AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 2006
NO. 333-117214 to 333-117214-14
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
POST-EFFECTIVE AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
NEENAH FOUNDRY COMPANY
(Exact name of registrant as specified in its charter)
WISCONSIN 3320 39-1580331
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
2121 BROOKS AVENUE
P.O. BOX 729
NEENAH, WISCONSIN 54957
(920) 725-7000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
WILLIAM M. BARRETT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEENAH FOUNDRY COMPANY
2121 BROOKS AVENUE
P.O. BOX 729
NEENAH, WISCONSIN 54957
(920) 725-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO
AGENT FOR SERVICE, SHOULD BE SENT TO:
BRUCE DAVIDSON, ESQ.
JOSEPH D MASTERSON, ESQ.
QUARLES & BRADY LLP
411 E. WISCONSIN AVENUE
MILWAUKEE, WI. 53202
(414) 255-5115
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Post-Effective Amendment to this
Registration Statement becomes effective.
---------------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
(1) See inside facing page for table of additional Registrants.
ADDITIONAL REGISTRANTS
ADVANCED CAST PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 3320 25-1607691
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
DALTON CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 3320 35-0259770
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
DALTON CORPORATION,
WARSAW MANUFACTURING FACILITY
(Exact name of registrant as specified in its charter)
INDIANA 3320 35-2054775
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
DALTON CORPORATION,
STRYKER MACHINING FACILITY CO.
(Exact name of registrant as specified in its charter)
OHIO 3599 34-1873080
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
DALTON CORPORATION,
ASHLAND MANUFACTURING FACILITY
(Exact name of registrant as specified in its charter)
OHIO 3320 34-1873079
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
DALTON CORPORATION,
KENDALLVILLE MANUFACTURING FACILITY
(Exact name of registrant as specified in its charter)
INDIANA 3320 35-2054777
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
DEETER FOUNDRY, INC.
(Exact name of registrant as specified in its charter)
NEBRASKA 3320 47-0355148
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
GREGG INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 3320 95-1498664
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
MERCER FORGE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 3462 25-1511711
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
A&M SPECIALTIES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 3599 25-1741756
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
NEENAH TRANSPORT, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 4213 39-1378433
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
CAST ALLOYS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 3365 33-0071223
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
BELCHER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 3321 52-1643193
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
PEERLESS CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 3321 52-1644462
(State or other jurisdiction of (Primary Standard Industrial (I.R.S Employer
incorporation or organization) Classification Code Number) Identification No.)
PROSPECTUS
$100,000,000
NEENAH FOUNDRY COMPANY
13% SENIOR SUBORDINATED NOTES DUE 2013
This prospectus relates to the offer and sale from time to time by each of
the selling noteholders identified in this prospectus of up to $100,000,000
aggregate principal amount at maturity of 13% Senior Subordinated Notes due 2013
issued by Neenah Foundry Company. We will not receive any of the proceeds from
the sale of the Notes being sold by the selling Noteholders.
The Notes are being registered to permit the selling Noteholders to sell
the securities from time to time to the public. The selling Noteholders may sell
the Notes through ordinary brokerage transactions or through any other means
described in the section entitled "Plan of Distribution." We do not know when or
in what amounts a selling Noteholder may offer securities for sale. The selling
Noteholders may sell any, all or none of the Notes offered by this prospectus.
- The Notes were issued on October 8, 2003, in an aggregate principal
amount of $100,000,000.
- Interest on the Notes is payable 5% in cash and 8% interest may be
deferred and in effect paid-in-kind.
- Interest on the Notes is payable semi-annually on January 1 and July
1, commencing July 1, 2004.
- The Notes mature on September 30, 2013.
- The Notes are subordinate to our credit facility and to our 11%
Senior Secured Notes due 2010.
- We are not required to make regularly scheduled mandatory redemption
or sinking fund payments with respect to the Notes.
- We may redeem all or a part of the Notes from time to time in part
at any time, at our option, at 100% of the principal amount
outstanding, plus accrued and unpaid interest, plus a redemption
premium if the Notes are redeemed during any 12-month period
beginning September 30 that is prior to September 30, 2006.
We have not listed and do not intend to list the Notes on any exchange. We
can not assure you that an active trading market for the Notes will develop.
FOR A DISCUSSION OF SPECIFIC RISKS YOU SHOULD CONSIDER, SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Prospectus dated ________, 2006.
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THE SELLING NOTEHOLDERS ARE OFFERING TO SELL, AND
SEEKING OFFERS TO BUY, THE NOTES ONLY IN JURISDICTIONS WHERE OFFERS AND SALES
ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS
OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE NOTES.
TABLE OF CONTENTS
Disclosure Regarding Forward-Looking Statements................................................
Prospectus Summary............................................................................. 1
Summary Description of the Notes............................................................... 3
Ratio of Earnings to Fixed Charges............................................................. 5
Risk Factors................................................................................... 5
The Refinancing Transactions................................................................... 14
Use of Proceeds................................................................................ 16
Capitalization................................................................................. 16
Selected Consolidated Financial Data........................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 18
Business....................................................................................... 30
Management..................................................................................... 44
Selling Noteholders............................................................................ 53
Certain Relationships and Related Transactions................................................. 54
Security Ownership and Certain Beneficial Owners............................................... 55
Description of New Credit Facility............................................................. 57
Description of the Notes....................................................................... 60
Book-Entry; Delivery and Form..................................................................
Securities Eligible for Future Sale............................................................ 102
Plan of Distribution........................................................................... 103
Experts........................................................................................ 105
Available Information.......................................................................... 105
Index to Financial Statements.................................................................. F-1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this
prospectus, including, without limitation, statements regarding our future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking statements.
In addition, forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may", "will", "should", "could",
"expect", "intend", "estimate", "anticipate", "believe" or "continue", "plan",
"potential", "predicts" or the negative thereof or variations thereon or similar
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors that may cause our actual results, levels
of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by any forward-looking statements. These risks and uncertainties
include, but are not limited to, the following:
- general economic and business conditions, both nationally and in
those areas in which we operate;
- competition;
- changes in our business strategy or plans;
- changes in exchange rates;
- the loss of any of our management or key personnel;
- changes in our policy regarding interest rate and currency
movements;
- the availability and cost of raw materials; and
- the availability of capital and trade credit to fund our business.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.
Important factors that could cause actual results to differ materially
from our expectations, or "cautionary statements," are disclosed under "Risk
Factors" and elsewhere in this prospectus, including, without limitation, in
conjunction with the forward-looking statements included in this prospectus. All
subsequent written and oral forward-looking statements attributable to us, or
persons acting on our behalf, are expressly qualified in their entirety by the
cautionary statements. Unless required by law, we do not undertake any duty to
update any of the forward-looking statements after the date of this prospectus
to conform these statements to actual results.
PROSPECTUS SUMMARY
The following summary contains basic information about us and highlights
selected information from the prospectus. It likely does not contain all the
information that is important to you. Because it is a summary, it does not
contain all the information that you should consider before purchasing any
Notes. We encourage you to read this entire document and the documents to which
we have referred you. As used in this prospectus, except as the context
otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to
Neenah Foundry Company and its subsidiaries, collectively and individually, as
appropriate from the context.
OUR COMPANY
We manufacture and market a wide range of metal castings and forgings for
the heavy municipal market and selected segments of the industrial markets. We
sell our products throughout the continental United States and believe that we
are one of the largest manufacturers of heavy municipal iron castings in the
United States.
