as of January 1 (1,343) (1,858) --
Derivative instrument liability adjustment 2,066 792 (2,858)
Related income tax (expense) credit (723) (277) 1,000
----------- ----------- -----------
Balance as of December 31 -- (1,343) (1,858)
Minimum pension liability
Balance as of January 1 (18,371) (6,890) --
Additional minimum pension liability (6,634) (17,663) (10,600)
Related income tax credit 2,322 6,182 3,710
----------- ----------- -----------
Balance as of December 31 (22,683) (18,371) (6,890)
Unearned restricted stock
Balance as of January 1 (31) (194) (206)
Issuance of 7,500, 6,000 and 23,000 shares of common stock in 2003, 2002 and
2001, respectively (63) (20) (64)
Restricted stock vested 31 44 76
Forfeitures -- 139 --
----------- ----------- -----------
Balance as of December 31 (63) (31) (194)
----------- ----------- -----------
Total shareholders' equity $ 162,137 $ 257,569 $ 253,280
=========== =========== ===========
See accompanying notes.
32
INTERMET Corporation
Notes to Consolidated Financial Statements
Years ended December 31, 2003, 2002 and 2001
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
INTERMET Corporation produces castings worldwide for light and heavy vehicles,
including powertrain, chassis, brake, and body/interior components, as well as
industrial products. In addition, we perform value-added services including
advanced design and engineering, prototype casting, machining and sub-assembly,
principally for our worldwide automotive customers.
Our business segments include two groups: Ferrous Metals Group and Light Metals
Group. Ferrous Metals consists of ductile iron casting and related
manufacturing. Light Metals consists of aluminum, magnesium and zinc casting,
along with associated value-added activities.
BASIS OF PRESENTATION
The accompanying consolidated financial statements, presented in conformity with
accounting principles generally accepted in the United States ("GAAP"), include
the accounts of INTERMET and its domestic and foreign subsidiaries. All
significant inter-company transactions and balances have been eliminated in
consolidation. All subsidiaries have a fiscal year ending December 31.
Investments in 20% to 50% owned companies are accounted for under the equity
method.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. There were no
material changes in the methods or policies used to establish estimates and
assumptions. Generally, matters subject to estimation and judgment include
accounts receivable realization, inventory obsolescence, long-lived asset
impairment, pension and other postretirement benefit obligations, accruals
related to litigation and environmental costs, and valuation reserves for
deferred tax assets. Actual results may differ from the estimates provided.
RECLASSIFICATIONS
On January 1, 2003, we adopted Statement of Financial Accounting Standards
(SFAS) No. 145, Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections. This Statement requires certain
gains and losses associated with the extinguishment of debt previously treated
as extraordinary items to be classified as income or loss from continuing
operations. As required under SFAS No. 145, we reclassified pretax losses of
$927,000 related to the extinguishment of bank term loan in the 2002 Statement
of Operations from "Extraordinary Item" to "Interest Expense, Net."
Certain other amounts previously reported in the 2002 and 2001 financial
statements and notes thereto have been reclassified to conform to the 2003
presentation.
REVENUE RECOGNITION
We recognize revenue upon shipment of products and transfer of title.
SHIPPING AND HANDLING COSTS
We record shipping and handling costs as components of "Cost of Sales" within
our statements of operations.
33
INTERMET Corporation
Notes to Consolidated Financial Statements
Years ended December 31, 2003, 2002 and 2001
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCK-BASED COMPENSATION
We grant stock options to employees and directors with an exercise price equal
to the fair value of the shares at the date of grant. We account for stock
option grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and, accordingly, recognize no
compensation expense for the stock option grants. Had compensation expense for
these stock option grants been determined based on the fair value at the grant
dates for awards under the stock option plans consistent with the method of SFAS
No. 123, "Accounting for Stock-Based Compensation", our pro forma net (loss)
income, basic (loss) earnings per share and diluted (loss) earnings per share
would be the following:
2003 2002 2001
--------- -------- ---------
(In thousands of dollars, except per
share data)
Net (loss) income, as reported $ (98,913) $ 9,003 $ (8,703)
Less: Total stock-based employee compensation
expense determined under fair value method for
all awards, net of related tax effects (670) (794) (898)
--------- -------- ---------
Pro forma net (loss) income $ (99,583) $ 8,209 $ (9,601)
========= ======== =========
(Loss) earnings per share:
Basic -- as reported $ (3.87) $ 0.35 $ (0.34)
========= ======== =========
Basic -- pro forma $ (3.89) 0.32 $ (0.38)
========= ======== =========
Diluted -- as reported $ (3.87) $ 0.35 $ (0.34)
========= ======== =========
Diluted -- pro forma $ (3.89) $ 0.32 $ (0.38)
========= ======== =========
We use the Black-Scholes option pricing model to estimate the fair value of our
stock options as described in Note 10, Stock Compensation, to our Consolidated
Financial Statements.
CASH AND CASH EQUIVALENTS
All short-term investments with original maturities of less than 90 days are
deemed to be cash equivalents for purposes of the statements of cash flows.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowance for doubtful accounts reduces trade accounts receivable to its net
recognizable amount. It is determined by a combination of factors, such as
customer charge-backs, a customer's inability to meet its financial obligations
to us, our past loss history, and the length of time the trade account
receivables are past due. If circumstances change, our estimates of the
recoverability of trade accounts receivable could be reduced by a material
amount. We typically do not require collateral.
34
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on the
last-in, first-out ("LIFO") method for 3% and 5% of inventories as of December
31, 2003 and 2002, respectively. If LIFO inventories were valued using the same
cost methods used for other inventories, their carrying values would have
increased by $869,000 and $897,000 at December 31, 2003 and 2002, respectively.
Certain raw materials and supplies inventories are valued on a weighted average
cost basis. Average production cost is used for certain work in process.
Finished goods inventories and other inventories are valued by the first-in,
first-out ("FIFO") method. The specific identification method is used for
pattern inventories. Supplies inventories are evaluated for obsolescence based
on length of time in the store-room and expected near-term use.
PREPAID EXPENSES
We recognize payments made in advance for future services as prepaid expenses
and include them in "Other Current Assets" in the accompanying balance sheets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The provision for depreciation
and amortization of property, plant and equipment is determined using the
straight-line method on the basis of the following estimated useful lives: 2 to
40 years for buildings and improvements, and 2 to 21 years for machinery and
equipment. The amortization of property, plant and equipment under capital
leases is included in depreciation expense. Industrial development grants
provided by the federal and state governments of Germany are included as
reductions of property, plant and equipment and are being amortized over the
estimated useful lives of the related assets.
We evaluate our property, plant and equipment for impairment whenever events or
changes in circumstances indicate that the carrying amounts of such assets may
not be recoverable. The carrying amount of a long-lived asset is considered to
be not recoverable if it exceeds our estimates of its undiscounted future cash
flows based on our operation forecasts. Impairment charge will be measured and
recorded as the amount by which the carrying values of the long-lived assets
exceed their fair values.
GOODWILL
Goodwill represents the excess acquisition cost over the fair value of net
assets acquired. On January 1, 2002, we adopted SFAS No. 142 "Goodwill and Other
Intangible Assets". Under this statement, goodwill is no longer amortized but is
reviewed for impairment annually, or more frequently if certain events or
changes in circumstances indicate that the carrying value may not be
recoverable. We perform impairment tests of our goodwill as required. We
evaluate our goodwill recoverability based on a combination of an income method,
which estimates the fair value of our reporting units based on the future
discounted cash flows, and a market method, which estimates the fair values
based on comparable market prices.
DERIVATIVES
SFAS No. 133 requires us to recognize all of their derivative instruments as
either assets or liabilities in the statement of financial position at fair
value. The accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and further, on the type of hedging relationship.
For those derivative instruments that are designated and qualify as hedging
instruments, we designate the hedging instrument, based upon the exposure being
hedged, as either a fair value hedge, cash flow hedge or a hedge of a net
investment in a foreign operation.
35
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
ENVIRONMENTAL MATTERS
Accruals for environmental matters are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated. These accruals are adjusted periodically as assessment and
remediation efforts progress or other information becomes available. Related
insurance or other third-party recoveries for environmental liabilities are
recorded as a reduction of environmental reserve when it is probable that a
recovery will be realized.
Environmental costs are capitalized if the costs extend the life of the
property, increase its capacity, and / or mitigate or prevent contamination from
future operations. Costs related to environmental contamination treatment and
cleanup are charged to expense.
INCOME TAXES
We account for taxes on income using the asset and liability method wherein
deferred tax assets and liabilities are recognized for the future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities using statutory tax rates.
We regularly assess the likelihood that the deferred tax assets, including net
operating loss carryforwards, are recoverable. This process requires substantial
management judgment. To the extent that we believe the recoverability is less
than likely, we will establish a valuation reserve against the deferred tax
assets. Actual results could differ from our estimates and such differences
could be material to the financial statements. For the year ended December 31,
2003, we recorded a valuation reserve of $23.9 million and $5.8 million against
our domestic net deferred tax assets for continuing operations and discontinued
operations, respectively, due to the accumulation of losses experienced at our
domestic operations in the immediate past three years (2001 to 2003).
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of foreign subsidiaries for which the local currency
is the functional currency are translated into U.S. dollars at year-end exchange
rates. Income and expense items are translated at average exchange rates
prevailing during the year. The resulting translation adjustments are recorded
in Accumulated Other Comprehensive Income as a component of Shareholder's
Equity.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board issued SFAS 132
Revised, "Employers' Disclosures about Pensions and Other Postretirement
Benefits". This Statement revises the required disclosures about pension plans
and other postretirement benefit plans. We adopted this Statement on December
31, 2003.
36
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
2. BALANCE SHEET DETAILS
INVENTORIES:
The components of inventories are as follows (in thousands of dollars):
December 31,
-----------------
2003 2002
------- -------
Finished goods $22,433 $15,804
Work in process 8,198 9,059
Raw materials 8,113 6,794
Supplies and patterns 38,667 33,799
------- -------
Total inventories $77,411 $65,456
======= =======
Property, Plant and Equipment, Net:
The components of property, plant and equipment are as follows (in thousands of
dollars):
December 31,
-------------------
2003 2002
-------- --------
Land $ 6,681 $ 5304
Buildings and improvements 143,382 135,191
Machinery and equipment 517,846 510,917
Construction in progress 26,443 9,595
-------- --------
Property, plant and equipment, at cost 694,352 661,007
Less: Accumulated depreciation and foreign industrial development grants,
net of amortization 370,272 328,973
-------- --------
Property, plant and equipment, net $324,080 $332,034
======== ========
37
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
3. ACQUISITION
On June 25, 2003, we entered into an agreement with Estudos, Servicos e
Participacoes, S.A. to acquire 100% ownership of the shares of Fundicao Nodular,
S.A. ("Porto Foundry"), which is located in Porto, Portugal. Previously we owned
50% interest in the Porto Foundry. The Porto Foundry is a caster of various
ductile-iron automotive components. Under the terms of the agreement, we
acquired 25% of the shares for a cash investment of Euros 4.9 million
(approximately $5.6 million) on July 1, 2003, increasing our ownership from 50%
to 75%. We have a call option to acquire, and Estudos, Servicos e Participacoes,
S.A. has a put option to sell, the remaining 25% ownership for an additional
cash investment of Euros 4.9 million (approximately $6.2 million all exchange
rate on December 31, 2003) on July 1, 2004. Because of the put option, we
recorded $6.0 million, the net present value of the $6.2 million future cash
investment, as "Accounts Payable" in the accompanying balance sheet as of
December 31, 2003, and we consolidate 100% of the financial results of the Porto
Foundry beginning in July 2003.
We accounted for the acquisition of additional shares using the purchase
accounting method. The purchase price has been allocated to the assets purchased
and liabilities assumed based upon the estimated fair values at the date of
acquisition. Fundicao Nodular, S.A. became a consolidated subsidiary at July 1,
2003 and the results of its operations from July 1, 2003 are included in our
consolidated results of operations. Our equity in the net income of the Porto
Foundry for the period before July 1, 2003 is included in "Equity interest in a
joint venture" in the accompanying statements of operations. The pro forma
effects of this acquisition are not material to our consolidated results of
operations.
4. DISCONTINUED OPERATIONS
FRISBY
On July 24, 2003, we sold substantially all the assets of Frisby P.M.C.,
Incorporated ("Frisby") for $5.3 million, consisting of $3.9 million in cash and
$1.4 million in the form of a promissory note, the balance of which is due to be
paid by July 31, 2008. This disposition is consistent with our strategy to
divest non-strategic assets. This transaction resulted in a pre-tax loss on sale
of $1.2 million (after-tax loss $0.1 million). Frisby operated a machining plant
that manufactures precision-machined components primarily for the automotive,
truck and power tool markets. Frisby was a non-core operation, and is included
in our Corporate and Other segment in Note 14, Reporting for Business Segments,
to our Consolidated Financial Statements.
Major classes of assets and liabilities of Frisby are as follows (in thousands
of dollars):
July 24, December 31,
2003 2002
-------- ------------
Accounts receivable $ 2,061 $ 1,276
Inventory 1,552 1,717
Other current assets 158 414
Property, plant and equipment, net 4,453 5,072
-------- -------
Total assets $ 8,224 $ 8,479
======== =======
Accounts payable $ 848 $ 973
Accrued liabilities 855 892
-------- -------
Total liabilities $ 1,703 $ 1,865
======== =======
38
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
4. DISCONTINUED OPERATIONS (CONTINUED)
The results of operations of Frisby are summarized as follows (in thousands of
dollars):
2003 2002 2001
-------- -------- --------
Sales $ 8,007 $ 13,603 $ 16,147
Cost of sales 7,645 14,319 15,926
-------- -------- --------
Gross profit (loss) 362 (716) 221
Expenses 526 886 1,019
-------- -------- --------
Loss before income taxes (164) (1,602) (798)
Income tax (expense) benefit (1,180) 623 312
-------- -------- --------
Loss from discontinued operation, net of tax $ (1,344) $ (979) $ (486)
======== ======== ========
RADFORD
In May 2003, we decided to permanently close our shell-molding plant in Radford,
Virginia due to changes in market conditions and production technology, as well
as a substantial investment in environmental controls that would have been
necessary for continued operation. The Radford Foundry manufactured gray-iron
and ductile-iron components for the automotive industry, and had approximately
41 salaried and 333 hourly employees. The facility is included in the Ferrous
Metals segment in Note 14, Reporting for Business Segments, to our Consolidated
Financial Statements.
As a result of this decision, we recorded an $11.6 million pre-tax
restructuring and impairment charge during the second quarter of 2003. The
charges included a write-down of $9.9 million to reduce the capital assets and
inventories to their fair values, $1.4 million for employee severance and
related contractually guaranteed benefit costs, and $0.3 million for employee
pension costs. In the fourth quarter of 2003, we accrued for an additional $0.1
million for employee severance costs. The accruals for the employee severance
and benefit costs are included in "Other accrued liabilities" in the
accompanying balance sheet in 2003.
In addition, we recorded pre-tax gains of $1.3 million and $0.7 million on the
reduction of postretirement benefit obligations when the employees were
terminated in the third and fourth quarter of 2003, respectively. The Radford
Foundry was closed, and all the hourly employees and substantially all the
salaried employees were terminated, by December 2003. We expect to incur
approximately $0.4 million for environmental remediation at the Radford foundry
in the future, which is in addition to the $2.5 million environmental
remediation costs that are discussed in Note 11, Commitments and Contingencies,
to our Consolidated Financial Statements. The after-tax results of operations of
Radford for all periods presented have been reported as "Loss from discontinued
operations, net of tax" in the accompanying statements of operations.
39
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
4. DISCONTINUED OPERATIONS (CONTINUED)
Activities relating to the restructuring charges and liabilities related to the
Radford Foundry closure are as follows (in thousands of dollars):
Impairment Write-down Employee Employee
of of Termination Postretirement
fixed assets inventory Benefits Benefits Other Total
------------ ---------- ----------- -------------- ----- ---------
Initial charge in second quarter of 2003 $ 7,554 $ 2,351 $ 1,336 $ 301 $ 50 $ 11,592
Noncash charges (7,554) (2,351) - (301) - (10,206)
-------- ------- ------- ------ ----- ---------
Balance at June 30, 2003 - - 1,336 - 50 1,386
Reduction of post-retirement obligations - - - (1,278) - (1,278)
Noncash credit - - - 1,278 - 1,278
Cash payments - - (28) - (50) (78)
-------- ------- ------- ------ ----- ---------
Balance at September 30, 2003 - - 1,308 - - 1,308
Additional charge - - 138 - - 138
Reduction of post-retirement obligations - - - (719) - (719)
Noncash credit - - - 719 - 719
Cash payments - - (892) - - (892)
-------- ------- ------- ------ ----- ---------
Balance at December 31, 2003 $ - $ - $ 554 $ - $ - $ 554
======== ======= ======= ====== ===== =========
Major classes of assets and liabilities of the Radford Foundry are as follows
(in thousands of dollars):
At December 31,
-----------------
2003 2002
------- -------
Accounts receivable $ 2,052 $ 3,595
Inventory 429 3,759
Other current assets 514 -
Property, plant and equipment, net 673 9,023
------- -------
Total assets $ 3,668 $16,377
======= =======
Accounts payable $ 491 $ 4,374
Accrued liabilities 1,611 2,043
Retirement benefits 1,959 804
Other noncurrent liabilities 2,508 1,004
------- -------
Total liabilities $ 6,569 $ 8,227
======= =======
The results of operations of the Radford Foundry are summarized as follows (in
thousands of dollars):
2003 2002 2001
--------- -------- --------
Sales $ 34,820 $45,592 $44,142
Cost of sales 38,271 47,216 45,301
--------- -------- --------
Gross loss (3,451) (1,624) (1,159)
Expenses 11,740 63 823
--------- -------- --------
Loss before income taxes (15,191) (1,687) (1,982)
Income tax benefit - 712 729
--------- -------- --------
Loss from discontinued
operation, net of tax ($ 15,191) ($ 975) ($ 1,253)
========= ======== ========
40
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
4. DISCONTINUED OPERATIONS (CONTINUED)
Corporate interest expense has been allocated to Frisby and Radford based on the
ratio of their net assets to the consolidated net assets of INTERMET plus
consolidated debt, excluding the net assets of the European subsidiaries. The
European subsidiaries were excluded because they were cash flow positive and did
not directly use the proceeds from the debt outstanding during the periods
covered by the financial statements. The interest expense allocated to Frisby
and Radford for 2003, 2002 and 2001 was $546,000, $571,000 and $1,203,000,
respectively.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
provides that the results of operations of a component of an entity that has
been disposed of should be reported as discontinued operation when the
operations and cash flows of the component have been eliminated from the ongoing
operations of the entity and the entity will not have any significant continuing
involvement in the operations of the component after the disposal transaction.
This occurred when Frisby was sold in July 2003 and when Radford was closed and
abandoned in December 2003. As a result, the after-tax loss on sale of the
assets of Frisby, and the results of operations of both Frisby and Radford for
all periods presented, have been reported as discontinued operations in the
accompanying statements of operations.
41
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
5. RESTRUCTURING AND IMPAIRMENT CHARGES
Havana Plant Closure
In December 2003, we decided to permanently close our castings plant in Havana,
Illinois in order to improve our capacity utilization. The Havana Foundry
manufactures ductile-iron components for the automotive industry, and has
approximately 33 salaried and 141 hourly employees. We anticipate that the final
plant closure will occur, and substantially all the salaried and hourly
employees will be terminated, by June 30, 2004. The facility is included in the
Ferrous Metals segment in Note 14, Reporting for Business Segments, to our
Consolidated Financial Statements. The Havana Foundry had revenues of $25.7
million, $27.3 million and $31.4 million, and net losses of $5.0 million, $2.2
million and $8.6 million for the years ended December 31, 2003, 2002 and 2001,
respectively.
Because of our decision to close the Havana Foundry, we recorded $8.5 million
pre-tax charges during the fourth quarter of 2003. These charges are included in
"Restructuring and impairment charges" in the accompanying statements of
operations. The amount included a write-down of $8.0 million to reduce the
capital assets and inventories to their fair values, and $0.5 million for
employee severance and related contractually guaranteed benefit costs. The
accruals for the charges are included in "Accrued payroll and benefits" in the
accompanying balance sheet in 2003. We expect to incur approximately $2 million
for additional employee severance and related benefit costs, environmental
remediation costs, and costs of testing required in order to transfer the
manufacturing processes of Havana Foundry to other INTERMET's facilities when
the Havana Foundry is finally closed.
Other Long-Lived Assets Impairment
On January 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", under which long-lived assets other than
goodwill are tested for recoverability if certain events or changes in
circumstances indicate that the carrying value may not be recoverable. During
our impairment review in the fourth quarter of 2003, we identified certain
tangible fixed assets with carrying values not recoverable and exceeding their
fair values. The carrying amounts of long-lived assets are considered to be not
recoverable if they exceed our estimates of their undiscounted future cash
flows, which are affected by our operations forecasts and strategic planning. As
a result, in addition to the impairment charge for Havana, we recorded a pre-tax
impairment loss of $1.5 million in the fourth quarter of 2003, which was
reported as "Restructuring and Impairment Charges" in the accompanying
statements of operations in 2003.
Alexander City Plant Closure
In December 2001, we permanently closed our aluminum plant in Alexander City,
Alabama. The Alexander City Plant is included in the Light Metals segment in
Note 14, Reporting for Business Segments, to our Consolidated Financial
Statements. The Alexander City Plant had revenues of $39.1 million and a net
loss of $9.8 million for the year ended December 31, 2001. The net loss of $9.8
million for 2001 includes after tax charges for asset impairment and shutdown
costs of $8.4 million.
The decision to close this plant was the principal reason we recorded $12.9
million pre-tax restructuring and impairment charges in the fourth quarter of
2001. These charges are included in "Restructuring and impairment charges" in
the accompanying statements of operations. The amount included a write-down of
$9.8 million to reduce the capital assets and inventories to their fair values,
an intangible asset write-down of $1.9 million, $0.7 million for site
environmental remediation and disposal costs, $0.4 million of provisions for
severance (for 18 salaried employees) and employee pay-related costs, and $0.1
million for legal costs. During 2002, we paid all of the $0.4 million of
severance accrued at December 31, 2001.
Reynosa Plant Closure
In the second quarter of 2001, we announced the shutdown of our Reynosa, Mexico,
machining operation. The Reynosa Plant is included in the Light Metals segment
in Note 14, Reporting for Business Segments, to our Consolidated Financial
Statements. We recorded a $0.6 million pre-tax shutdown charge, which was
included in "Restructuring and impairment charges" in the accompanying
statements of operations.
42
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
6. GOODWILL
On January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible
Assets", under which goodwill is no longer amortized but is reviewed for
impairment at the reporting unit level annually, or more frequently if certain
events or changes in circumstances indicate that the carrying value may not be
recoverable. As required under SFAS No. 142, we wrote off negative goodwill of
$481,000 net of taxes, in the first quarter of 2002 as a cumulative effect of a
change in accounting principle. The following table reflects the proforma effect
of SFAS No. 142 on our net income for the years ended December 31:
2003 2002 2001
--------- ------- --------
(In thousands of dollars, except
per share data)
Reported net (loss) income $ (98,913) $ 9,003 $ (8,703)
Add back: Goodwill amortization, net of taxes -- -- 5,298
--------- ------- --------
Adjusted net (loss) income $ (98,913) $ 9,003 $ (3,405)
========= ======= ========
Basic and diluted (loss) earnings per share:
Reported net (loss) income $ (3.87) $ 0.35 $ (0.34)
Add back: Goodwill amortization, net of taxes -- -- 0.21
--------- ------- --------
Adjusted net (loss) income $ (3.87) $ 0.35 $ (0.13)
========= ======= ========
We have performed impairment tests according to the requirements of SFAS No.
142. In the second quarter of 2002, with the assistance of an independent
valuation firm, we performed our initial impairment test on our goodwill as of
January 1, 2002. In addition, we performed our annual impairment test of
goodwill as of November 30, 2002. Both tests indicated that goodwill was not
impaired as of those dates.
In December 2003, with the assistance of an independent valuation firm, we
performed our annual impairment test of goodwill as of November 30, 2003. Under
the first step of the annual impairment test, the fair values of our Ferrous
Metals reporting unit and Light Metals reporting unit were determined based on a
combination of an income method, which estimates the fair value based on the
future discounted cash flows, and a market method, which estimates the fair
values based on comparable market prices. Under the income method, we assumed a
cash flow period of 10 years, a discount rate of 11.5%, a compound annual growth
rate of 4.5% and 7.7% for Ferrous Metals reporting unit and Light Metals
reporting unit, respectively, for the ten-year period, and a terminal growth
rate of 1.0%. Due to the erosion of the profitability of the Light Metals
reporting unit, and the revision of our forecast as a result of the changing
market conditions, our estimated discounted cash flows from the Light Metals
reporting unit decreased significantly as compared to our impairment tests
performed in 2002. Based on the first step analysis, we determined that the
carrying value of the Light Metals reporting unit was in excess of its fair
value as of November 30, 2003. Accordingly, we were required to perform the
second step analysis on the Light Metals reporting unit to determine the amount
of the impairment. The second step analysis indicated that the pre-tax goodwill
impairment charge was $51.1 million, which was reported as "Goodwill Impairment
Charge" in the accompanying statements of operations in 2003.
43
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
7. SHORT-TERM LINES OF CREDIT
Columbus Neunkirchen Foundry GmbH, our wholly owned subsidiary, has various
revolving lines of credit which are payable upon demand. These credit lines
provide for borrowings up to Euros 6.8 million (approximately $8.6 million) at
December 31,2003. There were no outstanding borrowings under these agreements as
of December 31, 2003 and 2002.
As mentioned in Note 3, Acquisition, to our Consolidated Financial Statements,
we increased our ownership in the Porto Foundry to 75%. Therefore, the debt of
the Porto Foundry is consolidated into our financial results. At December 31 ,
2003, the Porto Foundry maintained lines of credit with various institutions for
up to Euros 13.7 million (approximately $17.3 million). There was approximately
$ 10.0 million outstanding under these credit lines as of December 31, 2003.
Interest accrues at various rates from approximately 3% to 5% and is payable
monthly.
8. DEBT
Long-term debt consists of the following at December 31 (in thousands of
dollars):
2003 2002
-------- -----------
INTERMET:
Revolving credit facility $ 60,000 $ 63,000
Senior notes 175,000 175,000
Domestic subsidiaries:
Industrial development bonds 39,350 40,200
Capitalized leases 974 1,581
Foreign subsidiaries:
Bank term notes 7,629 322
Capitalized leases 598 --
-------- -----------
Total 283,551 280,103
Less: Long-term debt due within one year 4,303 1,567
-------- -----------
Long-term debt due after one year $279,248 $ 278,536
======== ===========
As of December 31, 2003, we had a bank revolving credit agreement under which,
as amended through December 19, 2003, we had a commitment amount of $ 190
million. That revolving credit agreement provided for a maturity date of
November 5, 2004 and was secured by all domestic assets and a pledge of 65% of
the stock of foreign subsidiaries. That revolving credit agreement contained
covenants that required us to maintain specified financial ratios. We were in
compliance with those covenants as of December 31, 2003. Various borrowing
options were available to us from overnight borrowings to term LIBOR borrowings.
At December 31, 2003, the borrowing under the revolving credit agreement
consisted of overnight borrowings and were at an interest rate of 6.50%. We must
also pay a fee, at a rate of 0.50% per annum, on any unused portion of the
secured revolving credit facility. Standby letters of credit reduce the amount
that the Company is able to borrow under its secured revolving credit facility.
At December 31, 2003, such standby letters of credit totaled $60.0 million.
Standby letters of credit are used to guarantee the payment or performance of
various obligations that we have, such as workers compensation, environmental
clean-up, and also in conjunction with several of our industrial revenue bonds.
These letters of credit are issued with one year maturity dates and re-issued
for an additional year upon each maturity date. Revolving credit agreement
covenants limit our availability to access the entire $ 190 million secured
revolving credit facility. At December 31, 2003, total borrowings and letter of
credit obligations under the $190 million secured revolving credit agreement
were $120.0 million. As of December 31, 2003, we had the ability to borrow an
additional $51.3 million under our credit agreement.
On January 8, 2004, we refinanced our revolving credit agreement by entering
into a new agreement, which provides for a $90 million revolving credit line and
a $120 million term loan. See Note 21, Subsequent Event, to our Consolidated
Financial Statements for further details regarding our new revolving credit
agreement. Because of this new agreement, the $60 million outstanding under our
prior revolving credit agreement is included in "Long-term debt due after one
year" in the accompanying balance sheet as of December 31, 2003.
As a result of the various amendments to our $300 million bank revolving credit
agreement and the processing of the new credit agreement in 2003, we incurred
$2.1 million of debt issuance costs which are included in "Other noncurrent
asset" in the accompanying balance sheet as of December 31, 2003.
44
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
8. DEBT (CONTINUED)
On June 13, 2002, we completed a senior note offering of $175 million. The notes
bear a fixed rate of interest at 9.75% and will mature on June 15, 2009.
Interest is due each June 15 and December 15. The notes are unsecured and rank
equally with all of our existing and future unsecured senior debt. The net
proceeds of the senior note offering were used to pay the remaining balance on a
then existing bank term loan and for working capital purposes. The write-off of
unamortized debt issuance costs of $0.9 million pretax related to the
extinguishment of the bank term loan was reported as interest expense in the
accompanying statements of operations of 2002. Debt issuance costs of $5.9
million were capitalized in connection with the note offering and are included
in "Other noncurrent assets" in the accompanying balance sheet and are being
amortized over seven years. See Note 9, Supplemental Condensed Consolidating
Financial Information, for additional information regarding the senior unsecured
notes. The estimated fair value of our senior notes based on market data as of
December 31, 2003, was approximately $179.4 million.
On December 23, 1999, Columbus Foundry, L.P., a wholly owned subsidiary, issued
$35,000,000 of variable rate limited obligation revenue bonds. Under the terms
of the indenture, Columbus Foundry, L.P. is required to make interest-only
payments at a variable rate. The interest rate resets weekly and at December
31, 2003, was 1.17%. The principal is due December 1, 2019.
Under the terms of a bond indenture entered into by Lynchburg Foundry Company, a
wholly owned subsidiary, Lynchburg Foundry Company is required to make partial
redemption of its industrial development revenue bonds on an annual basis
through June 2006. The redemption amount is $350,000 per year, with a final
payment at maturity of $1,650,000. The balance outstanding as of December 31,
2003 was $2,350,000. The bonds are subject to optional redemption prior to
maturity and bear an interest rate of 7.0%.
As part of our acquisition of Tool Products, Inc. in 1998, we assumed $4,500,000
of industrial development revenue bond debt. We are required to make annual
principal payments of $500,000, with a final maturity date of January 1, 2007.
The balance as of December 31, 2003 was $2,000,000. The interest rate resets
weekly and it was 1.35% at December 31, 2003
We had capital leases of $1 .6 million at December 31, 2003 and 2002, and these
leases relate to assets with net book values of $3.0 million and $2.4 million at
December 31, 2003 and 2002, respectively. Interest rates for these leases range
from 3.00% to 8.58% in 2003 and 2002. The amortization of assets under capital
leases is included in depreciation expense.
The foreign bank term notes bear interest rates from 3.00% to 5.00% per annum.
These borrowings are secured by property, plant and equipment with net book
values aggregating to approximately $21.0 million at December 31, 2003. At
December 31, 2003, the Porto Foundry had term loans of Euros 5.9 million
(approximately $7.4 million). These loans amortize semi-annually with various
amounts coming due from 2004 through 2008.
Maturities of long-term debt and capital leases at December 31, 2003, after
taking into effect of the new loan agreement entered into on January 8, 2004,
are as follows (in thousands of dollars):
2004 $ 4,303
2005 3,934
2006 3,550
2007 1,132
2008 632
Thereafter 270,000
--------
Totals $283,551
========
45
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
8. DEBT (CONTINUED)
We paid interest of $28.9 million, $26.5 million and $30.8 million in 2003, 2002
and 2001, respectively. No interest expense was capitalized in 2003 or 2002.
Our current bank agreements and senior note indenture limit our ability to pay
dividends. In 2003, under such agreements, we were able to pay dividends of up
to $5,000,000.
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On June 13, 2002, we issued $175 million of senior notes, which will mature in
2009. The senior notes are guaranteed by certain of our domestic wholly owned
subsidiaries ("Combined Guarantor Subsidiaries"). The guarantees are
unconditional and joint and several. The senior notes are effectively
subordinated to the secured debt of the Company ("Parent"). Restrictions
contained in the indenture covering the senior notes include, but are not
limited to, restrictions on incurring additional secured debt, repurchasing of
our capital stock, disposal of assets, affiliate transactions, and transfer of
assets. As of December 31, 2003, the Parent and the Combined Guarantor
Subsidiaries had $98.0 million of secured debt outstanding and $70.0 million of
unused commitments, net of outstanding letters of credit, under our credit
facility. The secured debt of the Parent is also guaranteed by each of the
Combined Guarantor Subsidiaries.
Certain of our domestic subsidiaries (Internet International, Inc., Intermet
Holding Company, Transnational Indemnity Company, and Western Capital
Corporation) and all of our foreign subsidiaries are not guarantors of the notes
("Combined Non-Guarantor Subsidiaries"). The Combined Non-Guarantor Subsidiaries
had $18.2 million of debt outstanding as of December 31, 2003.
Presented below are summarized condensed consolidating financial information for
the Parent, the Combined Guarantor Subsidiaries, the Combined Non-Guarantor
Subsidiaries, and the Company on a consolidated basis as of December 31, 2003
and 2002 and for the years ended December 31, 2003, 2002 and 2001.
Investments in subsidiaries are presented using the equity method of accounting.
Separate financial statements of the Combined Guarantor Subsidiaries are not
provided as the condensed consolidating financial information contained herein
provides a more meaningful disclosure to allow investors to determine the nature
of the assets held by and the operations of (he combined group.