We have two reportable segments, Castings and Forgings. The Castings
segment produces iron and other metal castings for use in heavy municipal and
industrial applications. This segment sells directly to original equipment
manufacturers and to industrial end users. The forgings segment, operated by
Mercer Forge Corporation, hereinafter referred to as Mercer, produces
complex-shaped forged components for use in transportation, railroad, mining and
heavy industrial applications. Mercer also produces microalloy forgings. Mercer
sells directly to original equipment manufacturers, as well as to industrial end
users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and
castings for Mercer and other industrial applications.
Neenah Foundry Company, which we refer to hereafter as Neenah, a
wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP
Holding Company, which we refer to hereafter respectively as NFC and ACP, is a
corporation organized under the laws of the State of Wisconsin and is the
operating subsidiary of NFC and ACP. The principal executive offices of Neenah
are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number
is (920) 725-7000.
RECENT REORGANIZATION
On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries
filed voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code, as amended, with the United States Bankruptcy Court for the
District of Delaware. By order dated September 26, 2003, which we refer to as
the "Effective Date," the Bankruptcy Court confirmed our Amended Prepackaged
Joint Plan of Reorganization, which we refer to as the Plan of Reorganization.
The Plan of Reorganization resulted in significant changes to our capital
structure. Among other things, the Plan of Reorganization provided for the
repayment in full of our old credit facility, the cancellation of $282.0 million
in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the
elimination of the interests of the former equity owners of our indirect parent
company, ACP. The cash proceeds necessary to consummate the Plan of
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Reorganization were provided from the consummation of the New Credit Facility
and the issuance of the Notes.
In connection with the Plan of Reorganization we conducted a rights
offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0
million face amount of 11% Senior Secured Notes due 2010, and certain purchasers
with a standby commitment purchased approximately $7.0 million face amount of
11% Senior Secured Notes due 2010.
We also issued $100.0 million in aggregate principal amount of the Notes
to the holders of the 11 1/8% Notes in partial satisfaction of their claims
against us.
See "The Refinancing Transactions."
- 2 -
SUMMARY DESCRIPTION OF THE NOTES
Issuer................................... Neenah Foundry Company
Securities Offered....................... Up to $100,000,000 principal amount of 13% Senior Subordinated upto
Notes due 2013, or any lesser amount owned by the selling noteholders
identified herein.
Maturity................................. September 30, 2013
Interest Rate............................ 13% (of which 8% may be paid in kind) per year (calculated
using a 360-day year).
Interest Payment......................... Five percent of the interest will be paid in cash and 8% interest
may be paid-in-kind.
Interest Payment Dates................... Each January 1 and July 1.
Guarantees............................... All of our domestic subsidiaries have unconditionally guaranteed
the Notes on a senior secured basis. If we cannot make payments
required by the Notes, our guarantor subsidiaries must make
them. The guarantees may be released under certain
circumstances.
Ranking.................................. The Notes rank senior to all of our subordinated unsecured
indebtedness and subordinate to the New Credit Facility and our
11% Senior Secured Notes due 2010. As of December 31, 2005,
we estimate that we and our subsidiaries had approximately $51.2
million of senior secured debt outstanding under the New Credit
Facility excluding approximately $40.9 million that, subject to
certain limitations, we have available to borrow under our New
Credit Facility. Any amounts drawn under our New Credit
Facility, together with our $133,100,000 principal amount of 11%
Senior Secured Notes due 2010, will rank senior to the Notes.
See "Description of New Credit Facility."
Optional Redemption...................... At our option, from time to time we may redeem some or all of
the Notes at the redemption prices listed in the "Description of
Notes" section under the heading "Optional Redemption" plus
accrued and unpaid interest.
Change Of Control Offer.................. If a change in control of our company occurs, we must, subject
to certain conditions, give holders the opportunity to sell their Notes
to us at 101% of their face amount plus accrued and unpaid
interest.
We might not be able to pay the required price for Notes
presented to us at the time of a change of control because:
- we might not have enough funds at the time; or
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- the terms of our New Credit Facility may prevent us from paying.
Asset Sale Proceeds...................... If we or our subsidiaries engage in asset sales, we generally must
first prepay debt under our New Credit Facility, then make an
offer to purchase a principal amount of the 11% Senior Secured
Notes due 2010 and the Notes equal to the excess net cash
proceeds. The purchase price of the Notes will be 100% of their
principal amount plus accrued and unpaid interest.
Certain Indenture Provisions............. The indenture governing the Notes contains covenants that,
among other things, limit our and our subsidiaries' ability to:
- incur additional debt;
- pay dividends or distributions on our capital
stock or repurchase our capital stock;
- issue preferred stock of subsidiaries;
- make certain investments;
- create liens on our assets to secure debt;
- enter into transactions with affiliates;
- merge or consolidate with another company;
- enter into sale and leaseback transactions;
- transfer and sell assets; and
- enter into certain lines of business.
These covenants are subject to a number of important limitations
and exceptions. See "Description of the Notes -- Certain
Covenants."
Risk Factors............................. See "Risk Factors" for a description of some of the risks you
should consider before investing in the Notes.
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RATIO OF EARNINGS TO FIXED CHARGES
REORGANIZED PREDECESSOR
----------------------- -----------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ----------- ------------
Earnings to fixed charges calculation (1)
Income (loss) from continuing operations before income taxes.. $ 18,504 $ 7,495 $ (31,411) $ (11,870) $ (17,133)
Fixed charges................................................. 34,392 34,392 48,407 44,515 44,380
---------- ---------- ---------- ----------- ------------
$ 52,896 $ 41,887 $ 16,996 $ 32,645 $ 27,247
========== ========== ========== =========== ============
Fixed charges:
Interest expense.............................................. $ 33,419 $ 33,392 $ 47,445 $ 43,466 $ 43,454
Interest portion of rent expense.............................. 973 1,000 962 1,049 926
---------- ---------- ---------- ----------- ------------
$ 34,392 $ 34,392 $ 48,407 $ 44,515 $ 44,380
========== ========== ========== =========== ============
Ratio of earning to fixed charges............................. 1.54 1.22 0.35(2) 0.73(2) 0.61(2)
- ------------
(1) For purposes of the computation, the ratio of earnings to fixed charges
has been calculated by dividing (a) income from continuing operations
before income taxes plus fixed charges by (b) fixed charges. Fixed charges
are equal to interest expense plus the portion of the rent expense
estimated to represent interest
(2) Earnings were insufficient to cover fixed charges for the years ended
September 30, 2001, 2002 and 2003 by $17.1 million, $11.9 million, and
$31.4 million, respectively.
RISK FACTORS
You should consider carefully all of the information in this prospectus,
including the following risk factors and warnings, before deciding whether to
make an investment in the Notes.
RISKS RELATING TO OUR INDEBTEDNESS
OUR SUBSTANTIAL INDEBTEDNESS MAY LIMIT CASH FLOW AVAILABLE TO INVEST IN
THE ONGOING NEEDS OF OUR BUSINESS TO GENERATE FUTURE CASH FLOW AND MAKE
PAYMENTS ON THE NOTES.
- 5 -
Our outstanding debt at December 31, 2005 was approximately $276.4
million. We may also incur additional debt from time to time to finance working
capital, capital expenditures and other general corporate purposes. Subject to
certain limitations, we had $40.9 million available to borrow under our New
Credit Facility as of December 31, 2005. See "Description of New Credit
Facility." The aggregate of our annual cash interest payments on our outstanding
debt is approximately $31.2 million. If the interest rate of our revolving
credit facility rose by 1%, our annual interest payments would increase by
approximately $0.5 million. Our substantial indebtedness could have important
consequences to holders of the Notes. For example, it could:
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
- increase the amount of interest expense that we have to pay because
certain of our borrowings are at variable rates of interest, which,
if interest rates increase, could result in higher interest expense;
- limit our flexibility in planning for, or reacting to, changes in
our business or the industry in which we operate; or
- place us at a competitive disadvantage compared to our competitors
that have less debt.
If any of these events took place, we would have less money available to
make payments on the Notes.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Liquidity and Capital Resources -- Contractual
Obligations and Commercial Commitments."
LENDERS UNDER OUR NEW CREDIT FACILITY AND HOLDERS OF OUR 11% SENIOR
SECURED NOTES DUE 2010 WILL HAVE PRIORITY OVER THE HOLDERS OF THE NOTES IN
AN ACTION TO COLLECT AMOUNTS DUE ON OUR DEBT.
The Notes and subsidiary guarantees are not secured our assets. Our
obligations under our credit facility are secured by, among other things, a
first priority pledge of all of our capital stock, mortgages upon most of the
real property that we own in the United States and by substantially all of our
assets and each of our existing and subsequently acquired or organized material
domestic subsidiaries, and our 11% Senior Secured Notes due 2010 are secured by
those assets on a subordinated basis. If we become insolvent or are liquidated,
or if payment under our credit facility or in respect of any other secured
indebtedness that is senior to the Notes is accelerated, the lenders under our
credit facility or holders of other secured senior indebtedness will be entitled
to exercise the remedies available to a secured lender under applicable law in
addition to any remedies that may be available under documents pertaining to our
credit facility or the other senior debt. Upon the occurrence of any default
under the New Credit Facility or the 11% Senior Secured Notes due 2010, the
lenders may be able to prohibit the payment of the Notes and subsidiary
guarantees either by limiting our ability to access our cash flow or under
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the subordination provisions contained in the security documents in respect of
the Notes. In addition, in the event of any distribution or payment of our
assets in any bankruptcy, liquidation or distribution or similar proceeding,
holders of liens securing the Credit Agreement and the 11% Senior Secured
Notes due 2010 will be paid before the liens securing the Notes. Both the liens
securing the Credit Agreement and the liens securing the 11% Senior Secured
Notes due 2010 will be satisfied before payment is made on the Notes. If any of
these events occur, there may not be sufficient assets to pay amounts due on the
Notes. Holders of the Notes may therefore receive less, ratably, than holders of
the liens securing the Credit Agreement and the 11% Senior Secured Notes due
2010.
UPON A CHANGE OF CONTROL OF OUR COMPANY, WE MAY HAVE INSUFFICIENT FUNDS
AND BE UNABLE TO RAISE THE FUNDS NECESSARY TO FINANCE THE OFFER TO
REPURCHASE THE NOTES AS THE INDENTURE GOVERNING THE NOTES REQUIRES.
If certain specific kinds of change of control events occur, we will be
required to offer to repurchase all outstanding Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest to the date of repurchase. It
is possible, however, that we will not have sufficient funds at the time of the
change of control to make the required repurchase of the Notes or that
restrictions in our New Credit Facility will not allow those repurchases.
The source of funds for that purchase of Notes will be our available cash
or cash generated from our subsidiaries' operations or other sources, including
borrowing, sales of assets or sales of equity. We may have insufficient funds at
the time of any change of control to make the required repurchases of Notes
tendered. In addition, the terms of our New Credit Facility limit our ability to
repurchase the Notes. Our future debt agreements may contain similar
restrictions and provisions. If the holders of the Notes exercise their right to
require us to repurchase all of the Notes upon a change of control, the
financial effect of this repurchase could cause a default under our other debt,
even if the change of control itself would not cause a default. Accordingly, it
is possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of Notes or that restrictions in our New
Credit Facility and the indentures governing the Notes and our 11% Senior
Secured Notes due 2010 will not allow such repurchases. See "Description of
Notes -- Change of Control" and "Description of New Credit Facility" for
additional information.
BECAUSE FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC
CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN
PAYMENTS RECEIVED FROM GUARANTORS, WE MAY BE UNABLE TO MAKE PAYMENTS ON
THE NOTES.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
- received less than reasonably equivalent value or fair consideration
for the incurrence of such guarantee; and
- 7 -
- was insolvent or rendered insolvent by reason of such incurrence; or
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred.
Generally, however, a guarantor would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets; or
- if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities as they become
absolute and mature; or
- it could not pay its debts as they become due.
A court reviewing the guarantees of the Notes or any payment received by a
guarantor could void one or more guarantees based on these factors. If this
occurred and the court required us to return payments received from guarantors,
we may have insufficient funds to make payments on the Notes.
OUR FAILURE TO COMPLY WITH THE COVENANTS IN OUR NEW CREDIT FACILITY MAY
IMPACT OUR ABILITY TO MAKE PAYMENTS ON THE NOTES.
The terms and conditions of the indenture governing the Notes and our New
Credit Facility impose restrictions that limit, among other things, our ability
to:
- incur additional indebtedness;
- create liens on assets;
- sell assets;
- engage in mergers or consolidations;
- make acquisitions and investments;
- 8 -
- engage in certain transactions with affiliates; and
- make dividends, payments and certain other distributions.
In addition, our New Credit Facility requires us to maintain specified
financial ratios and satisfy certain financial condition tests that may require
that we take action to reduce our debt or to act in a manner contrary to our
business objectives. Events beyond our control, including changes in general
economic and business conditions, may affect our ability to meet those financial
ratios and financial condition tests. We may not meet those tests and the
lenders under the New Credit Facility may not waive any failure to meet those
tests. A breach of any of these covenants would result in a default under our
New Credit Facility and the indenture. If an event of default under our New
Credit Facility occurs, the lenders could elect to declare all amounts
outstanding thereunder, together with accrued interest, to be immediately due
and payable. In such an event, we may not have sufficient assets to pay amounts
due on the Notes. As a result, you may receive less than the full amount you
would be otherwise entitled to receive on the Notes. See "Description of New
Credit Facility" and "Description of Notes" for additional information.
RISKS RELATED TO THE OFFERING
SERVICING OUR DEBT REQUIRES A SIGNIFICANT AMOUNT OF CASH, AND OUR ABILITY
TO GENERATE SUFFICIENT CASH DEPENDS UPON MANY FACTORS, SOME OF WHICH ARE
BEYOND OUR CONTROL.
Our ability to make payments on and refinance our debt and to fund planned
capital expenditures depends on our ability to generate cash flow in the future.
To some extent, this is subject to general economic, financial, competitive,
legislative and regulatory factors and other factors that are beyond our
control. We may be unable to continue to generate cash flow from operations at
current levels. If we are unable to generate sufficient cash flow from
operations in the future to service our debt, we may have to refinance all or a
portion of our existing debt or obtain additional financing. The inability to
obtain additional financing could have a material adverse effect on our
financial condition and on our ability to meet our obligations to you under the
Notes.
RISK FACTORS RELATED TO THE COMPANY
A RELATIVELY SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION
OF OUR REVENUES, THE LOSS OF ONE OR MORE OF THEM COULD ADVERSELY AFFECT
OUR NET SALES.
Our industrial customer base is highly concentrated. A few large customers
generate a significant amount of our net sales.
- Sales to our largest customer accounted for approximately 9% of our
total net sales for the fiscal year ended September 30, 2005.
- 9 -
- Sales to our top five customers accounted for approximately 32% of
our total net sales for the fiscal year ended September 30, 2005.
The loss of one or more of such customers, therefore, could adversely
affect our net sales.
DECREASES IN DEMAND FOR HEAVY TRUCKS, HVAC EQUIPMENT, CONSTRUCTION OR FARM
EQUIPMENT COULD HAVE A SIGNIFICANT IMPACT ON OUR PROFITABILITY, CASH FLOW
AND ABILITY TO SERVICE OUR INDEBTEDNESS.