46
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
Year ended December 31, 2003
--------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ----------- ------------- ------------ ------------
(in thousands of dollars)
INCOME STATEMENT DATA
Net sales $ -- $ 632,431 $ 116,405 $ (17,669)$ 731,167
Cost of sales -- 583,730 101,266 (17,669) 667,327
--------- ------------ ------------- ------------ ------------
Gross profit -- 48,701 15,139 -- 63,840
Selling, general and administrative 3,592 24,540 11,274 -- 39,406
Goodwill impairment charge -- 51,083 -- -- 51,083
Restructuring and impairment charges -- 9,707 261 -- 9,968
--------- ------------ ------------- ------------ ------------
Operating (loss) profit (3.592) (36,629) 3,604 -- (36,617)
Other expenses (income), net:
Interest expense, net 20,313 9,000 582 -- 29,895
Other expense (income), net (1,054) 124 (1,029) -- (1,959)
--------- ------------ ------------- ------------ ------------
(Loss) income from continuing
operations before income taxes and
equity interest in a joint venture (22,851) (45,753) 4,051 -- (64,553)
Income tax benefit (expense) (23,222) 3,774 912 -- (18,536)
Equity interest in a joint venture -- -- 752 -- 752
--------- ------------ ------------- ------------ ------------
(Loss) income from
continuing operations (46,073) (41,979) 5,715 -- (82,337)
(Loss) from discontinued operations,
net of tax -- (16,576) -- -- (16,576)
--------- ------------ ------------- ------------ ------------
Net (loss) income $ (46,073)$ (58,555)$ 5,715 $ -- $ (98,913)
========= ============ ============= ============ ============
47
INTERMET Corporation
NOTES TO Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
Year ended December 31, 2002
--------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ----------- ------------- ------------ ------------
(in thousands of dollars)
INCOME STATEMENT DATA
Net sales $ - $ 683,634 $ 87,950 $ (15,847)$ 755,737
Cost of sales (35) 619,931 79.225 (15,887) 683,234
--------- ----------- ------------- ------------ ------------
Gross profit 35 63,703 8,725 40 72,503
Selling, general and administrative 3,709 22,578 6,537 2 32,826
--------- ----------- ------------- ------------ ------------
Operating (loss) profit (3,674) 41,125 2,188 38 39,677
Other expenses (income), net:
Interest expense (income), net 20,259 8,468 (457) - 28,270
Other expense (income), net 57 (100) (118) - (161)
--------- ----------- ------------- ------------ ------------
(Loss) income from continuing
operations before income taxes and
equity interest in a joint venture (23,990) 32,757 2,763 38 11,568
Income tax benefit (expense) 10,556 (13,167) (54) - (2,665)
Equity interest in a joint venture - - 1,573 - 1,573
--------- ----------- ------------- ------------ ------------
(Loss) income from continuing
operations (13,434) 19,590 4,282 38 10,476
Loss from discontinued operations,
net of tax - (1,954) - - (1,954)
Cumulative effect of change in
accounting principle, net of tax - - 481 - 481
--------- ----------- ------------- ------------ ------------
Net (loss)income $ (13,434)$ 17,636 $ 4,763 $ 38 $ 9,003
========= ============ ============= ============ ============
48
INTERMET Corporation
NOTES to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
Year ended December 31, 2001
--------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ----------- ------------- ------------ ------------
(in thousands of dollars)
INCOME STATEMENT DATA
Net sales $ - $ 710,119 $ 89,986 $ (17,221)$ 782,884
Cost of sales 292 661,742 74,585 (16,196) 720,423
--------- ----------- ------------- ------------ ------------
Gross (loss) profit 292 48,377 15,401 (1,025) 62,461
Selling, general and administrative 3,643 18,645 6,093 - 28,381
Restructuring and impairment charges - 13,540 - - 13,540
Goodwill amortization - 6,328 - - 6,328
--------- ----------- ------------- ------------ ------------
Operating (loss) profit (3,935) 9,864 9,308 (1,025) 14,212
Other expenses (income), net
Interest expense (income), net 17,588 12,435 (201) - 29,822
Other expense (income), net (30) 131 (3,542) - (3.441)
--------- ----------- ------------- ------------ ------------
(Loss) income from continuing
operations before income taxes and
equity interest in a joint venture (21,493) (2,702) 13,051 (1,025) (12,169)
Income tax benefit (expense) 7,198 26 (3,223) 258 4,259
Equity interest in a joint venture - - 946 - 946
--------- ----------- ------------- ------------ ------------
(Loss) income from
continuing operations (14,295) (2,676) 10,774 (767) (6,964)
Loss from discontinued operations,
net of tax - (1,739) - - (1,739)
--------- ----------- ------------- ------------ ------------
Net (loss) income $ (14,295)$ (4,415)$ 10,774 $ (767)$ (8,703)
========= ============ ============= ============ ============
49
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
As of December 31, 2003
--------------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ -------------- ------------ ------------
(In thousands of dollars)
BALANCE SHEET DATA ASSETS
Current assets:
Cash and cash equivalents $ (2,674) $ 127 $ 3,582 $ -- $ 1,035
Accounts receivable, net 7 64,457 22,309 -- 86,773
Inventories -- 58,030 19,440 (59) 77,411
Other current assets 7,319 1,677 1,751 1 10,748
--------- ------------ ------------- ------------ ----------
Total current assets 4,652 124,291 47,082 (58) 175,967
Property, plant and equipment, net 3,765 247,681 71,766 868 324,080
Other noncurrent assets:
Goodwill -- 165,933 -- -- 165,933
Other noncurrent assets 15,834 1,378 2,049 1,443 20,704
Intercompany, net (65,291) 86,241 (24,711) 3,761 --
Investments in subsidiaries 550,411 -- -- (550,411) --
--------- ------------ ------------- ------------ ----------
Total assets $ 509,371 $ 625,524 $ 96,186 $ (544,397) $ 686,684
========= ============ ============= ============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,151 $ 58,504 $ 20,398 $ (316) $ 80,737
Accrued liabilities 27,671 29,041 224 2,606 59,542
Short-term lines of credit -- -- 9,992 -- 9,992
Long-term debt due within one year 350 983 2,970 -- 4,303
--------- ------------ ------------- ------------ ----------
Total current liabilities 30,172 88,528 33,584 2,290 154,574
Noncurrent liabilities:
Long-term debt due after one year 237,000 36,991 5,257 -- 279,248
Retirement benefits 84,135 1,174 -- -- 85,309
Other noncurrent liabilities (4,073) 4,843 3,838 808 5,416
--------- ------------ ------------- ------------ ----------
Total noncurrent liabilities 317,062 43,008 9,095 808 369,973
Shareholders' equity 162,137 493,988 53,507 (547,495) 162,137
--------- ------------ ------------- ------------ ----------
Tolal liabilities end shareholders' equity $ 509,371 $ 625,524 $ 96,186 $ (544,397) $ 686,684
========= ============ ============= ============ ==========
50
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
As of December 31, 2002
---------------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
(in thousands or dollars)
BALANCE SHEET DATA ASSETS
Current assets:
Cash and cash equivalents $ 1,122 $ 167 $ 2,009 $ -- $ 3,298
Accounts receivable, net 162 63,336 23,281 -- 86,779
Inventories -- 57,376 8,139 (59) 65,456
Other current assets 21,291 2,901 682 1 24,875
--------- ------------ ------------- ------------ ----------
Total current assets 22,575 123,780 34,111 (58) 180,408
Property, plant and equipment, net 4,598 294,781 32,112 543 332,034
Other noncurrent assets:
Goodwill -- 217,016 -- -- 217,016
Other noncurrent assets 18,749 3,867 10,581 1,443 34,640
Intercompany, net (40,038) 63,759 (25,323) 1,602 --
Investments in subsidiaries 592,765 -- -- (592,765) --
--------- ------------ ------------- ------------ ----------
Total assets $ 598,649 $ 703,203 $ 51,481 $ (589,235) $ 764,098
========= ============ ============= ============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,462 $ 63,399 $ 5,337 $ (265) $ 70,933
Accrued liabilities 19,603 34,480 11,041 81 65,205
Long-term debt due within one 350 1,107 110 -- 1,567
--------- ------------ ------------- ------------ ----------
Total current liabilities 22,415 98,986 16,488 (184) 137,705
Noncurrent liabilities:
Long-term debt due after
one year 240,350 37,974 212 -- 278,536
Retirement benefits 70,812 6,759 -- -- 77,571
Other noncurrent liabilities 7,503 6,955 (2,488) 747 12,717
--------- ------------ ------------- ------------ ----------
Total noncurrent liabilities 318,665 51,688 (2,276) 747 368,824
Shareholders' equity 257,569 552,529 37,269 (589,798) 257,569
--------- ------------ ------------- ------------ ----------
Total liabilities and shareholders' equity $ 598,649 $ 703,203 $ 51,481 $ (589,235) $ 764,098
========= ============ ============= ============ ==========
51
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
Year Ended December 31, 2003
------------------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
(In Thousands Of Dollars)
CASH FLOW DATA
Cash provided by continuing operating activities $ 5,435 $ 14,896 $ 16,842 $ -- $ 37,173
Cash used in discontinued operations -- (4,066) -- -- (4,066)
------------ ------------ ------------ ----------- ------------
Net cash provided by operating activities 5,435 10,830 16,842 -- 33,107
Investing activities:
Additions to property, plant and equipment by
continuing operations (1,725) (13,193) (4,615) -- (19,533)
Additions to property, plant and equipment by
discontinued operations -- (145) -- -- (145)
Purchase of shares of a subsidiary -- (5571) -- (5,571)
Proceeds from sale of assets of a subsidiary -- 3,925 -- -- 3,925
Proceeds from sale of property, plant and equipment 1,700 -- -- -- 1,700
------------ ------------ ------------ ----------- ------------
Net cash used in investing activities (25) (9,413) (10,186) -- (19,624)
Financing activities:
Net decrease in revolving credit facility (3,000) -- -- -- (3,000)
Repayment of other debts -- (1,457) (2,960) -- (4,417)
Payment of debt issuance costs (2,110) -- -- (2,110)
Dividends paid (4,096) -- -- -- (4,096)
------------ ------------ ------------ ----------- ------------
Net cash used in financing activities (9,206) (1,457) (2,960) -- (13,623)
Effect of exchange rate changes on cash and cash
equivalents -- -- (2,123) -- (2,123)
------------ ------------ ------------ ----------- ------------
Net (decrease) increase in cash and equivalent $ (3,796) $ (40) $ 1,573 $ -- $ (2,263)
============ ============ ============ =========== ============
52
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
Year Ended December 31, 2002
------------------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------- ------------ ------------
(In Thousands of Dollars)
CASH FLOW DATA
Cash provided by (used in) continuing operating
activities $ 92,225 $ 4,231 $ (10,027) $ -- $ 86,429
Cash provided by discontinued operations -- 2,946 -- -- 2,946
------------ ------------ ------------ ----------- ------------
Net cash provided by (used in) operating
activities 92,225 7,177 (10,027) -- 89,375
Investing activities:
Additions to property, plant and equipment by
continuing operations (1,714) (5,358) (1,355) -- (8,427)
Additions to property, plant and equipment by
discontinued operations -- (1,018) -- -- (1,018)
------------ ------------ ------------ ----------- ------------
Net cash used in investing activities (1,714) (6,376) (1,355) -- (9,445)
Financing activities:
Net decrease in revolving credit facility (85,000) -- -- -- (85,000)
Proceeds from debt offering 175,000 -- -- -- 175,000
Repayment of term loan (171,750) -- -- -- (171,750)
Repayment of other debts (244) (1,100) (302) -- (1,646)
Payment of debt issuance coats (6,022) -- -- -- (6,022)
Dividends paid (4,075) -- -- -- (4,075)
Issuance of common stock 374 -- -- -- 374
------------ ------------ ------------ ----------- ------------
Net cash used in financing activities (91,717) (1,100) (302) -- (93,119)
Effect of exchange rate changes on cash and
cash equivalents -- -- 2,621 -- 2,621
------------ ------------ ------------ ----------- ------------
Net decrease in cash and cash equivalents $ (1,206) $ (299) $ (9,063) $ -- $ (10,568)
============ ============ ============ =========== ============
53
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
Year Ended December 31, 2001
-----------------------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------------ ------------- ------------ ------------
(in thousands of dollars)
CASH FLOW DATA
Cash provided by continuing operating activities $ 29,320 $ 19,935 $ 14,115 $ -- $ 63,370
Cash provided by discontinued operations -- 8,224 -- -- 8,224
--------- --------- --------- -------- ---------
Net cash provided by operating activities 29,320 28,159 14,115 -- 71,594
Investing activities:
Additions to property, plant and equipment by
continuing operations (456) (26,802) (8,268) -- (35,526)
Additions to property, plant and equipment from
insurance --&bsp; -- (3,389) -- (3,389)
Additions to property, plant and equipment
by discontinued operations -- (842) -- -- (842)
Proceeds from insurance for replacement of property,
plant and equipment -- -- 3,389 -- 3,389
--------- --------- --------- -------- ---------
Net cash used in investing activities (456) (27,644) (8,268) -- (36,368)
Financing activities:
Net increase in revolving credit facility 9,000 -- -- -- 9,000
Proceeds from term loan 182,750 -- -- -- 182,750
Repayment of term loan (211,000) -- -- -- (211,000)
Repayment of other debts (15,175) (1,149) (170) -- (16,494)
Purchase of common stock (349) -- -- -- (349)
Dividends paid (3,183) -- -- -- (3,183)
--------- --------- --------- -------- ---------
Net cash used in financing activities (37,957) (1,149) (170) -- (39,276)
Effect of exchange rate changes on cash and cash
equivalents -- -- (1,821) -- (1,821)
--------- --------- --------- -------- ---------
Net (decrease) increase in cash and cash equivalents $ (9,093) $ (634) $ 3,856 $ -- $ (5,871)
========= ========= ========= ======== =========
54
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
10. Stock Compensation
We have executive stock option and incentive award plans ("Employee Plans") and
a directors stock option plan ("Directors Plan"). The Employee Plans permit the
grant of options and restricted shares for up to 3,000,000 shares of common
stock. The Directors Plan permits the grant of options to purchase up to 150,000
shares of common stock. Options granted under the Employee Plans vest over a
four-year period. Options under the Directors Plan are exercisable at the grant
date. The exercise prices of options issued under Employee Plans and Directors
Plan are equal to the fair values of the common stock at the option grant date.
Certain options also remain outstanding from prior stock option plans. At
December 31, 2003, options for 1,190,320 shares were exercisable, while 947,133
of the Employee Plans options and restricted shares and 26,000 Directors plan
options were available for future grant.
We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for the stock
option plans. Accordingly, we have not recognized compensation expense for our
stock option plans.
The fair values of our stock options presented in Note 1 were estimated as of
the date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions for 2003, 2002 and 2001:
2003 2002 2001
------- ------- --------
Risk-free interest rate 3.50% 3.00% 2.50%
Dividend yield 1.00% 1.00% 1.00%
Volatility 0.464 0.769 0.480
Expected life 6 years 6 years 6 years
For purposes of the pro forma disclosures required under SFAS No. 123, the
estimated fair value of the options is amortized over the options' vesting
period.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
our employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of our stock options.
55
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
10. Stock Compensation (continued)
A summary of our stock option activity for the three years ended December
31,2003, is as follows:
Weighted
Number Of Average Exercise
Options Exercise Price Price Range
------------ -------------- ------------
Outstanding at January 1, 2001 1,524,050 $ 11.31
Granted 462,300 3.54 $ 3.37-$5.04
Exercised -- -- --
Forfeited (320,500) 10.30 3.37-18.06
-----------
Outstanding at December 31, 2001 1,665,850 $ 9.54 3.37-19.38
===========
Exercisable at December 31, 2001 899,230 $ 11.94
Weighted average fair value of options
granted during 2001 $ 1.51
Outstanding at January 1, 2002 1,665,850 $ 9.54
Granted 175,000 5.07 $ 4.20-$8.39
Exercised (19,750) 9.67 8.66-11.20
Forfeited (80,125) 5,41 3.44-18.06
-----------
Outstanding at December 31, 2002 1,740,975 $ 9.27 3.38-19.38
===========
Exercisable at December 31, 2002 1,141,248 $ 11.25
Weighted average fair value of
options granted during 2002 $ 3.03
Outstanding at January 1, 2003 1,740,975 $ 9.27
Granted 325,500 3.57 $ 3.57
Exercised -- -- --
Forfeited (272,000) 9.72 3.44-18.06
-----------
Outstanding at December 31, 2003 1,794,475 $ 8.17 3.38-19.38
===========
Exercisable at December 31, 2003 1,190,320 $ 10.29
Weighted average fair value of
options granted during 2003 $ 1.58
56
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
10. STOCK COMPENSATION (CONTINUED)
The following table summarizes information about options outstanding as of
December 31, 2003:
Options Outstanding Options Exercisable
----------------------------------------------------- --------------------------------
Weighted-Average
Remaining
Contractual
Range Of Exercise Number Life Weighted-Average Number Weighted-Average
Price Outstanding (In Years) Exercise Price Exercisable Exercise Price
- ----------------- ----------- ---------------- ---------------- ----------- ----------------
$0.00 - $ 9.68 1,228,725 6.7 $ 5.06 624,570 $ 6.07
9.69 - 19.38 565,750 3.8 14.94 565,750 14.94
--------- ---------
1794,475 1,190,320
========= =========
We have an Employee Stock Ownership Plan ("ESOP") to purchase INTERMET common
stock for some of our United States employees who are not covered by collective
bargaining agreements. We make contributions equal to 3% of the annual
compensation of the ESOP participants. We may, at our discretion, make
additional contributions within specified limits. Since 2003, our contributions
have been made to the Savings and Investment Plan, a 401(k) retirement plan,
instead of the ESOP. Our contributions to the Savings and Investment Plan were
$747,000 in 2003. ESOP expenses were $615,000 and $554,000 in 2002 and 2001,
respectively.
On October 6, 1995, our Board of Directors declared a dividend of one right for
each share of INTERMET common stock held of record at the close of business on
October 17, 1995, pursuant to a Shareholder Protection Rights Agreement dated
October 6, 1995. The rights generally are not exercisable until 10 days after an
announcement by us that a person, as defined (excluding, with certain
limitations, certain holders of 10% or more of our common stock who do not
acquire additional shares, any of our ESOPs or benefit plans, and INTERMET or
any of its wholly-owned subsidiaries), has acquired 10% of our common stock or
announces a tender offer that could result in the ownership of 10% or more of
our common stock. Each right, should it become exercisable, will entitle the
owner to buy 1/100th of a share of Participating Preferred Stock, a new series
of our preferred stock, at an exercise price of $40. On October 16, 1997, we
amended the rights agreement to provide that certain institutional investors who
own in excess of 10%, but less than 15% of our common stock, are not "Acquiring
Persons" as defined by the rights agreement.
In the event the rights become exercisable as a result of the acquisition of
shares, each right will entitle the owner, other than the acquiring person, to
buy at the rights' then current exercise price a number of shares of common
stock with a market value equal to twice the exercise price. In addition, unless
the acquiring person owns more than 50% of the outstanding shares of common
stock, the board of directors may elect to exchange all outstanding rights
(other than those owned by such acquiring person or affiliates thereof) at an
exchange ratio of one share of common stock per right Unless we merge with
another company under certain conditions or redeem or exchange the rights before
October 6, 2005, the rights will expire on such date.
In February 2001 our Board of Directors adopted a Restricted Share Unit Award
Plan for certain key executives. Under this plan, eligible executives were
entitled to surrender all or a portion of the bonuses they earned under our 2000
profit-sharing plan in exchange for an award of Restricted Share Units. The
number of shares awarded under this program was matched one for one for the
participants who remained with the company for at least two years from the award
date.
57
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
11. Commitments and Contingencies
Future minimum rental payments required under building and equipment operating
leases that have initial or remaining non-cancelable lease terms in excess of
one year at December 31, 2003 are as follows (in thousands of dollars):
2004 $ 4,745
2005 4,065
2006 2,423
2007 1,790
2008 1,055
Thereafter 4
-------
Total $14,084
=======
Total rental expense under operating leases aggregated $4,498,000, $5,464,000,
and $6,046,000 in 2003, 2002 and 2001, respectively.
We had commitments to purchase capital equipment of approximately $5.7 million
as of December 31, 2003.
At December 31, 2003,46% of the domestic labor force is covered by collective
bargaining agreements, and 25% of the domestic labor force is covered by
collective bargaining agreements that will expire within one year.
We are subject to federal, state, local and foreign environmental laws and
regulations concerning, among other things, air emissions, effluent discharges,
storage treatment and disposal of hazardous materials and remediation of
contaminated soil and groundwater. At some of our industrial sites hazardous
materials have been managed for many years. Consequently, we are subject to
various environmental laws that impose compliance obligations and can create
liability for historical releases of hazardous substances. It is likely that we
will be subject to increasingly stringent environmental standards in the future
and that we will be required to make additional expenditures, which could be
significant, relating to environmental matters on an ongoing basis.
The 1990 amendments to the Federal Clean Air Act and regulations promulgated
thereunder are expected to have a major impact on the compliance cost of many
U.S. companies, including foundries of the type we own. We are in the process of
reviewing Maximum Achievable Control Technology Standards that will be
applicable to our industry.
We also have current and former operating entities (for which we may be
responsible) that are potentially responsible for cleanup of known environmental
sites. These include third-party-owned sites, as well as sites that are
currently owned, or formerly owned, by us or our subsidiaries. For known
environmental sites, we have recorded reserves to cover estimated future
environmental expenditures. Environmental reserves at December 31, 2003 and 2002
were $6,852,000 and $5,845,000, respectively. As of December 31, 2003, the
environmental reserves included a $3.1 million cash escrow account acquired as a
part of the acquisition of Ganton Technologies in 1999 that is being used to
fund the clean-up of an inactive property located in Addison, Illinois, and we
expect that the cleanup will occur and the account will be settled in 2004. The
reserves also include $2.5 million for the now closed Radford facilities, which
is discussed below. There can be no assurance that costs in excess of these
accruals will not be incurred, or that unknown conditions will not be discovered
that result in material additional expenditures by us for environmental matters.
On March 14, 2002, we entered into a Consent Order with the U.S. Environmental
Protection Agency ("USEPA") which will require investigation of the nature and
extent of any hazardous waste disposed of at our Radford, Virginia, facilities.
We have entered into this Consent Order in connection with the USEPA's
Corrective Action Program, which is being undertaken on a nationwide basis by
USEPA pursuant to the Resource Conservation and Recovery Act of 1976. The
Corrective Action Program requires facilities that have historically generated
or handled hazardous waste to determine whether those activities have or could
adversely affect groundwater or human health. Because we historically disposed
of waste material at this site, it is probable that remedial action will be
required with respect to that on-site disposal We have accrued $2.5 million for
such remediation activity based on our investigation to date. However, our
investigation of this site will continue and it is possible that ultimate
remediation costs could exceed the amounts we have accrued.
58
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
11. Commitments and Contingencies (continued)
We are also a party to other legal proceedings associated with environmental,
employment, commercial, product liability or other matters in the ordinary
course of our business. At the present time, we do not believe that any of such
proceedings will have a material adverse effect on our results of operations. We
self-insure a significant portion of our health care and property and casualty
insurance risks. However, we purchase additional insurance for catastrophic
losses. The events of September 11, 2001, caused extreme turmoil in the property
and casualty insurance market. This, coupled with property losses at our New
River and Neunkirchen plants that were incurred in the first half of 2000,
resulted in increases in our property insurance deductible. We now carry a $2.5
million property deductible per occurrence.
59
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
12. RETIREMENT PLANS AND BENEFITS
We maintain four noncontributory defined benefit pension plans for certain U.S.
employees covered by collective bargaining agreements and for which the benefits
are based on years of service. Additionally, we maintain two non-contributory
defined benefit pension plans for certain U.S. salaried and non-union hourly
employees and for which the benefits are based on final average compensation.
Our policy is to fund amounts as required under applicable laws and regulations.
In addition to providing pension benefits, we provide health care and life
insurance benefits to certain retired U.S. employees and their dependents. In
2003, eligibility requirements for retiree health care for certain salaried
employees were changed so that these employees can become eligible for retiree
health care benefits at age 62, depending on years of service. Additionally,
newly-hired employees will not be eligible for retiree health care benefits.
Certain salaried employees who already have met eligibility requirements at age
55 or age 60, depending on years of service, would continue to be eligible for
retiree health care benefits. Retirees and their dependents under age 65 receive
substantially the same health care benefits as active employees. The medical
plans generally pay most medical expenses less deductible and co-pay amounts.
Salaried and hourly employees also contribute to the cost of coverage. Certain
salaried employee coverage converts to a Medicare carve-out plan at age 65. We
subsidize a Medicare supplement plan for certain eligible salaried employees
over age 65. Most hourly employee coverage ceases at age 65. However, certain
hourly employees retain eligibility for coverage supplementing Medicare.
Our amendments to certain plans in 2003 increased the pension benefit
obligations by $1.6 million and reduced the other postretirement benefit
obligations by $5.0 million. In addition, the curtailment of a postretirement
benefit plan in 2003 reduced the other postretirement benefit obligations by
$0.5 million.
Due to the closure of the Radford Foundry in 2003, other postretirement benefit
obligations decreased by $2.0 million and resulted in an after-tax gain of $1.2
million. There was also an increase in pre-tax pension cost of $0.3 million
($0.2 million after-tax loss) due to pension curtailment. The net after-tax gain
of $1.0 million was reported in "Loss from Discontinued Operation, Net of Tax"
in the accompanying statements of operations in 2003.
We use a September 30 measurement date for all of our pension and other
postretirement benefit plans.
The obligations and funded status of the retirement benefit plans are as follows
(in thousands of dollars):
At December 31,
------------------------------------------------
Other Postretirement
Pension Benefits Benefits
-------------------- ------------------------
2003 2002 2003 2001
-------- --------- --------- ---------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 90,828 $ 81,195 $ 43,435 $ 40,870
Service cost -- benefits earned during the year 2,443 1,922 1,018 973
Interest cost on benefit obligation 6,018 5,966 2,746 2,925
Amendments l,636 -- (4,985) 142
Curtailment -- -- (520) --
Actuarial losses 8,229 5,391 4,332 2,177
Benefits paid (4,432) (3,646) (3,496) (3,652)
-------- --------- --------- ---------
Benefit obligation at end of year $104,722 $ 90,828 $ 42,530 $ 43,435
-------- --------- --------- ---------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 58,897 $ 66,650
Actual return on plan assets 5,793 (5,890)
Company contributions 2,214 1,783
Benefits paid (4,432) (3,646)
-------- ---------
Fair value of plan assets at end of year $ 62,472 $ 58,897
-------- ---------
Funded status of the plan (under-funded) $(42,250) $ (31,931) $ (42,530) $ (43,435)
Unrecognized net actuarial losses (gains) 35,550 28,767 3,207 (3,037)
Unrecognized transition obligation 286 58 -- --
Unrecognized prior service cost (benefit) 6,497 5,849 (4,678) 271
-------- --------- --------- ---------
Prepaid (accrued) benefit cost on balance sheets $ 83 $ 2,743 $ (44,001) $ (46,201)
======== ========= ========= =========
60
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
12. Retirement Plans and Benefits (continued)
Amounts recognized for pension benefits in the consolidated balance sheets
consist of (in thousands of dollars):
At December 31,
------------------
2003 2002
-------- --------
Prepaid pension benefit cost $ 4,708 $ 4,815
Accrued pension benefit liability (46,020) (36,184)
Intangible assets 6,497 5,849
Accumulated other comprehensive income, pretax 34,898 28,263
-------- --------
Net amount recognized $ 83 $ 2,743
======== ========
The accumulated benefit obligation for all of the pension plans was $104.1
million and $90.3 million at December 31,2003 and 2002, respectively.
All of our pension plans had accumulated benefit obligations in excess of plan
assets (under-funded plans) as of December 31,2003 and 2002.
The components of net periodic benefit cost are as follows (in thousands of
dollars):
Years ended December 31,
-------------------------------------------------------------
Pension Benefits Other Postretirement Benefits
---------------------------- ------------------------------
2003 2002 2001 2003 2002 2001
------- ------- -------- -------- ------- -------
Service cost $ 2,443 $ 1,922 $ 2,109 $ 1,018 $ 973 $ 899
Interest cost 6,018 5,966 5,747 2,746 2,925 2,701
Expected return on plan assets (5,878) (6,120) (6,275) -- -- --
Amortization of net transition obligation -- 15 51 -- -- --
Amortization of prior service cost 735 756 717 (60) (2) (13)
Amortization of loss (gain) 1,531 (382) (661) (208) (445) (992)
Curtailment loss 253 -- -- -- -- --
------- ------- -------- -------- ------- -------
Net periodic benefit cost $ 5,102 $ 2,157 $ 1,688 $ 3,496 $ 3,451 $ 2,595
======= ======= ======== ======== ======= =======
The assumptions used to determine benefit obligations and cost are as follows:
Weighted-average assumptions used to determine benefit obligations:
At December 31,
-----------------------------------------
Other Postretirement
Pension Benefits Benefits
---------------- ---------------------
2003 2002 2003 2002
------ ------ ------ -------
Discount rate 6.00% 6.75% 6.00% 6.75%
Rate of compensation increase for benefit plans with benefit
obligations based on compensation 3.66% 3.61%
Weighted - average assumptions used to determine net periodic benefit cost:
Years ended December 31
---------------------------------------------------------
Pension Benefits Other Postretirement Benefits
----------------------- ------------------------------
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ----
Discount rate 6.75% 7.50% 8.00% 6.75% 7.50% 8.00%
Expected long-term return on plan
assets 8.75% 9.50% 9.50%
Rate of compensation increase for benefit
plans with benefit cost based on
compensation 3.61% 3.61% 3.72%
61
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
12. Retirement Plans and Benefits (continued)
To determine the overall expected long-term rate of return on assets, we
consider the current level of expected returns on risk-free investments
(primarily government bonds), the historical level of the risk premium
associated with the other asset categories in which the portfolio is invested,
and the expected returns of each asset category of the investment portfolio. The
expected return of each asset category is then weighted based on the target
asset allocation to develop the overall expected long-term rate of return on
assets.
During each quarter, our pension plan actuaries determine a range of expected
rates of return based on actual asset mix. Expected rates of return that are
between the 25th and 75th percentile of this range are considered reasonable.
The expected rates of return of 8.50% and 8.75% as of September 30, 2003 and
2002, respectively, were near the 70th percentile of the ranges of expected
rates of return.
Assumed health care cost trend rates for other postretirement benefits:
At December 31,
---------------
2003 2002
------ --------------
Health care cost trend rate assumed for next year 10.50% 8.00% to 10.00%
Rate to which the cost trend rate is assumed to
decline (the ultimate trend rate) 5.00% 5.00%
Year that the rate reaches the ultimate trend rate 2015 2006 to 2008
The assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in the
assumed health care cost trend rates would have the following effects for 2003
(in thousands of dollars):
One One
Percentage Percentage
Point Point
Increase Decrease
---------- ----------
Effect on total service and interest cost $ 299 $ (263)
Effect on postretirement benefit obligation $ 2,266 $ (2,154)
Our pension plans weighted-average asset allocations at December 31, 2003 and
2002, by asset category are as follows:
Plan Assets at December
31,
-----------------------
2003 2002
---- ----
Asset Category:
Equity securities 52% 50%
Debt securities 48 50
--- ---
Total 100% 100%
=== ===
Equity securities do not include any common stock of INTERMET Corporation.
Under our investment policies and strategies, pension funds are invested in
equity securities (including convertible securities), debt securities (including
preferred stock), and cash equivalents (including senior debt under one year to
maturity). Pension plan assets allocation guidelines as follows:
Asset Category: Allocation Guidelines Equity securities 30% to 75% Debt
securities 25% to 70% Cash equivalents 0% to 30%
62
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
12. Retirement Plans and Benefits (continued)
Investment managers have full discretion to invest assets within our investment
guidelines, including timing, turnover and selection of investment. Pension plan
assets are held such that assets are available for near-term, mid-term and
long-term future benefit payments.
Equity asset holdings are selected from established markets (including New York
Stock Exchange, over-the-counter markets, and regional and foreign markets) and
equity portfolios are expected to achieve an absolute and risk adjusted return,
which surpasses the comparative index. Equity assets cannot be held in private
placement securities, letter stock or uncovered options. Short sales, margin
transactions and other specialized transactions are prohibited. No more than 10%
of assets may be held in an individual security, or 15% in a particular
industry. This pertains to both equity and debt investments, exclusive of
treasuries and agencies.
Debt asset holdings can be invested in liquid preferred stocks, corporate debt,
obligations of the U.S. Government and its fully guaranteed agencies, and debt
issues convertible to equities. Investments in single-issue securities are
limited to 5% of assets (except for U.S. Government or agency obligations).
Assets are not to be invested in private placements, fixed income or interest
rate futures, or from arbitrage or other specialized investments. Up to 5% of
assets may be invested in below investment grade debt securities. Up to 5% of
assets may be invested in global fixed income securities.
Cash equivalent holdings may be invested in commercial paper, repurchase
agreements, Treasury bills, certificates of deposit, and money market funds.
Investments in cash equivalents can be made for income, for liquidity for
expense and benefit payments, or to preserve principal value. Assets must
represent maturity of less than one year at the time of purchase. Short-term
instruments considered speculative in nature may not be purchased. Single issuer
paper is limited to 5% of the funds, except for U.S. Government or agencies.
Pension funds may also be invested in mutual funds or other pooled funds
containing securities. Direct investments in financial futures, commodities and
currency exchanges are prohibited; however, such investments may be made in
mutual funds.
We expect to contribute $14.9 million to our pension plans in 2004. This
estimate is based on the assumption that the funding relief provided by the U.S.
government, which has already expired in 2003, will not be extended to 2004. If
the funding relief if ultimately extended to 2004, the estimated contribution
amount will be reduced.
The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid (in thousands of dollars):
Other
Pension Postretirement
Benefits Benefits
-------- --------------
2004 $ 5,501 $ 3,863
2005 5,749 3,857
2006 6,030 3,736
2007 6,250 3,385
2008 6,515 3,386
Years 2009 to 2013 35,210 17,502
63
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
12. Retirement Plans and Benefits (continued)
We provide prescription drug benefits to some of our retirees and will,
therefore, be impacted by the provisions of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the "Medicare Reform Act"), which was
enacted on December 8,2003. The Medicare Reform Act provides for a federal
subsidy to sponsors of retiree health care benefit plans which provide a benefit
that is at least actuarially equivalent to the benefit established by this Act,
and therefore may reduce our postretirement benefit obligations. In accordance
with the Position of the Staff of the Financial Accounting Standards Board FAS
106-1, the effects on our accumulated postretirement benefit obligation and net
periodic postretirement benefit cost have not been recognized in our financial
statements. Specific authoritative guidance on the accounting for the Medicare
Reform Act is pending and that guidance, when issued, could require changes in
the information reported in our financial statements. Due to the lack of
direction regarding the provision of the Medicare Reform Act and the uncertainty
associated with the related accounting issues, we are deferring recognition of
the effects of the Medicare Reform Act.
We maintain several defined contribution plans for certain salaried employees,
hourly employees covered by collective bargaining agreements, and non-union
hourly employees. All of these plans allow participants to make pretax
contributions as a percentage of their compensation. We contribute a specified
percentage of the annual compensation of participants of some of the plans.
Certain plans provide a matching contribution on employees' pretax contribution
to a specified limit Some plans provide for contributions based on hours worked
by each employee; other plans provide for profit-sharing contributions or other
base contributions. Costs recognized as expenses to these plans, excluding ESOP
expenses, totaled $2,958,000, $2,414,000 and $2,065,000 in 2003, 2002 and 2001,
respectively.
13. Income Taxes
The Provision for Income Taxes Consists of the Following (in thousands of
dollars):
Years ended December 31,
-----------------------------
2003 2002 2001
-------- -------- -------
Current:
Federal $ - $ - $(6,791)
State 484 504 1,457
Foreign (374) 739 3.644
-------- -------- -------
110 1,243 (1,690)
-------- -------- -------
Deferred:
Federal 18,314 1,522 (2,920)
State - (100) 351
Foreign 112 - -
-------- -------- -------
18,426 1,422 (2,569)
-------- -------- -------
Total tax provision (benefit) $ 18,536 $ 2,665 $(4,259)
======== ======== =======
We paid federal income taxes of approximately $2,501,000 and $1,100,000 in 2003
and 2002, respectively. We did not pay any federal income taxes in 2001.