Our company has historically experienced moderate to severe cyclicality in
most of our markets, including the truck and farm equipment markets. A decrease
in the demand in these markets was a factor that led to our bankruptcy filing.
These major markets will likely continue to experience such fluctuations. A
downturn in one or more of these markets could reduce demand for, and prices of,
our products. Such a downturn in one or more of these major markets could have a
significant negative impact on our profitability, cash flow and ability to
service our indebtedness. Historically, our heavy municipal business has been
less cyclical than our industrial markets.
OUR MARKET SHARE MAY BE ADVERSELY IMPACTED AT ANY TIME BY A SIGNIFICANT
NUMBER OF COMPETITORS.
The markets in which we compete are highly competitive and the foundry
industry has significant excess capacity. Significantly increased foreign
competition was a factor that led to our bankruptcy filing. We may be unable to
maintain or improve our competitive position in the markets in which we compete.
Competition is based mostly on price, but also on quality of product, range of
capability, level of service and reliability of delivery. We compete with
numerous foreign and domestic foundries. We also compete with several large
domestic manufacturers whose products are made with materials other than ductile
and gray iron, such as steel or aluminum. Industry consolidation over the past
20 years has significantly reduced the number of foundries operating in the
United States. While such consolidation has translated into greater market share
for the remaining foundries, some of these remaining foundries have
significantly greater financial resources than we do. Price competition was a
factor that led to our bankruptcy filing. Furthermore, despite the reduction in
the number of operating foundries, lack of demand for castings and forgings
means that the industry remains plagued by overcapacity. Such overcapacity
contributed to our bankruptcy filing. Any of these factors could impede our
ability to remain competitive in the markets in which we operate.
INTERNATIONAL ECONOMIC AND POLITICAL FACTORS COULD AFFECT DEMAND FOR
IMPORTS AND EXPORTS WHICH COULD IMPACT OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Our operations may be affected by actions of foreign governments and
global or regional economic developments. Global economic events, such as
foreign import/export policy, the cost of complying with environmental
regulations or currency fluctuations, could also affect the level of U.S.
imports and exports, thereby affecting our sales. Foreign subsidies, foreign
trade agreements and each country's adherence to the terms of such agreements
can raise or lower demand for castings by us and other domestic foundries.
National and international boycotts and
- 10 -
embargoes of other countries' or U.S. imports and/or exports together with the
raising or lowering of tariff rates could affect the level of competition
between us and our foreign competitors. Fluctuations in the value of the U.S.
dollar relative to other currencies could also raise or lower demand for U.S.
exports as well as U.S. demand for foreign produced raw materials and finished
good imports, thereby impacting the markets in which we operate. Such actions or
developments could have a material adverse effect on our business, financial
condition and results of operations.
INCREASES IN THE PRICE OF RAW MATERIALS COULD REDUCE OUR GROSS PROFIT.
The cost of raw materials represents a significant portion of our
operating expenses. As a result of domestic and international events, the prices
of raw materials fluctuate. We have single-source arrangements with many of the
suppliers for the major raw materials that we use. Our inability to continue
making such purchases or the failure of these single-source arrangements to
result in the most highly competitive prices for raw material could increase our
cost of sales and lower our gross profit.
Furthermore, of all the varying prices of raw material, fluctuations in
the price of scrap metal impact our business the most. Although we have
arrangements with most of our industrial customers that enable us to adjust
industrial casting prices to reflect scrap price fluctuations, these adjustments
lag the current price of scrap metal during periods of rapidly rising or falling
scrap metal prices because these adjustments are generally based on average
market prices for prior periods. Thus, our profitability could be negatively
impacted if we are unable to pass along increases in the price of scrap metal to
our customers effectively.
THE DEPARTURE OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR OPERATIONS.
The success of our business depends upon our senior management closely
supervising all aspects of our business. We believe our senior management has
technological and manufacturing experience that is important to the metal
casting and forging business. The loss of such key personnel could have a
material adverse effect on our operations if we were unable to attract and
retain qualified replacements.
THE SEASONAL NATURE OF OUR BUSINESS COULD IMPACT OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Our business is seasonal. Therefore, our quarterly revenues and profits
historically have been lower during the first and second fiscal quarters of the
year (October through March) and higher during the third and fourth fiscal
quarters (April through September). In addition, our working capital
requirements fluctuate throughout the year. Adverse market or operating
conditions during any seasonal part of the fiscal year could have a material
adverse effect on our business, financial condition and results of operations.
WE FACE THE RISK OF WORK STOPPAGES OR OTHER LABOR DISRUPTIONS THAT COULD
IMPACT OUR RESULTS OF OPERATIONS NEGATIVELY.
- 11 -
We could experience work stoppages or other labor disruptions. If this
were to occur we may not be able to satisfy our customers' orders on a timely
basis. Our operations could be adversely affected if any such event were to
occur.
THE NATURE OF OUR BUSINESS EXPOSES US TO LIABILITY FOR VIOLATIONS OF
ENVIRONMENTAL REGULATIONS.
The risk of environmental liability is inherent in the manufacturing of
casting and forging products. Changes in environmental laws and regulations or
the discovery of previously unknown contamination or other liabilities relating
to our properties and operations could require us to sustain significant
environmental liabilities which could make it difficult to pay the interest or
principal amount of the Notes when due. In addition, we might incur significant
capital and other costs to comply with increasingly stringent emission control
laws and enforcement policies which could decrease our cash flow available to
service our indebtedness. Costs associated with complying with environmental and
other regulations was a factor in our bankruptcy filing. See "Business --
Environmental and Other Regulatory Matters."
OUR ABILITY TO GENERATE CASH NECESSARY TO MAKE PAYMENTS ON THE NOTES
DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to pay the principal of and interest on the New Credit
Facility and the Notes and to finance additional indebtedness when necessary
depends on our financial and operating performance, each of which is subject to
prevailing global and national economic conditions and to financial, business,
legislative, emerging third world competitors and regulatory factors as well as
other factors beyond our control.
We may be unable to generate sufficient cash flow from operations or
obtain sufficient funding to satisfy all of our debt obligations. If we are
unable to pay our debts, we will be required to pursue one or more alternative
strategies, including refinancing or restructuring indebtedness or selling
additional debt or equity securities. In addition, the ability to borrow funds
under the New Credit Facility in the future will depend on our meeting the
financial covenants set forth under the terms of the New Credit Facility and the
indentures governing the Notes and our 11% Senior Secured Notes due 2010, which
include substantial covenants and restrictions. If our business is unable to
generate sufficient cash flow from operations and future borrowings are
unavailable under the New Credit Facility in amounts sufficient to enable us to
meet our debt obligations or fund other liquidity needs, we may need to
refinance all or a portion of our debt on or before maturity. This could
negatively impact our company by hindering us from growing our business or
restricting our ability to make payments on the Notes.
FAILURE TO RAISE NECESSARY CAPITAL COULD RESTRICT OUR ABILITY TO OPERATE
AND FURTHER DEVELOP OUR BUSINESS.
Our capital resources may be insufficient to enable us to maintain
operating profitability. Failure to generate or raise sufficient funds may
require us to delay or abandon some expansion plans or expenditures, which could
harm our business and competitive position.
- 12 -
We expect to meet funding needs through various sources, including
existing cash balances, existing lines of credit, and cash flow from future
operations. Excluding the future cost of complying with MACT, the maximum
achievable control technology standards of the Environmental Protection Agency,
estimates of our aggregate expenditure requirements include the projected costs
of:
- approximately $17 million to $20.0 million annually from 2006
through 2007 primarily for necessary maintenance capital
expenditures and selected strategic capital investments required to
maintain optimum operating efficiencies; and
- funds required for general corporate, other expenses and additional
funds for working capital fluctuations.
We may choose to meet any additional financial needs by borrowing
additional funds under the New Credit Facility or from other sources. As of
December 31, 2005, subject to certain limitations, we had $40.9 million
available to borrow under our New Credit Facility. See "Description of New
Credit Facility." Our ability to issue debt securities, borrow funds from
additional lenders and participate in vendor financing programs will be
restricted under the terms of the New Credit Facility and the indentures
governing the Notes and our 11% Senior Secured Notes due 2010. Furthermore, the
lenders may not waive these restrictions if additional financing is needed
beyond that which is currently permitted. If we cannot raise additional funding
we may not be able to make payments on the Notes.
TERRORIST ATTACKS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, OUR
ABILITY TO RAISE CAPITAL OR OUR FUTURE GROWTH.
The impact that terrorist attacks, such as those carried out on September
11, 2001, may have on our industry in general, and on us in particular, is
unknown at this time. Such attacks, and the uncertainty surrounding them, may
impact our operations in unpredictable ways, including disruptions of rail
lines, highways and fuel supplies and the possibility that our facilities could
be direct targets of, or indirect casualties of, an act of terror. In addition,
war or risk of war may also have an adverse effect on the economy. A decline in
economic activity could adversely affect our revenues or restrict our future
growth. Instability in the financial markets as a result of terrorism or war
could also affect our ability to raise capital. Such attacks may lead to
increased volatility in fuel costs and availability and could affect the results
of operations. In addition, the insurance premiums charged for some or all of
the coverages we currently maintain could increase dramatically, or the
coverages could be unavailable in the future.
BECAUSE OF THE PLAN OF REORGANIZATION, OUR FINANCIAL INFORMATION AFTER
OCTOBER 1, 2003 IS NOT COMPARABLE TO OUR FINANCIAL INFORMATION PRIOR
THERETO.
As a result of the consummation of the Plan of Reorganization, we are
operating our business under a new capital structure. In addition, we are
subject to the fresh-start reporting rules. Fresh-start reporting requires that,
upon our emergence from Chapter 11 proceedings, we establish a "fair value"
basis for the carrying value of the assets and liabilities of our reorganized
company. Although the effective date of the Plan of Reorganization was October
8, 2003, hereinafter
- 13 -
referred to as the Effective Date, due to the immateriality of the results of
operations for the period between October 1, 2003 and the Effective Date, we
accounted for the consummation of the Plan of Reorganization as if it had
occurred on October 1, 2003 and implemented fresh-start reporting as of that
date. Accordingly, our financial condition and results of operations after
October 1, 2003, the initial date of fresh-start reporting, is not comparable to
the financial condition or results of operations reflected in the historical
financial statements contained in this prospectus. See "Selected Consolidated
Financial Data" and the financial statements and related footnotes attached
hereto.
THE REFINANCING TRANSACTIONS
In connection with the Plan of Reorganization and concurrently with the
issuance of the Notes, we consummated the following refinancing transactions:
REPAYMENT OF OLD CREDIT FACILITY
We paid in full our obligations under the old credit facility (including
accrued interest) of $148.2 million.
CANCELLATION OF SENIOR SUBORDINATED NOTES AND ISSUANCE OF THE NOTES
All of our outstanding 11 1/8% Notes (including accrued interest) were
cancelled in exchange for:
- $30.0 million in cash,
- $100.0 million in aggregate principal amount of the Notes and
- 38 million shares of common stock of ACP. Each of the holders of the
11 1/8% Notes was also offered the opportunity to purchase its pro
rata share of the Notes offered hereby and warrants to acquire up to
34.2 million shares of the common stock of ACP.
We issued $100.0 million in aggregate principal amount of the Notes to the
holders of the 11 1/8% Notes in partial satisfaction of the claims against us.
The Notes are contractually subordinated to the New Credit Facility, the 11%
Senior Secured Notes due 2010 and the liens and guarantees thereof.
CANCELLATION OF PIK NOTE AND ISSUANCE OF THE 11% SENIOR SECURED NOTES
Our 14% senior secured paid-in-kind note in an original aggregate
principal amount of $9.9 million (plus accrued and unpaid interest thereon), or
PIK Note, was cancelled in exchange for:
- 11% Senior Secured Notes due 2010 with a principal amount equal to
$13.134 million and warrants to acquire 3.8 million shares of common
stock of ACP and
- cash in the amount of $45,400.
- 14 -
We conducted a rights offering, whereby holders of the 11 1/8% Notes were
given the opportunity to provide, for cash, up to $110.0 million of financing
through the purchase of up to $119.996 million face amount of the 11% Senior
Secured Notes due 2010 and warrants to acquire up to 34.2 million shares of
common stock of ACP. In case holders of the 11 1/8% Notes failed to subscribe
for the full $110.0 million of the 11% Notes for cash, we also obtained standby
commitment agreements from Mackay Shields LLC, Exis Differential Holdings Ltd.,
Citicorp Mezzanine III, L.P., Trust Company of the West and Metropolitan Life
Insurance Company whereby these Standby Purchasers collectively agreed to
provide up to the full $110.0 million of financing for the Plan of
Reorganization by participating in the rights offering (to the extent that they
were holders of the 11 1/8% Notes) as well as purchasing any and all
unsubscribed securities not subscribed for cash by the other holders of 11 1/8%
Notes. Approximately 94% of the holders of the 11 1/8% Notes participated in the
rights offering, purchasing approximately $113.0 million face amount of 11%
Notes for approximately $103.6 million in cash. The Standby Purchasers were,
therefore, only required to purchase the remaining unsubscribed amount of
approximately $7.0 million face amount of 11% Senior Secured Notes due 2010 for
approximately $6.4 million. The Standby Purchasers also purchased their pro rata
portion of the 11% Notes.
CONSUMMATION OF NEW CREDIT FACILITY
We entered into the New Credit Facility with a syndicate of financial
institutions for which Fleet Capital Corporation acts as agent, Fleet
Securities, Inc. acts as arranger, Congress Financial Corporation (Central) acts
individually and as syndication agent and General Electric Capital Corporation
acts individually and as documentation agent. The New Credit Facility, as
amended on July 28, 2005, matures on October 8, 2009 and provides for a term
loan (originally $22.085 million, of which approximately $16.6 million remained
outstanding as of September 30, 2005) and a revolving credit facility (with a
$5.0 million sublimit for the issuance of letters of credit) for borrowings of
up to $92.1 million. Availability under the revolver is a function of our
eligible receivables and inventory. As of December 31, 2005, we had $15.8
million of term loans outstanding and $35.4 million drawn on our revolver. Based
on the formulas under the New Credit Facility, the maximum amount available for
borrowing as of December 31, 2005 was $76.3 million. The New Credit Facility
limits the amount of additional debt that we can incur. See "Description of New
Credit Facility."
ISSUANCE OF NEW ACP HOLDINGS COMMON STOCK
We issued 38 million shares of common stock in ACP Holding Company to the
holders of the 11 1/8% Notes and 4 million shares to certain members of our
management. One million of the shares vested immediately upon issuance.
One-third of the remaining unvested shares of each member of management who
received shares shall vest on a cumulative basis on each anniversary of the
Effective Date, if as of such date such member of management is still in our
employ.
ISSUANCE OF WARRANTS EXERCISABLE FOR COMMON STOCK OF ACP
- 15 -
Our ultimate parent company, ACP, issued warrants exercisable for 38
million shares of its common stock to the holders of the 11 1/8% Notes who
participated in the rights offering, the Standby Purchasers and Citicorp
Mezzanine III, L.P., the holder of the PIK Note.