64
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
13. Income Taxes (continued)
The provision for income taxes differs from the amount computed using the
statutory U.S. federal income tax rate for the following reasons (in thousands
of dollars):
Years ended December 31,
--------------------------------
2003 2002 2001
-------- -------- --------
Provision for income taxes(benefits)at U.S. statutory rate $(22.594) $ 4.672 $ (3,951)
Foreign operations (94) 573 (1,658)
Utilization of credits and credit carryforwards - (3,065) -
State income taxes excluding valuation allowance, net
of federal income tax benefits (415) 691 1,070
Non-deductible goodwill amortization and write-off 13,767 - 1,613
Valuation allowance for federal tax 22,981 - -
Valuation allowance for state tax 899 - -
Other 3.992 (206) (1,333)
-------- -------- --------
Total tax provision (benefit) $ 18,536 $ 2,665 $ (4,259)
======== ======== ========
The components of the Company's net deferred income tax assets at December
31, 2003 and 2002 are as follows (in thousands of dollars):
2003 2002
-------- --------
Compensation and benefit items $ 37,618 $ 37,263
Operating loss, foreign tax credit and Alternative
Minimum Tax credit carryforwards 19,449 15,704
Impairment and shutdown costs 1,539 905
Deductible goodwill 3,991 2,512
Reserve for bad debts, returns and allowances 1,984 3,651
Inventory reserve 5,337 4,763
State income taxes 1,093 3,280
Other temporary differences 1,274 2.304
-------- --------
Gross deferred tax assets 72.285 70,382
Valuation allowance (29.732) (50)
-------- --------
Deferred tax assets 42,553 70,332
Depreciation and related items (32,346) (43,330)
Other temporary differences (10.060) (4,242)
-------- --------
Gross deferred tax liabilities (42.406) (47.572)
-------- --------
Net deferred tax assets
$ 147 $ 22,760
======== ========
We generated foreign tax credits of $179,000, $3,773,000 and $7,190,000 in
2003, 2002 and 2001, respectively, which will expire in 2008, 2007 and 2006,
respectively, if not utilized. In December 2003, we provided a valuation
allowance for this entire accumulated foreign tax credit of $11,142,000 since we
may not generate sufficient U.S. tax liabilities to utilize these credits before
the expiration dates. In addition, in December 2003, we provided a valuation
allowance of $18,540,000 for the remaining domestic net deferred tax assets of
$18,687,000, reducing the carrying value of our net deferred tax assets as of
December 31, 2003 to $147,000. This is due to the accumulation of losses
experienced at our domestic operations in the immediate past three years (2001
to 2003).
65
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
14. Reporting for Business Segments
We evaluate our financial results in two business segments, namely Ferrous
Metals segment and Light Metals segment. Our segment reporting its consistent
with the manner in which our business is managed and our resources are allocated
by the management. The Ferrous Metals segment consists of ferrous foundry
operations and their related machining operations. The Light Metals segment
consists of aluminum, magnesium and zinc casting operations and their related
machining operations. Corporate and Other segment includes operations that do
not fall within the Ferrous Metals segment or Light Metals segment and the
corporate business unit and its related expenses and eliminations. Selected
financial information of the business segments is displayed in the following
table.
Ferrous Corporate
Metals Light Metals and Other Consolidated
--------- ------------ ---------- ------------
(In thousands of dollars)
Year ended December 31, 2003
Net sales $ 493,401 $ 237,766 $ - $ 731,167
Depreciation and amortization expense 31,143 17,202 1,906 50,251
Goodwill impairment charge - 51,083 - 51,083
Restructuring and impairment charges 9,138 556 274 9,968
Operating profit (loss) 13,333 (44,192) (5,758) (36,617)
Interest expense, net 4,600 4,928 20,367 29,895
Purchases of property, plant and equipment -
continuing operations 8,036 9,772 1,725 19,533
Purchases of property, plant and equipment -
discontinued operations 145 - - 145
As of December 31 , 2003
Goodwill $ 59,731 $ 106,202 $ - $ 165,933
Total assets 372,812 281,396 32,476 686,684
Year ended December 31 , 2002
Net sales $ 484,146 $ 271,591 $ - $ 755,737
Depreciation and amortization expense 27,011 18,019 2,090 47,120
Operating profit (loss) 25,867 20,216 (6,406) 39,677
Interest expense, net 3,584 4,390 20,296 28,270
Cumulative effect of change in accounting - - 481 481
Purchases of property, plant and equipment -
continuing operations 2,648 4,065 1,714 8,427
Purchases of property, plant and equipment -
discontinued operations 671 - 347 1,018
As of December 31, 2002
Goodwill $ 59,731 $ 157,285 $ - $ 217,016
Total assets 367,002 332,905 64,191 764,098
66
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
14. Reporting for Business Segments
Ferrous Light Corporate
Metals Metals and Other Consolidated
-------- -------- --------- ------------
(In thousand of dollars)
year ended Decembers 31, 2001
Net sales $482,139 $300,745 $ - $782,884
Depreciation and amortization expense 24,715 20,274 3,274 48,263
Goodwill amortization expense 2,030 4,298 - 6,328
Restructuring and impairment charges - 13,540 - 13,540
Operating profit (loss) 21,412 2,016 (9,216) 14,212
Interest expense, act 6,013 6,003 17,806 29,822
Purchases of property, plant and equipment --
continuing operations 20,653 14,440 433 35,526
Purchases of property, plant and equipment --
discontinued operations* 842 - - 842
As of December 31, 2001
Goodwill $ 59,731 $157,285 $ - $217,016
Total assets 411,294 360,021 69,224 840,539
- ---------------
* Does not include $3,389,000 capital reimbursed through insurance in 2001.
67
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
15. GEOGRAPHIC AREA AND MAJOR CUSTOMER INFORMATION
The following is a breakout of net sales, operating profit, income before income
taxes, and identifiable assets based on the geographic locations of our domestic
and foreign operations as of and for years ended December 31, 2003, 2002 and
2001. We operate in North America and have international operations in Europe,
mainly Germany and Portugal.
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
2003 2002 2001
--------- --------- ---------
(In thousands of dollars)
Net sales:
North America $ 614,762 $ 667,787 $ 692,898
Europe 116,405 87,950 89,986
--------- --------- ---------
Total $ 731,167 $ 755,737 $ 782,884
========= ========= =========
Operating (loss) profit:
North America $ (41,291) $ 36,239 $ 3,700
Europe 4,674 3,438 10,512
--------- --------- ---------
Total $ (36,617) $ 39,677 $ 14,212
========= ========= =========
(Loss) income from continuing operations before income
taxes and equity interest in a joint venture:
North America $ (68,693) 8,379 $ (25,572)
Europe 4,140 3,189 13,403
--------- --------- ---------
Total $ (64,553) $ 11,568 $ (12,169)
========= ========= =========
AS OF DECEMBER 31,
-----------------------------------
2003 2002 2001
--------- -------- --------
Identifiable assets:
North America $ 560,117 $683,775 $764,903
Europe 126,567 80,323 75,636
--------- -------- --------
Total $ 686,684 $764,098 $840,539
========= ======== ========
Net sales to customers exceeding 10% of consolidated net sales in 2003, 2002 or
2001, and other major customers, were as follows (as a percentage of
consolidated net sales):
CUSTOMER: 2003 2002 2001
- --------- ---- ---- ----
DaimlerChrysler(1) 10% 18% 19%
Delphi 11% 11% 10%
Ford 11% 12% 12%
Metaldyne(1) 8% 1% -
TRW 6% 2% 4%
Visteon 6% 5% 6%
PBR Automotive 6% 5% 5%
General Motors 5% 5% 6%
- ----------
(1) During 2003, Metaldyne acquired a facility from DaimlerChrysIer to which
we supply products. This accounts for the majority of the change in the
amounts we supply to Metaldyne and DaimlerChrysler from 2002 to 2003.
68
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
16. EARNINGS PER SHARE
Earnings per share are computed as follows:
YEARS ENDED DECEMBER 31,
-------------------------------------------
2003 2002 2001
----------- ----------- -----------
(In thousands, except per share data)
Numerator:
Net (loss) income $ (98,913) $ 9,003 $ (8,703)
=========== =========== ===========
Denominator:
Denominator for basic earnings per share -- weighted average shares 25,581 25,441 25,359
Effect of dilutive securities:
Employee stock options and unearned restricted stock - 437 -
----------- ----------- -----------
Denominator for diluted earnings per share -- adjusted
weighted average shares and assumed conversions 25,581 25,878 25,359
=========== =========== ===========
Net (loss) income per common share -- basic $ (3.87) $ 0.35 $ (0.34)
=========== =========== ===========
Net (loss) income per common share -- assuming dilution $ (3.87) $ 0.35 $ (0.34)
=========== =========== ===========
Dilutive earnings per share reflect the assumed exercise of stock options and
unearned restricted stock.
69
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
17. QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2003 and 2002:
THREE MONTHS ENDED
-------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------- ------------- ------------- -------------
(In thousand) of dollars, except per share data)
2003
Net sales (1) $ 193,040 $ 182,118 $ 172,700 $183,309
Gross profit(1) 21,241 17,923 14,729 9,947
(Loss) income from discontinued operations, net of tax (188) (8,643) 655 (8,400)
Net income (loss) (2) 3,152 (6,589) (50) (95,426)
Net income (loss) per common share
- - Basic 0.12 (0.26) - (3.73)
- - Diluted 0.12 (0.26) - (3.73)
Share prices (Nasdaq)(3)
- - High 4.400 4.000 4.700 5.610
- - Low 3.260 3.060 3.330 4.140
2002
Net sales (1) $ 191,922 $ 202,722 $ 180,615 $ 180,478
Gross profit(1) 20,977 24,147 12,073 15,306
Loss from discontinued operations, net of tax (507) (907) (199) (341)
Income (loss) before cumulative effect of change
in accounting(4) 4,355 4,750 (1,013) 430
Net income (loss) 4,836 4,750 (1,013) 430
Income (loss) before cumulative effect of change
in accounting (4) per common share
- - Basic 0.17 0.19 (0.04) 0.02
- - Diluted 0.17 0.18 (0.04) 0.02
Net income (loss) per common share
- - Basic 0.19 0.19 (0.04) 0.02
- - Diluted 0.19 0.18 (0.04) 0.02
Share prices (Nasdaq)(3)
- - High 7.100 11.800 11.240 5.590
- - Low 3.120 7.080 4.500 3.150
70
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
17. QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED) (CONTINUED)
(1) The net sales and gross profit data for 2003 and 2002 above are different
from amounts previously reported on Form 10-Q and 2002 annual report,
respectively, because Frisby and Radford became discontinued operations in
the third quarter of 2003 and fourth quarter of 2003, respectively. The
reconciliations of the amounts above with those previously reported are as
follows:
THREE MONTHS ENDED
----------------------------------------------------
September
March 31 June 30 30
--------- ---------- ----------
(In thousands of dollars)
2003
Net sales--previously reported $ 207,104 $ 196,766 $ 182,054
Less: Net sales of Frisby (3,817) (3,275) --
Less: Net sales of Radford (10,247) (11,373) (9,354)
--------- ---------- ----------
Net sales $ 193,040 $ 182,118 $ 172,700
========= ========== ==========
Gross profit-previously reported $ 21,282 $ 17,541 $ 14,722
Less: Gross (profit) loss of Frisby (406) 48 --
Less: Gross loss of Radford 365 334 7
--------- ---------- ----------
Gross profit $ 21,241 $ 17,923 $ 14,729
========= ========== ==========
THREE MONTHS ENDED
---------------------------------------------------------------------
December
March 31 June 30 September 30 31
--------- ---------- ------------ ---------
(In thousands of dollars)
2002
Net sales--previously reported $ 206,096 $ 217,958 $ 196,564 $ 194,314
Less: Net sales of Frisby (3,252) (3,611) (3,961) (2,779)
Less: Net sales of Radford (10,922) (11,625) (11,988) (11,057)
--------- ---------- ------------ ---------
Net sales $ 191,922 $ 202,722 $ 180,615 $ 180,478
========= ========== ============ =========
Gross profit--previously reported $ 20,519 $ 22,945 $ 12,046 $ 14,653
Less: Gross loss (profit) of Frisby 64 73 (89) 668
Less: Gross loss (profit) of Radford 394 1,129 116 (15)
--------- ---------- ------------ ---------
Gross profit $ 20,977 $ 24,147 $ 12,073 $ 15,306
========= ========== ============ =========
(2) During the fourth quarter of 2003, we recorded pretax goodwill impairment
charge of $51,083,000 because the carrying value of the Light Metals
reporting unit was in excess of its fair value. We also recorded pretax
restructuring and asset impairment charges of $9,968,000, which included a
$8,481,000 charge for the announced closure of our Havana Foundry, and
$1,487,000 in write-downs of other long-lived assets with carrying values
exceeding their fair values. In addition, we recorded a valuation reserve
against our domestic net deferred tax assets of $23.9 million for
our-continuing operations. This is due to the accumulation of losses
experienced at our domestic operations for the immediate past three years
(2001 to 2003). All of these charges have negative impact on our net
income (loss), and total assets and shareholders' equity.
(3) The share price information represents inter-dealer transactions in the
Nasdaq National Market (Nasdaq) without detail markup, markdown or
commission.
(4) During the first quarter of 2002, we adopted SFAS No. 142. As required
under SFAS No. 142, we wrote off negative goodwill of $481,000, net of
taxes, as a cumulative effect of a change in accounting principle.
Third- and fourth-quarter sales are usually lower than the first- and
second-quarter sales due to plant closings by automotive manufactures for
vacations and model changeovers.
71
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
18. Derivative Financial Instruments
Under our risk management policy, the use of derivatives for managing risk is
confined to hedging the exposure related to variable rate funding activities,
hedging the foreign currency exposure of inter-company payables and receivables,
and hedging purchase commitments relating to raw materials used in our
production processes and related energy costs. Specifically, we review our
liability structure on a recurring basis and make the determination as to
whether our risk exposure should be adjusted using derivative instruments. We do
not participate in speculative derivatives trading.
On October 24, 2000, we entered into an interest rate swap agreement with a
notional principal amount of $50,000,000 through Scotia Capital, Inc., a
broker-dealer subsidiary of The Bank of Nova Scotia. Interest rate swaps are
contractual agreements between parties to exchange fixed and floating interest
rate payments periodically, over the lift of the agreements, without the
exchange of underlying principal amounts. Under the terms of the agreement, we
paid quarterly at a fixed interest rate of 6.468% with Scotia Capital, Inc.
paying at the three-month LIBOR rate. This swap was used to partially hedge an
underlying debt obligation and is marked to market. The agreement expired on
October 24, 2003.
We designated this swap transaction as a cash flow hedge. The effectiveness of
this hedge transaction was assessed using the short-cut method as it met the
criteria outlined in SFAS No. 133. This hedge was considered to be perfectly
effective; therefore, the entire change in the fair value of the derivative was
recorded in other comprehensive income, and no hedge ineffectiveness was
recorded in earnings.
To hedge our European operations, we had outstanding foreign exchange contracts
with a notional amount of Euros 15.5 million (approximately $19.1 million) and
Euros 15.9 million(approximately $16.7 million) at December 31, 2003 and 2002,
respectively. The market value of such foreign exchange contracts was minimal at
December 31, 2003 and 2002.
In addition to the above derivative financial instruments, we have other
contracts that have the characteristics of derivatives but are not required to
be accounted for as derivatives. These contracts for the physical delivery of
commodities qualify for the normal purchases and normal sales exception under
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as
we take physical delivery of the commodity and use it in the production process.
This exception is an election and, if not elected, these contracts would be
carried in the balance sheet at fair value with changes in the fair value
reflected in earnings. These contracts are used to cover our raw materials and
energy purchases.
19. Insurance Claims
On May 20, 2000, our Neunkirchen Foundry suffered a fire that caused extensive
damage. The Foundry was shut down for a period of approximately two weeks.
On March 5,2000, our New River Foundry suffered an explosion that shut down
operations at the facility until November of 2000. The rebuilding of our New
River facility was completed in 2001.
The resulting business interruption and loss of fixed assets was covered under
our insurance policies. We received final settlements for the above two claims
totaling $133.8 million from our insurance carriers, $30.6 million in 2001 and
$103.2 million in 2000. In 2001, we recorded accident-related expenses of $7.8
million as Cost of Sales, and insurance recovery related to business
interruption of $13.4 million as an offset to Cost of Sales. We also recorded
$3.2 million for the replacement of property, plant and equipment as gains in
"Other income, act" in the accompanying statements of operations in 2001.
72
INTERMET Corporation
Notes to Consolidated Financial Statements (Continued)
20. Related Party Transactions
We received management and technical support fees from Fundicao Nodular, S.A.
("Porto Foundry"), our previously 50% owned Portuguese joint venture, for
providing administrative service and technical support to them. We also had an
outstanding interest-boaring loan to and other receivables from the Porto
Foundry, mainly consisting of management and technical support fee receivables
and advances made by us to finance the Porto Foundry's operations. Interest
rates on these loan and other receivables ranged from three-month European
Interbank Offered Rate ("EURIBOR") plus 0.8% to three-month EURIBOR plus 1.0%.
On July 1, 2003, our ownership is the Porto Foundry increased from 50% to 75%.
Therefore our related party transactions with the Porto Foundry from July 1,
2003 to December 31, 2003, were eliminated from our consolidated financial
statements.
The related party transaction with the Porto Foundry are summarized as follows
(in thousands of dollars):
2003* 2002 2001
----- ---- ----
Management Fee $ 152 $329 $319
Technical support fee 220 427 480
Interest income 98 164 153
- ----------
* The 2003 figures are for the period from January 1, 2003 to June 30, 2003.
As of December 31, 2002
Loan receivables $ 812
Other receivables 4,144
There were no other material transactions with, or material balances due to or
from, any other related party.
21. Subsequent Event
On January 8, 2004, we refinanced our revolving credit agreement by entering
into a new First Amended and Restated Credit Agreement, which provides for $90
million revolving, credit line and a $120 million term loan. The new credit
agreement continues to be secured by all domestic assets and a pledge of 65% of
the stock of foreign subsidiaries. The $90 million revolving credit portion
matures January 8, 2009, and the $120 million term loan has a final maturity of
January 8, 2010. Pricing on the revolving loan is based on our leverage. The
current spread above LIBOR is 3.50%. We are also required to pay 0.50% on any
unused portion of the revolving credit agreement. Letters of credit reduce the
amount available under this revolving credit facility. Pricing on the term loan
is LIBOR plus 4.25%. Both loans continue to have covenants that require us to
maintain certain financial ratios, restrictions on the amount that we can pay in
dividends, as well as other covenants and restrictions. At December 31, 2003, we
would have been in compliance with these new covenants. Under our current bank
agreements and senior note indenture, we are able to pay dividends of up to $5
million in 2004. As a result of the new agreement, capitalized debt issuance
costs of $1.4 million were written off in January 2004.
Also on January 8, 2004, we entered into a $35.6 million Letter of Credit
Facility Agreement, as well as a Cash Collateral Agreement of the same amount.
$35.6 million of the proceeds from the term loan were used as collateral for the
issuance of a $35.6 million letter of credit. This letter of credit was issued
under our prior bank revolving credit agreement. We are required to pay a fee of
0.625% for the Letter of Credit Facility Agreement. The agreement has a
five-year maturity and requires us to be in compliance with the covenants that
govern the First Amended and Restated Credit Agreement.
73
Report of Independent Auditors
The Board of Directors and Shareholders
INTERMET Corporation
We have audited the accompanying consolidated balance sheets of INTERMET
Corporation as of December 31, 2003 and 2002, and the related consolidated
statements of operations, comprehensive income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2003. Our
audits also include the financial statement schedule included as Item 15(2).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits is 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of INTERMET
Corporation at December 31, 2003 and 2002, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 6 to the consolidated financial statements, the Company
adopted SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets" in
2002.
/s/ Ernst & Young LLP
Detroit, Michigan
March 4, 2004
74
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE NONE
ITEM 9A. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the participation
of management, including our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of the year
covered by this report. Based upon that evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls
and procedures are effective in timely alerting them to material information
relating to us (including our consolidated subsidiaries) that is required to be
included in our periodic Security Exchange Commission reports.
There was no change in our internal control over financial reporting that
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
75
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
COMMISSION FILE NUMBER -- 0-7277
INTERMET CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Georgia 58-1563873
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
5445 CORPORATE DRIVE, SUITE 200, TROY, MICHIGAN 48098-2683
TELEPHONE: (248) 952 - 2500
(Address of principal executive offices)
Securities registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934:
COMMON STOCK, $0.10 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates as of the last business day of the registrant's most recently
completed second quarter (June 30, 2004) was $108,540,888.
At May 31, 2005 there were 25,665,257 shares of Common Stock, $0.10 par value,
outstanding.
================================================================================
TABLE OF CONTENTS
ITEM NUMBER
- -----------
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
Signatures
Certifications
Exhibit Index
Employment Agreement Between INTERMET and Timothy R. Gilliland
Employment Agreement Between INTERMET and John R. Rutherford
Consent of Registered Public Accounting Firm
Power of Attorney
Certification of Chief Executive Officer Pursuant to Section 302
Certification of Chief Financial Officer Pursuant to Section 302
Certification of Chief Periodic Report by the Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906
1
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INTERMET Corporation
Consolidated Statements of Operations
Years ended December 31,
------------------------------------------
2004 2003 2002
----------- --------- ----------
(In thousands of dollars, except per share
data)
Net sales $ 837,173 $ 731,167 $ 755,737
Cost of sales 820,938 667,327 683,234
----------- --------- ----------
Gross profit 16,235 63,840 72,503
Operating expenses:
Selling, general and administrative 43,317 39,406 32,826
Reorganization charges 14,733 - -
Goodwill impairment charge 165,933 51,083 -
Restructuring and impairment charges 32,213 9,968 -
----------- --------- ----------
Total operating expenses 256,196 100,457 32,826
----------- --------- ----------
Operating (loss) profit (239,961) (36,617) 39,677
Other expenses (income):
Interest expense, net 30,484 29,895 28,270
Other income, net (511) (1,959) (161)
----------- --------- ----------
Total other expenses 29,973 27,936 28,109
----------- --------- ----------
(Loss) income from continuing operations before income taxes
and equity interest in a joint venture (269,934) (64,553) 11,568
Income tax expense (736) (18,536) (2,665)
Equity interest in a joint venture - 752 1,573
----------- --------- ----------
(Loss) income from continuing operations (270,670) (82,337) 10,476
Loss from discontinued operations, net of tax:
Loss from operation (2,958) (16,535) (1,954)
Loss from sale - (41) -
----------- --------- ----------
(Loss) income before cumulative effect of change in accounting (273,628) (98,913) 8,522
Cumulative effect of change in accounting, net of tax - - 481
----------- --------- ----------
Net (loss) income $ (273,628) $ (98,913) $ 9,003
----------- --------- ----------
Net (loss) income per common share -- basic:
(Loss) income from continuing operations $ (10.57) $ (3.22) $ 0.41
Loss from discontinued operations, net of tax (0.12) (0.65) (0.08)
Cumulative effect of change in accounting, net of tax - - 0.02
----------- --------- ----------
Net (loss) income $ (10.69) $ (3.87) $ 0.35
----------- --------- ----------
Net (loss) income per common share -- assuming dilution
(Loss) income from continuing operations $ (10.57) $ (3.22) $ 0.40
Loss from discontinued operations, net of tax (0.12) (0.65) (0.07)
Cumulative effect of change in accounting, net of tax - - 0.02
----------- --------- ----------
Net (loss) income $ (10.69) $ (3.87) $ 0.35
----------- --------- ----------
See accompanying notes.
31
INTERMET Corporation
Consolidated Statements of Comprehensive Income
Years ended December 31,
---------------------------------
2004 2003 2002
---------- ---------- ---------
(In thousands of dollars)
Net (loss) income $ (273,628) $ (98,913) $ 9,003
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 6,312 10,537 9,793
Derivative instrument liability adjustment - 1,343 515
Minimum pension liability adjustment (1,410) (4,312) (11,481)
---------- ---------- ---------
Total other comprehensive income (loss) 4,902 7,568 (1,173)
---------- ---------- ---------
Comprehensive (loss) income $ (268,726) $ (91,345) $ 7,830
========== ========== =========
See accompanying notes.
32
INTERMET Corporation
Consolidated Balance Sheets
December 31,
-------------------------
2004 2003
---------- ----------
(in thousands of dollars,
except per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 11,239 $ 1,035
Accounts receivable:
Trade, less allowances of $9,560 in 2004 and $6,528 in 2003 108,932 76,218
Other 5,593 10,555
---------- ----------
114,525 86,773
Inventories 71,527 77,411
Other current assets 11,410 10,748
---------- ----------
Total current assets 208,701 175,967
---------- ----------
Property, plant and equipment, net 278,080 324,080
Goodwill - 165,933
Deferred income tax assets - 147
Other noncurrent assets 26,042 20,557
---------- ----------
Total noncurrent assets 304,122 510,717
---------- ----------
Total assets $ 512,823 $ 686,684
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,969 $ 80,737
Accrued payroll and benefits 37,198 33,885
Other accrued liabilities 24,632 25,657
Current portion of retirement benefits 11,855 14,542
Short-term lines of credit 15,975 9,992
Long-term debt due within one year 168,180 4,303
---------- ----------
Total current liabilities 287,809 169,116
Liabilities subject to compromise 250,464 -
Noncurrent liabilities:
Long-term debt due after one year 4,055 279,248
Retirement benefits 70,982 70,767
Deferred income tax liabilities 1,977 -
Other noncurrent liabilities 6,191 5,416
---------- ----------
Total noncurrent liabilities 83,205 355,431
Shareholders' equity (deficit):
Preferred stock; 5,000,000 shares authorized; none issued in 2004 and 2003 - -
Common stock, $0.10 par value; 50,000,000 shares authorized in 2004 and
2003; 25,665,257 and 25,593,391 shares issued and outstanding in 2004
and 2003 2,606 2,601
Capital in excess of par value 57,276 57,165
Retained earnings (deficit) (166,254) 109,428
Accumulated other comprehensive loss (2,092) (6,994)
Unearned restricted stock (191) (63)
---------- ----------
Total shareholders' equity (deficit) (108,655) 162,137
---------- ----------
Total liabilities and shareholders' equity (deficit) $ 512,823 $ 686,684
========== ==========
See accompanying notes.
33
INTERMET Corporation
Consolidated Statements of Cash Flows
Years ended December 31,
----------------------------------
2004 2003 2002
---------- ---------- ----------
(in thousands of dollars)
OPERATING ACTIVITIES:
(Loss) income from continuing operations $ (270,670) $ (82,337) $ 10,476
Adjustments to reconcile net (loss) income to cash provided by
operating activities:
Cumulative effect of change in accounting - - 481
Depreciation and amortization 49,750 50,251 47,120
Amortization of debt discount and issuance costs 8,389 2,211 2,083
Goodwill impairment charge 165,933 51,083 -
Restructuring and impairment charges 32,213 9,506 -
Results of equity investment - (752) (1,573)
Deferred income tax provision 2,124 22,613 548
(Gain) loss on disposal of property, plant and equipment (289) (1,526) 3,109
Changes in operating assets and liabilities:
Accounts receivable (28,017) 6,772 28,538
Inventories 4,336 (6,657) 6,968
Accounts payable and current liabilities 29,032 (11,233) (15,818)
Other assets and liabilities (17,636) (2,758) 4,497
---------- ---------- ----------
Cash (used in) provided by continuing operating activities (24,835) 37,173 86,429
Cash (used in) provided by discontinued operations (359) (4,066) 2,946
---------- ---------- ----------
Cash (used in) provided by operating activities (25,194) 33,107 89,375
INVESTING ACTIVITIES:
Additions to property, plant and equipment (22,858) (19,533) (8,427)
Additions to property, plant and equipment by discontinued
operations - (145) (1,018)
Proceeds from sale of property, plant and equipment 969 1,700 -
Purchase of shares of a subsidiary (6,220) (5,571) -
Proceeds from sale of assets of a subsidiary - 3,925 -
---------- ---------- ----------
Cash used in investing activities (28,109) (19,624) (9,445)
FINANCING ACTIVITIES:
Net decrease in revolving credit facility (14,139) (3,000) (85,000)
Proceeds from term loan 120,000 - -
Proceeds from debtor-in-possession facility 3,000 - -
Proceeds from debt offering - - 175,000
Repayment of term loan - - (171,750)
Repayment of revenue bonds (35,000) - -
Repayments of other debts (3,624) (4,417) (1,646)
Payments of debt issuance costs (5,200) (2,110) (6,022)
Issuance of common stock 16 - 374
Dividends paid (3,078) (4,096) (4,075)
---------- ---------- ----------
Cash used in financing activities 61,975 (13,623) (93,119)
Effect of foreign currency exchange rate changes 1,532 (2,123) 2,621
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 10,204 (2,263) (10,568)
Cash and cash equivalents at beginning of year 1,035 3,298 13,866
---------- ---------- ----------
Cash and cash equivalents at end of year $ 11,239 $ 1,035 $ 3,298
========== ========== ==========
See accompanying notes.
34
INTERMET Corporation
Consolidated Statements of Shareholders' Equity (Deficit)
Years ended December 31,
---------------------------------------------
2004 2003 2002
----------- ---------- ----------
(in thousands of dollars, except share and
per share data)
COMMON STOCK, $0.10 PAR VALUE
Balance as of January 1 $ 2,601 $ 2,601 $ 2,590
Issued in connection with exercise of options to purchase
19,750 shares of common stock - - 2
Issued in connection with deferred compensation plan 5 - 9
----------- ---------- ----------
Balance as of December 31 2,606 2,601 2,601
CAPITAL IN EXCESS OF PAR VALUE
Balance as of January 1 57,165 57,124 56,761
Amounts in excess of par value of common stock issued in
connection with exercise of options to purchase shares - - 189
Amounts in excess of par value of common stock issued in
connection with stock compensation plan 111 41 174
----------- ---------- ----------
Balance as of December 31 57,276 57,165 57,124
RETAINED EARNINGS (DEFICIT)
Balance as of January 1 109,428 212,437 207,512
Net (loss) income (273,628) (98,913) 9,003
Cash dividends of $0.08 per share in 2004, and $0.16 per
share in 2003 and 2002 (2,054) (4,096) (4,078)
----------- ---------- ----------
Balance as of December 31 (166,254) 109,428 212,437
ACCUMULATED TRANSLATION
Balance as of January 1 15,689 5,152 (4,641)
Foreign currency translation adjustment 6,312 16,213 14,932
Related income tax expense - (5,676) (5,139)
----------- ---------- ----------
Balance as of December 31 22,001 15,689 5,152
DERIVATIVE INSTRUMENT LIABILITY
Balance as of January 1 - (1,343) (1,858)
Derivative instrument liability adjustment - 2,066 792
Related income tax expense - (723) (277)
----------- ---------- ----------
Balance as of December 31 - - (1,343)
MINIMUM PENSION LIABILITY
Balance as of January 1 (22,683) (18,371) (6,890)
Additional minimum pension liability (1,410) (6,634) (17,663)
Related income tax credit - 2,322 6,182
----------- ---------- ----------
Balance as of December 31 (24,093) (22,683) (18,371)
UNEARNED RESTRICTED STOCK
Balance as of January 1 (63) (31) (194)
Issuance of 60,000, 7,500 and 6,000 shares of common stock
in 2004, 2003 and 2002, respectively (226) (63) (20)
Restricted stock vested 98 31 44
Forfeitures - - 139
----------- ---------- ----------
Balance as of December 31 (191) (63) (31)
----------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) $ (108,655) $ 162,137 $ 257,569
=========== ========== ==========
See accompanying notes.
35
INTERMET Corporation
Notes to Consolidated Financial Statements
Years ended December 31, 2004, 2003 and 2002
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
INTERMET Corporation produces castings in North America and Europe for light and
heavy vehicles, including powertrain, chassis, brake, and body / interior
components, as well as industrial products. In addition, we perform value-added
services including advanced design and engineering, prototype casting and
machining and sub-assembly, principally for our automotive customers.
Our business segments include two groups; the Ferrous Metals Group and the Light
Metals Group. Ferrous Metals consists of ductile iron casting and related
manufacturing. Light Metals consists of aluminum, magnesium and zinc casting,
along with associated value-added activities.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements, presented in
conformity with accounting principles generally accepted in the United States
("GAAP"), include the accounts of INTERMET and its domestic and foreign
subsidiaries. All significant inter-company transactions and balances have been
eliminated in consolidation. All subsidiaries have a fiscal year ending December
31. Investments in 20% to 50% owned companies are accounted for under the equity
method.
On September 29, 2004, INTERMET Corporation and 17 of its wholly-owned domestic
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
Eastern District of Michigan. These Chapter 11 cases have been consolidated for
the purposes of joint administration as In re: INTERMET Corporation, et al.
(Case No. 04-67597).
The accompanying consolidated financial statements have been prepared in
accordance with AICPA Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") using a going
concern assumption. However, as a result of the Chapter 11 proceedings, such
realization of assets and liquidation of liabilities, without substantial
adjustments and/or change of ownership, is highly uncertain. Given this
uncertainty, there is substantial doubt about our ability to continue as a going
concern. However, we expect to propose a plan of reorganization to the
Bankruptcy Court by June 27, 2005. When filed, the plan of reorganization will
set forth the means for treating claims, including liabilities subject to
compromise. The plan of reorganization may result in, among other things,
significant dilution of equity interests as a result of issuance of equity
securities to creditors or new investors. The confirmation of any plan of
reorganization will require creditor acceptance as required under the Bankruptcy
Code and approval of the Bankruptcy Court. Further, the plan of reorganization
could materially change the amounts and classifications in our historical
consolidated financial statements. While operating the businesses as
debtors-in-possession, we and our subsidiaries may dispose of assets or settle
liabilities for amounts materially different from those in the accompanying
consolidated financial statements. The appropriateness of using a going concern
assumption in the preparation of the accompanying consolidated financial
statements is dependent upon, among other things, our ability to comply with the
covenants of our secured debtor-in-possession revolving credit facility and our
ability to generate cash from operations.
36
INTERMET Corporation
Notes to Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. During 2004, there
were no material changes in the methods or policies used to establish estimates
and assumptions. Generally, matters subject to estimation and judgment include
accounts receivable realization, inventory obsolescence, long-lived asset
impairment, pension and other postretirement benefit obligations, accruals
related to litigation and environmental costs and valuation reserves for
deferred tax assets. Actual results may differ from the estimates provided.
RECLASSIFICATIONS
Certain other amounts previously reported in the 2003 financial statements and
notes thereto have been reclassified to conform to the 2004 presentation.
REVENUE RECOGNITION
We recognize revenue upon shipment of products and transfer of title.
SHIPPING AND HANDLING COSTS
We record shipping and handling costs as components of "Cost of Sales" within
our statements of operations.