USE OF PROCEEDS
All of the Notes offered by this prospectus are being offered for sale by
the selling noteholders. We will not receive any portion of the net proceeds of
this offering.
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of December 31, 2005. The terms of our Plan of
Reorganization are described below in the section captioned "Business --
Bankruptcy Proceedings." This table should be read in conjunction with our
consolidated financial statements and the related notes to the consolidated
financial statements included elsewhere in this prospectus. All amounts are
presented in thousands.
As of
December 31,
2005
-------------
(in thousands)
Cash and cash equivalents..................................... $ --
==============
Debt:
Senior Bank Facility:
Revolver................................................. $ 35,425
Term facilities.......................................... 15,775
11% Senior Secured Notes due 2010, net of discount
of $7,525................................................... 125,003
13% Senior Subordinated Notes due 2013...................... 100,000
Capital lease obligations................................... 174
--------------
Total debt.................................................. 276,377
Total stockholder's equity.................................... 18,073
--------------
Total capitalization.......................................... $ 294,450
==============
SELECTED CONSOLIDATED FINANCIAL DATA
On August 5, 2003, ACP, NFC, Neenah and their domestic wholly-owned
domestic subsidiaries filed for bankruptcy protection and emerged therefrom on
October 8, 2003. Although the Plan of Reorganization became effective on October
8, 2003, due to the immateriality of the results of operations for the period
between October 1, 2003 and the Effective Date, for financial reporting purposes
we recorded the fresh-start adjustments necessitated by the American Institute
of Certified Public Accountants Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code," ("SOP 90-7") on
October 1, 2003.
As a result of our emergence from Chapter 11 bankruptcy and the
application of fresh-start reporting, our consolidated financial statements for
the periods commencing on October 1, 2003 will be referred to as the
"Reorganized Company" and will not be comparable with any periods prior to
October 1, 2003, which are referred to as the "Predecessor Company" (see Note 1
to our consolidated financial statements). All references to years ended
September 30, 2003, 2002 and
- 16 -
2001 are to the Predecessor Company. All references to the periods subsequent to
October 1, 2003 are to the Reorganized Company.
The following table presents our selected historical consolidated
financial data as of and for the years ended September 30, 2001, 2002, 2003,
2004 and 2005 which were derived from our audited financial statements. The
historical consolidated financial data should be read in conjunction with the
financial statements and the related notes and other information contained
elsewhere in this prospectus, including the information set forth under the
headings "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." All amounts are presented in
thousands.
REORGANIZED PREDECESSOR
-------------------- ----------------------------------------
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
2005 2004 2003(3) 2002(2)(3) 2001(1)(2)(3)
--------- ---------- -------- ---------- -------------
STATEMENT OF OPERATIONS DATA:
Net sales ......................................................... $ 541,772 $ 450,942 $ 375,063 $ 387,707 $ 398,782
Cost of sales ..................................................... 440,818 375,124 321,834 323,740 335,264
--------- --------- --------- --------- ---------
Gross profit ...................................................... 100,954 75,818 53,229 63,967 63,518
Selling, general and administrative expenses ...................... 34,467 27,374 26,132 28,743 27,587
Litigation settlement ............................................. 6,500 -- -- -- --
Amortization expense .............................................. 7,124 7,121 3,819 3,829 10,489
Provision for impairment of assets ................................ -- -- -- 74 --
Other expenses (income) ........................................... 953 465 195 544 (434)
--------- --------- --------- --------- ---------
Operating income .................................................. 51,910 40,858 23,083 30,777 25,876
Interest expense, net ............................................. 33,406 33,363 46,620 42,647 43,009
Reorganization expense ............................................ -- -- 7,874 -- --
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before income taxes ...... 18,504 7,495 (31,411) (11,870) (17,133)
Provision (credit) for income taxes ............................... 3,409 3,881 (8,541) (5,917) (4,004)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations .......................... 15,095 3,614 (22,870) (5,953) (13,129)
Loss from discontinued operations, net of income taxes ............ -- (359) (1,095) (41,750) (4,325)
Gain (loss) on sale of discontinued operations, net of income taxes -- -- (1,596) -- 2,404
--------- --------- --------- --------- ---------
Net income (loss) ................................................. $ 15,095 $ 3,255 $ (25,561) $ (47,703) $ (15,050)
========= ========= ========= ========= =========
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ......................................... $ 3,484 $ -- $ 24,356 $ 26,164 $ 4,346
Working capital ................................................... 62,937 49,918 102,866 65,050 72,140
Total assets ...................................................... 412,555 407,440 536,834 569,388 626,443
Total debt ........................................................ 271,754 283,801 439,357 451,432 434,077
Total stockholder's equity (deficit) .............................. 17,353 8,784 (39,016) (12,146) 41,939
- ---------------------------
(1) On October 2, 2000, we sold all of the issued and outstanding shares of
common stock of Hartley Controls Corporation. The results of the
operations of Hartley Controls Corporation have been reported separately
as discontinued operations for all periods presented.
(2) During the year ended September 30, 2002, we discontinued the operations
of Cast Alloys. The results of Cast Alloys have been reported separately
as discontinued operations for all periods presented.
(3) During the year ended September 30, 2003, we sold substantially all of the
assets of Belcher Corporation. The results of Belcher Corporation have
been reported separately as discontinued operations for all periods
presented.
- 17 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Due to the Company's emergence from its Chapter 11 proceedings on October
8, 2003, the Company has implemented the "fresh start" accounting provisions of
AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code," ("SOP 90-7") to its financial
statements. Fresh start requires that, upon the Company's emergence, the Company
establish a "fair value" basis for the carrying value of the assets and
liabilities for the reorganized Company. Although the effective date of the Plan
of Reorganization was October 8, 2003, due to the immateriality of the results
of operations for the period between October 1, 2003 and the effective date, the
Company accounted for the consummation of the Plan of Reorganization as if it
had occurred on October 1, 2003 and implemented fresh start accounting as of
that date.
RECENT DEVELOPMENTS
Exploration of Potential Sale Transaction. On July 29, 2005, Neenah and
ACP announced that Citigroup Global Markets Inc. had been engaged to assist in
exploring the potential sale or merger of Neenah or ACP or a significant portion
of their assets or capital stock. On November 29, 2005, Neenah announced that
its board of directors, which is also the board of directors of ACP, had
unanimously voted to end the sale or merger process and turn the Company's focus
to successfully implementing the Company's business plan. The Company's business
plan recognizes a consolidating market and is intended to position the Company
for growth by expanding its revenues and further penetrating existing markets
that are already being served. It also involves exploring other strategic
alternatives that would have the effect of reducing costs and expanding capacity
in selected markets.
RESULTS OF OPERATIONS
We derive substantially all of our revenue from manufacturing and
marketing a wide range of metal castings and forgings for the heavy municipal
market and selected segments of the industrial markets. We have two reportable
segments, Castings and Forgings. The Castings segment is a leading producer of
iron castings for use in heavy municipal and industrial applications. This
segment sells directly to original equipment manufacturers, hereinafter referred
to as OEMs, as well as to industrial end users. The forgings segment, operated
by Mercer, is a producer of complex-shaped forged components for use in
transportation, railroad, mining and heavy industrial applications. Mercer is
also a producer of microalloy forgings. Mercer sells directly to OEMs, as well
as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines
forgings and castings for Mercer and other industrial applications.
Restructuring charges and certain other expenses, such as income taxes, general
corporate expenses and financing costs, are not allocated between our two
operating segments.