STOCK-BASED COMPENSATION
We grant stock options to employees and directors with an exercise price equal
to the fair value of the shares at the date of grant. We account for stock
option grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and, accordingly, recognize no
compensation expense for the stock option grants. Had compensation expense for
these stock option grants been determined based on the fair value at the grant
dates for awards under the stock option plans consistent with the method of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", our pro forma net (loss) income, basic (loss)
earnings per share and diluted (loss) earnings per share would be the following:
2004 2003 2002
----------- ---------- ---------
(in thousands of dollars, except per
share data)
Net (loss) income, as reported $ (273,628) $ (98,913) $ 9,003
----------- ---------- ---------
Less: Total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects (937) (1,043) (794)
----------- ---------- ---------
Pro forma net (loss) income $ (274,565) $ (99,956) $ 8,209
----------- ---------- ---------
(Loss) earnings per share:
Basic - as reported $ (10.69) $ (3.87) $ 0.35
----------- ---------- ---------
Basic - pro forma $ (10.72) $ (3.91) $ 0.32
----------- ---------- ---------
Diluted - as reported $ (10.69) $ (3.87) $ 0.35
----------- ---------- ---------
Diluted - pro forma $ (10.72) $ (3.91) $ 0.32
----------- ---------- ---------
37
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
We use the Black-Scholes option pricing model to estimate the fair value of our
stock options as described in Note 10 to our Consolidated Financial Statements,
Stock Compensation.
CASH AND CASH EQUIVALENTS
All short-term investments with original maturities of less than 90 days are
deemed to be cash equivalents for purposes of the statements of cash flows.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowance for doubtful accounts reduces trade accounts receivable to its net
recognizable amount. It is determined by a combination of factors, such as
customer charge-backs, a customer's inability to meet its financial obligations
to us, our past loss history and the length of time the trade account
receivables are past due. If circumstances change, our estimates of the
recoverability of trade accounts receivable could be reduced by a material
amount. We typically do not require collateral from our customers.
INVENTORIES
Inventories are stated at the lower of cost or market. Certain raw materials and
supplies inventories are valued on a weighted average cost basis. Average
production cost is used for certain work in process. Finished goods inventories
and other inventories are valued by the first-in, first-out ("FIFO") method. The
specific identification method is used for pattern inventories. Cost is
determined on the last-in, first-out ("LIFO") method for 5.4% and 3.2% of
inventories as of December 31, 2004 and 2003, respectively. If LIFO inventories
were valued using the same cost methods used for other inventories, their
carrying values would have increased by $2.2 million and $0.9 million at
December 31, 2004 and 2003, respectively. Supplies inventories are evaluated for
obsolescence based on length of time in the store-room and expected near-term
use.
The components of inventories are as follows (in thousands of dollars):
December 31,
--------------------
2004 2003
--------- ---------
Finished goods $ 24,123 $ 22,433
Work in process 9,751 8,198
Raw materials 11,947 8,113
Supplies and patterns 25,706 38,667
--------- ---------
Total inventories $ 71,527 $ 77,411
========= =========
PREPAID EXPENSES
We recognize payments made in advance for future services as prepaid expenses
and include them in "Other Current Assets" in the accompanying balance sheets.
38
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The provision for depreciation
and amortization of property, plant and equipment is determined using the
straight-line method on the basis of the following estimated useful lives: 2 to
40 years for buildings and improvements and 2 to 21 years for machinery and
equipment. The amortization of property, plant and equipment under capital
leases is included in depreciation expense. Industrial development grants
provided by the federal and state governments of Germany are included as
reductions of property, plant and equipment and are being amortized over the
estimated useful lives of the related assets.
We evaluate our property, plant and equipment for impairment whenever events or
changes in circumstances indicate that the carrying amounts of such assets may
not be recoverable. The carrying amount of a long-lived asset is considered to
be not recoverable if it exceeds our estimates of its undiscounted future cash
flows based on our operation forecasts. Impairment charges will be measured and
recorded as the amount by which the carrying values of the long-lived assets
exceed their fair values.
The components of property, plant and equipment are as follows (in thousands of
dollars):
December 31,
---------------------
2004 2003
--------- ----------
Land $ 6,716 $ 6,681
Buildings and improvements 141,361 143,382
Machinery and equipment 549,759 517,846
Construction in progress 22,695 26,443
--------- ----------
Property, plant and equipment, at cost 720,531 694,352
Less: Accumulated depreciation 442,451 370,272
--------- ----------
Property, plant and equipment, net $ 278,080 $ 324,080
========= ==========
GOODWILL
Goodwill represents the excess acquisition cost over the fair value of net
assets acquired and is not amortized, but is reviewed for impairment annually or
more frequently if certain events or changes in circumstances indicate that the
carrying value may not be recoverable. We perform impairment tests of our
goodwill as required. We evaluate our goodwill recoverability based on a
combination of an income method, which estimates the fair value of our reporting
units based on the future discounted cash flows, and a market method, which
estimates the fair values based on comparable market prices. In December 2004,
we recorded an impairment charge against goodwill of $165.9 million, which
represented the total value of goodwill in both of our reporting segments. As a
result, as of December 31, 2004, the carrying value of goodwill was $0. See Note
6, Goodwill, for further discussion.
39
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
DERIVATIVES
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
requires us to recognize all of our derivative instruments as either assets or
liabilities in the statement of financial position at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the type of hedging relationship. For those
derivative instruments that are designated and qualify as hedging instruments,
we designate the hedging instrument as either a fair value hedge, cash flow
hedge or a hedge of a net investment in a foreign operation, based upon the
exposure being hedged.
ENVIRONMENTAL MATTERS
Accruals for environmental matters are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated. These accruals are adjusted periodically as assessment and
remediation efforts progress or other information becomes available. Related
insurance or other third-party recoveries for environmental liabilities are
recorded as a reduction of environmental reserve when it is probable that a
recovery will be realized.
Environmental costs are capitalized if the costs extend the life of the
property, increase its capacity and / or mitigate or prevent contamination from
future operations. Costs related to environmental contamination treatment and
clean-up are charged to expense.
INCOME TAXES
We account for taxes on income using the asset and liability method where
deferred tax assets and liabilities are recognized for the future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities using statutory tax rates.
We regularly assess the likelihood that the deferred tax assets, including net
operating loss carryforwards, are recoverable. This process requires substantial
management judgment. To the extent that we believe the recoverability is less
than likely, we will establish a valuation reserve against the deferred tax
assets. Actual results could differ from our estimates and such differences
could be material to the financial statements. For the years ended December 31,
2004 and 2003, we recorded a valuation reserve of $42.9 million and $23.9
million, respectively, against our domestic net deferred tax assets due to the
accumulation of losses experienced at our domestic operations between 2002 and
2004.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of foreign subsidiaries for which the local currency
is the functional currency are translated into U.S. dollars at year-end exchange
rates. Income and expense items are translated at average exchange rates
prevailing during the year. The resulting translation adjustments are recorded
in Accumulated Other Comprehensive Income as a component of Shareholders'
Equity.
40
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued Statement No. 123 (revised 2004) (FAS 123R),
"Share-Based Payment." FAS 123R replaces FASB Statement No. 123 (FAS 123),
"Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees." FAS 123, as originally issued in
1995, established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. The approach to accounting for
share-based payments in FAS 123R is similar to the fair-value approach permitted
in FAS 123, however, FAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial
statements based on their fair values and the current pro forma disclosure is no
longer an alternative to financial statement recognition. In April 2005, the SEC
delayed the effective date for FAS 123R until the first fiscal year beginning
after June 15, 2005. We are currently assessing the effect of FAS 123R and
believe the effect will not be material to our results of operations.
2. VOLUNTARY REORGANIZATION UNDER CHAPTER 11 AND ADMINISTRATION
On September 29, 2004, INTERMET and 17 of its wholly-owned domestic subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the Eastern
District of Michigan. These Chapter 11 cases have been consolidated for the
purposes of joint administration as In re: INTERMET Corporation, et al. (Case
No. 04-67597).
INTERMET's subsidiaries for which bankruptcy petitions were filed are Alexander
City Casting Company, Inc., Cast-Matic Corporation, Columbus Foundry, L.P.,
Diversified Diemakers, Inc., Ganton Technologies, Inc., INTERMET Holding
Company, INTERMET Illinois, Inc., INTERMET International, Inc., INTERMET U.S.
Holding, Inc., Ironton Iron, Inc., Lynchburg Foundry Company, Northern Castings
Corporation, Sudbury, Inc., SUDM, Inc., Tool Products, Inc., Wagner Castings
Company and Wagner Havana, Inc., all of which, together with INTERMET, are
currently operating as debtors and debtors-in-possession. Other INTERMET
subsidiaries, including foreign subsidiaries, are not parties to the Chapter 11
proceedings and are operating in the normal course.
Our bankruptcy proceedings were initiated primarily in response to substantial
and unprecedented increases in the cost of raw materials, especially scrap
steel. The price of scrap steel, which is our primary raw material, increased
from approximately $160 per net ton at the beginning of 2003 to approximately
$210 per net ton at the end of 2003 to approximately $400 per net ton by the end
of 2004. This included record increases of $85 per gross ton and $65 per gross
ton in July and August of 2004, respectively. The price of scrap steel reached a
peak of $440 per net ton in November, 2004. Because of pre-existing contractual
pricing terms with most of our customers, we were limited in our ability to pass
these cost increases to our customers. At the same time, some of our largest
trade creditors began to tighten or eliminate credit terms, which increased our
working capital requirements. We also experienced operational difficulties at
our Pulaski, Tennessee and Racine, Wisconsin light-metals plants.
These financial and operational difficulties impaired our ability to continue to
draw on our pre-petition revolving credit facility. In an effort to avoid
anticipated defaults under our loan covenants, which would have occurred as of
September 30, 2004, we entered into discussions with the agent for our
pre-petition lenders, seeking waivers of certain conditions contained in the
pre-petition credit facility. We were unable to obtain waivers on acceptable
terms and, consequently, the Chapter 11 cases were filed on September 29, 2004.
We have continued to operate our U.S. businesses as debtors-in-possession under
bankruptcy court protection from creditors. We continue to review all aspects of
our business for opportunities to improve performance, while seeking to
restructure our secured and unsecured debt, rationalize our facilities and cost
structure and effect a customer strategy focused on scrap steel cost recovery
and other commercial and financial issues.
41
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
2. VOLUNTARY REORGANIZATION UNDER CHAPTER 11 AND ADMINISTRATION (CONTINUED)
On December 8, 2004, our Board of Directors adopted an Amended and Restated Key
Employee Retention Plan in order to retain certain key employees during our
bankruptcy proceedings. The plan provides for the payment of bonuses to
participants who remain employed by us through a successful reorganization or
sale of the company. The plan was approved by the bankruptcy court on December
22, 2004. The number of employees who are participants in the plan is
approximately 100, and we estimate that the total amount payable to participants
will be approximately $5.2 million. One third (1/3) of each participant's
payment is due following confirmation of a plan of reorganization and the
remaining two thirds (2/3) is due between January 1, 2006 and January 10, 2006.
The plan also provides for severance benefits under certain conditions.
LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise refers to liabilities of the debtors incurred
prior to September 29, 2004, and represent the estimates of known or potential
pre-petition claims to be resolved in connection with the bankruptcy
proceedings. Such claims remain subject to future proceedings. Payment terms for
these claims will be established in connection with the bankruptcy proceedings.
The amounts of the various liabilities that are subject to compromise are set
forth below (in thousands of dollars):
December 31, 2004
-----------------
Senior notes payable $ 177,000
Accounts payable 64,192
Other accrued liabilities 3,369
Interest payable 5,000
Accrued payroll and benefits 903
-----------------
Subtotal 250,464
Intercompany payables to affiliates 197,547
-----------------
Total $ 448,011
=================
DEBTORS' FINANCIAL STATEMENTS
The condensed consolidated financial statements of the debtors are presented
below. These statements reflect the financial position, results of operations
and cash flows of the combined Debtor companies, including certain amounts and
activities between Debtor and non-Debtor subsidiaries of the Company, which are
eliminated in the consolidated financial statements.
42
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
2. VOLUNTARY REORGANIZATION UNDER CHAPTER 11 AND ADMINISTRATION (CONTINUED)
DEBTORS' CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars)
Year ended
December 31,
2004
------------
Net sales $ 661,328
Cost of sales 667,650
------------
Gross loss (6,322)
Operating expenses:
Selling, general and administrative 28,849
Management fee income from non-Debtors (806)
Reorganization charges 14,733
Goodwill impairment charge 164,671
Restructuring and impairment charges 32,213
------------
Total operating expenses 239,660
------------
Operating loss (245,982)
Other expenses (income):
Interest expense, net 31,135
Other income, net (478)
------------
Net other expenses 30,657
------------
Loss from continuing operations before income taxes and equity income of non-Debtor
subsidiaries (276,639)
Income tax benefit 582
------------
Loss from continuing operations before equity loss of non-Debtor subsidiaries (276,057)
Equity income from continuing operations of non-Debtor subsidiaries 5,387
------------
Loss from continuing operations (270,670)
Loss from discontinued operations, net of tax (2,958)
------------
Net loss $ (273,628)
============
43
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
2. VOLUNTARY REORGANIZATION UNDER CHAPTER 11 AND ADMINISTRATION (CONTINUED)
DEBTORS' CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
As of December
31, 2004
--------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,729
Accounts receivable, net 78,454
Accounts receivable, non-Debtors 68,897
Inventories 45,856
Other current assets 10,757
--------------
Total current assets 205,693
--------------
Property, plant and equipment, net 201,215
Investment in non-Debtors 69,399
Loan receivable from non-Debtors 154,821
Other noncurrent assets 19,167
--------------
Total noncurrent assets 444,602
--------------
Total assets $ 650,295
==============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 9,877
Accounts payable, non-Debtors (3)
Accrued payroll and benefits 26,131
Other accrued liabilities 35,730
Short-term lines of credit 3,000
Long-term debt due within one year 163,585
--------------
Total current liabilities 238,320
Liabilities subject to compromise 448,011
Noncurrent liabilities:
Long-term debt due after one year -
Retirement benefits 70,982
Deferred income tax liabilities (2,781)
Other noncurrent liabilities 4,418
--------------
Total noncurrent liabilities 72,619
Shareholders' equity (deficit) (108,655)
--------------
Total liabilities and shareholders' equity (deficit) $ 650,295
==============
44
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
2. VOLUNTARY REORGANIZATION UNDER CHAPTER 11 AND ADMINISTRATION (CONTINUED)
DEBTORS' CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
Year ended
December 31,
2004
------------
Cash used in by operating activities (42,781)
INVESTING ACTIVITIES:
Additions to property, plant and equipment (14,231)
Proceeds from sale of property, plant and equipment 969
------------
Cash used in investing activities (13,262)
FINANCING ACTIVITIES:
Net decrease in revolving credit facility (16,339)
Proceeds from term loan 120,000
Proceeds from debtor-in-possession facility 3,000
Repayment of revenue bonds (35,000)
Repayments of other debts (3,113)
Payments of debt issuance costs (5,200)
Issuance of common stock 16
Dividends paid (3,078)
------------
Cash provided by financing activities 60,286
Effect of foreign currency exchange rate changes -
------------
Net increase in cash and cash equivalents 4,243
Cash and cash equivalents at beginning of year (2,514)
------------
Cash and cash equivalents at end of year $ 1,729
============
45
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
3. ACQUISITION
On June 25, 2003, we entered into an agreement with Melfina -- Estudos, Servicos
e Participacoes, S.A. to acquire 100% ownership of the shares of Fundicao
Nodular, S.A. ("Porto Foundry"), which is located in Porto, Portugal. Previously
we owned a 50% interest in the Porto Foundry. The Porto Foundry is a caster of
various ductile-iron automotive components. Under the terms of the agreement, we
acquired an additional 25% of the Porto Foundry's shares for a cash investment
of Euro 4.9 million (approximately $5.6 million) on July 1, 2003, increasing our
ownership from 50% to 75%. We had a call option to acquire, and Melfina --
Estudos, Servicos e Participacoes, S.A. had a put option, requiring us to buy
the remaining 25% ownership for an additional cash investment of Euro 4.9
million (approximately $6.2 million based on the exchange rate on December 31,
2003) on July 1, 2004. Because of the put option, we recorded $6.0 million, the
net present value of the $6.2 million future cash investment, as "Accounts
payable" in the accompanying balance sheet as of December 31, 2003.
On July 1, 2004, we exercised the call option to acquire the remaining 25%
ownership of the Porto Foundry. The purchase price of approximately Euro 4.9
million (approximately $6.2 million at the exchange rates at the time of the
payments) together with interest accruing at European Interbank Offered Rate
("EURIBOR") was paid in six equal monthly installments beginning July 2004.
We accounted for the acquisition of additional shares using the purchase
accounting method. The purchase price has been allocated to the assets purchased
and liabilities assumed based upon the estimated fair values at the date of
acquisition. As the Porto Foundry became our consolidated subsidiary at July 1,
2003, the results of its operations from that date are included in our
consolidated results of operations. Our equity in the net income of the Porto
Foundry for the period before July 1, 2003 is included in "Equity interest in a
joint venture" in the accompanying statements of operations. The pro forma
effects of this acquisition are not material to our consolidated results of
operations.
4. DISCONTINUED OPERATIONS
FRISBY
On July 24, 2003, we sold substantially all the assets of Frisby P.M.C.,
Incorporated ("Frisby") for $5.3 million, consisting of $3.9 million in cash and
$1.4 million in the form of a promissory note, the balance of which is due to be
paid by July 31, 2008. This disposition is consistent with our strategy to
divest non-strategic assets. This transaction resulted in a pre-tax loss on sale
of $1.2 million (after-tax loss $0.1 million). Frisby operated a machining plant
that manufactured precision-machined components primarily for the automotive,
truck and power tool markets. Frisby was a non-core operation and is included in
our Corporate and Other segment in Note 14 to our Consolidated Financial
Statements, Reporting for Business Segments.
46
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
4. DISCONTINUED OPERATIONS (CONTINUED)
Major classes of assets and liabilities of Frisby were (in thousands of
dollars):
July 24, December 31,
2003 2002
---------- ------------
Accounts receivable $ 2,061 $ 1,276
Inventory 1,552 1,717
Other current assets 158 414
Property, plant and equipment, net 4,453 5,072
---------- ------------
Total assets $ 8,224 $ 8,479
========== ============
Accounts payable $ 848 $ 973
Accrued liabilities 855 892
---------- ------------
Total liabilities $ 1,703 $ 1,865
========== ============
The results of operations of Frisby included in the accompanying statements of
operations as discontinued operations were (in thousands of dollars):
2004 2003 2002
----- -------- ---------
Sales $ - $ 8,007 $ 13,603
Cost of sales - 7,645 14,319
----- -------- ---------
Gross profit (loss) - 362 (716)
Expenses - 526 886
----- -------- ---------
Loss before income taxes - (164) (1,602)
Income tax (expense) benefit - (1,180) 623
----- -------- ---------
Loss from discontinued operation, net of tax $ - $ (1,344) $ (979)
===== ======== =========
RADFORD
In May 2003, we decided to close our facility in Radford, Virginia due to
changes in market conditions and production technology, as well as the fact that
substantial investment in environmental controls would have been necessary for
continued operation of this facility. The Radford facility manufactured
gray-iron and ductile-iron components for the automotive industry and had
approximately 41 salaried and 333 hourly employees. The facility is included in
the Ferrous Metals segment in Note 14 to our Consolidated Financial Statements,
Reporting for Business Segments.
As a result of this decision, we recorded an $11.6 million pre-tax restructuring
and impairment charge during the second quarter of 2003. The charge included a
write-down of $9.9 million to reduce the capital assets and inventories to their
fair values, $1.4 million for employee severance and related contractually
guaranteed benefit costs, and $0.3 million for employee pension costs. In the
fourth quarter of 2003, we accrued an additional $0.1 million for employee
severance costs. The accruals for the employee severance and benefit costs are
included in "Other accrued liabilities" in the accompanying balance sheet in
2003.
47
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
4. DISCONTINUED OPERATIONS (CONTINUED)
In addition, we recorded pre-tax gains of $1.3 million and $0.7 million on the
reduction of postretirement benefit obligations when the employees were
terminated in the third and fourth quarter of 2003, respectively. By December
2003, the Radford Foundry was closed and substantially all of the employees were
terminated. At December 31, 2004, we had $2.3 million accrued for environmental
remediation at the Radford Foundry. See additional discussion in Note 11 to our
Consolidated Financial Statements, Commitments and Contingencies. The after-tax
results of operations of the Radford Foundry for all periods presented have been
reported as "Loss from discontinued operations, net of tax" in the accompanying
statements of operations.
Activities relating to the restructuring charges and liabilities arising from
the Radford Foundry closure are as follows (in thousands of dollars):
Employee Employee
Impairment of Write-down of Termination Postretirement
fixed assets inventory Benefits Benefits Other Total
------------- ------------- ----------- -------------- ----- ---------
Initial charge in second quarter
of 2003 $ 7,554 $ 2,351 $ 1,336 $ 301 $ 50 $ 11,592
Additional charge - - 138 - - 138
Noncash charges (7,554) (2,351) - (301) - (10,206)
Reduction of post-retirement
obligations - - - (1,997) - (1,997)
Noncash credit - - - 1,997 - 1,997
Cash payments - - (920) - (50) (970)
------------- ------------- ----------- -------------- ----- ---------
Balance at December 31, 2003 - - 554 - - 554
Additional charges - 120 35 - - 155
Noncash charges - (120) - - - (120)
Cash payments - - (473) - - (473)
------------- ------------- ----------- -------------- ----- ---------
Balance at December 31, 2004 $ - $ - $ 116 $ - $ - $ 116
============= ============= =========== ============== ===== =========
Major classes of assets and liabilities of the Radford Foundry are as follows
(in thousands of dollars):
At December 31,
------------------------------
2004 2003 2002
-------- ------- ---------
Accounts receivable $ 56 $ 2,052 $ 3,595
Inventory - 429 3,759
Other current assets - 514 -
Property, plant and equipment, net 440 673 9,023
-------- ------- ---------
Total assets $ 496 $ 3,668 $ 16,377
======== ======= =========
Accounts payable $ - $ 491 $ 4,374
Accrued liabilities 1,062 1,611 2,045
Retirement benefits 2,439 1,959 804
Other noncurrent liabilities 2,039 2,508 1,004
-------- ------- ---------
Total liabilities $ 5,540 $ 6,569 $ 8,227
======== ======= =========
48
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
4. DISCONTINUED OPERATIONS (CONTINUED)
The results of operations of the Radford Foundry included in the accompanying
statements of operations as discontinued operations are summarized as follows
(in thousands of dollars):
2004 2003 2002
-------- ---------- ---------
Sales $ 18 $ 34,820 $ 45,592
Cost of sales 2,836 38,271 47,216
-------- ---------- ---------
Gross loss (2,818) (3,451) (1,624)
Expenses 140 11,740 63
-------- ---------- ---------
Loss before income taxes (2,958) (15,191) (1,687)
Income tax benefit - - 712
-------- ---------- ---------
Loss from discontinued operation, net of tax $ (2,958) $ (15,191) $ (975)
======== ========== =========
Corporate interest expense has been allocated to Frisby and the Radford Foundry
based on the ratio of their net assets to our consolidated net assets plus
consolidated debt, excluding the net assets of our European subsidiaries. The
European subsidiaries were excluded because they were cash flow positive and did
not directly use the proceeds from the debt outstanding during the periods
covered by the financial statements. The interest expense allocated to Frisby
and the Radford Foundry for 2003 and 2002 was $546,000 and $571,000,
respectively. No corporate interest expense was allocated to Frisby or the
Radford Foundry in 2004.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
provides that the results of operations of a component of an entity that has
been disposed of should be reported as discontinued operation when the
operations and cash flows of the component have been eliminated from the ongoing
operations of the entity and the entity will not have any significant continuing
involvement in the operations of the component after the disposal transaction.
This occurred when the assets of Frisby were sold in July 2003 and when the
Radford Foundry was closed in December 2003. As a result, the after-tax loss on
sale of the assets of Frisby, and the results of operations of both Frisby and
the Radford Foundry for all periods presented, have been reported as
discontinued operations in the accompanying statements of operations.
49
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
5. RESTRUCTURING AND IMPAIRMENT CHARGES
RACINE CLOSURE
In December 2004, we announced the closure of our Racine Plant and Racine
Machining Plant, both of which are located in Sturtevant, Wisconsin. We closed
these plants during the second quarter of 2005. We decided to close these
operations due to high costs and under utilization of capacity. We recognized
plant closure and asset impairment charges in 2004 of $10.3 million. The amount
included a write-down of $8.9 million to reduce the capital assets and
inventories to their fair values, a pension curtailment expense of $1.2 million
and $0.2 million for employee severance and related contractually guaranteed
benefit costs.
COLUMBUS MACHINING CLOSURE
In October 2004, we announced the closure of our Columbus Machining Plant,
located in Midland, Georgia. We closed this plant during the first quarter of
2005. We recognized plant closure costs in 2004 of $0.3 million. We decided to
close the facility because of declining sales and the anticipated need for
capital expenditures that are non-strategic to our operations.
HAVANA PLANT CLOSURE
In December 2003, we decided to close our ductile iron foundry in Havana,
Illinois, in order to improve our capacity utilization. The Havana Foundry
manufactured ductile-iron components for the automotive industry and had
approximately 33 salaried and 141 hourly employees. The plant closure was
completed in June, 2004. We recognized a $1.7 million pre-tax charge during the
second and third quarter of 2004 due to the closing. This charge is included in
the "Restructuring and impairment charges" in the accompanying statements of
operations and is in addition to the $8.5 million and $4.9 million charges
discussed below.
Due to the announced closing, we recorded an $8.5 million pre-tax charge during
the fourth quarter of 2003. This charge is included in "Restructuring and
impairment charges" in the accompanying statements of operations. The amount
included a write-down of $8.0 million to reduce the capital assets and
inventories to their fair values and $0.5 million for employee severance and
related contractually guaranteed benefit costs. The accruals for the employee
severance and benefit costs are included in "Accrued payroll and benefits" in
the accompanying balance sheet at December 31, 2003.
The facility is included in the Ferrous Metals segment in Note 14 to our
Consolidated Financial Statements, Reporting for Business Segments. The Havana
Foundry had revenues of $25.7 million and $27.3 million, and net losses of $5.0
million and $2.2 million for the years ended December 31, 2003, and 2002,
respectively.
50
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
5. RESTRUCTURING AND IMPAIRMENT CHARGES (CONTINUED)
OTHER LONG-LIVED ASSETS IMPAIRMENT
Long-lived assets other than goodwill are tested for recoverability if certain
events or changes in circumstances indicate that the carrying value may not be
recoverable. The carrying amounts of long-lived assets are considered to be not
recoverable if they exceed our estimates of their undiscounted future cash
flows, which are affected by our operations forecasts and strategic planning.
The annual growth rate of each segment was decreased from the prior year because
of the uncertainties and risks associated with our bankruptcy proceedings,
compiled with changing market conditions. During our impairment review in the
third quarter of 2004, we identified certain tangible fixed assets with carrying
values not recoverable and exceeding their fair values as of September 30, 2004.
As a result, we recorded a pre-tax impairment charge of $26.4 million for idle
asset impairment at our Decatur, Illinois facility ($10.9 million), Racine,
Wisconsin facility ($6.5 million), Havana, Illinois facility ($4.9 million),
Alexander City, Alabama facility ($1.6 million), Monroe City, Missouri
facilities ($0.5 million), Columbus, Georgia facility ($0.4 million) and $1.6
million at various other locations. These amounts were reported as
"Restructuring and impairment charges" in the accompanying statements of
operations in 2004.
In the fourth quarter of 2003, in addition to the impairment charge for the
Havana Foundry, we recorded a pre-tax impairment loss of $1.5 million, which is
reported as "Restructuring and impairment charges" in the accompanying
statements of operations.
6. GOODWILL
On January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible
Assets," under which goodwill is no longer amortized but is reviewed for
impairment at the reporting unit level annually, or more frequently if certain
events or changes in circumstances indicate that the carrying value may not be
recoverable. As required under SFAS No. 142, we wrote off negative goodwill of
$0.5 million net of taxes in the first quarter of 2002 as a cumulative effect of
a change in accounting principle.
We also performed impairment tests according to the requirements of SFAS No.
142. In the second quarter of 2002, with the assistance of an independent
valuation firm, we performed our initial impairment test on our goodwill as of
January 1, 2002. In addition, we performed our annual impairment test of
goodwill as of November 30, 2002. Both tests indicated that goodwill was not
impaired as of those dates.
In December 2003, with the assistance of an independent valuation firm, we
performed our annual impairment test of goodwill as of November 30, 2003. Under
the first step of the annual impairment test, the fair values of our Ferrous
Metals reporting unit and Light Metals reporting unit were determined based on a
combination of an income method, which estimates the fair value based on the
future discounted cash flows, and a market method, which estimates the fair
values based on comparable market prices. Under the income method, we assumed a
cash flow period of 10 years, a discount rate of 11.5%, a compound annual growth
rate of 4.5% and 7.7% for Ferrous Metals reporting unit and Light Metals
reporting unit, respectively, for the ten year period and a terminal growth rate
of 1.0%. Due to the erosion of the profitability of the Light Metals reporting
unit and the revision of our forecast as a result of the changing market
conditions, our estimated discounted cash flows from the Light Metals reporting
unit decreased as compared to our impairment tests performed in 2002. Based on
the first step of the impairment test, we determined that the carrying value of
the Light Metals reporting unit was in excess of its fair value as of November
30, 2003. Accordingly, we were required to perform the second step of the
impairment test on the Light Metals reporting unit to determine the amount of
the impairment. The second step of the impairment test indicated that the
pre-tax goodwill impairment charge was $51.1 million, which was reported as
"Goodwill Impairment Charge" in the accompanying statements of operations in
2003.
51
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
6. GOODWILL (CONTINUED)
In December 2004, with the assistance of an independent valuation firm, we
performed our annual impairment test of goodwill as of September 30, 2004. Under
the first step of the impairment test, the fair values of our Ferrous Metals
reporting unit and Light Metals reporting unit were determined based on a
combination of an income method, which estimates the fair value based on the
future discounted cash flows, and a market method, which estimates the fair
values based on comparable market prices. Under the income method, we assumed a
cash flow period of 10 years, a discount rate of 16.0%, a compound annual growth
rate of 1.6% and 0.4% for the Ferrous Metals reporting unit and Light Metals
reporting unit, respectively, for the ten year period and a terminal growth rate
of 1.1%. The discount rate was increased and the annual growth rate was
decreased from the prior year because of the uncertainties and risks associated
with our bankruptcy proceedings. Because of the erosion of the profitability of
the Ferrous Metals reporting unit (due primarily to increased costs for scrap
steel and other raw materials), operational difficulties in the Light Metals
reporting unit, the filing of our bankruptcy petitions and the revision of our
forecast and assumptions as a result of changing market conditions, our
estimated discounted cash flows from the Ferrous and Light Metals reporting
units and estimated values using the market method decreased compared to the
results of our impairment tests performed in 2003. Based on the first step of
the impairment test, we determined that the carrying amounts of the Ferrous and
Light Metals reporting units were in excess of their fair value as of September
30, 2004. Accordingly, we were required to perform the second step of the
impairment test on each of these reporting units to determine the amount of the
impairment. The second step indicated that the total goodwill of both units was
fully impaired. The amount of pre-tax goodwill impairment charge was $59.7
million for the Ferrous Metals unit and $106.2 million for the Light Metals
unit, which are reported as "Goodwill Impairment Charge" in the accompanying
statements of operations for 2004.
7. SHORT-TERM LINES OF CREDIT
Columbus Neunkirchen Foundry GmbH, our wholly-owned subsidiary, has various
revolving lines of credit which are payable upon demand. These credit lines
provide for borrowings up to Euro 4.5 million (approximately $6.1 million) at
December 31, 2004. There were no outstanding borrowings under these agreements
as of December 31, 2004 or 2003.
Portcast Fundicao Nodular, SA, our wholly-owned foreign subsidiary, has various
lines of credit for up to Euro 16.3 million (approximately $22.2 million). There
was approximately $12.9 million outstanding under these credit lines as of
December 31, 2004. Annual interest accrues at various rates from approximately
3% to 4% and is payable monthly.
52
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
7. SHORT-TERM LINES OF CREDIT (CONTINUED)
On October 22, 2004, we entered into a $60.0 million debtor-in-possession credit
facility, as amended by seven amendments through May 31, 2005 (the "DIP
Facility"), to supplement our liquidity and fund operations during our
bankruptcy proceedings. Available borrowings under the DIP Facility are
determined based on a budget that is subject to approval by the collateral and
administrative agents, and are subject to a borrowing base calculated as a
percentage of our accounts receivable, inventory and fixed assets, less reserves
and fees. Interest on borrowings made under the DIP Facility is a base rate plus
2.0% per annum or a Eurodollar rate plus 3.0% per annum. Principal repayments
are made on a daily basis from our cash collections. Borrowings under the DIP
Facility are secured by a first priority lien on substantially all of our
domestic assets and a pledge of 65% of the stock of our foreign subsidiaries.
The maturity date of the DIP Facility is the earlier of October 21, 2005 or the
dates of certain accelerating events. In addition, the DIP Facility requires us
to maintain certain financial covenants. The key financial covenants are
limitations on capital expenditures and requirements that we achieve certain
minimum consolidated EBITDA thresholds. At December 31, 2004 and April 30, 2005,
we were in compliance with all debt covenants under our DIP Facility. As a
result of entering into the DIP Facility, we incurred $1.8 million of debt
issuance costs in October 2004 which were capitalized as "Other non-current
assets" in the balance sheet. As of December 31, 2004 the balance outstanding
under the DIP Facility was $3.0 million. Interest rates on the $3.0 million
balance ranged from 5.2% to 7.2%. The issuance of letters of credit also reduces
the amount we have available under the DIP Facility. As of December 31, 2004, we
had $4.5 million in letters of credit outstanding under the DIP Facility.
8. DEBT
Long-term debt consists of the following at December 31 (in thousands of
dollars):
2004 2003
--------- ----------
INTERMET:
Revolving credit facility $ 43,661 $ 60,000
Bank term loan 119,708 -
Senior notes - 175,000
Domestic subsidiaries:
Industrial development bonds - 39,350
Capitalized leases 504 974
Foreign subsidiaries:
Bank term notes 5,890 7,629
Capitalized leases 2,472 598
--------- ----------
Total 172,235 283,551
Less: Long-term debt due within one year 168,180 4,303
--------- ----------
Long-term debt due after one year $ 4,055 $ 279,248
========= ==========
53
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
8. DEBT (CONTINUED)
Due to the bankruptcy proceedings, unsecured pre-petition long-term debt has
been reclassified to "Liabilities subject to compromise" in the December 31,
2004 consolidated balance sheet. The following is the long-term debt included in
liabilities subject to compromise (in thousands of dollars):
2004
----------
Senior notes $ 175,000
Industrial development bonds 2,000
----------
Total debt included in liabilities subject to compromise $ 177,000
==========
BANK CREDIT AGREEMENT
On January 8, 2004, we refinanced our then-existing bank credit agreement by
entering into a First Amended and Restated Credit Agreement, subsequently
amended through April 13, 2004 ("Bank Credit Agreement"), which provided for a
$90.0 million revolving credit line and a $120.0 million term loan. The Bank
Credit Agreement is secured by substantially all of our domestic assets and a
pledge of 65% of the stock of our foreign subsidiaries. The $90.0 million
revolving credit portion has a maturity date of January 8, 2009, and the $120
million term loan has a maturity date of January 8, 2010. During 2004, principal
payments of $0.6 million had been made towards the term loan before the filing
of our bankruptcy proceedings. Due to the filing of our bankruptcy proceedings,
we are in default under the Bank Credit Agreement. As a result, effective
September 30, 2004 pricing on the revolving loan and term loan were modified to
a floating rate. The annual interest rates as of December 31, 2004 were 6.5% for
the revolving credit line and 7.0% for the term loan. Interest is payable
monthly on both loans. In addition, and also effective as of September 30, 2004,
we are required to accrue additional interest at an annual rate of 1.5%, which
is added monthly to the outstanding loan balances for both the revolver and term
loan.