BANKRUPTCY PROCEEDINGS
On August 5, 2003, we, together with ACP and NFC filed voluntary petitions
for relief under Chapter 11 of the United States Bankruptcy Code, as amended,
with the United States Bankruptcy Court for the District of Delaware and
submitted to the Bankruptcy Court for
- 18 -
approval the Disclosure Statement for our Amended Prepackaged Joint Chapter 11
Plan of Reorganization, which we call the Plan of Reorganization.
By order dated September 26, 2003, the Bankruptcy Court confirmed the Plan
of Reorganization and the Plan of Reorganization became effective on October 8,
2003. October 8, 2003 is hereinafter referred to as the "Effective Date". The
Plan of Reorganization allowed us to emerge from bankruptcy with an improved
capital structure. Because we had arranged to continue paying our trade debt on
a timely basis, we had sufficient trade credit to continue operations in the
ordinary course of business during the pendency of the Chapter 11 proceedings.
On the Effective Date, we entered into a new senior credit facility. See
"Liquidity and Capital Resources - Credit Facility" below for further
discussion.
The Plan of Reorganization resulted in significant changes to our capital
structure. Among other things, the Plan of Reorganization provided for the
repayment in full of our old credit facility, the cancellation of $282.0 million
in principal amount of 11 1/8% Notes, the cancellation of the PIK Note
(originally issued to Citicorp Mezzanine III, L.P. by our indirect parent
company, ACP) and the elimination of the interests of the former equity owners
of ACP. The cash proceeds necessary to consummate the Plan of Reorganization
were provided from the consummation of the New Credit Facility and the issuance
of the 11% Senior Secured Notes (the "11% Notes"). The claims and interests of
our various creditors were satisfied as follows:
- - our old credit facility was repaid in cash;
- - the PIK Note was cancelled and Citicorp Mezzanine III, L.P., the holder of
that note, received 11% Notes with a principal amount equal to $13.134
million, warrants to acquire 3.8 million shares of common stock of ACP and
cash in the amount of $45,400;
- - our outstanding 11 1/8% Notes were cancelled and each holder of 11 1/8%
Notes received its pro rata share of (i) $30.0 million in cash, (ii)
$100.0 million in aggregate principal amount of Notes, (iii) 38 million
shares of common stock of ACP and (iv) rights to acquire for $110 million
in cash in the aggregate, units for up to $119.996 million face amount of
11% Notes and warrants to acquire up to 34.2 million shares of common
stock of ACP;
- - the following debt and equity instruments were cancelled without further
consideration: 12% senior subordinated notes issued by ACP, 12% senior
subordinated notes issued by NFC and all equity interests of ACP; and
- - the following claims and equity interests passed through our Chapter 11
bankruptcy proceedings unimpaired: all tax claims, intercompany debt,
other secured debt and general unsecured debt and the equity interests of
ACP in NFC, equity interests of NFC in Neenah and equity interests of
Neenah in its direct and indirect subsidiaries.
As a result of the Plan of Reorganization, significant changes resulted to
our capital structure. Although the Plan of Reorganization became effective on
October 8, 2003, due to the
- 19 -
immateriality of the results of operations for the period between October 1,
2003 and the Effective Date, for financial reporting purposes we recorded the
fresh-start adjustments necessitated by SOP 90-7 on October 1, 2003.
Reorganization value is defined by SOP 90-7 as "the fair value of the
entity before considering liabilities and approximates the amount a willing
buyer would pay for the assets of the entity immediately after the
restructuring." Our reorganization value was $290 million and was determined
based on the consideration of many factors and by reliance on various valuation
techniques, including comparable company analysis and discounted cash flow
analyses.
As a result of our emergence from Chapter 11 bankruptcy and the
application of fresh-start reporting, our consolidated financial statements for
the periods commencing on October 1, 2003 are referred to as the "Reorganized
Company" and are not comparable with any periods prior to October 1, 2003, which
are referred to as the "Predecessor Company" (see Note 1 in the Notes to
Consolidated Financial Statements). All references to years ended September 30,
2003, 2002, and 2001 are to the Predecessor Company. All references to the
periods subsequent to October 1, 2003 are to the Reorganized Company.
REORGANIZED COMPANY FISCAL YEAR ENDED SEPTEMBER 30, 2005 COMPARED TO THE
REORGANIZED COMPANY FISCAL YEAR ENDED SEPTEMBER 30, 2004
Net Sales. Net sales for the year ended September 30, 2005 were $541.8
million, which was $90.9 million or 20.2% higher than the year ended September
30, 2004. The increase was due to increased demand for industrial castings used
in the heavy duty truck market, increased shipments of municipal products,
higher pricing (including steel scrap cost recovery) on both industrial and
construction castings, and new business at all locations.
Gross Profit. Gross profit was $101.0 million for the year ended September
30, 2005, which was $25.2 million or 33.2% higher than the year ended September
30, 2004. Gross profit as a percentage of net sales increased to 18.6% during
the year ended September 30, 2005 from 16.8% for the fiscal year ended September
30, 2004. The majority of the increase in gross profit resulted from sales
volume increases and the efficiencies achieved by operating the manufacturing
plants at higher capacity.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended September 30, 2005 were $34.5
million, an increase of $7.1 million from the $27.4 million for the year ended
September 30, 2004. As a percentage of net sales, selling, general and
administrative expenses increased to 6.4% for the year ended September 30, 2005
from 6.1% for the fiscal year ended September 30, 2004. The increase was due to
increased expense for incentive plans based on improved profitability, the
writeoff of a large accounts receivable balance of a customer who filed for
Chapter 11 bankruptcy protection, a decrease in the rebate received from
countervailing duties assessed on imported products, and increases in fringe
benefit costs, specifically health care. Also, legal and professional costs
increased in comparison to the prior year; however, the prior year cost level
was abnormally low due to the majority of the 2004 legal and professional fees
related to the bankruptcy reorganization, which were recorded in fresh start
accounting.
- 20 -
Settlement of Litigation. On November 22, 2004, Neenah entered into a
letter of intent ("LOI") with respect to a proposed management buyout of all the
outstanding stock of our wholly owned subsidiary Mercer Forge Corporation
("Mercer"). The parties to the LOI, however, were unable to agree on the terms
of a definitive agreement by the extended termination date of the LOI, which had
lapsed. The long-lived assets of Mercer were classified as held for use as of
September 30, 2004 and continue to be so classified. On January 24, 2005, JD
Holdings, LLC ("JDH"), one of the counterparties to the LOI, filed a complaint
in the United States District Court for the Southern District of New York
against Neenah alleging, among other things, that Neenah breached the terms of
the LOI by not consummating the sale of the stock of Mercer to JDH. The
complaint sought an order of specific performance of the LOI or, in the
alternative, no less than $35 million in damages and, in either case, an order
temporarily, preliminarily and permanently restraining Neenah from transferring
the stock of Mercer to any third party.
Neenah answered the complaint, denying the material allegations thereof,
and filed a counterclaim against JDH alleging breach of the LOI and seeking
damages for the costs associated with the negotiation of the potential
transaction. The parties agreed to mediate this dispute and the litigation was
stayed pending the outcome of the mediation and of follow-on settlement
discussions.
On August 5, 2005, the parties agreed to settle this matter. The
settlement provided for a $6.5 million cash payment by the Company to JDH and
the exchange of full and final releases by the parties on behalf of themselves
and their respective members, officers, directors, affiliates and shareholders.
Each party dismissed with prejudice the claims pending against the other in the
Southern District of New York. The entry into the settlement, and the consequent
avoidance of the costs and distractions of continued litigation, as well as of
the uncertainty associated with the judicial process, was deemed to be in the
best interests of the Company.