In addition to borrowings under the $90.0 million credit line, we also had
standby letters of credit outstanding totaling $24.4 million as of December 31,
2004. These letters of credit are used to guarantee the payment or performance
of various obligations that we have, such as workers compensation and
environmental remediation. These letters of credit are issued with one year
maturity dates and re-issued for an additional year upon each maturity date. Any
draws under the letters of credit increase the bank revolver balance and have a
corresponding decrease in the outstanding letter of credit amounts.
Both the term loan and the revolver have covenants that require us to maintain
certain financial ratios, place restrictions on the amount that we can pay in
dividends, as well as impose other covenants and restrictions. At September 30,
2004 and December 31, 2004, we were not in compliance with these covenants and
the outstanding balances were included in "Long-term debt due within one year"
in the consolidated balance sheet. As a result of entering into this loan
agreement, we capitalized debt issuance costs of $3.4 million and wrote off
capitalized debt issuance costs of $1.4 million related to our previous bank
financing in 2004.
Also on January 8, 2004, we entered into a $35.7 million Letter of Credit
Facility Agreement as well as a Cash Collateral agreement of the same amount.
Under these agreements, we used $35.7 million of the proceeds from the Bank
Credit Agreement term loan as cash collateral for the issuance of a $35.7
million letter of credit to continue a guaranty of payment on our Columbus
Foundry revenue bonds in the amount of $35.0 million. These bonds were issued on
December 23, 1999 by the Development Authority of Columbus, Georgia in
connection with an expansion project at our Columbus Foundry. Because we were in
default of our obligations, on October 29, 2004 these bonds were paid in full by
a draw of the letter of credit and, subsequently, we released the cash
collateral to our pre-petition lenders.
54
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
8. DEBT (CONTINUED)
SENIOR NOTES
On June 13, 2002, we completed an unsecured senior note offering of $175.0
million (the "Senior Notes"). The Senior Notes bear a fixed rate of interest of
9.75% and mature on June 15, 2009. The net proceeds of the Senior Note offering
were used to pay the remaining balance on a then-existing bank term loan and for
working capital purposes. Debt issuance costs of $5.9 million were capitalized
in connection with the note offering and were included in "Other noncurrent
assets" in the accompanying balance sheet and were being amortized over seven
years. Interest on the Senior Notes is due each June 15 and December 15. The
Senior Notes are unsecured and rank equally with all of our existing and future
unsecured senior debt. We are in default under the Senior Notes and the balance
due together with interest has been classified as "Liabilities subject to
compromise" in the December 31, 2004 consolidated balance sheet. In September
2004, the remaining $4.0 million of capitalized debt issuance costs were written
off and have been classified as "Reorganization charges" in the December 31,
2004 consolidated income statement. See Note 9 to the Consolidated Financial
Statements, Supplemental Condensed Consolidating Financial Information, for
additional information regarding the Senior Notes. The estimated fair value of
our Senior Notes based on market data as of December 31, 2004, was approximately
$85.7 million. Due to our Chapter 11 filing, interest that was due on December
15, 2004 was not paid.
COLUMBUS FOUNDRY REVENUE BONDS
On December 23, 1999 the Development Authority of Columbus Georgia issued $35.0
million in revenue bonds in connection with an expansion project at our Columbus
Foundry. Certain equipment financed with proceeds of these bonds, together with
the real property on which the foundry is situated, was leased by Columbus
Foundry, L.P. from the development authority. We were required to maintain a
letter of credit to secure payment of our obligations. As described above, on
October 29, 2004 these bonds were paid in full with a draw of the letter of
credit.
LYNCHBURG FOUNDRY COMPANY REVENUE BONDS
Under the terms of an unsecured bond indenture, Lynchburg Foundry Company, our
wholly-owned subsidiary, is required to make partial redemption of certain
industrial development revenue bonds on an annual basis through June 2006. The
redemption amount is $0.4 million per year, with a final payment at maturity of
$1.7 million. The balance outstanding as of December 31, 2004 was $2.0 million.
Lynchburg Foundry Company is in default of its obligations under these bonds. No
letters of credit have been issued to secure payment of these bonds and they are
otherwise unsecured. The bonds are subject to optional redemption prior to
maturity and bear interest at an annual rate of 7.0%. Interest is paid
semi-annually, however, the interest payment that was due in December 2004 was
not paid due to the Chapter 11 filing. The outstanding balance together with
interest has been classified as "Liabilities subject to compromise" in the
December 31, 2004 consolidated balance sheet.
TOOL PRODUCTS, INC. REVENUE BONDS
As part of our acquisition of Tool Products, Inc. in 1998, we assumed $4.5
million in obligations in connection with industrial development revenue bonds
issued by the Industrial Development Board of the City of Jackson, Tennessee.
These bonds were issued in connection with an expansion project at our Jackson,
Tennessee facility. Certain equipment and real estate financed with the proceeds
of these bonds was leased from the development board. We were required to
maintain a letter of credit to secure payment of our obligations under these
bonds. Terms of the indenture governing these bonds required us to make annual
principal payments of $0.5 million every January, with a final maturity date of
January 1, 2007. Because we were in default of our obligations, the letter of
credit was drawn and these bonds were paid in full on December 1, 2004 in the
amount of $1.5 million, which increased the balance under our bank revolving
loan by the same amount.
55
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
8. DEBT (CONTINUED)
OTHER OBLIGATIONS
We had capital leases of $2.9 million and $1.6 million at December 31, 2004 and
2003, respectively. These leases relate to assets with net book values of $5.1
million and $3.0 million at December 31, 2004 and 2003, respectively. Annual
interest rates for these leases ranged from 3.00% to 8.58% in 2004 and 2003. The
amortization of assets under capital leases is included in depreciation expense.
The foreign bank term notes bear interest rates from 3.0% to 4.0% per annum.
These borrowings are secured by property, plant and equipment of our European
operations with net book values aggregating to approximately $34.5 million at
December 31, 2004. At December 31, 2004, the Porto Foundry had term loans of
Euro 4.2 million (approximately $5.7 million). These loans amortize
semi-annually with various amounts coming due from 2005 through 2008.
Maturities of long-term debt and capital leases at December 31, 2004 are as
follows (in thousands of dollars):
2005 $ 168,180
2006 2,693
2007 681
2008 681
2009 -
Thereafter -
----------
Totals $ 172,235
==========
We paid interest of $21.5 million, $28.9 million and $26.5 million in 2004, 2003
and 2002, respectively. No interest expense was capitalized in 2004 or 2003.
During our bankruptcy proceedings, we have not been paying interest on unsecured
pre-petition obligations and as of the date of filing of the bankruptcy
proceedings we ceased accruing interest on all unsecured pre-petition debt in
accordance with SOP 90-7. Interest expense not accrued or recorded on unsecured
pre-petition debt totaled $4.3 million at December 31, 2004.
On October 22, 2004, we entered into a $60.0 million debtor-in-possession credit
facility, as amended by seven amendments through a May 31, 2005 (the "DIP
Facility"), to supplement our liquidity and fund operations during our
bankruptcy proceedings. See addition discussion regarding the DIP Facility in
Note 7 to the Consolidated Financial Statements, Short-term Lines of Credit.
56
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On June 13, 2002, we issued $175.0 million of senior notes, which will mature in
2009 (the "Senior Notes"). The Senior Notes are guaranteed by certain of our
wholly-owned domestic subsidiaries ("Combined Guarantor Subsidiaries"). The
guarantees are unconditional and joint and several. The Senior Notes are
effectively subordinated to the secured debt of INTERMET Corporation ("Parent").
Restrictions contained in the indenture covering the Senior Notes include, but
are not limited to, restrictions on incurring additional secured debt,
repurchasing our capital stock, disposing assets, engaging in affiliate
transactions and transferring assets. As of December 31, 2004, the Parent and
the Combined Guarantor Subsidiaries had $166.9 million of secured debt
outstanding and $52.5 million of unused commitments, net of outstanding letters
of credit, under our credit facility. The secured debt of the Parent is also
guaranteed by each of the Combined Guarantor Subsidiaries.
Certain of our domestic subsidiaries (Intermet International, Inc., Intermet
Holding Company, Transnational Indemnity Company and Western Capital
Corporation) and all of our foreign subsidiaries ("Combined Non-Guarantor
Subsidiaries") are not guarantors of the Senior Notes. The Combined
Non-Guarantor Subsidiaries had $21.3 million of debt outstanding as of December
31, 2004.
Presented below are summarized condensed consolidating financial information for
the Parent, the Combined Guarantor Subsidiaries, the Combined Non-Guarantor
Subsidiaries and INTERMET on a consolidated basis as of December 31, 2004, 2003
and 2002, respectively.
Investments in subsidiaries are presented using the equity method of accounting.
Separate financial statements of the Combined Guarantor Subsidiaries are not
provided as the condensed consolidating financial information contained herein
provides information to allow investors to determine the nature of the assets
held by and the operations of the combined group.
The senior notes are unsecured pre-petition obligations. Under the Bankruptcy
Code, actions to collect pre-petition indebtedness, as well as most other
pending litigation, are stayed and other contractual obligations against us may
not be enforced. On September 29, 2004 we ceased accruing interest on the Senior
Notes and other liabilities subject to compromise in accordance with SOP 90-7.
57
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
Year ended December 31, 2004
------------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
(in thousands of dollars)
INCOME STATEMENT DATA
Net sales $ - $ 674,655 $ 175,845 $ (13,327) $ 837,173
Cost of sales - 680,989 153,288 (13,339) 820,938
--------- ---------- ------------- ------------ ------------
Gross profit (loss) - (6,334) 22,557 12 16,235
Selling, general and administrative 23,908 4,126 15,274 9 43,317
Reorganization charges 14,733 - - - 14,733
Goodwill impairment charge - 164,671 1,262 - 165,933
Restructuring and impairment charges - 32,213 - - 32,213
--------- ---------- ------------- ------------ ------------
Operating (loss) profit (38,641) (207,344) 6,021 3 (239,961)
Other expenses (income), net:
Interest expense, net 20,281 8,855 1,343 5 30,484
Other expense (income), net (372) (163) 24 - (511)
--------- ---------- ------------- ------------ ------------
(Loss) income from continuing operations
before income taxes (58,550) (216,036) 4,654 (2) (269,934)
Income tax benefit (expense) 1,672 (1,090) (1,318) - (736)
--------- ---------- ------------- ------------ ------------
(Loss) income from continuing operations (56,878) (217,126) 3,336 (2) (270,670)
Loss from discontinued operations, net of
tax - (2,958) - - (2,958)
Equity in net income (loss) of subsidiaries (216,750) 3,334 - 213,416 -
--------- ---------- ------------- ------------ ------------
Net (loss) income $(273,628) $ (216,750) $ 3,336 $ 213,414 $ (273,628)
========= ========== ============= ============ ============
58
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
Year ended December 31, 2003
------------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
(in thousands of dollars)
INCOME STATEMENT DATA
Net sales $ - $ 632,431 $ 116,405 $ (17,669) $ 731,167
Cost of sales - 583,730 101,266 (17,669) 667,327
--------- ------------ ------------- ------------ ------------
Gross profit - 48,701 15,139 - 63,840
Selling, general and administrative 3,592 24,540 11,274 - 39,406
Goodwill impairment charge - 51,083 - - 51,083
Restructuring and impairment charges - 9,707 261 - 9,968
--------- ------------ ------------- ------------ ------------
Operating (loss) profit (3,592) (36,629) 3,604 - (36,617)
Other expenses (income), net:
Interest expense, net 20,313 9,000 582 - 29,895
Other expense (income), net (1,054) 124 (1,029) - (1,959)
--------- ------------ ------------- ------------ ------------
(Loss) income from continuing operations
before income taxes and equity interest in
a joint venture (22,851) (45,753) 4,051 - (64,553)
Income tax benefit (expense) (23,222) 3,774 912 - (18,536)
Equity interest in a joint venture - - 752 - 752
--------- ------------ ------------- ------------ ------------
(Loss) income from continuing operations (46,073) (41,979) 5,715 - (82,337)
Loss from discontinued operations, net of tax - (16,576) - - (16,576)
Equity in net income (loss) of subsidiaries (52,840) 5,715 - 47,125 -
--------- ------------ ------------- ------------ ------------
Net (loss) income $ (98,913) $ (52,840) $ 5,715 $ 47,125 $ (98,913)
========= ============ ============= ============ ============
59
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
Year ended December 31, 2002
------------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
(in thousands of dollars)
INCOME STATEMENT DATA
Net sales $ - $ 683,634 $ 87,950 $ (15,847) $ 755,737
Cost of sales (35) 619,931 79,225 (15,887) 683,234
--------- ------------ ------------- ------------ ------------
Gross profit 35 63,703 8,725 40 72,503
Selling, general and administrative 3,709 22,578 6,537 2 32,826
--------- ------------ ------------- ------------ ------------
Operating (loss) profit (3,674) 41,125 2,188 38 39,677
Other expenses (income), net:
Interest expense (income), net 20,259 8,468 (457) - 28,270
Other expense (income), net 57 (100) (118) - (161)
--------- ------------ ------------- ------------ ------------
(Loss) income from continuing operations
before income taxes and equity interest in
a joint venture (23,990) 32,757 2,763 38 11,568
Income tax benefit (expense) 10,556 (13,167) (54) - (2,665)
Equity interest in a joint venture - - 1,573 - 1,573
--------- ------------ ------------- ------------ ------------
(Loss) income from continuing operations (13,434) 19,590 4,282 38 10,476
Loss from discontinued operations, net of tax - (1,954) - - (1,954)
Cumulative effect of change in accounting
principle, net of tax - - 481 - 481
Equity in net income (loss) of subsidiaries 22,437 4,763 - (27,200) -
--------- ------------ ------------- ------------ ------------
Net (loss) income $ 9,003 $ 22,399 $ 4,763 $ (27,162) $ 9,003
========= ============ ============= ============ ============
60
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
As of December 31, 2004
-------------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
(in thousands of dollars)
BALANCE SHEET DATA
ASSETS
Current assets:
Cash and cash equivalents $ 1,477 $ 252 $ 9,510 $ - $ 11,239
Accounts receivable, net 654 77,806 36,065 - 114,525
Inventories - 45,915 25,671 (59) 71,527
Other current assets 6,812 6,175 654 (2,231) 11,410
---------- ------------ ------------- ------------ ------------
Total current assets 8,943 130,148 71,900 (2,290) 208,701
Property, plant and equipment, net 8,738 191,618 76,865 859 278,080
Other noncurrent assets:
Other noncurrent assets 13,853 10,881 2,116 (808) 26,042
Intercompany, net (50,741) 78,189 (31,210) 3,762 -
Investments in subsidiaries 291,505 64,426 - (355,931) -
---------- ------------ ------------- ------------ ------------
Total assets $ 272,298 $ 475,262 $ 119,671 $ (354,408) $ 512,823
========== ============ ============= ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable $ 1,986 $ 7,958 $ 20,025 $ - $ 29,969
Accrued liabilities 20,392 41,123 12,112 58 73,685
Short-term lines of credit 3,000 - 12,975 - 15,975
Long-term debt due within one year 163,369 504 4,307 - 168,180
---------- ------------ ------------- ------------ ------------
Total current liabilities 188,747 49,585 49,419 58 287,809
Liabilities subject to compromise 186,820 63,644 - - 250,464
Noncurrent liabilities:
Long-term debt due after one year - - 4,055 - 4,055
Retirement benefits 4,786 66,196 - - 70,982
Other noncurrent liabilities 600 5,795 1,773 - 8,168
---------- ------------ ------------- ------------ ------------
Total noncurrent liabilities 5,386 71,991 5,828 - 83,205
Shareholders' equity (deficit) (108,655) 290,042 64,424 (354,466) (108,655)
---------- ------------ ------------- ------------ ------------
Total liabilities and shareholders' equity
(deficit) $ 272,298 $ 475,262 $ 119,671 $ (354,408) $ 512,823
========== ============ ============= ============ ============
61
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
As of December 31, 2003
-------------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
(in thousands of dollars)
BALANCE SHEET DATA
ASSETS
Current assets:
Cash and cash equivalents $ (2,674) $ 127 $ 3,582 $ - $ 1,035
Accounts receivable, net 7 64,457 22,309 - 86,773
Inventories - 58,030 19,440 (59) 77,411
Other current assets 7,319 1,677 1,751 1 10,748
---------- ------------ ------------- ------------ ------------
Total current assets 4,652 124,291 47,082 (58) 175,967
Property, plant and equipment, net 3,765 247,681 71,766 868 324,080
Other noncurrent assets:
Goodwill - 164,671 1,262 - 165,933
Other noncurrent assets 9,337 9,318 2,049 - 20,704
Intercompany, net (101,560) 122,510 (24,711) 3,761 -
Investments in subsidiaries 515,513 54,769 - (570,282) -
---------- ------------ ------------- ------------ ------------
Total assets $ 431,707 $ 723,240 $ 97,448 $ (565,711) $ 686,684
========== ============ ============= ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,151 $ 58,504 $ 20,398 $ (316) $ 80,737
Accrued liabilities 28,377 42,877 224 2,606 74,084
Short-term lines of credit - - 9,992 - 9,992
Long-term debt due within one year 350 983 2,970 - 4,303
---------- ------------ ------------- ------------ ------------
Total current liabilities 30,878 102,364 33,584 2,290 169,116
Noncurrent liabilities:
Long-term debt due after one year 237,000 36,991 5,257 - 279,248
Retirement benefits 5,765 65,002 - - 70,767
Other noncurrent liabilities (4,073) 4,843 3,838 808 5,416
---------- ------------ ------------- ------------ ------------
Total noncurrent liabilities 238,692 106,836 9,095 808 355,431
Shareholders' equity 162,137 514,040 54,769 (568,809) 162,137
---------- ------------ ------------- ------------ ------------
Total liabilities and shareholders' equity $ 431,707 $ 723,240 $ 97,448 $ (565,711) $ 686,684
========== ============ ============= ============ ============
62
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
Year ended December 31, 2004
-------------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
(in thousands of dollars)
CASH FLOW DATA
Cash (used in) provided by continuing
operating activities $ (55,152) $ 12,763 $ 17,554 $ - $ (24,835)
Cash used in discontinued operations - (359) - - (359)
---------- ---------- ------------ ----------- -----------
Net cash (used in) provided by operating
activities (55,152) 12,404 17,554 - (25,194)
Investing activities:
Additions to property, plant and
equipment by continuing operations (3,161) (11,070) (8,627) - (22,858)
Proceeds from sale of property, plant and
equipment 969 - - - 969
Purchase of shares of a subsidiary - - (6,220) - (6,220)
---------- ---------- ------------ ----------- -----------
Net cash used in investing activities (2,192) (11,070) (14,847) - (28,109)
Financing activities:
Net (decrease) increase in revolving credit
facility (16,339) - 2,200 - (14,139)
Proceeds from term loan 120,000 - - - 120,000
Proceeds from debtor-in-possession facility 3,000 - - - 3,000
Repayment of revenue bonds (35,000) - - - (35,000)
Repayment of other debts (1,904) (1,209) (511) - (3,624)
Payment of debt issuance costs (5,200) - - - (5,200)
Issuance of common stock 16 - - - 16
Dividends paid (3,078) - - - (3,078)
---------- ---------- ------------ ----------- -----------
Net cash used in financing activities 61,495 (1,209) 1,689 - 61,975
Effect of exchange rate changes on cash and
cash equivalents - - 1,532 - 1,532
---------- ---------- ------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents $ 4,151 $ 125 $ 5,928 $ - $ 10,204
========== ========== ============ =========== ===========
63
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
Year ended December 31, 2003
-----------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
(in thousands of dollars)
CASH FLOW DATA
Cash provided by continuing operating
activities $ 5,435 $ 14,896 $ 16,842 $ - $ 37,173
Cash used in discontinued operations - (4,066) - - (4,066)
-------- ------------ ------------- ------------ ------------
Net cash provided by operating activities 5,435 10,830 16,842 - 33,107
Investing activities:
Additions to property, plant and equipment
by continuing operations (1,725) (13,193) (4,615) - (19,533)
Additions to property, plant and equipment
by discontinued operations - (145) - - (145)
Proceeds from sale of property, plant and
equipment 1,700 - - - 1,700
Purchase of shares of a subsidiary - - (5,571) - (5,571)
Proceeds from sale of assets of a subsidiary - 3,925 - - 3,925
-------- ------------ ------------- ------------ ------------
Net cash used in investing activities (25) (9,413) (10,186) - (19,624)
Financing activities:
Net decrease in revolving credit facility (3,000) - - - (3,000)
Repayment of other debts - (1,457) (2,960) - (4,417)
Payment of debt issuance costs (2,110) - - - (2,110)
Dividends paid (4,096) - - - (4,096)
-------- ------------ ------------- ------------ ------------
Net cash used in financing activities (9,206) (1,457) (2,960) - (13,623)
Effect of exchange rate changes on cash and
cash equivalents - - (2,123) - (2,123)
-------- ------------ ------------- ------------ ------------
Net (decrease) increase in cash and cash
equivalents $ (3,796) $ (40) $ 1,573 $ - $ (2,263)
======== ============ ============= ============ ============
64
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
Year ended December 31, 2002
-------------------------------------------------------------------
Combined Combined
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
(in thousands of dollars)
CASH FLOW DATA
Cash provided by (used in) continuing
operating activities $ 92,225 $ 4,231 $ (10,027) $ - $ 86,429
Cash provided by discontinued operations - 2,946 - - 2,946
---------- ------------ ------------- ------------ ------------
Net cash provided by (used in) operating
activities 92,225 7,177 (10,027) - 89,375
Investing activities:
Additions to property, plant and equipment
by continuing operations (1,714) (5,358) (1,355) - (8,427)
Additions to property, plant and equipment
by discontinued operations - (1,018) - - (1,018)
---------- ------------ ------------- ------------ ------------
Net cash used in investing activities (1,714) (6,376) (1,355) - (9,445)
Financing activities:
Net decrease in revolving credit facility (85,000) - - - (85,000)
Proceeds from debt offering 175,000 - - - 175,000
Repayment of term loan (171,750) - - - (171,750)
Repayment of other debts (244) (1,100) (302) - (1,646)
Payment of debt issuance costs (6,022) - - - (6,022)
Issuance of common stock 374 - - - 374
Dividends paid (4,075) - - - (4,075)
---------- ------------ ------------- ------------ ------------
Net cash used in financing activities (91,717) (1,100) (302) - (93,119)
Effect of exchange rate changes on cash and
cash equivalents - - 2,621 - 2,621
---------- ------------ ------------- ------------ ------------
Net decrease in cash and cash equivalents $ (1,206) $ (299) $ (9,063) $ - $ (10,568)
========== ============ ============= ============ ============
65
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
10. STOCK COMPENSATION
We have executive stock option and incentive award plans ("Employee Plans") and
a directors stock option plan ("Directors Plan"). The Employee Plans permit the
grant of options and restricted shares for up to 3,000,000 shares of common
stock. The Directors Plan permits the grant of options to purchase up to 150,000
shares of common stock. Options granted under the Employee Plans vest over a
four-year period. Options granted under the Directors Plan are exercisable at
the grant date. The exercise prices of options issued under Employee Plans and
Directors Plan are equal to the fair values of the common stock at the option
grant date. Certain options also remain outstanding from prior stock option
plans. At December 31, 2004, options for 1,571,094 shares were exercisable,
while 649,383 of the Employee Plan options and restricted shares and 6,000
Directors Plan options were available for future grant.
We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for our stock
option and incentive award plans. Accordingly, we have not recognized
compensation expense for our stock option and incentive award plans.
The fair values of our stock options utilized in developing the disclosures
presented in Note 1 were estimated as of the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions:
2004 2003 2002
------- ------- -------
Risk-free interest rate 4.38% 3.50% 3.00%
Dividend yield 0.00% 1.00% 1.00%
Volatility 2.185 0.464 0.769
Expected life 6 years 6 years 6 years
For purposes of the pro forma disclosures required under SFAS No. 123, the
estimated fair value of the options is amortized over the options' vesting
period.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
our employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of our stock options.
66
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
10. STOCK COMPENSATION (CONTINUED)
A summary of our stock option activity for the three years ended December 31,
2004, is as follows:
Weighted
Number of Average Exercise
Options Exercise Price Price Range
--------- -------------- ---------------
Outstanding at January 1, 2002 1,665,850 $ 9.54
Granted 175,000 5.07 $ 4.20 - $8.39
Exercised (19,750) 9.67 8.66 - 11.20
Forfeited (80,125) 5.41 3.44 - 18.06
---------
Outstanding at December 31, 2002 1,740,975 $ 9.27 3.38 - 19.38
=========
Exercisable at December 31, 2002 1,141,248 $ 11.25
Weighted average fair value of options granted during 2002 $ 3.03
Outstanding at January 1, 2003 1,740,975 $ 9.27
Granted 325,500 3.57 $ 3.57
Exercised - - -
Forfeited (272,000) 9.72 3.44 - 18.06
---------
Outstanding at December 31, 2003 1,794,475 $ 8.17 3.38 - 19.38
=========
Exercisable at December 31, 2003 1,190,320 $ 10.29
Weighted average fair value of options granted during 2003 $ 1.58
Outstanding at January 1, 2004 1,794,475 $ 8.17
Granted 428,250 5.09 $ 5.09
Exercised (4,875) 3.45 3.44 - 3.57
Forfeited (235,000) 6.30 3.38 - 17.00
---------
Outstanding at December 31, 2004 1,982,850 $ 7.74 3.44 - 19.38
=========
Exercisable at December 31, 2004 1,571,094 $ 8.62
Weighted average fair value of options granted during 2004 $ 5.07
67
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
10. STOCK COMPENSATION (CONTINUED)
The following table summarizes information about options outstanding as of
December 31, 2004:
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted-
Average
Remaining Weighted- Weighted-
Contractual Average Average
Range of Exercise Number Life Exercise Number Exercise
Price Outstanding (in years) Price Exercisable Price
- ----------------- ----------- ----------- --------- ----------- ---------
$0.00 - $ 9.68 1,448,850 6.5 $ 5.12 1,026,094 $ 5.31
9.69 - 19.38 534,000 2.9 14.85 545,000 14.85
--------- ---------
1,982,850 1,571,094
========= =========
We have an Employee Stock Ownership Plan ("ESOP") which enables of some our
United States employees who are not covered by collective bargaining agreements
to purchase our common stock. We make contributions equal to 3.0% of the annual
compensation of the ESOP participants. We may, at our discretion, make
additional contributions within specified limits. Beginning with the 2003 plan
year, our contributions have been made to the Savings and Investment Plan, a
401(k) retirement plan, instead of the ESOP. Our contributions to the Savings
and Investment Plan were $0.7 million 2004 and 2003. ESOP expenses were $0.6
million in 2002.
On October 6, 1995, pursuant to a Shareholder Protection Rights Agreement of the
same date, our Board of Directors declared a dividend of one right for each
share of INTERMET common stock held of record at the close of business on
October 17, 1995. The rights generally are not exercisable until 10 days after
an announcement by us that an acquiring person, as defined (excluding, with
certain limitations, certain holders of 10% or more of our common stock who do
not acquire additional shares, any of our ESOPs or benefit plans, and us and our
wholly-owned subsidiaries), has acquired 10% of our common stock or announces a
tender offer that could result in the ownership of 10% or more of our common
stock. Each right, should it become exercisable, will entitle the owner to buy
1/100th of a share of Participating Preferred Stock, a new series of our
preferred stock, at an exercise price of $40. On October 16, 1997, we amended
the rights agreement to provide that certain institutional investors who own in
excess of 10%, but less than 15% of our common stock, are not "acquiring
persons" as defined by the rights agreement.
In the event the rights become exercisable as a result of an acquiring person's
acquisition of shares, each right will entitle the owner, other than the
acquiring person, to buy at the rights' then-current exercise price a number of
shares of common stock with a market value equal to twice the exercise price. In
addition, unless the acquiring person owns more than 50% of the outstanding
shares of common stock, the board of directors may elect to exchange all
outstanding rights (other than those owned by such acquiring person or
affiliates thereof) at an exchange ratio of one share of common stock per right.
Unless we merge with another company under certain conditions or redeem or
exchange the rights before October 6, 2005, the rights will expire on that date.
68
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
11. COMMITMENTS AND CONTINGENCIES
Future minimum rental payments required under building and equipment operating
leases that have initial or remaining non-cancelable lease terms in excess of
one year at December 31, 2004 are as follows (in thousands of dollars):
2005 $ 4,122
2006 2,474
2007 1,976
2008 1,128
2009 68
Thereafter 21
--------
Total $ 9,789
========
Under the Bankruptcy Code we may assume or reject executory contracts, including
lease obligations. Therefore, the commitments shown above may not reflect actual
cash outlays in the future periods. Total rental expense under operating leases
aggregated $5.2 million, $4.5 million, and $5.5 million in 2004, 2003 and 2002,
respectively.
We had commitments to purchase capital equipment of approximately $3.5 million
as of December 31, 2004.
At December 31, 2004, 48% of our domestic labor force was covered by collective
bargaining agreements, with 14% of our domestic labor force covered by
collective bargaining agreements that will expire within one year.
We are subject to federal, state, local and foreign environmental laws and
regulations concerning, among other things, air emissions, effluent discharges,
storage treatment and disposal of hazardous materials and remediation of
contaminated soil and groundwater. In addition, at some of our industrial sites
hazardous materials have been managed for many years. Consequently, we are
subject to various environmental laws that impose compliance obligations and can
create liability for historical releases of hazardous substances. It is likely
that we will be subject to increasingly stringent environmental standards in the
future and that we will be required to make additional expenditures, which could
be significant, relating to environmental matters on an ongoing basis.
The 1990 amendments to the Federal Clean Air Act and regulations promulgated
thereunder are expected to have a major impact on the compliance cost of many
U.S. companies, including foundries of the type we own. We are in the process of
reviewing Maximum Achievable Control Technology Standards that will be
applicable to our industry.
We also have current and former operating entities (for which we may be
responsible) that are potentially responsible for clean-up of known
environmental sites. These include third-party-owned sites, as well as sites
that are currently or formerly owned by us or our subsidiaries. For known
environmental sites, we have recorded reserves, on an undiscounted basis, to
cover estimated future environmental expenditures. Environmental reserves at
December 31, 2004 and 2003 were $6.3 million and $6.9 million, respectively. As
of December 31, 2004, the environmental reserves included a $3.1 million cash
escrow account required as a part of our acquisition of Ganton Technologies in
1999 that is being used to fund the clean-up of an inactive property located in
Addison, Illinois. We expect that the clean-up will occur in 2005. The reserves
also include $2.3 million for the now-closed Radford Foundry, which is discussed
below. There can be no assurance that costs in excess of these accruals will not
be incurred, or that unknown conditions will not be discovered that result in
material additional expenditures by us for environmental matters.
69
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
On March 14, 2002, we entered into a consent order with the U.S. Environmental
Protection Agency ("USEPA"), which will require investigation of the nature and
extent of any hazardous waste disposed of at our Radford Foundry. We have
entered into this consent order in connection with the USEPA's Corrective Action
Program, which is being undertaken on a nationwide basis by USEPA pursuant to
the Resource Conservation and Recovery Act of 1976. The Corrective Action
Program requires facilities that have historically generated or handled
hazardous waste to determine whether those activities have or could adversely
affect groundwater or human health. Because we historically disposed of waste
material at this site, it is probable that remedial action will be required with
respect to that on-site disposal. We have accrued $2.3 million for such
remediation activity based on our investigation to date. However, our
investigation of this site will continue and it is possible that ultimate
remediation costs could exceed the amounts we have accrued.
We are also a party to other legal proceedings in the ordinary course of our
business, most of which were stayed with the filing of our bankruptcy cases on
September 29, 2004. At the present time, we do not believe that any of these
proceedings will have a material adverse effect on our results of operations.
We self-insure a significant portion of our health care and property and
casualty insurance risks. However, we purchase additional insurance for
catastrophic losses. We carry a $2.5 million property deductible per occurrence.
12. RETIREMENT PLANS AND BENEFITS
We maintain four non-contributory defined benefit pension plans for certain U.S.
employees covered by collective bargaining agreements for which the benefits are
based on years of service. Additionally, we maintain two non-contributory
defined benefit pension plans for certain U.S. salaried and non-union hourly
employees for which the benefits are based on final average compensation. Our
policy is to fund amounts as required under applicable laws and regulations.
In addition to providing pension benefits, we provide health care and life
insurance benefits to certain retired U.S. employees and their dependents. In
2003, eligibility requirements for retiree health care for certain salaried
employees were changed so that these employees can become eligible for retiree
health care benefits at age 62, depending on years of service. Employees hired
on or after January 1, 2004 will not be eligible for retiree health care
benefits. Certain salaried employees who already have met eligibility
requirements at age 55 or age 60, depending on years of service, continue to be
eligible for retiree health care benefits. Retirees and their dependents under
age 65 receive substantially the same health care benefits as active employees.
The medical plans generally pay most medical expenses less deductible and co-pay
amounts. Salaried and hourly employees also contribute to the cost of coverage.
Certain salaried employee coverage converts to a Medicare carve-out plan at age
65. We subsidize a Medicare supplement plan for certain eligible salaried
employees over age 65. Coverage for most hourly employees ceases at age 65.
However, certain hourly employees retain eligibility for coverage supplementing
Medicare.
Our amendments to certain plans in 2003 increased our pension benefit
obligations by $1.6 million and reduced our other postretirement benefit
obligations by $5.0 million. In addition, the curtailment of a postretirement
benefit plan in 2003 reduced the other postretirement benefit obligations by
$0.5 million.
70
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
12. RETIREMENT PLANS AND BENEFITS (CONTINUED)
Due to the closure of the Radford Foundry in 2003, other postretirement benefit
obligations decreased by $2.0 million and resulted in an after-tax gain of $1.2
million. We also incurred an increase in pre-tax pension cost of $0.3 million
($0.2 million after-tax loss) due to pension curtailment. The net after-tax gain
of $1.0 million was reported in "Loss from discontinued operation, net of tax"
in the accompanying statements of operations in 2003.
During 2004, amendments to certain pension plans increased our pension benefit
obligation by $1.5 million. No other postretirement benefit amendments were
recognized during 2004. In addition, we recognized a curtailment in the Ganton
Technologies Inc., Racine Hourly Employees Retirement Plan as of December 15,
2004, increasing pension benefit obligation by $0.5 million, also resulting in a
$1.2 million increase to our pension cost.
We use a September 30 measurement date for all of our pension and other
postretirement benefit plans.
The obligations and funded status of our retirement benefit plans are as follows
(in thousands of dollars):
At December 31,
-----------------------------------------------------
Pension Benefits Other Postretirement Benefits
---------------------- -----------------------------
2004 2003 2004 2003
---------- ---------- ---------- ---------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 104,722 $ 90,828 $ 42,530 $ 43,435
Service cost -- benefits earned during the year 2,347 2,443 447 1,018
Interest cost on benefit obligation 6,231 6,018 2,433 2,746
Amendments 1,478 1,636 - (4,985)
Curtailment 455 - - (520)
Actuarial losses 2,277 8,229 (1,126) 4,332
Benefits paid (5,076) (4,432) (5,479) (3,496)
-----------------------------------------------------
Benefit obligation at end of year $ 112,434 $ 104,722 $ 38,805 $ 42,530
-----------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 62,472 $ 58,897
Actual return on plan assets 4,456 5,793
Company contributions 9,063 2,214
Benefits paid (5,076) (4,432)
----------------------
Fair value of plan assets at end of year $ 70,915 $ 62,472
----------------------
Funded status of the plan (under-funded) $ (41,519) $ (42,250) $ (38,805) $ (42,530)
Unrecognized net actuarial losses 36,910 35,550 1,931 3,207
Unrecognized transition obligation - 286 - -
Unrecognized prior service cost (benefit) 6,323 6,497 (4,315) (4,678)
-----------------------------------------------------
Prepaid (accrued) benefit cost on balance sheets $ 1,714 $ 83 $ (41,189) $ (44,001)
=====================================================
71
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
12. RETIREMENT PLANS AND BENEFITS (CONTINUED)
Amounts recognized for pension benefits in the consolidated balance sheets
consist of (in thousands of dollars):
At December 31,
---------------------
2004 2003
--------- ---------
Prepaid pension benefit cost $ 1,788 $ 4,708
Accrued pension benefit liability (42,705) (46,020)
Intangible assets 6,323 6,497
Accumulated other comprehensive income, pretax 36,308 34,898
--------- ---------
Net amount recognized $ 1,714 $ 83
========= =========
The accumulated benefit obligation for all of the pension plans was $111.8
million and $104.1 million at December 31, 2004 and 2003, respectively.
All of our pension plans had accumulated benefit obligations in excess of plan
assets (under-funded plans) as of December 31, 2004 and 2003.
The components of net periodic benefit cost are as follows (in thousands of
dollars):
Years ended December 31,
---------------------------------------------------------------
Pension Benefits Other Postretirement Benefits
------------------------------- -----------------------------
2004 2003 2002 2004 2003 2002
-------- --------- -------- ------- -------- --------
Service cost $ 2,347 $ 2,443 $ 1,922 $ 447 $ 1,018 $ 973
Interest cost 6,231 6,018 5,966 2,433 2,746 2,925
Expected return on plan assets (5,732) (5,878) (6,120) - - -
Amortization of net transition obligation - - 15 - - -
Amortization of prior service cost 919 735 756 (364) (60) (2)
Amortization of loss (gain) 2,195 1,531 (382) 151 (208) (445)
Curtailment loss 1,187 253 - - - -
-------- --------- -------- ------- -------- --------
Net periodic benefit cost $ 7,147 $ 5,102 $ 2,157 $ 2,667 $ 3,496 $ 3,451
======== ========= ======== ======= ======== ========
72
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
12. RETIREMENT PLANS AND BENEFITS (CONTINUED)
The assumptions used to determine benefit obligations and cost are as follows:
Weighted-average assumptions used to determine benefit obligations:
At December 31,
-----------------------------------------------
Pension Benefits Other Postretirement Benefits
---------------- -----------------------------
2004 2003 2004 2003
---- ---- ---- ----
Discount rate 5.75% 6.00% 5.75% 6.00%
Rate of compensation increase for benefit plans with
benefit obligations based on compensation 3.65% 3.66%
Weighted-average assumptions used to determine net periodic benefit cost:
Years ended December 31,
------------------------------------------------
Pension Benefits Other Postretirement Benefits
---------------- -----------------------------
2004 2003 2002 2004 2003 2002
---- ---- ---- ---- ---- ----
Discount rate 6.00% 6.75% 7.50% 6.00% 6.75% 7.50%
Expected long-term return on plan assets 8.50% 8.75% 9.50%
Rate of compensation increase for benefit
plans with benefit cost based on
compensation 3.66% 3.61% 3.61%
To determine the overall expected long-term rate of return on assets, we
consider the current level of expected returns on risk-free investments
(primarily government bonds), the historical level of the risk premium
associated with the other asset categories in which the portfolio is invested
and the expected returns of each asset category of the investment portfolio. The
expected return of each asset category is then weighted based on the target
asset allocation to develop the overall expected long-term rate of return on
assets.
During each quarter, our pension plan actuaries determine a range of expected
rates of return based on actual asset mix. Expected rates of return that are
between the 25th and 75th percentile of this range are considered reasonable.
The expected rate of return of 8.50% as of September 30, 2004 and 2003 was near
the 70th percentile of the ranges of expected rates of return.
Assumed health care cost trend rates for other postretirement benefits:
At December 31,
---------------
2004 2003
----- -----
Health care cost trend rate assumed for next year 10.00% 10.50%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 5.00% 5.00%
Year that the rate reaches the ultimate trend rate 2015 2015
73
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
12. RETIREMENT PLANS AND BENEFITS (CONTINUED)
The assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in the
assumed health care cost trend rates would have the following effects for 2004
(in thousands of dollars):
One Percentage One Percentage
Point Increase Point Decrease
-------------- --------------
Effect on total service and interest cost $ 190 $ (167)
Effect on postretirement benefit obligation $ 2,318 $ (2,086)
Our pension plans' weighted-average asset allocations at December 31, 2004 and
2003 by asset category are as follows:
Plan Assets at December 31,
---------------------------
2004 2003
---- ----
Asset Category:
Equity securities 53% 52%
Debt securities 47% 48%
--- ---
Total 100% 100%
=== ===
Equity securities do not include any of our common stock.
Under our investment policies and strategies, pension funds are invested in
equity securities (including convertible securities), debt securities (including
preferred stock) and cash equivalents (including senior debt less than one year
to maturity). Pension plan assets allocation guidelines as follows:
Allocation Guidelines
Asset Category:
Equity securities 30% to 75%
Debt securities 25% to 70%
Cash equivalents 0% to 30%
Investment managers have full discretion to invest assets within our investment
guidelines, including timing, turnover and selection of investment. Pension plan
assets are held such that assets are available for near-term, mid-term and
long-term future benefit payments.
Equity asset holdings are selected from established markets (including New York
Stock Exchange, over-the-counter markets and regional and foreign markets) and
equity portfolios are expected to achieve an absolute and risk adjusted return
which surpasses the comparative index. Equity assets cannot be held in private
placement securities, letter stock or uncovered options. Short sales, margin
transactions and other specialized transactions are prohibited. No more than 10%
of assets may be held in an individual security or 15% in a particular industry.
This pertains to both equity and debt investments, exclusive of treasuries and
agencies.
Debt asset holdings can be invested in liquid preferred stocks, corporate debt,
obligations of the U.S. Government and its fully guaranteed agencies and debt
issues convertible to equities. Investments in single-issue securities are
limited to 5% of assets (except for U.S. Government or agency obligations).
Assets are not to be invested in private placements, fixed income or interest
rate futures, or from arbitrage or other specialized investments. Up to 5% of
assets may be invested in below investment grade debt securities. Up to 5% of
assets may be invested in global fixed income securities.
74
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
12. RETIREMENT PLANS AND BENEFITS (CONTINUED)
Cash equivalent holdings may be invested in commercial paper, repurchase
agreements, Treasury bills, certificates of deposit and money market funds.
Investments in cash equivalents can be made for income, for liquidity, for
expense and benefit payments or to preserve principal value. Assets must
represent maturity of less than one year at the time of purchase. Short-term
instruments considered speculative in nature may not be purchased. Single issuer
paper is limited to 5% of the funds, except for U.S. Government or agencies.
Pension funds may also be invested in mutual funds or other pooled funds
containing securities. Direct investments in financial futures, commodities and
currency exchanges are prohibited; however, such investments may be made in
mutual funds.
We expect to contribute $8.1 million to our pension plans in 2005.
The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid (in thousands of dollars):
Other
Postretirement
Pension Benefits Benefits
---------------- --------------
2005 $ 5,772 $ 3,755
2006 5,884 3,559
2007 6,187 3,468
2008 6,431 3,247
2009 6,756 3,155
Years 2010 to 2014 38,029 16,216
Our measurement of the Wagner Castings Company postretirement medical
obligations includes the anticipated impact of the federal subsidy enabled by
the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
These effects are measured in accordance with the Financial Accounting Standards
Board Staff Position (FSP FAS106-2) as of the 2004 year-end disclosure. For
expense, the impact is to be recognized prospectively, beginning with the 2005
fiscal year expense. While final regulations have not been issued on
qualifications for the subsidy or the determination of actuarial equivalence,
these measurements are believed to be reasonable best estimates based on the
"two-pronged" approach to subsidy determination set forth in the proposed
regulations. Under this standard, the Wagner Casting Company's post-Medicare
prescription drug plan is "actuarially equivalent" for all retirees receiving
medical benefits after 65 years of age (except for hourly participants who
retired prior to June 1, 1980) as the value of the plan benefits exceeds the
value of Medicare Part D benefits less participant premiums. The annual Medicare
subsidy is projected to be $623 per person starting in 2006. This average
subsidy amount is assumed to increase at a rate of 8.12% in 2007 decreasing to
5.0% in 2022 and thereafter. With respect to our other (non-Wagner) retiree
medical plans, because we do not provide prescription drug benefits to retirees
after age 65, it is assumed that the employer will not qualify for the federal
subsidy. The Act had no impact on disclosed results.
We maintain several defined contribution plans for certain salaried employees,
hourly employees covered by collective bargaining agreements and non-union
hourly employees. All of these plans allow participants to make pretax
contributions as a percentage of their compensation. We contribute a specified
percentage of the annual compensation of participants to some of the plans.
Certain plans provide a matching contribution on employees' pretax contribution
up to a specified limit. Some plans provide for contributions based on hours
worked by each employee; other plans provide for profit-sharing contributions or
other base contributions. Costs recognized as expenses to these plans, excluding
ESOP expenses, were $2.6 million, $3.0 million and $2.4 million in 2004, 2003
and 2002, respectively.
75
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES
Components of income (loss) from continuing operations before income taxes are
as follows:
Years ended December 31,
----------------------------------
2004 2003 2002
----------- ---------- ---------
Domestic $ (277,902) $ (70,508) $ 6,343
Foreign 7,968 6,707 6,798
----------- ---------- ---------
Total $ (269,934) $ (63,801) $ 13,141
=========== ========== =========
The provision for income taxes consists of the following (in thousands of
dollars):
Years ended December 31,
------------------------------
2004 2003 2002
-------- --------- -------
Current:
Federal $ (2,656) $ - $ -
State 355 484 504
Foreign 913 (374) 739
-------- --------- -------
(1,388) 110 1,243
-------- --------- -------
Deferred:
Federal - 18,314 1,522
State - - (100)
Foreign 2,124 112 -
-------- --------- -------
2,124 18,426 1,422
-------- --------- -------
Total tax provision $ 736 $ 18,536 $ 2,665
======== ========= =======
In 2004 we did not pay any federal income taxes. We received refunds of $2.7
million in 2004 attributable to an audit of our 2001 federal tax return and
resulting carryback claims to our 2002, 1999 and 1996 tax returns. We paid
federal income taxes of approximately $2.5 million and $1.1 million in 2003 and
2002, respectively.
The provision for income taxes differs from the amount computed by applying the
statutory U.S. federal income tax rate to (loss) income from continuing
operations before income taxes and equity interest in a joint venture in the
following amounts (in thousands of dollars):
Years ended December 31,
--------------------------------
2004 2003 2002
---------- ---------- --------
Provision for income taxes (benefits) at U.S. statutory rate $ (94,476) $ (22,594) $ 4,672
Foreign operations 4,435 (94) 573
Utilization of credits and credit carryforwards - - (3,065)
State income taxes excluding valuation allowance, net of federal income
tax benefits (1,368) (415) 691
Non-deductible goodwill amortization and write-off 49,528 13,767 -
Valuation allowance for federal tax 41,325 22,981 -
Valuation allowance for state tax 1,622 899 -
Refund of federal income tax (2,656)
Other 2,326 3,992 (206)
---------- ---------- --------
Total tax provision $ 736 $ 18,536 $ 2,665
========== ========== ========
76
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
13. INCOME TAXES (CONTINUED)
The components of our net deferred income tax assets at December 31, 2004 and
2003 are as follows (in thousands of dollars):
2004 2003
--------- ---------
Compensation and benefit items $ 36,320 $ 37,618
Operating loss, foreign tax credit and Alternative Minimum Tax credit carryforwards 40,864 19,449
Impairment and shutdown costs 1,262 1,539
Deductible goodwill 12,516 3,991
Reserve for bad debts, returns and allowances 2,566 1,984
Inventory reserve 7,382 5,337
State income taxes (14) 1,093
Other temporary differences 3,804 1,274
--------- ---------
Gross deferred tax assets 104,700 72,285
Valuation allowance (62,646) (29,732)
--------- ---------
Deferred tax assets 42,054 42,553
Depreciation and related items (34,121) (32,346)
Other temporary differences (9,910) (10,060)
--------- ---------
Gross deferred tax liabilities (44,031) (42,406)
--------- ---------
Net deferred tax assets (liabilities) ($ 1,977) $ 147
========= =========
There are limitations on the use of operating loss carryforwards included in the
deferred tax assets. Domestic operating loss carryforwards have a life of 15 to
20 years.
As a result of an audit of the 2001 federal tax return, foreign tax credits of
$0.2 million, $3.8 million and $7.2 million generated in the returns as filed
for 2003, 2002 and 2001, respectively, were either converted to foreign tax
deductions to create net operating loss deductions or available for
carryover/carryback to earlier tax years resulting in a tax refund of $2.7
million during 2004.
77
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
14. REPORTING FOR BUSINESS SEGMENTS
We evaluate our financial results in two business segments, Ferrous Metals and
Light Metals. Our segment reporting is consistent with the manner in which our
business is managed and our resources are allocated by management. The Ferrous
Metals segment consists of ferrous foundry operations and their related
machining operations. The Light Metals segment consists of aluminum, magnesium
and zinc casting operations and their related machining operations. Our
Corporate and Other segment includes operations that do not fall within the
Ferrous Metals segment or Light Metals segment, including our corporate business
unit and its related expenses and eliminations. Selected financial information
for our each of our business segments is as follows:
Light Corporate
Ferrous Metals Metals and Other Consolidated
-------------- ---------- ---------- ------------
(in thousands of dollars)
Year ended December 31, 2004
Net sales $ 562,623 $ 274,550 $ - $ 837,173
Depreciation and amortization expense 30,548 17,266 1,936 49,750
Goodwill impairment charge 59,731 106,202 - 165,933
Restructuring and impairment charges 18,569 11,299 2,345 32,213
Reorganization charges - - 14,733 14,733
Operating loss (16,906) (124,642) (98,413) (239,961)
Interest expense, net 6,162 4,789 19,533 30,484
Purchases of property, plant and equipment --
continuing operations 10,830 8,918 3,110 22,858
As of December 31, 2004
Total assets $ 378,720 $ 104,031 $ 30,072 $ 512,823
78
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
14. REPORTING FOR BUSINESS SEGMENTS (CONTINUED)
Light Corporate
Ferrous Metals Metals and Other Consolidated
-------------- --------- --------- ------------
(in thousands of dollars)
Year ended December 31, 2003
Net sales $ 493,401 $237,766 $ -- $ 731,167
Depreciation and amortization expense 31,143 17,202 1,906 50,251
Goodwill impairment charge -- 51,083 -- 51,083
Restructuring and impairment charges 9,138 556 274 9,968
Operating profit (loss) 13,333 (44,192) (5,758) (36,617)
Interest expense, net 4,600 4,928 20,367 29,895
Purchases of property, plant and equipment -- continuing
operations 8,036 9,772 1,725 19,533
Purchases of property, plant and equipment --
discontinued operations 145 -- -- 145
As of December 31, 2003
Goodwill $ 59,731 $106,202 $ -- $ 165,933
Total assets 372,812 281,396 32,476 686,684
Year ended December 31, 2002
Net sales $ 484,146 $271,591 $ -- $ 755,737
Depreciation and amortization expense 27,011 18,019 2,090 47,120
Operating profit (loss) 25,867 20,216 (6,406) 39,677
Interest expense, net 3,584 4,390 20,296 28,270
Cumulative effect of change in accounting -- -- 481 481
Purchases of property, plant and equipment -- continuing
operations 2,648 4,065 1,714 8,427
Purchases of property, plant and equipment --
discontinued operations 671 -- 347 1,018
As of December 31, 2002
Goodwill $ 59,731 $157,285 $ -- $ 217,016
Total assets 367,002 332,905 64,191 764,098
79
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
15. GEOGRAPHIC AREA AND MAJOR CUSTOMER INFORMATION
The following is a breakout of net sales, operating profit, income before income
taxes and identifiable assets based on the geographic locations of our domestic
and foreign operations as of and for the years ended December 31, 2004, 2003 and
2002. We operate in North America and have international operations in Europe,
mainly Germany and Portugal.
For the years ended December 31,
----------------------------------------
2004 2003 2002
--------- -------- --------
(in thousands of dollars)
Net Sales:
North America $ 661,328 $614,762 $667,787
Europe 175,845 116,405 87,950
--------- -------- --------
Total $ 837,173 $731,167 $755,737
========= ======== ========
Operating (loss) profit:
North America $(248,051) $(41,291) $ 36,239
Europe 8,090 4,674 3,438
--------- -------- --------
Total $(239,961) $(36,617) $ 39,677
========= ======== ========
(Loss) income from continuing operations before income
taxes and equity interest in a joint venture:
North America $(275,903) $(68,693) $ 8,379
Europe 5,969 4,140 3,189
--------- -------- --------
Total $(269,934) $(64,553) $ 11,568
========= ======== ========
As of December 31,
------------------------------
2004 2003 2002
-------- -------- --------
Identifiable assets:
North America $357,260 $560,117 $683,775
Europe 155,563 126,567 80,323
-------- -------- --------
Total $512,823 $686,684 $764,098
======== ======== ========
Net sales to customers exceeding 10% of consolidated net sales in 2004, 2003 or
2002, and other major customers, were as follows (as a percentage of
consolidated net sales):
2004 2003 2002
---- ---- ----
Customer:
DaimlerChrysler(1) 11% 10% 18%
Delphi 11% 11% 11%
Ford 9% 11% 12%
Metaldyne(1) 10% 8% 1%
TRW 7% 6% 2%
Visteon 6% 6% 5%
PBR Automotive 5% 6% 5%
General Motors 3% 5% 5%
- -------------
(1) During 2003, Metaldyne acquired a facility from DaimlerChrysler to which
we supply products. This accounts for the majority of the change in the
amounts we supply to Metaldyne and DaimlerChrysler from 2002 to 2003.
80
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
16. EARNINGS PER SHARE
Earnings per share are computed as follows:
Years ended December 31,
------------------------------------
2004 2003 2002
---------- --------- -------
(in thousands, except per share data)
Numerator:
Net (loss) income $(273,628) $(98,913) $ 9,003
========= ======== =======
Denominator:
Denominator for basic earnings per share -- weighted average shares 25,607 25,581 25,441
Effect of dilutive securities:
Employee stock options and unearned restricted stock -- -- 437
--------- -------- -------
Denominator for diluted earnings per share -- adjusted weighted
average shares and assumed conversions 25,607 25,581 25,878
========= ======== =======
Net (loss) income per common share -- basic $ (10.69) $ (3.87) $ 0.35
========= ======== =======
Net (loss) income per common share -- assuming dilution $ (10.69) $ (3.87) $ 0.35
========= ======== =======
Dilutive earnings per share reflect the assumed exercise of stock options and
unearned restricted stock.
81
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
17. QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2004 and 2003:
Three months ended
--------------------------------------------------
March 31 June 30 September 30 December 31
--------- --------- ------------ -----------
(in thousands of dollars, except per share data)
2004
Net sales $210,646 $217,185 $ 197,713 $ 211,629
Gross profit 13,490 12,712 (4,344) (5,623)
Loss from discontinued operations, net of tax (712) (1,255) (677) (314)
Net loss (1) (7,853) (6,454) (225,046) (34,275)
Net loss per common share
- - Basic (0.31) (0.25) (8.63) (1.49)
- - Diluted (0.31) (0.25) (8.63) (1.49)
Share prices (Nasdaq) (2)
- - High 5.80 4.83 4.25 0.34
- - Low 4.01 3.55 0.25 0.08
2003
Net sales $193,040 $182,118 $ 172,700 $ 183,309
Gross profit 21,241 17,923 14,729 9,947
(Loss) income from discontinued operations, net of tax (188) (8,643) 655 (8,400)
Net Income (loss)(3) 3,152 (6,589) (50) (95,426)
Net income (loss) per common share
- - Basic 0.12 (0.26) -- (3.73)
- - Diluted 0.12 (0.26) -- (3.73)
Share prices (Nasdaq)(4)
- -High 4.40 4.00 4.70 5.61
- -Low 3.26 3.06 3.33 4.14
82
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
17. QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)
(1) During the third quarter of 2004, we recorded pretax goodwill impairment
charge of $165.9 million because the carrying value of the Ferrous Metals
reporting unit and Light Metals reporting unit were in excess of their
fair value. We also recorded pretax asset impairment charges of $26.4
million for write-downs of other long-lived assets with carrying values
exceeding their fair values. During the fourth quarter of 2004, we
recognized reorganization costs of $8.8 million and plant closure and
asset impairment charges of $3.8 million related to the closure of our
Racine Plant and Racine Machining Plant. All of these charges had a
negative impact on our net loss, and total assets and shareholders'
equity.
(2) On October 1, 2004, we received a written notice from The NASDAQ Stock
Market (Nasdaq) that our shares of common stock would be delisted from
Nasdaq at the opening of business on October 12, 2004 in accordance with
Marketplace Rule 4815(a) based on Nasdaq's determination that we did not
comply with the continued listing requirements under Marketplace Rules
4300 and 4450(f). Since October 12, 2004 our common stock, S0.10 par
value, has been traded on the Pink Sheets under the symbol "INMTQ" and had
a closing price of $0.13 on June 14, 2005.
(3) During the fourth quarter of 2003, we recorded pretax goodwill impairment
charge of $51.1 million because the carrying value of the Light Metals
reporting unit was in excess of its fair value. We also recorded pretax
restructuring and asset impairment charges of $10.0 million, which
included an $8.5 million charge for the announced closure of our Havana
Foundry, and $1.5 million in write-downs of other long-lived assets with
carrying values exceeding their fair values. In addition, we recorded a
valuation reserve against our domestic net deferred tax assets of $23.9
million for our continuing operations. This is due to the accumulation of
losses experienced at our domestic operations between 2001 and 2003. All
of these charges had a negative impact on our net income (loss), and total
assets and shareholders' equity.
(4) The share price information represents inter-dealer transactions in the
Nasdaq without detail markup, markdown or commission.
Third- and fourth-quarter sales are usually lower than the first- and
second-quarter sales due to plant closings by automotive manufacturers for
vacations and model changeovers.
18. DERIVATIVE FINANCIAL INSTRUMENTS
Under our risk management policy, the use of derivatives for managing risk is
confined to hedging the exposure related to variable rate funding activities,
hedging the foreign currency exposure of inter-company payables and receivables
and hedging purchase commitments relating to raw materials used in our
production processes and related energy costs. Specifically, we review our
liability structure on a recurring basis and make the determination as to
whether our risk exposure should be adjusted using derivative instruments. We do
not participate in speculative derivatives trading.
On October 24, 2000, we entered into an interest rate swap agreement with a
notional principal amount of $50.0 million through Scotia Capital, Inc., a
broker-dealer subsidiary of The Bank of Nova Scotia. Interest rate swaps are
contractual agreements between parties to exchange fixed and floating interest
rate payments periodically, over the life of the agreements, without the
exchange of underlying principal amounts. Under the terms of the agreement, we
paid interest quarterly at an annual fixed interest rate of 6.468% with Scotia
Capital, Inc. paying at the three-month LIBOR rate. This swap was used to
partially hedge an underlying debt obligation and is marked to market. The
agreement expired on October 24, 2003.
83
INTERMET Corporation
Notes to Consolidated Financial Statements (continued)
18. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
We designated this swap transaction as a cash flow hedge. The effectiveness of
this hedge transaction was assessed using the short-cut method as it met the
criteria outlined in SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This hedge was considered to be perfectly effective;
therefore, the entire change in the fair value of the derivative was recorded in
other comprehensive income, and no hedge ineffectiveness was recorded in
earnings.
To hedge foreign currency risks, we periodically use over-the-counter forward
contracts. To hedge our European operations, we had outstanding foreign exchange
contracts with a notional amount of Euro 15.5 million (approximately $19.1
million) and Euro 15.9 million (approximately $16.7 million) at December 31,
2003 and 2002, respectively. We had no outstanding foreign exchange contracts at
December 31, 2004. The market value of such foreign exchange contracts was
minimal at December 31, 2003 and 2002.
In addition to these derivative financial instruments, we have other contracts
for the purchase of raw materials and energy that have the characteristics of
derivatives but are not required to be accounted for as derivatives. These
contracts for the physical delivery of commodities qualify for the normal
purchases and normal sales exception under SFAS No. 133 as we take physical
delivery of the commodity and use it in the production process. This exception
is an election and, if not elected, these contracts would be carried on our
balance sheet at fair value with changes in the fair value reflected in
earnings.
19. SUBSEQUENT EVENTS
On March 29, 2005, we announced our plan to close our Decatur Foundry located in
Decatur, Illinois during the fourth quarter of 2005. We recognized asset
impairment charges in 2004 of $10.9 million to reduce the capital assets to
their fair values. We are in the process of determining reserves required for
plant closing costs.
Some customers of our Hannibal facility have informed us that present product
programs will end or they intend to move their magnesium die casting work from
that facility to other suppliers or transition to alternative processes. A
portion of the work in that facility will end on or about July 1, 2005. If the
customers proceed with plans to move the remaining work, we anticipate that this
would occur in late 2005 or early 2006. If we are unable to secure new business
for the plant within that timeframe, we anticipate that operations at the
Hannibal plant would be suspended until the Company is able to utilize that
capacity, and all remaining work would be transferred to the Palmyra facility,
which also produces magnesium die castings.
84
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
INTERMET Corporation
We have audited the accompanying consolidated balance sheets of INTERMET
Corporation and subsidiaries (the Company) as of December 31, 2004 and 2003, and
the related consolidated statements of operations, shareholders' deficit, and
cash flows for each of the three years in the period ended December 31, 2004.
Our audits also included the financial statement schedule for the three years in
the period ended December 31, 2004, listed in the index at Item 15(2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). These 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 December 31, 2004 and 2003, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2004. In conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule for
the three years in the period ended December 31, 2004, when considered in
relation to the basic financial statements, taken as a whole, represents fairly
in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully described in
the notes to the consolidated financial statements, on September 29, 2004,
INTERMET Corporation and its wholly owned United States subsidiaries filed a
voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code. Uncertainties inherent in the bankruptcy process raise
substantial doubt about the Company's ability to continue as a going concern.
Management's intentions with respect to these matters are also described in the
notes to the consolidated financial statements. The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
As discussed in Note 6 to the consolidated financial statements, the Company
changed its method of accounting for goodwill in 2002.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated June 14, 2005 expressed an unqualified opinion on management's assessment
and an adverse opinion on the effectiveness of internal control over financial
reporting.
/s/ Ernst & Young LLP
Troy, Michigan
June 14, 2005
85
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
INTERMET Corporation
We have audited management's assessment, included in the accompanying
Management's Report on Internal Controls Over Financial Reporting, that INTERMET
Corporation and subsidiaries (the Company) did not maintain effective internal
control over financial reporting as of December 31, 2004, because of the effect
of deficiencies in their financial statement close process, based on criteria
established in internal Control -- Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the company's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weakness has been identified and included in
management's assessment.
Controls and procedures surrounding the Company's financial statement close
process were not designed in a manner to allow the preparation of consolidated
financial statements on a timely and accurate basis, which constitutes a
material weakness in internal control over financial reporting. This material
weakness was exemplified by (1) the Company's failure to file timely 2004 third
quarter and year-end reports with the Securities and Exchange Commission (SEC),
which was a result of the Company and certain of its subsidiaries filing
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code
on September 29, 2004, (2) the identification of adjusting entries during the
year-end audit process that resulted in a revision to income tax
86
expense and associated liabilities related to the conversion of foreign entity
financial statements from local generally accepted accounting principles (GAAP)
to U.S. GAAP during the consolidation process, and (3) adjusting entries
identified during the audit process related to the write-off of capitalized debt
issuance costs associated with the Company's senior notes as required for
companies in bankruptcy. The Company is now in a position to file its 2004 third
quarter and year-end reports with the SEC, which reflect the aforementioned
adjusting entries.
This material weakness was considered in determining the nature, timing, and
extent of audit tests applied in our audit of the December 31, 2004 consolidated
financial statements, and this report does not affect our report dated June
14, 2005 on those financial statements.
In our opinion, management's assessment that INTERMET Corporation did not
maintain effective internal control over financial reporting as of December
31, 2004, is fairly stated, in all material respects, based on the COSO control
criteria. Also, in our opinion, because of the effect of the material weakness
described above on the achievement of the objectives of the control criteria,
the Company has not maintained effective internal control over financial
reporting as of December 31, 2004, based on the COSO control criteria.
/s/ Ernst & Young LLP
Troy, Michigan
June 14, 2005
87
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation
of management, including our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of the year
covered by this report. Based upon that evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls
and procedures are not effective in timely alerting them to material information
relating to us (including our consolidated subsidiaries) that is required to be
included in our periodic Securities and Exchange Commission reports. We have
reached this conclusion because of the material weakness in internal control
over financial reporting described below.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness for future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
assessment of the effectiveness of internal control over financial reporting as
of December 31, 2004. This assessment identified a material weakness in internal
control over financial reporting relating to our financial statement closing
process. The material weakness was the result of a substantial increase in the
volume of financial reporting requirements associated with our Chapter 11
bankruptcy proceedings and employee turnover, which resulted in an insufficient
compliment of accounting personnel and expertise. As a result, we were not able
to prepare consolidated financial statements to meet regulatory filing
requirements and deadlines in the course of our financial statement closing
process. Additionally, adjustments were detected during the year-end audit
process that resulted in a revision of income tax expense and accrued income tax
liabilities related to the conversion of foreign entity financial statements
from local GAAP to United States GAAP during the consolidation process and
entries related to the write-off of capitalized debt issuance costs associated
with our outstanding senior notes as required by applicable accounting guidance
for companies in Chapter 11 bankruptcy proceedings. These items were corrected
and reflected in the audited consolidated financial statements as of and for the
year ended December 31, 2004. A material weakness is defined as a significant
deficiency, or combination of significant deficiencies that results in more than
a remote likelihood that a material misstatement of the consolidated financial
statements will not be prevented or detected. Our process to assess internal
controls over financial reporting was also delayed and negatively affected due
to the resignation of our manager of internal audit shortly after we filed our
Chapter 11 proceedings and also because the engagement of our external
consultants for the assessment project was delayed for more than three months
due to the approval process required under our Chapter 11 bankruptcy
proceedings.
In making its assessment of internal control over financial reporting,
management used the criteria established in the framework Internal Control --
Integrated Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Because of the material weakness described in the preceding
paragraph, management has concluded that, as of December 31, 2004, the Company's
internal control over financial
88
reporting was not effective based on those criteria. Our external auditors,
Ernst & Young LLP, have issued an attestation report with respect to this
assessment. The corrections noted were included in the December 31, 2004
financial results and Ernst & Young LLP has issued an unqualified opinion with
respect to our financial statements for that period.
Changes in Internal Control Over Financial Reporting
To remediate the material weakness discussed above, we have taken a number of
steps including the hiring of a Director of Corporate Accounting and working
with search firms to assist with hiring additional accounting and internal
control expertise. In addition, we have mitigated the burden of bankruptcy
reporting through reallocation of accounting resources and through increased
proficiency with the bankruptcy reports. We believe we will be current with the
SEC reporting requirements effective with our second quarter Form 10-Q.
ITEM 9B. OTHER INFORMATION
None
89
EXHIBIT I
DISTRIBUTION SCHEDULE
DISTRIBUTION SCHEDULE
($) Cash Convenience
Shares Rights Inducement Class
per $/Share per $/Right Recovery Recovery Inducement Recovery
Cash per $1000 Per $1000 Per as a % as a % Cash as a Convenience
Debtor $1000 Claim Claim Valuation Claim Valuation of Claim of Claim Pool(a) % of Claim Cash Pool (b)
- --------------------------- ----------- ------ --------- ------ --------- --------- ---------- ---------- ----------- -------------
Intermet Corporation(c) $0.00 4.09 $16.91 12.28 $6.91 15.4% 16.2% $1,501,901 16.2% $ 488,681
Columbus Foundry, L.P. 0.00 4.00 16.91 12.00 6.91 15.1% 15.8% 1,499,723 15.8% 594,047
Diversified Diemakers, Inc. 0.00 3.13 16.91 9.39 6.91 11.8% 12.4% 416,418 12.4% 350,337
Tool Products, Inc. 0.00 3.00 16.91 9.00 6.91 11.3% 11.9% 737,597 11.9% 367,900
Northern Castings
Corporation 0.00 2.94 16.91 8.83 6.91 11.1% 11.7% 180,772 11.7% 130,258
Cast-Matic Corporation 0.00 2.90 16.91 8.70 6.91 10.9% 11.5% 375,002 11.5% 134,304
Intermet U.S. Holding, Inc. 0.00 2.75 16.91 8.24 6.91 10.3% 10.9% 648,143 10.9% 257,093
Ganton Technologies, Inc. 0.00 2.67 16.91 8.00 6.91 10.0% 10.6% 748,563 10.6% 468,922
Lynchburg Foundry Company 0.00 2.63 16.91 7.90 6.91 9.9% 10.4% 981,416 10.4% 309,212
Sudbury, Inc. 0.00 2.62 16.91 7.86 6.91 9.9% 10.4% 297,963 10.4% 711
Wagner Havana, Inc. 0.00 2.62 16.91 7.86 6.91 9.9% 10.4% 149,176 10.4% 26,236
Intermet Illinois, Inc. 0.00 2.61 16.91 7.84 6.91 9.8% 10.4% 144,935 10.4% 36
Ironton Iron, Inc. 0.00 2.61 16.91 7.84 6.91 9.8% 10.4% 290,373 10.4% 261
Wagner Castings Company (d) 0.00 2.61 16.91 7.84 6.91 9.8% 10.4% 481,277 10.4% 305,438
SUDM. Inc. 0.00 261 16.91 7.84 6.91 9.8% N/A N/A N/A N/A
Alexander City Castings
Company, Inc. 0.00 2.61 16.91 7.84 6.91 9.8% N/A N/A N/A N/A
Intermet International 0.00 N/A 16.91 N/A 6.91 100.0% N/A N/A 100.0% 14,000
Intermet Holding Company 0.00 N/A 16.91 N/A 6.91 N/A N/A N/A N/A N/A
Intermet et. al. (e) 0.00 4.09 16.91 12.28 6.91 15.4% 16.2% 38,205 16.2% 61,103
---------- -----------
$8,491,464 $ 3,408,536
Noteholders 12.71 $16.91 38.12 $6.91 47.8% N/A N/A N/A N/A
Note: The allocation of shares and rights set forth above reflects current
estimates of claims at each Debtor. Actual distributions may be higher or lower
based on the resolution of disputed claims and actual allowed claims at each
Debtor.
Note: To the extent general unsecured creditors elect to receive shares and
rights in lieu of the Cash inducement, the Reorganized Company's equity value
per share will increase.
Note: Claims are estimated based on data from Administar as of June 2, 2005.
Note: This distribution schedule assumes and incorporates the settlement of
substantive consolidation issues described in Section VIII. A.4 of the
Disclosure Statement. In particular, this distribution schedule reflects the
additional $6.7 million in value that bondholders are providing to
non-bondholder general unsecured claimants, pursuant to the settlement, as
compared to the value that would have been distributed to such claimants in de-
consolidated plans.
(a)If outstanding allowed claims increase or decrease, claimants' recovery may
be higher or lower than indicated, provided that the Inducement Cash Pool may be
supplemented by proceeds from the purchase of Inducement Cash-Out Shares under
the Cash Out Purchase Agreement to the extent that the bondholders elect this
treatment under the plan.
(b)If outstanding allowed claims increase or decrease, claimants' recovery may
be higher or lower than indicated, provided that the Convenience Cash-Out Shares
may be supplemented by proceeds from the purchase of shares under the Cash Out
Purchase Agreement to the extent that the bondholders elect this treatment under
the plan.
(c)Recoveries reflect the equity value of Intermet International, the holding
company for Internet's European Operations. Assumes net debt of zero at Intermet
International.
(d)Recovery analyses for Wagner Castings Company, Inc. reflect no retiree
medical claims. Proposed percentage recoveries available under the Plan of
Reorganization to general unsecured creditors and convenience class claimants at
the entity will be adjusted downward based on the filing of any such claims in
the future.
(e)These claims are assumed to have only a single obligor; this presentation
assumes these claims receive treatment equal to the most favorable recovery of
claimants at any of the Debtors (i.e., Intermet Corp.).
EXHIBIT J
STOCKHOLDERS' AGREEMENT
EXECUTION COPY
R2 INVESTMENTS, LDC STANFIELD CAPITAL PARTNERS LLC
August 4, 2005
INTERMET Corporation
5445 Corporate Drive, Suite 200
Troy, Michigan 48098
Attention: Gary F. Ruff
President and Chief Executive Officer
Ladies and Gentlemen:
The undersigned, on behalf of one or more of their related or associated
entities to be designated by them (collectively, the "Initial Committed
Purchasers"), in accordance with the terms and subject to the conditions set
forth in this amended commitment letter and the amended restructuring term sheet
attached hereto as Annex "A" (the "Term Sheet"), the terms and conditions of
which are incorporated by reference herein (collectively, the "Commitment
Letter"), are pleased to provide, on a standby basis:
(a) a commitment to INTERMET Corporation ("Intermet") to purchase
7,500,000 shares of the common stock (the "New Common Stock") of Reorganized
Intermet, at a purchase price of $10.00 per share, in accordance with the terms
and subject to the conditions set forth in the Term Sheet opposite the caption
"Private Placement Purchase Agreement" (the "Private Placement Backstop
Investment"); and
(b) a commitment to Intermet to purchase the Cash-Out Shares, at a
purchase price of $10.00 per share, in accordance with the terms and subject to
the conditions set forth in the Term Sheet opposite the captions "Cash-Out
Purchase Agreement" and "Unsecured Claims" (the "Cash-Out Backstop Investment"
and, together with the Private Placement Backstop Investment, the "Backstop
Investment").
Capitalized terms used in this Commitment Letter and not defined herein
shall have the meanings assigned to such terms in the Term Sheet.
The proceeds of the Backstop Investment are to be used by the Reorganized
Company for general working capital and corporate purposes and to make certain
specified payments in connection with and to facilitate the consummation of a
plan of reorganization (the "Plan") that shall be filed by the Company with the
United States Bankruptcy Court for the Eastern District of Michigan, Southern
Division (the "Bankruptcy Court"), in connection with the Company's chapter 11
proceedings (the "Chapter 11 Cases") initiated pursuant to chapter 11 of title
11 of the United States Code, 11 U.S.C. Sections 101-1330, as amended (the
"Bankruptcy Code"). The Plan shall be in form and substance consistent with the
terms and conditions of this Commitment Letter.
The Initial Committed Purchasers are willing to provide the Backstop
Investment, on a several but not joint basis, to Reorganized Intermet,
substantially on the terms and conditions set forth in this Commitment Letter.
Intermet Corporation
August 4, 2005
Page 2
The aggregate purchase price (the "Purchase Price") for the foregoing
shares of New Common Stock will be payable in cash, by wire transfer of
immediately available funds, to Reorganized Intermet on the Effective Date.
In accordance with the terms and subject to the conditions set forth in
this Commitment Letter:
(a) R2 Investments, LDC, on behalf of one or more of its related or
associated entities to be designated by it (collectively, "R2 Investments"),
shall be obligated to purchase 50% of the shares of New Common Stock issued by
Reorganized Intermet in connection with the Private Placement Backstop
Investment, and 50% of the shares of New Common Stock issued by Reorganized
Intermet in connection with the Cash-Out Backstop Investment; and
(b) Stanfield Capital Partners, on behalf of one or more of its related or
associated entities to be designated by it (collectively, "Stanfield Capital"),
shall be obligated to purchase 50% of the shares of New Common Stock issued by
Reorganized Intermet in connection with the Private Placement Backstop
Investment, and 50% of the shares of New Common Stock issued by Reorganized
Intermet in connection with the Cash-Out Backstop Investment.
Neither of the Initial Committed Purchasers shall be obligated to pay or
fund any part of the other Initial Committed Purchaser's portion of the Purchase
Price.
Set forth in detail in the Term Sheet are: (a) the conditions precedent to
the obligations of the Initial Committed Purchasers to make the Backstop
Investment; and (b) the provisions relating to the obligation of Intermet to pay
the Commitment Amount and the Reimbursable Expenses.
Each of the Initial Committed Purchaser's commitment to make the Backstop
Investment is subject to, among other things, the satisfaction (or the written
waiver by each of the Initial Committed Purchasers) of the conditions precedent
set forth in the Term Sheet opposite the caption "Initial Committed Purchasers
Conditions Precedent".
The definitive investment documents, including, without limitation, the
Restructuring Documents (collectively, the "Definitive Investment Documents")
shall contain representations, warranties, and covenants customarily included in
subscription and related agreements for similar standby underwriting investments
or financings.
On the Effective Date, Reorganized Intermet and the Initial Committed
Purchasers shall enter into the Registration Rights Agreement. A summary of the
terms and conditions of the Registration Rights Agreement is set forth on Annex
"B" to this Commitment Letter.
On the Effective Date, Reorganized Intermet will complete the Key
Employees Rights Offering, in connection with which the Key Employees shall be
afforded the opportunity to purchase, on a pro rata basis, up to 181,249 shares
of New Common Stock, at a purchase price of $10.00 per share. The names of the
Key Employees and the number of shares of New Common
Intermet Corporation
August 4, 2005
Page 3
Stock that may be purchased by each Key Employee are set forth on Annex "C" to
this Commitment Letter.
Upon reasonable notice and during normal business hours, Intermet will
afford the Initial Committed Purchasers and their counsel, accountants and other
representatives (collectively, the "Representatives") full and complete access
to the books, records and properties of the Company and the opportunity to
discuss the business, affairs and finances of the Company with the officers,
employees, accountants, attorneys and representatives of the Company in order to
enable the Initial Committed Purchasers and their Representatives to make such
investigations of the Company and its business as they deem reasonably
appropriate. Intermet agrees that it will cause the officers and employees of
the Company, and will request their respective legal counsel and accountants, to
cooperate so that the Initial Committed Purchasers can complete such review,
including promptly disclosing to the Initial Committed Purchasers any material
facts known to such parties which have resulted in, or could be expected to
result in, a Material Adverse Change.
Excluding any Indemnity Claim (as defined herein) arising solely from an
Indemnified Party's (as defined herein) breach of this Commitment Letter or
breach of any other agreements between an Indemnified Party and Intermet, or
among an Indemnified Party and the Reorganized Company, Intermet agrees to
indemnify and hold harmless the Initial Committed Purchasers and their
respective affiliates, directors, officers, partners, members, employees,
attorneys, agents and assignees (including affiliates thereof) (each an
"Indemnified Party") from and against any and all losses, claims, damages,
liabilities (or actions or other proceedings commenced or threatened in respect
thereof) or other expenses to which such Indemnified Party may become subject
(each an "Indemnity Claim"), insofar as such losses, claims, damages,
liabilities (or actions or other proceedings commenced or threatened in respect
thereof) or other expenses arise out of or in any way relate to or result from
this Commitment Letter or the proceeds of the Backstop Investment, and Intermet
agrees to reimburse (on an as incurred monthly basis) each Indemnified Party for
any legal or other out-of-pocket expenses incurred in connection with
investigating, defending or participating in any such loss, claim, damage,
liability or action or other proceeding (whether or not such Indemnified Party
is a party to any action or proceeding out of which such indemnified expenses
arise), but excluding therefrom all losses, claims, damages, liabilities and
expenses that are finally determined in a non-appealable decision of a court of
competent jurisdiction to have resulted solely from the gross negligence or
willful misconduct of such Indemnified Party. In the event of any litigation or
dispute involving this Commitment Letter, the Initial Committed Purchasers shall
not be responsible or liable to Intermet or any other person or entity for any
special, indirect, consequential, incidental or punitive damages. The
obligations of Intermet under this paragraph (the "Indemnification Obligations")
shall remain effective whether or not any of the transactions contemplated in
this Commitment Letter are consummated, any Definitive Investment Documents with
respect to the Backstop Investment are executed and notwithstanding any
termination of this Commitment Letter, and shall be binding upon Reorganized
Intermet in the event that any plan of reorganization of Intermet is
consummated.
Except as provided herein, Intermet agrees that, once paid, the fees or
any part thereof payable hereunder shall not be refundable or form the basis of
any defense, setoff, or recoupment claim under any circumstances, regardless of
whether the transactions contemplated by this
Intermet Corporation
August 4, 2005
Page 4
Commitment Letter are consummated. All fees payable hereunder shall be paid in
immediately available funds.
Intermet represents and warrants that: (i) all written information and
other materials concerning the Company and the Plan (the "Information") which
has been, or is hereafter, prepared by, or on behalf of, Intermet and delivered
to the Initial Committed Purchasers were or will be, when delivered, when
considered as a whole, complete and correct in all material respects and did
not, or will not when delivered, contain any untrue statement of material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances under which such
statements have been made; and (ii) to the extent that any such Information
contains projections, such projections were prepared in good faith on the basis
of (A) assumptions, methods and tests which are believed by Intermet to be
reasonable at the time made and (B) information believed by Intermet to have
been accurate based upon the information available to Intermet at the time such
projections were furnished to the Initial Committed Purchasers.
Except as otherwise required by law, Intermet shall not issue any press
release or make any other announcement that refers to the Initial Committed
Purchasers or the Backstop Investment without the prior written consent of the
Initial Committed Purchasers. Notwithstanding the sentence immediately
preceding, in no event shall Intermet issue any such press release or make any
such announcement without providing each of the Initial Committed Purchasers at
least one business day to review the proposed press release or announcement and
provide their written comments or suggested revisions with respect thereto.
This Commitment Letter (a) supersedes all prior discussions, agreements,
commitments, arrangements, negotiations or understandings, whether oral or
written, of the parties with respect thereto, including the Commitment Letter
among R2 Investments, Stanfield Capital and Intermet dated June 21, 2005, (b)
shall be governed, except to the extent that the Bankruptcy Code is applicable,
by the laws of the State of New York, without giving effect to the conflict of
laws provisions thereof; (c) shall not be assignable by Intermet or the Initial
Committed Purchasers; (d) is intended to be solely for the benefit of the
parties hereto and is not intended to confer any benefits upon, or create any
rights in favor of, any person other than the parties hereto; and (e) may not be
amended or waived except by an instrument in writing signed by Intermet and the
Initial Committed Purchasers.
This Commitment Letter may be executed in any number of counterparts, each
of which shall be an original, and all of which, when taken together, shall
constitute one agreement. Delivery of an executed signature page of this
Commitment Letter by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof.
Notwithstanding anything herein to the contrary, all of the obligations of
Intermet hereunder are subject to the approval of the Bankruptcy Court. Intermet
shall seek Bankruptcy Court approval of this Commitment Letter at the hearing
scheduled for August 9, 2005 (including the Indemnification Obligations and the
payment of the Commitment Amount and Reimbursable Expenses).
If the foregoing correctly sets forth our agreement, please indicate your
acceptance of the terms hereof by returning to the Initial Committed Purchasers
executed counterparts hereof not later than 4:00 p.m., New York City time, on
August 4,2005. This Commitment Letter will become effective upon the mutual
exchange of executed counterparts hereof. This Commitment Letter shall expire at
4:00 p.m., New York City time, on August 4,2005, unless it has previously become
effective.
Very truly yours,
R2 INVESTMENTS, LDC
(on behalf of certain of its related or associated entities)
By: Amalgamated Gadget, L.P., as its Investment Manager
By: Scepter Holdings, Inc., its General Partner
By: /s/ Dave Gillespie
---------------------
Name: Dave Gillespie
Title: Chief Financial Officer
STANFIELD CAPITAL PARTNERS LLC
(on behalf of certain of its related or associated entities)
By: /s/ [ILLEGIBLE]
---------------------
Name:
-----------------
Title:
------------------
Agreed and accepted on this
4th day of August, 2005
INTERMET Corporation
By: /s/ Gary F. Ruff
-------------------
Name: Gary F. Ruff
Title: President and Chief Executive Officer
ANNEX "A"
Restructuring Term Sheet
EXECUTION COPY
INTERMET CORPORATION
RESTRUCTURING TERM SHEET
AUGUST 4, 2005
The transactions contemplated by this term sheet are subject to conditions to be
set forth in definitive documents. This term sheet is part of the commitment
letter (the "Commitment Letter"), dated August 4, 2005, addressed to Intermet
(as defined below) by the Initial Committed Purchasers (as defined below) and is
subject to the terms thereof. This term sheet is proffered in the nature of a
settlement proposal in furtherance of settlement discussions and is entitled to
protection from any use or disclosure to any party or person pursuant to Federal
Rule of Evidence 408 and any other rule of similar import.
Until publicly disclosed by INTERMET Corporation, with the prior written consent
of the Initial Committed Purchasers, this term sheet and the information
contained herein is strictly confidential and may not be shared with any person
other than the DIP Lenders (as defined below), the Senior Credit Lenders (as
defined below), the Exit Facility Lenders (as defined below), the Official
Committee of Unsecured Creditors (the "Creditors' Committee") appointed in the
Chapter 11 Cases (as defined below), the Official Committee of Equity Holders
(the "Equity Committee") appointed in the Chapter 11 Cases, the Ad Hoc Committee
of Trade Claimants (the "Ad Hoc Trade Committee") and each such party's
professionals and other advisors.
COMPANY: INTERMET Corporation ("Intermet" and, as
reorganized, "Reorganized Intermet), and certain
of its subsidiaries (together with Intermet, the
"Company" and, as reorganized with Reorganized
Intermet, the "Reorganized Company").
NOTEHOLDERS: The entities (the "Noteholders") that hold 9.75%
Senior Notes due 2009 issued by Intermet and
guaranteed by certain subsidiaries of Intermet
(collectively, the "Notes"). The claims held by
the Noteholders (inclusive of principal and
interest accrued as of the petition date of the
Chapter 11 Cases) against Intermet and all of
the guaranty claims held by the Noteholders
against Intermet's debtor subsidiaries shall be
collectively referred to herein as the
"Noteholder Claims".
OTHER UNSECURED CLAIMANTS: Holders of all unsecured obligations (the "GUC
Claims") other than (i) the Notes; and (ii) such
obligations which qualify or elect to be treated
in a convenience class (the "Convenience Class
Claims") of Intermet and its debtor subsidiaries
(the "GUC Holders", together with the
Noteholders, the "Unsecured Holders").
INITIAL COMMITTED PURCHASERS: R2 Investments, LDC and/or one or more of its
related or associated entities (collectively,
"R2 Investments") and Stanfield Capital
Partners and/or one or more of its related or
associated entities (collectively, "Stanfield
Capital" and, together with R2 Investments,
the "Initial Committed Purchasers").
RESTRUCTURING TRANSACTION: Subject to the terms of the Commitment Letter,
Intermet shall restructure its capital structure
(the "Restructuring") through the chapter 11
plans of reorganization (as amended, modified or
1
supplemented from time to time, the "Plan") and
the related disclosure statement (as amended,
modified or supplemented from time to time, the
"Disclosure Statement") filed with the United
States Bankruptcy Court for the Eastern District
of Michigan, Southern Division (the "Bankruptcy
Court") on June 24, 2005 and June 27, 2005,
respectively, in cases commenced by the Company
on September 29, 2004 under chapter 11 of the
Bankruptcy Code (the "Chapter 11 Cases"), which
Plan and Disclosure Statement shall be modified
so as to be consistent with this Term Sheet and
acceptable to the Initial Committed Purchasers.
PRIVATE PLACEMENT In accordance with the terms and subject to the
PURCHASE AGREEMENT: conditions of a purchase agreement (the "Private
Placement Purchase Agreement"), the Initial
Committed Purchasers shall commit (the "Funding
Commitment") to purchase, on a pro rata basis,
on the Effective Date (as defined below),
7,500,000 shares (the "Private Placement
Shares") of newly-issued shares of common stock
(the "New Common Stock") of Reorganized
Intermet, at a purchase price of $10.00 per
share, to the extent not otherwise purchased in
the Rights Offering (as defined below). The
Funding Commitment shall be subject to the right
of the Unsecured Holders, including the Initial
Committed Purchasers, pursuant to an election to
be made in conjunction with voting on the Plan,
to purchase, on a ratable basis, the full amount
of the Private Placement Shares (the "Rights
Offering"). The Private Placement Shares shall
be subject to dilution by the Unsecured Shares
(as defined below), the Key Employees Rights
Offering (as defined below), the Management
Incentive Plan (as defined below) and the
Alternate Subscription Shares (as defined
below). In no event shall any Unsecured Holder
have any right of over-subscription with respect
to the Rights Offering. Moreover, the rights
afforded to all Unsecured Holders to purchase
the New Common Stock shall be non-transferable
provided, however, with respect to each
unsecured claim, the holder of the claim on the
tenth business day after the Bankruptcy Court
approves the adequacy of the Disclosure
Statement is the only person entitled to
participate in the Rights Offering with respect
to such claim, assuming such person continues to
hold the claim. The Private Placement Purchase
Agreement, which shall reflect the agreement of
the Initial Committed Purchasers to purchase the
Private Placement Shares to be issued by
Reorganized Intermet in connection with the
Plan, shall include representations, warranties
and covenants customary for transactions of
similar type and monetary amount and otherwise
acceptable to the parties thereto. The Private
Placement Purchase Agreement (and the Plan with
respect to items (i) and (ii) below) shall,
among other things, specifically contain:
(i) a provision specifying that
Reorganized Intermet shall obtain and maintain
in full force tail insurance covering such risks
as are presently covered for a period of not
less than 5 years after the Effective Date in
favor of the former and current officers and
directors of the Company on terms and conditions
acceptable to the Company and the Initial
Committed Purchasers; provided, however, that
the
2
aggregate cost of such tail insurance shall not
exceed $1.5 million;
(ii) a provision specifying that
Reorganized Intermet shall indemnify all
officers and directors of the Company who served
in such capacity at any time prior to the
Effective Date (as defined below) for any
amounts such officers and directors are required
to pay as a result of any retentions or
deductibles applicable under policies of
insurance in effect on the date hereof or as
contemplated by paragraph (i) above, which
policies (or extensions thereof having terms no
less favorable to the officers and directors)
shall be assumed by Reorganized Intermet in the
Plan. The indemnity described in the preceding
sentence shall not include liability relating to
any action, omission, transaction, event,
occurrence or other circumstance that would
constitute an exclusion under the applicable
policies of insurance or liability in excess of
the limits of such policies. The provision
shall specify that amounts payable by
Reorganized Intermet pursuant to this provision
shall be paid on a current basis on behalf of
the officers and directors, without requiring
the officers and directors to first pay such
amounts from their own funds and then seek
reimbursement from Reorganized Intermet, so long
as Reorganized Intermet shall have received a
written undertaking by each such officer and
director to repay such amounts to Reorganized
Intermet if it shall be determined by a court of
competent jurisdiction pursuant to a final,
non-appealable order that such officer or
director is not entitled to coverage under such
policies of insurance;
(iii) a provision that the Private
Placement Purchase Agreement and the Cash-Out
Purchase Agreement (as defined below) shall
terminate automatically upon the termination of
the Commitment Letter. Upon any such
termination, the obligations of the parties to
the Private Placement Purchase Agreement and the
Cash-Out Purchase Agreement shall be of no
further force or effect, except as otherwise
expressly set forth therein; and
(iv) a representation and warranty stating
that the Initial Committed Purchasers hold, as
of the date of the Commitment Letter,
collectively, on behalf of certain funds and
managed accounts, in excess of $58.0 million in
face amount of the Notes.
CASH-OUT PURCHASE The detailed terms and conditions pursuant to
AGREEMENT: which the Initial Committed Purchasers shall
purchase the Cash-Out Shares (as defined below)
shall be set forth in a purchase agreement (the
"Cash-Out Purchase Agreement") by and among
Intermet and the Initial Committed Purchasers.
The Cash-Out Purchase Agreement shall include
representations, warranties and covenants
customary for transactions of similar type and
monetary amount and otherwise acceptable to the
parties.
3
OTHER FEATURES OF
THE RESTRUCTURING:
TREATMENT OF CLAIMS AND The treatment of claims and interests shall be
INTERESTS: as set forth in the Plan and described in the
Disclosure Statement, in each case as modified
to be consistent with this Term Sheet and
acceptable to the Initial Committed Purchasers.
THE KEY EMPLOYEE RIGHTS The Company will conduct a key employee rights
OFFERING: offering (the "Key Employee Rights Offering"),
in connection with which the Company shall offer
to the Key Employees (as defined below) the
right to purchase, on a pro rata basis, 181,249
shares of New Common Stock, in consideration for
cash in the amount of $10.00 per share. The Key
Employees shall have a right of
over-subscription with respect to the Key
Employee Rights Offering as set forth on Annex C
to the Commitment Letter. Moreover, the rights
to purchase shares of New Common Stock in
connection with the Key Employee Rights Offering
shall be non-transferable. Other terms and
conditions of the Key Employee Rights Offering
are to be determined by the Company and the
Initial Committed Purchasers, in consultation
with the Creditors' Committee.
As used herein, the term "Key Employees" means
those persons who: (i) shall be employed by the
Company on the effective date of the Plan (the
"Effective Date"); (ii) upon consummation of the
Plan, shall be entitled to receive stay bonuses
under the Intermet Amended and Restated Employee
Retention Plan, dated effective September 20,
2004 and restated December 8, 2004 (the "KERP");
and (iii) are identified in an annex to the
Commitment Letter.
The Key Employees either: (i) may receive in
cash any unpaid stay bonuses to which they may
be entitled in accordance with the terms and
subject to the conditions of the KERP,
including, without limitation, the stay bonus
payment schedule set forth therein; or (ii) upon
consummation of the Plan, may purchase shares of
New Common Stock in connection with the Key
Employee Rights Offering by authorizing
Reorganized Intermet to apply, on their behalf,
on a dollar-for-dollar basis, any such stay
bonuses toward the purchase of the shares of New
Common Stock covered by the Key Employee Rights
Offering.
PURCHASE OF On the Effective Date: (i) the Initial Committed
CASH-OUT SHARES: Purchasers shall purchase, on a pro rata basis,
from Reorganized Intermet the Cash-Out Shares,
for an aggregate consideration equal to the
product (the "Aggregate Cash-Out Payment")
determined by multiplying the Cash-Out Amount
by the total number of Cash-Out Shares; and (ii)
the Initial Committed Purchasers shall deliver
to Reorganized Intermet, by wire transfer of
immediately available funds, cash in the amount
of the Aggregate Cash-Out Payment, in
consideration of the Cash-Out Shares.
4
EXIT FACILITY: A term loan facility and a revolving loan/letter
of credit facility the total of which shall not
exceed $260 million, or such other higher amount
as the Company and Initial Committed Purchasers,
in consultation with the Creditors' Committee,
deem appropriate and necessary (collectively,
the "Exit Facility"), shall be made available,
by one or more lenders (collectively, the "Exit
Facility Lenders"), to the Company, on terms and
conditions acceptable to the Company and the
Initial Committed Purchasers, in consultation
with the Creditors' Committee.
EMPLOYMENT AGREEMENTS: In connection with the Plan, each officer
currently a party to an employment agreement
with the Company shall enter into a new
employment agreement between such officer and
the Company, on terms and conditions acceptable
to the Initial Committed Purchasers, in
consultation with the Creditors' Committee,
which shall supersede such officer's existing
employment agreement.
MANAGEMENT INCENTIVE On or as soon as reasonably practicable after
PLAN: the Effective Date, a management incentive plan
(the "Management Incentive Plan") shall be
implemented to reserve for designated members of
senior management of the Reorganized Company
equity interests (including, without limitation,
restricted common stock and/or options) in
Reorganized Intermet in an amount up to 5.0% of
the New Common Stock issued on the Effective
Date. The Management Incentive Plan will
contain terms and conditions that shall be
determined by the Board of Directors of
Reorganized Intermet.
STOCKHOLDERS' AGREEMENT: All holders of New Common Stock will be subject
to a stockholders' agreement in the form
attached hereto as Exhibit B, as may be amended
by mutual agreement of Intermet and the Initial
Committed Purchasers, in consultation with the
Creditors' Committee (the "Stockholders'
Agreement"). The Stockholders' Agreement will be
effective as of the Effective Date.
REIMBURSABLE EXPENSES: The Company shall pay, within 10 days of receipt
of an invoice from the Initial Committed
Purchasers, the reasonable and documented out-
of-pocket fees and expenses incurred by the
Initial Committed Purchasers, including the fees
and expenses of their legal counsel, on and
after January 10, 2005 in connection with the
Restructuring, plus all of the reasonable and
documented fees and expenses incurred by the
Initial Committed Purchasers, including the fees
and expenses of their legal counsel, in
connection with the drafting, negotiation,
prosecution or defense of the Commitment Letter
(including this term sheet), the Private
Placement Purchase Agreement, the Rights
Offering, corporate governance documents, the
Cash-Out Purchase Agreement, the Plan, the
Disclosure Statement, the Confirmation Order,
the Stockholders' Agreement, the Exit Facility
agreements and related documents and any and all
agreements and other documents ancillary hereto
or thereto (collectively, the "Restructuring
Documents"), including any fees and expenses
incurred by the Initial Committed Purchasers in
connection with obtaining all required
5
regulatory approvals (collectively, the "Reimbursable
Expenses"). The accrual of the Reimbursable Expenses to
be paid by Intermet hereunder shall cease in the event
that the Commitment Letter is terminated. So long as the
Initial Committed Purchasers are not in material breach
of their obligations under the Commitment Letter, the
obligations of Intermet to pay the Reimbursable Expenses
provided herein shall remain effective whether or not
any of the transactions contemplated by this Term Sheet
are consummated, any definitive documents with respect
to the Restructuring are executed and notwithstanding
any termination of the Commitment Letter, and shall be
binding upon Reorganized Intermet whether or not any
plan of reorganization with respect to Intermet is
consummated.
Notwithstanding anything contained herein or in the
Commitment Letter to the contrary, the payment of any
amounts due pursuant to the Commitment Letter or this
Term Sheet, including but not limited to the
Reimbursable Expenses due shall be subject to the
approval of the Commitment Letter by the Bankruptcy
Court, and such payment not causing a default pursuant
to the DIP Credit Facility; provided, however, if any
such payment would cause a default pursuant to the DIP
Credit Facility, the Initial Committed Purchasers shall
have a super-priority administrative expense claim for
such unpaid amount subordinate only to the claims of the
DIP Lenders.
CORPORATE GOVERNANCE: On the Effective Date, the Board of Directors of
Reorganized Intermet shall be composed of seven members.
On the Effective Date, five of such members shall be
selected by the Initial Committed Purchasers, one of
such members shall be the Chief Executive Officer of
Reorganized Intermet and one of such members shall be
selected by the Creditors' Committee. The member
selected by the Creditors' Committee shall be acceptable
to the Initial Committed Purchasers. Two of the five
members selected by the Initial Committed Purchasers may
not be officers, directors or employees of either of the
Initial Committed Purchasers.
REGISTRATION RIGHTS: On the Effective Date, Reorganized Intermet shall enter
into a Registration Rights Agreement with the Initial
Committed Purchasers, pursuant to which Intermet shall
agree to register the resale of the shares of New Common
Stock issued to the Initial Committed Purchasers in
accordance with the requirements of the Securities Act
of 1933, as amended. The Registration Rights Agreement
shall provide that any holder owning greater than 10% of
the outstanding New Common Stock upon emergence shall be
entitled to piggyback registration rights. A summary of
the material terms and conditions of the Registration
Rights Agreement (including without limitation the time
period which must have lapsed before any demand
registration may be made thereunder) shall be set forth
in an annex to the Commitment Letter.
INITIAL COMMITTED The obligations of the Initial Committed Purchasers to
PURCHASERS CONDITIONS purchase the Private Placement Shares, and the
obligations of the Initial Committed
6
PRECEDENT: Purchasers to purchase the Cash-Out Shares, will be
subject to the following conditions precedent (each, an
"Initial Committed Purchasers Condition Precedent"),
each of which may be waived in writing by both of the
Initial Committed Purchasers:
(i) Intermet shall have amended the Plan and
Disclosure Statement in a manner consistent
with this Commitment Letter, which Plan and
Disclosure Statement, as amended, shall be
in form and substance reasonably
satisfactory to the Initial Committed
Purchasers, on or before 5 days after
execution of the Commitment Letter by
Intermet;
(ii) a final, non-appealable order confirming the
Plan (the "Confirmation Order"), in form and
substance reasonably satisfactory to the
Initial Committed Purchasers, shall have
been entered by the Bankruptcy Court;
(iii) there shall not have occurred any Material
Adverse Change (as defined below);
(iv) execution and delivery of appropriate legal
documentation regarding the Restructuring,
including without limitation, (A) the
amended and restated certificate of
incorporation and bylaws of Reorganized
Intermet and each of its subsidiaries, (B)
the Exit Facility, (C) the Registration
Rights Agreement, (D) Private Placement
Purchase Agreement, (E) the Stockholders'
Agreement, and (F) the Cash-Out Purchase
Agreement, each in form and substance
satisfactory to the Initial Committed
Purchasers and the satisfaction of the
conditions precedent contained therein,
which conditions precedent shall not vary
materially from the conditions precedent set
forth herein;
(v) all material governmental, regulatory and
third party approvals, waivers and/or
consents in connection with the
Restructuring (collectively, "Approvals")
shall have been obtained and shall remain in
full force and effect, and there shall exist
no claim, action, suit, investigation,
litigation or proceeding, pending or
threatened in any court or before any
arbitrator or governmental instrumentality,
which would prohibit the Initial Committed
Purchasers from consummating the
transactions contemplated by the Commitment
Letter;
(vi) the Company realizes year-to-date
consolidated EBITDA for 2005, excluding
administrative fees and expenses associated
with the Restructuring, through the latest
calendar month ending at least 25 days prior
to the Effective Date, in an amount that is
no less than the amount specified for such
calendar month on Exhibit A hereto, and the
Company shall provide the Initial
7
Committed Purchasers on the Effective Date
a statement, which shall be executed by the
President and Chief Executive Officer and
Chief Financial Officer of Intermet, which
shall set forth the actual year to date
EBITDA through such calendar month;
(vii) issuance by Reorganized Intermet of the
shares of New Common Stock to the Initial
Committed Purchasers as described herein;
(viii) cash (or cash equivalents) and/or
availability under the Exit Facility as of
the Effective Date, after giving effect to
the proceeds realized from the issuance and
sale of the Private Placement Purchase
Shares, but taking into account
distributions under the Plan, of at least
the amount required pursuant to the Exit
Facility, and the Company shall provide the
Initial Committed Purchasers, on the
business day immediately preceding the
Effective Date, a certificate, executed by
the President and Chief Executive Officer
and the Chief Financial Officer of
Intermet, confirming such availability;
(ix) payment in full of the Commitment Amount
(as defined below) and all Reimbursable
Expenses outstanding on the Effective Date,
pursuant to the terms contained herein;
(x) [INTENTIONALLY LEFT BLANK;]
(xi) the Exit Facility shall have closed on the
terms and conditions acceptable to the
Company and the Initial Committed
Purchasers, in consultation with the
Creditors' Committee, and not materially
inconsistent with the terms of the
Commitment Letter;
(xii) on the Effective Date, all representations
and warranties of the Company contained in
the Commitment Letter, Private Placement
Purchase Agreement and the Cash-Out
Purchase Agreement shall be true, complete
and accurate in all material respects; and
(xiii) on the Effective Date, all covenants of
the Company contained in the Commitment
Letter, Private Placement Purchase
Agreement and the Cash-Out Purchase
Agreement shall have been complied with by
the Company in all material respects.
INTERMET CONDITIONS The obligations of Intermet to consummate the
PRECEDENT: transactions contemplated by the Commitment Letter will
be subject to the following conditions precedent (each
an "Intermet Condition Precedent"), each of which may be
waived in writing by Intermet, in
8
consultation with the Creditors' Committee:
(i) on the Effective Date, all representations
and warranties of the Initial Committed
Purchasers contained in the Commitment
Letter, Private Placement Purchase Agreement
and the Cash-Out Purchase Agreement shall be
true, complete and accurate in all material
respects;
(ii) on the Effective Date, all covenants of the
Initial Committed Purchasers contained in
the Commitment Letter, Private Placement
Purchase Agreement and the Cash-Out Purchase
Agreement shall have been complied with by
the Initial Committed Purchasers in all
material respects;
(iii) the Confirmation Order, in form and
substance satisfactory to the Company, shall
have been entered by the Bankruptcy Court;
(iv) execution and delivery of appropriate legal
documentation regarding the Restructuring,
including without limitation, (A) the
amended and restated certificate of
incorporation and bylaws of Reorganized
Intermet and each of its Subsidiaries, (B)
the Exit Facility, (C) the Registration
Rights Agreement, (D) the Private Placement
Purchase Agreement, (E) the Stockholders'
Agreement and (F) the Cash-Out Purchase
Agreement, each in form and substance
satisfactory to the Company and the
satisfaction of the conditions precedent
contained therein, which conditions
precedent shall not vary materially from the
conditions precedent set forth herein;
(v) all material Approvals shall have been
obtained and shall remain in full force and
effect, and there shall exist no claim,
action, suit, investigation, litigation or
proceeding, pending or threatened in any
court or before any arbitrator or
governmental instrumentality, which would
prohibit the Company from consummating the
transactions contemplated by the Commitment
Letter;
(vi) the Exit Facility shall have closed on the
terms and conditions acceptable to the
Company; and
(vii) (A) Reorganized Intermet shall obtain and
maintain in full force tail insurance
covering such risks as are presently covered
for a period of not less than 5 years after
the Effective Date in favor of the former
and current officers and directors of the
Company on terms and conditions acceptable
to the Company and the Initial Committed
Purchasers; provided, however, that the
aggregate cost of such tail insurance shall
not exceed $1.5 million and (B)
9
Reorganized Intermet shall indemnify all
officers and directors of the Company who
served in such capacity at any time prior to
the Effective Date (as defined below) for
any amounts such officers and directors are
required to pay as a result of any
retentions or deductibles applicable under
policies of insurance in effect on the date
hereof or as contemplated by paragraph (A)
above, which policies (or extensions thereof
having terms no less favorable to the
officers and directors) shall be assumed by
Reorganized Intermet in the Plan. The
indemnity described herein shall not include
liability relating to any action, omission,
transaction, event, occurrence or other
circumstance that would constitute an
exclusion under the applicable policies of
insurance or liability in excess of the
limits of such policies. Furthermore,
amounts payable by Reorganized Intermet
pursuant to the aforementioned shall be paid
on a current basis on behalf of the officers
and directors, without requiring the
officers and directors to first pay such
amounts from their own funds and then seek
reimbursement from Reorganized Intermet, so
long as Reorganized Intermet shall have
received a written undertaking by each such
officer and director to repay such amounts
to Reorganized Intermet if it shall be
determined by a court of competent
jurisdiction pursuant to a final,
non-appealable order that such officer or
director is not entitled to coverage under
such policies of insurance.
TERMINATION OF The Commitment Letter shall terminate and all of the
COMMITMENT LETTER: obligations of the parties thereto (other than the
obligations of Intermet to pay the Reimbursable Expenses
and to satisfy its indemnification obligations
thereunder in accordance with the terms and conditions
of the Commitment Letter) shall be of no further force
or effect, upon the giving of written notice of
termination by the Initial Committed Purchasers or, with
respect to (xiii)(B) and (xvi) only, Intermet, in the
event that any of the following occurs (each, a
"Termination Event"), each of which may be waived in
writing by both of the Initial Committed Purchasers or,
with respect to (xiii)(B) and (xvi) only, Intermet, as
applicable:
(i) the Board of Directors of Intermet shall
fail to approve of the terms and conditions
of the Commitment Letter on or before the
filing of a motion with the Bankruptcy Court
seeking entry of the Approval Order (as
defined below);
(ii) Intermet shall fail to file a motion with
the Bankruptcy Court (or provide other
notice) seeking an order (the "Approval
Order"), approving the terms and conditions
of the Commitment Letter and designating the
payment of any indemnification or the
payment of the Commitment
10
Amount and the Reimbursable Expenses payable
thereunder as administrative expenses and
obligations of Intermet, one business day
after execution of the Commitment Letter by
Intermet;
(iii) the Bankruptcy Court shall fail to enter the
Approval Order on or before the 14th day
following the filing of the motion seeking
entry of the Approval Order;
(iv) Intermet and the Initial Committed
Purchasers shall fail to agree upon, execute
and deliver the Private Placement Purchase
Agreement and the Cash-Out Purchase
Agreement on or before 30 days after the
entry of the Approval Order;
(v) the Company shall fail to amend the Plan and
Disclosure Statement in a manner consistent
with this Commitment Letter, which Plan and
Disclosure Statement, as amended, shall be
in form and substance reasonably
satisfactory to the Initial Committed
Purchasers, on or before 5 days after
execution of the Commitment Letter by
Intermet;
(vi) the Disclosure Statement or a version
thereof that is not inconsistent with the
terms set forth in the Commitment Letter
shall not have been approved by a final,
non- appealable order of the Bankruptcy
Court on or before 24 days after the filing
of the motion seeking the Approval Order;
(vii) the Confirmation Order shall not have been
entered by the Bankruptcy Court within 75
days of the entry of the Approval Order;
(viii) the Plan shall not have become effective on
or before the 20th day following
confirmation of the Plan;
(ix) there shall be any modification to any
provision of the Plan or the Disclosure
Statement that is inconsistent with the
terms and conditions set forth in the
Commitment Letter, without the prior written
consent of the Initial Committed Purchasers,
which consent shall not be unreasonably
withheld, or Intermet shall withdraw, or
file a motion to withdraw, the Plan, except
on terms reasonably acceptable to the
Initial Committed Purchasers;
(x) an event shall have occurred or an order
shall have been entered by the Bankruptcy
Court that shall have the practical effect
of preventing confirmation of the Plan on or
before the date contemplated in clause (vii)
above and such order or event shall not have
been vacated or
11
otherwise corrected within 30 days after
receipt of notice from the Initial Committed
Purchasers;
(xi) the conversion of one or more of the Chapter
11 Cases to a case under Chapter 7 of the
Bankruptcy Code, unless any such conversion
is made with the prior written consent of
the Initial Committed Purchasers;
(xii) the appointment of a trustee, receiver or
examiner with expanded powers in one or more
of the Chapter 11 Cases, unless any such
appointment is made with the prior written
consent of the Initial Committed Purchasers;
(xiii) (A) one or more of the Initial Committed
Purchasers Conditions Precedent shall not
have been satisfied (or waived by the
Initial Committed Purchasers) on or before
the Effective Date, unless such delay is
solely due to the fault of the Initial
Committed Purchasers; or (B) one or more of
the Intermet Conditions Precedent shall not
have been satisfied (or waived by the
Intermet) on or before the Effective Date,
unless such delay is solely due to the fault
of the Intermet;
(xiv) 10 days after the receipt of written notice
of termination by Intermet from the Initial
Committed Purchasers that Intermet has
failed to perform in any material respect
any of its obligations under the Commitment
Letter and such failure remains uncured at
the conclusion of such ten-day period; or
(xv) at any time after the occurrence of a
Material Adverse Change. As used herein, the
term "Material Adverse Change" means any
change, effect, event, occurrence, state of
facts or development, either alone or in
combination, and either known or unknown by
the Company as of June 21, 2005, that is
materially adverse to the business,
financial condition or results of operation
of Intermet and its subsidiaries, taken as a
whole; provided, however, that in no event
shall any change, effect, event, occurrence,
state of facts or development that is
disclosed in Intermet's Annual Report on
Form 10-K for the twelve-month period ended
December 31, 2003, or in Intermet's
Quarterly Reports on Form 10-Q for the
three-month periods ended March 31, 2004,
June 30, 2004 and September 30, 2004, or on
any filing on Form 8-K made by Intermet
prior to June 21, 2005, each in the form
first filed by Intermet with the Securities
and Exchange Commission, or any other
information delivered in writing by the
Company to the Initial Committed Purchasers
prior to June 21, 2005, be considered a
Material Adverse Change, and provided
further, that in no
12
event shall the prosecution of the Chapter
11 Cases on terms and conditions consistent
with the terms and conditions set forth in
the Commitment Letter be considered a
Material Adverse Change.
(xvi) Intermet receives a binding offer with
respect to a financial restructuring that
(a) pays the Company's existing secured
creditors in full in cash, and (b) delivers
a dollar recovery to all Unsecured Holders
in excess of the implied dollar recovery to
Unsecured Holders as set forth in the
Disclosure Statement.
REPRESENTATION OF The Initial Committed Purchasers represent to the
INITIAL COMMITTED Debtors that the Initial Committed Purchasers hold, as
PURCHASER OWNERSHIP: of the date of the Commitment Letter, collectively, on
behalf of certain funds and managed accounts, in excess
of $58.0 million in face amount of the Notes. If the
Initial Committed Purchasers, at any time prior to the
date on which the Plan shall be confirmed by the
Bankruptcy Court or the termination of the Commitment
Letter, shall fail to hold collectively, on behalf of
such funds and managed accounts, at least $58 million in
face amount of the Notes, the Initial Committed
Purchasers shall promptly deliver written notice (the
"Sell-Down Notice") thereof to Intermet.
So long as Intermet is not in breach of its obligations
under the Commitment Letter, Intermet may terminate the
Commitment Letter at any time within five business days
of its receipt of the Sell-Down Notice by delivering to
the Initial Committed Purchasers written notice (the
"Sell-Down Termination Notice") of such termination.
Upon the receipt of the Sell-Down Termination Notice by
the Initial Committed Purchasers, the Commitment Letter
shall terminate and all of the obligations of the
parties thereto (other than the obligations of Intermet
to pay the Reimbursable Expenses and to satisfy its
indemnification obligations thereunder in accordance
with the terms and conditions of the Commitment Letter)
shall be of no further force or effect.
COMMITMENT AMOUNT: In accordance with the terms and conditions of the
Commitment Letter and this Term Sheet, Intermet shall
pay the Initial Committed Purchasers an amount equal to
$3.0 million (the "Commitment Amount") on the Effective
Date. In the event that the Commitment Letter is
terminated prior to the Effective Date, the Commitment
Amount shall not be payable. Notwithstanding anything
contained herein to the contrary, in the event that the
Commitment Letter is terminated in accordance herewith
prior to the Effective Date, the Initial Committed
Purchasers sole and exclusive remedy shall be limited to
the payment of the Reimbursable Expenses accrued up
until the date of termination and the Indemnification
Obligation (as defined in the Commitment Letter).
The Initial Committed Purchasers shall have no duties or
obligations under the Commitment Letter, Private
Placement Purchase Agreement
13
or Cash-Out Purchase Agreement, other than those
expressly set forth herein or therein.
Notwithstanding anything contained herein or in the
Commitment Letter to the contrary, the payment of any
amounts due pursuant to the Commitment Letter or this
Term Sheet, including but not limited to the payment of
the Commitment Fee shall be subject to the approval of
the Commitment Letter by the Bankruptcy Court, and such
payment not causing a default under the DIP Credit
Facility; provided, however, if any such payment would
cause a default pursuant to the DIP Credit Facility, the
Initial Committed Purchasers shall have a super-priority
administrative expense claim for such unpaid amount
subordinate only to the claims of the DIP Lenders.
ALTERNATE APPLICATION So long as the Commitment Letter has not been previously
OF THE COMMITMENT terminated, on the Effective Date, the Initial Committed
AMOUNT: Purchasers: (i) may purchase up to 300,000 additional
shares of New Common Stock, at a purchase price of $
10.00 per share, by delivering to Reorganized Intermet,
by wire transfer of immediately available funds, cash in
an amount up to the Commitment Amount that the Initial
Committed Purchasers shall have previously received; and
(ii) may apply all or any portion of the Commitment
Amount otherwise payable to the Initial Committed
Purchasers toward the purchase of up to 300,000
additional shares of New Common Stock at a purchase
price of $10.00 per share. Any shares of New Common
Stock purchased by an Initial Committed Purchaser
(collectively, the "Alternate Subscription Shares")
pursuant to this paragraph shall be issued to such
Initial Committed Purchaser on the Effective Date, and
the portion of the Commitment Amount otherwise payable
to such Initial Committed Purchaser shall be
correspondingly reduced.
PLAN SUPPORT: Until the termination of the Commitment Letter in
accordance with its terms, the Initial Committed
Purchasers agree to support confirmation of the Plan and
agree not to support any other plan of reorganization
with regard to the Company.
14
EXHIBIT A
INTERMET CORPORATION
If the latest calendar month Then the year-to-date
ending at least 25 days 2005 consolidated
prior to the Effective Date EBITDA, excluding
is the month of: administrative fees and
expenses associated with the
Restructuring, for such calendar
month shall be no less than:
June 2005 $15,230,000
July 2005 $14,163,000
August 2005 $17,149,000
September 2005 $22,476,000
October 2005 $26,799,000
November 2005 $29,725,000
December 2005 $27,459,000
15
EXHIBIT B
STOCKHOLDERS' AGREEMENT
16
STOCKHOLDERS AGREEMENT
AMONG
INTERMET CORPORATION
AND
THE STOCKHOLDERS SPECIFIED HEREIN
TABLE OF CONTENTS
Page
----
STOCKHOLDERS AGREEMENT among INTERMET CORPORATION and THE
STOCKHOLDERS SPECIFIED HEREIN.......................................................... 1
TABLE OF CONTENTS............................................................................ i
INTERMET CORPORATION STOCKHOLDERS AGREEMENT.................................................. 1
Preamble..................................................................................... 1
ARTICLE I DEFINITIONS........................................................................ 1
1.1 Definitions....................................................................... 1
ARTICLE II RESTRICTIONS ON TRANSFER.......................................................... 3
2.1 Transfers Binding Upon Transferees................................................ 3
2.2 Restrictions on Transfer.......................................................... 3
2.3 Agreement to Become Party; Invalid Transfers...................................... 5
2.4 Issuance of New Company Shares.................................................... 5
2.5 Legends........................................................................... 5
ARTICLE III INFORMATION RIGHTS AND CONFIDENTIALITY........................................... 6
3.1 Information Rights................................................................ 6
3.2 Confidentiality................................................................... 6
ARTICLE IV MISCELLANEOUS..................................................................... 7
4.1 Amendment and Waiver.............................................................. 7
4.2 Severability...................................................................... 7
4.3 Entire Agreement.................................................................. 7
4.4 Successors and Assigns............................................................ 7
4.5 Counterparts...................................................................... 8
4.6 Remedies.......................................................................... 8
4.7 Notices........................................................................... 8
4.8 Delivery by Facsimile............................................................. 8
4.9 Descriptive Headings.............................................................. 8
4.10 Governing Law..................................................................... 8
4.11 Submission to Jurisdiction........................................................ 9
4.12 Agreement Binding and Enforceable................................................. 9
i
INTERMET CORPORATION
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is made as of
[EFFECTIVE DATE], among INTERMET Corporation, a Delaware corporation (the
"Company"), each of the holders of the Common Stock (as hereinafter defined), as
set forth on Schedule 1, and each other holder or potential holder of Common
Stock who may be or may become bound by the terms of this Agreement, pursuant to
the provisions of Sections 2.3, 2.4, or 4.12 hereof or otherwise (the
"Stockholders").
PREAMBLE
WHEREAS, pursuant to the Plan (as hereinafter defined), each
Stockholder listed on Schedule I hereto is receiving from the Company, on the
date hereof, the number of shares of Common Stock set forth opposite such
Stockholder's name on Schedule I hereto; and
WHEREAS, pursuant to the Plan, the Company and the Stockholders are
entering into this Agreement to govern certain of their rights relating to the
Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. Unless otherwise provided in this Agreement,
capitalized terms used herein shall have the following meanings:
"Agreement" has the meaning set forth in the first paragraph hereof.
"Beneficial Owner" and "Beneficial Ownership" shall be determined
pursuant to Rules 13d-3 and 13d-5 under the Exchange Act. The term "Beneficially
Owned" shall have a correlative meaning.
"Common Stock" means the Common Stock, $[-] par value per share, of
the Company.
"Company" has the meaning set forth in the first paragraph hereof.
"Company Shares" means any shares of any class or series of capital
stock of the Company (or any securities, options, or warrants convertible into,
or exercisable or exchangeable for, any shares of capital stock of the Company)
held by any Stockholder.
"Effective Date" means the date and time immediately following the
consummation of the Plan.
1
"Exchange Act" means the Securities Exchange Act of 1934, as the
same may be amended from time to time.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof, and any agency, department or other
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Person" has the meaning set forth in Section 2.2.
"Plan" means the Debtors' Plan of Reorganization filed by the
Company with the United States Bankruptcy Court of the Eastern District of
Michigan, Southern District, on June 24, 2005, as amended, modified and
supplemented on or prior to the date hereof.
"Public Offering" means any public offering of Common Stock
registered under the Securities Act.
"R2 Investments" means R2 Investments, LDC and/or one or more of
its related or associated entities.
"Registrant" has the meaning assigned in Rule 12b-2 under the
Exchange Act.
"Securities Act" means the Securities Act of 1933, as the same may
be amended from time to time.
"Stanfield" means Stanfield Capital Partners LLC and/or one or more
of its related or associated entities.
"Stockholders" has the meaning set forth in the Preamble.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (a) if a corporation, capital stock possessing the voting power under
normal circumstances to elect a majority of the directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof; or (b) if a limited liability company, partnership, association or
other business entity, a majority of the partnership or other similar ownership
interests thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more of the other Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a limited liability company, partnership,
association or other business entity if such Person or Persons shall be
allocated a majority of the gains or losses of such limited liability company,
partnership, association or other business entity or shall be or control (or
have the power to control) a managing director, manager or general partner of
such limited liability company, partnership, association or other business
entity.
"Ten Percent Holder" means, the Beneficial Owner of at least 10% of
the outstanding Common Stock on the Effective Date.
2
"Transfer" has the meaning set forth in Section 2.2 of this Agreement. The terms
"Transferee", "Transferor" "Transferred" and other forms of the word "Transfer"
shall have correlative meanings.
ARTICLE II
RESTRICTIONS ON TRANSFER
2.1 TRANSFERS BINDING UPON TRANSFEREES. The terms of this Agreement
shall be binding upon any Transferee of any Company Shares.
2.2 RESTRICTIONS ON TRANSFER. The following restrictions shall apply
to any Transfer of any of the Company Shares:
(a) If an individual, partnership, limited liability company, firm,
company, association, trust, unincorporated organization or other entity, as
well as any syndicate or group deemed to be a person under Section 14(d)(2) of
the Exchange Act (each a "Person"), shall attempt to transfer in any manner
whatsoever, including by way of sale, transfer, assignment, conveyance or other
disposition, including without limitation by merger, operation of law, bequest
or pursuant to any domestic relations order, whether voluntarily or
involuntarily, other than a sale, transfer, assignment, conveyance or other
disposition to the Company, any of the Company Shares (any such transfer or
assignment being a "Transfer"), (provided, however, that a transaction that is a
pledge shall not be deemed a Transfer, but a foreclosure pursuant thereto shall
be deemed to be a Transfer), then such Transfer shall be void and shall not be
recognized by the Company, except as authorized pursuant to this Section 2.2.
(b) The restrictions contained in this Section 2.2 are for the
purpose of ensuring that the Company is not required to become a Registrant
under the Exchange Act due to the number of Stockholders. In connection
therewith, and to provide for the effective policing of these provisions, a
potential transferor or transferee who proposes to effect a Transfer, prior to
the date of the proposed Transfer, must submit a request in writing (a
"Request") that the Company review the proposed Transfer and authorize or not
authorize the proposed Transfer. A Request shall be mailed or delivered to the
attention of the Chief Executive Officer and the General Counsel of the Company
at the Company's principal place of business or telecopied to the Company's
telecopier number at its principal place of business. Such Request shall be
deemed to have been delivered when actually received by the Company. A Request
shall include (i) the name, address and telephone number of the proposed
transferee, (ii) a description of the interest proposed to be Transferred by the
proposed transferee, (iii) the date on which the proposed Transfer is expected
to take place, (iv) the name of the proposed transferor of the interest to be
Transferred, (v) the percentage of the proposed transferor's Company Shares to
be Transferred and (vi) a Request that the Company authorize, if appropriate,
the Transfer and inform the proposed transferor and transferee of its
determination regarding the proposed Transfer. Each such Request shall be
reviewed, on behalf of the Company, by the Company's General Counsel or, if the
Company does not have a General Counsel at the time of such Request, by the
Chief Executive Officer of the Company (such reviewing executive hereinafter
referred to as the "Reviewer"). Subject to subparagraph (c) hereof, the Reviewer
shall conclusively determine whether to authorize or reject the proposed
Transfer, and shall promptly, and in any event within thirty (30) days after
receipt of (i) a properly completed Request and (ii)
3
any additional information the Reviewer may request pursuant to Section 2.2(c),
inform the proposed transferee or transferor making the Request of such
determination.
(c) Notwithstanding anything to the contrary set forth in this
Section 2.2, the Reviewer shall authorize (i) any proposed Transfer by a
Stockholder of the Company to another Stockholder of the Company, and (ii) any
proposed Transfer of all of the Company Shares owned by the proposed transferor
to a Person who is treated as a single record holder under the Exchange Act. The
Reviewer shall reject any proposed Transfer that the Reviewer determines in good
faith could cause the Company to be required to become a Registrant under the
Exchange Act due to the number of Stockholders. For the avoidance of doubt, the
Reviewer shall address requests for Transfers contemplated in the order in which
the Requests are received. In deciding whether to approve any proposed Transfer,
the Reviewer may seek the advice of outside counsel to the Company and may
request all relevant additional information from the proposed Transferor and/or
the Transferee necessary to make her or his determination. The Reviewer may rely
in good faith upon any advice so provided and on information provided in the
Request or pursuant to this Section 2.2(c).
(d) Any Transfer attempted to be made in violation of this Section
2.2 will be null and void. The proposed transferee shall not be entitled to any
rights of stockholders of the Company, including, but not limited to, the rights
to vote or to receive dividends and liquidating distributions, with respect to
the Company Shares that were the subject of such attempted Transfer.
(e) In addition to any remedies available to the Company under
applicable law or in equity, after learning of a Transfer not in compliance with
this Section 2.2, the Company shall demand the immediate surrender, or cause to
be immediately surrendered, to the Company, all certificates representing the
Company Shares that were the subject of such attempted transfer, or any proceeds
received upon a sale of such Company Shares, and any dividends or other
distributions made after such noncompliant transfer with respect to such Company
Shares, if any. Any such surrendered certificates shall be destroyed. If any
such certificates are not immediately surrendered, the Company shall cancel such
certificates, or cause such certificates to be cancelled, on the stock transfer
records and other records of the Company. Any shares attempted to be transferred
pursuant to a destroyed or cancelled certificate shall continue to be registered
in the name of the purported Transferor. Nothing in this subparagraph (e) shall
be deemed inconsistent with the Transfer of such securities being deemed null
and void pursuant to subparagraph (d) hereof.
(f) The Company may require, as a condition precedent to the
registration of the Transfer of any of the Company Shares or the payment of any
distribution on any of the Company Shares, that the proposed transferor and
transferee or payee furnish to the Company all information reasonably requested
by the Company with respect to all the direct or indirect ownership interests in
such Company Shares. The Company may make such arrangements or issue such
instructions to its stock transfer agent as may be determined by the Chief
Executive Officer under the direction of the Board of Directors to be necessary
or advisable to implement this Section 2.2, including, without limitation,
instructing the transfer agent not to register any Transfer of Company Shares on
the Company's stock transfer records if it has knowledge that such Transfer is
prohibited by this Section 2.2, and/or authorizing such transfer agent to
require
4
an affidavit from a transferee or transferor regarding such Person's ownership
of Company Shares and other evidence that a Transfer will not be prohibited by
this Section 2.2, as a condition to registering any Transfer.
(g) Nothing contained in this Section 2.2 shall limit the authority
of the Company, its executive officers or the Board of Directors to take such
other action to the extent permitted by law as it deems necessary or advisable
to ensure that the Company is not required to become a Registrant under the
Exchange Act due to the number of Stockholders.
(h) The provisions of this Section 2.2 shall terminate upon the
earliest of (i) any Public Offering of Common Stock, (ii) the filing by the
Company of a registration statement pursuant to Section 12(g) of the Exchange
Act, and (iii) such time as the Board of Directors determines that the
provisions of this Section 2.2 are no longer necessary for the preservation of
the Company's status as a non-reporting company under the Exchange Act.
(i) This Section 2.2 shall not apply to the Transfer of any Common
Stock offered and sold by a Stockholder in conjunction with a Public Offering.
Upon completion of a Public Offering, the holder of any certificate representing
any Common Stock offered or sold in conjunction with such Public Offering shall
be entitled to receive from the Company, without expense, new securities of like
tenor not bearing either of the legends required under Section 2.5.
2.3 AGREEMENT TO BECOME PARTY; INVALID TRANSFERS. No Stockholder may
Transfer any Company Shares unless, prior to the consummation thereof, such
Stockholder delivers to the Company a counterpart or joinder of this Agreement
executed by the Transferee of such Company Shares.
2.4 ISSUANCE OF NEW COMPANY SHARES. Prior to any issuance of Company
Shares (other than pursuant to a Public Offering) to any Person who is not
already a Stockholder, the Company shall cause such Person to execute and agree
to deliver to the Company a counterpart or joinder of this Agreement.
2.5 LEGENDS. (a) Each certificate evidencing Company Shares subject
to the terms hereof and each certificate issued in exchange for or upon the
Transfer of any such Company Shares shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND OTHER OBLIGATIONS SET FORTH IN
THE STOCKHOLDERS AGREEMENT, DATED AS OF [-], 2005, AS THE SAME MAY
BE AMENDED OR MODIFIED FROM TIME TO TIME, AMONG THE ISSUER OF THESE
SECURITIES (THE "COMPANY") AND ITS STOCKHOLDERS. A COPY OF SUCH
STOCKHOLDERS AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE
COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
5
Subject to the prior approval of the Board of Directors, the holder of any
certificate representing Company Shares and bearing such legend shall be
entitled to receive from the Company, without expense, new securities of like
tenor not bearing the legend set forth above.
(b) In addition, each certificate evidencing Company Shares issued to a Ten
Percent Holder shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT
BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED
OR QUALIFIED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH REGISTRATION OR QUALIFICATION IS NOT
REQUIRED."
A holder of a certificate representing shares of Company Shares and bearing
such legend shall be entitled to have a new certificate issued without such
legend upon delivery to the Company of an opinion of counsel reasonably
acceptable to the Company to the effect that such legend is no longer required
to ensure compliance with the Securities Act.
ARTICLE III
INFORMATION RIGHTS AND CONFIDENTIALITY
3.1 INFORMATION RIGHTS. After the end of each fiscal year, the
Company shall provide to each Stockholder that shall request such information in
writing (so long as such information may be provided by the Company without
unreasonable effort or expense), an audited balance sheet of the Company as of
the end of such fiscal year, and an audited statement of income and statement of
cash flows of the Company for such year, in each case prepared in accordance
with generally accepted accounting principles and setting forth in comparative
form the figures for the previous fiscal year, all in reasonable detail, and
audited by the Company's independent public accountants.
3.2 CONFIDENTIALITY. Each Stockholder agrees to use commercially
reasonable efforts (equivalent to the efforts such Stockholder applies to
maintaining the confidentiality of its own confidential information) to maintain
as confidential all information regarding the Company and its business provided
to such Stockholder by the Company pursuant to Section 3.1 or otherwise for a
period of two years following receipt thereof, except that such Stockholder may
disclose such information: (a) to its authorized representatives, so long as
such authorized representatives have agreed in writing to comply with the
covenant contained in this Section 3.2; (b) in connection with any Transfer or
proposed Transfer to any bona fide proposed Transferee that has agreed in
writing to comply with the covenant contained in this Section 3.2 (and any such
bona fide proposed Transferee may disclose such information to its authorized
representatives, so long as such authorized representatives have agreed in
writing to comply with
6
the covenant contained in this Section 3.2); (c) as required or requested by any
governmental authority or compelled by any court decree, subpoena or legal or
administrative order or process; (d) in connection with the exercise of any
right or remedy under this Agreement or in connection with any action, claim,
lawsuit, demand, investigation or proceeding to which such Stockholder is a
party before any governmental authority or before any arbitrator or panel of
arbitrators; or (e) that ceases to be confidential through no fault of such
Stockholder.
ARTICLE IV
MISCELLANEOUS
4.1 AMENDMENT AND WAIVER. This Agreement may only be modified or
amended, and the provisions hereof may be waived, by an instrument in writing
signed by the Company and approved by the Board of Directors, provided, however,
that: (a) any amendment, modification or waiver that would adversely affect the
rights or obligations of all Stockholders under Sections 2.2 and 3.1 hereof
shall not be effective without the prior written consent of the holders of at
least 66.6% of all shares of Common Stock then issued and outstanding; (b) any
amendment, modification and waiver that would adversely affect the rights or
obligations of any Stockholder, in its capacity as a Stockholder, without
similarly affecting the rights or obligations hereunder of all Stockholders,
shall not be effective as to such Stockholder without its prior written consent;
and (c) the Company may automatically amend Schedule 1 hereto and may distribute
such amended Schedule 1 to each of the Stockholders upon any change in any
Stockholder's information thereon, such as a change in the Stockholder's notice
information or a change required as a result of a Transfer of Common Stock by a
Stockholder in accordance with this Agreement, or a change required as a result
of the addition of additional Stockholders in accordance with Section 2.3 or
Section 2.4. Any waiver of any provision of this Agreement must be granted in
writing by the party granting such waiver.
4.2 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction, but this Agreement shall be reformed, construed
and enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.
4.3 ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein, this Agreement embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
4.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and permitted assigns and the Stockholders and their
respective successors and permitted assigns, subject to the restrictions on
transfer set forth herein.
7
4.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same Agreement.
4.6 REMEDIES. The Company and the other Stockholders shall be
entitled to enforce their rights under this Agreement specifically, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights existing in their favor. The parties hereto agree and
acknowledge that money damages would not be an adequate remedy for any breach of
the provisions of this Agreement and that the Company and any Stockholder may in
its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief (without posting
a bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement.
4.7 NOTICES. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on the Schedule 1 hereto and to any
subsequent holder of Company Shares subject to this Agreement at such address as
indicated by the Company's records, or at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notices shall be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Company's address
is:
INTERMET Corporation
5445 Corporate Drive
Suite 200
Troy, Michigan 48098
Attn: Chief Executive Officer and General Counsel
4.8 DELIVERY BY FACSIMILE. This Agreement, to the extent signed and
delivered by means of a facsimile machine, shall be treated in all manner and
respects as an original agreement or instrument and shall be considered to have
the same binding legal effect as if it were the original signed version thereof
delivered in person. At the request of any party hereto, each other party hereto
shall reexecute original forms thereof and deliver them to all other parties. No
party hereto shall raise the use of a facsimile machine to deliver a signature
or the fact that any signature or agreement or instrument was transmitted or
communicated through the use of a facsimile machine as a defense to the
formation or enforceability of a contract and each such party forever waives any
such defense.
4.9 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
4.10 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without giving
effect to any choice of law or conflict of law rules or provisions (whether of
the State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Delaware. In
furtherance of the foregoing, the internal law of the State of Delaware shall
control the
8
interpretation and construction of this Agreement, even though under that
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily apply.
4.11 SUBMISSION TO JURISDICTION. The Company and each Stockholder
hereby irrevocably submit to any suit, action or proceeding arising out of or
related to this Agreement to the exclusive jurisdiction of any court of the
State of Delaware located in Wilmington and waive any and all objections to
jurisdiction that they may have under the laws of the State of Delaware or the
United States and any claim or objection that any such court is an inconvenient
forum.
4.12 AGREEMENT BINDING AND ENFORCEABLE. This Agreement shall be
binding on and enforceable by each holder of Common Stock that shall receive
such Common Stock pursuant to the terms of the Plan, to the same extent and with
the same effect as if such holder shall have executed and delivered this
Agreement as of the date hereof, irrespective of whether (a) such holder is a
signatory hereto; (b) such holder's name is set forth on Schedule 1 hereto; and
(c) such holder shall receive the certificate or certificates evidencing such
Common Stock on or after the Effective Date. Upon the written request of the
Company, each holder of Common Stock that is not a signatory to this Agreement
agrees to execute and deliver to the Company a counterpart or joinder to this
Agreement.
9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first above written.
INTERMET CORPORATION
By: ____________________________________
Name:
Title:
[Name of Stockholder]
By: _______________________________________
Name:__________________________________
Title:_________________________________
[Name of Stockholder]
By: _______________________________________
Name:__________________________________
Title:_________________________________
[Name of Stockholder]
By: _______________________________________
Name:__________________________________
Title:_________________________________
[Name of Stockholder]
By: _______________________________________
Name:__________________________________
Title:_________________________________
[Signature Pages to Stockholders Agreement]
10
SCHEDULE 1
STOCKHOLDERS
NAME AND ADDRESS SHARES OF
OF STOCKHOLDER COMMON STOCK
- ---------------- ------------
ANNEX "B"
Summary of the Terms and Conditions
of the Registration Rights Agreement
The Registration Rights Agreement shall provide, among other things, that:
(i) within sixty days after the date on which Reorganized Intermet shall
receive a written request, signed by either of the Initial Committed Purchasers,
pursuant to which such Initial Committed Purchaser shall request that
Reorganized Intermet register the resale of the shares of New Common Stock held
by such Initial Committed Purchaser under the Securities Act of 1933, as amended
(the "Securities Act"), Reorganized Intermet shall prepare and file, and shall
use its reasonable best efforts to have declared effective within sixty days
thereafter, a registration statement under the Securities Act for the offering
on a continuous basis pursuant to Rule 415 of the Securities Act, of the shares
of New Common Stock held by such Initial Committed Purchaser (the "Shelf
Registration"); and
(ii) Reorganized Intermet shall keep the Shelf Registration effective for
a period ending on the earlier of (a) the date that is the two-year anniversary
of the date upon which such registration statement is declared effective by the
Securities and Exchange Commission (the "SEC"), (b) the date such Registrable
Securities have been disposed of pursuant to an effective registration
statement, (c) the date such Registrable Securities have been disposed of (1)
pursuant to and in accordance with SEC Rule 144 (or any similar provision then
in force) under the Securities Act or (2) pursuant to another exemption from the
registration requirements of the Securities Act pursuant to which the
Registrable Securities are thereafter freely tradeable without restriction under
the Securities Act, (d) the date such Registrable Securities may be disposed of
pursuant to SEC Rule 144 (or any similar provision then in force) within the
volume limitations thereunder within a 90 day period or pursuant to SEC Rule
144(k) (or any similar provision then in force) under the Securities Act or (e)
such Registrable Securities cease to be outstanding.
The Registration Rights Agreement shall include such other provisions,
including provisions relating to indemnification and contribution and the
payment by Reorganized Intermet of the fees and expenses incurred by the Initial
Committed Purchasers, customarily included in registration rights agreements
entered into in connection with similar financings.
The Registration Rights Agreement shall also provide that any person
holding more than 10% of the outstanding New Common Stock on the Effective Date
shall be entitled to piggy-back registration rights.
ANNEX "C"
Key Employee Rights Offering
Name of Key Number of Shares
Employee of New Common Stock
- --------------------------------------- -------------------
Those persons who upon consummation of 181,249*
the Plan, shall be entitled to receive
stay bonuses under the Intermet Amended
and Restated Employee Retention Plan,
dated effective September 20, 2004 and
restated December 8, 2004 and are
classified as Tier I Participants or
Tier II Participants
* To the extent that the KERP Shares exercised by TIER I participants plus the
KERP Shares exercised by the TIER II participants is less than 181,249, such
TIER I participants and such TIER II participants may purchase the KERP Shares
that have not otherwise been exercised on a pro rata basis based upon the KERP
payment which would otherwise be due to such participant. In no event will more
than 181,249 shares be issued.