Amortization of Intangible Assets. Amortization of intangible assets was
$7.1 million for each of the years ended September 30, 2005 and September 30,
2004.
Other Expenses. Other expenses for the years ended September 30, 2005 and
2004 consist of losses of $1.0 million and $0.5 million, respectively, for the
disposal of long-lived assets in the ordinary course of business.
Operating Income. Operating income was $51.9 million for the year ended
September 30, 2005, an increase of $11.1 million or 27.1% from the year ended
September 30, 2004. The increase was caused by the reasons discussed above under
gross profit and was partially offset by the $6.5 million litigation settlement
and increased selling, general and administrative expenses. As a percentage of
net sales, operating income increased from 9.1% for the year ended September 30,
2004 to 9.6% for the year ended September 30, 2005.
Net Interest Expense. Net interest expense was $33.4 million for each of
the years ended September 30, 2005 and 2004.
- 21 -
Provision for Income Taxes. The provision for income taxes for the year
ended September 30, 2005 is lower than the amount computed by applying our
statutory rate of 35% to the income before income taxes principally due to a
change in the tax method of determining LIFO inventory and the recognition of
permanent differences due to the reorganization. The change in tax method of
determining LIFO inventory resulted in a tax benefit of $2.7 million, which
increased fiscal 2005 net income by $2.7 million.
REORGANIZED COMPANY FISCAL YEAR ENDED SEPTEMBER 30, 2004 COMPARED TO THE
PREDECESSOR COMPANY FISCAL YEAR ENDED SEPTEMBER 30, 2003
Net Sales. Net sales for the year ended September 30, 2004 were $450.9
million, which was $75.8 million or 20.2% higher than the year ended September
30, 2003. Approximately $34.8 million, which represents 46% of the total
increase in net sales, was due to the increased cost of steel scrap charged to
customers. Most of the remainder of the increase was due to significantly
increased demand for industrial castings used in the heavy duty truck market and
lesser increases in construction, agricultural and municipal products. New
business at all locations also contributed to sales growth.
Gross Profit. Gross profit was $75.8 million for the year ended September
30, 2004, which was $22.6 million or 42.4% higher than the year ended September
30, 2003. Gross profit as a percentage of net sales increased to 16.8% during
the year ended September 30, 2004 from 14.2% for the fiscal year ended September
30, 2003. The increase in gross profit resulted from sales volume increases and
the efficiencies achieved by operating the manufacturing plants at higher
capacity. This increase was partially offset by an approximately $3.3 million
increase in scrap metal costs which had not yet been recovered from customers.
These increased scrap metal costs are recovered on a delayed basis from the
Company's industrial customers and require a general price increase to recover
the costs from municipal customers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended September 30, 2004 were $27.4
million, an increase of $1.3 million from the $26.1 million for the year ended
September 30, 2003. As a percentage of net sales, selling, general and
administrative expenses decreased to 6.1% for the year ended September 30, 2004
from 7.0% for the fiscal year ended September 30, 2003. The percentage decrease
was due to relatively stable selling, general and administrative expenses spread
across a larger sales volume.
Amortization of Intangible Assets. Amortization of intangible assets for
the year ended September 30, 2004 was $7.1 million, an increase of $3.3 million
from the $3.8 million for the year ended September 30, 2003. The increase was
due to the increase in amortizable identifiable intangible assets resulting from
applying fresh start accounting as discussed in Note 1 in the Notes to
Consolidated Financial Statements.
Other Expenses. Other expenses for the years ended September 30, 2004 and
2003 consist of losses of $0.5 million and $0.2 million, respectively, for the
disposal of long-lived assets in the ordinary course of business.
Operating Income. Operating income was $40.9 million for the year ended
September 30, 2004, an increase of $17.8 million or 77.0% from the year ended
September 30, 2003. The
- 22 -
increase was caused by the reasons discussed above under gross profit and was
partially offset by slightly higher selling, general and administrative
expenses. As a percentage of net sales, operating income increased from 6.2% for
the year ended September 30, 2003 to 9.1% for the year ended September 30, 2004.
Net Interest Expense. Net interest expense decreased to $33.4 million for
the year ended September 30, 2004 from $46.6 million for the year ended
September 30, 2003. The decreased interest expense resulted from the reduction
in borrowing due to the reorganization discussed in Note 1 in the Notes to
Consolidated Financial Statements.
Reorganization Expense. We recorded $7.9 million of reorganization
expenses in 2003 which related to professional fees incurred in connection with
the restructuring of our company and our filing for Chapter 11 bankruptcy
protection as well as the write-off of debt issuance costs and premiums related
to the 11 1/8% Notes.
Provision for Income Taxes. The provision for income taxes for the year
ended September 30, 2004 is higher than the amount computed by applying our
statutory rate of 35% to the income before income taxes principally due to state
income taxes and the loss of benefit on fiscal year 2004's net operating losses
due to the reorganization.
Loss from Discontinued Operations. During December 2002, we sold
substantially all of the assets of Belcher. The disposition of Belcher resulted
in a loss of $1.6 million net of income taxes, which we recognized in the year
ended September 30, 2003. In accordance with the provisions of Statement of
Financial Accounting Standards No. 144, or SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," the results of operations for
Belcher have been reported as discontinued operations in the consolidated
statements of operations for all periods presented.
LIQUIDITY AND CAPITAL RESOURCES
New Credit Facility. On July 28, 2005, the Company amended its bank Loan
and Security Agreement (the "New Credit Facility"), which was originally entered
into as of October 8, 2003 upon our emergence from bankruptcy. The following
principal changes were made to the New Credit Facility: (i) the revolving loan
commitment under the New Credit Facility was increased from $70 million to $92.1
million (provided, however, that the outstanding aggregate amount of revolving
loans, letters of credit and term loans provided under the New Credit Facility
may not exceed the revolving loan commitment at any time), (ii) the interest
rates applicable to revolving loans and term loans were reduced, (iii) the
maturity of the New Credit Facility was extended by one year, to October 8, 2009
(iv) the Company was provided additional flexibility to pay deferrable interest
on its outstanding 13% Senior Subordinated Notes due 2013 and to make
repayments, prepayments, redemptions and repurchases of the Senior Subordinated
Notes, (v) the Company was authorized to sell Mercer Forge Corporation and/or
Gregg Industries, Inc., subject to certain conditions, and (vi) the principal
financial covenant in the New Credit Facility was revised in a manner that is
more favorable to the Company than before.
- 23 -
The Company's New Credit Facility, as amended on July 28, 2005, consists
of a revolving credit facility of up to $92.1 million (with a $5 million
sublimit available for letters of credit and term loans in the aggregate
original principal amount of $22.1 million). The New Credit Facility matures on
October 8, 2009, and bears interest at rates based on the lenders' Base Rate, as
defined in the New Credit Facility, or an adjusted rate based on LIBOR.
Availability under the New Credit Facility is based on various advance rates
against the Company's accounts receivable and inventory. Amounts under the
revolving credit facility may be borrowed, repaid and reborrowed subject to the
terms of the facility. At September 30, 2005, the Company had approximately
$30.5 million outstanding under the revolving credit facility and approximately
$16.6 million outstanding under the term loan facility. No portion of the term
loan, once repaid, may be reborrowed.
Substantially all of the Company's wholly owned subsidiaries are
co-borrowers with the Company under the New Credit Facility and are jointly and
severally liable with the Company for all obligations under the New Credit
Facility, subject to customary exceptions for transactions of this type. In
addition, NFC Castings, Inc. ("NFC"), the Company's immediate parent, and the
remaining wholly owned subsidiaries of the Company jointly and severally
guarantee the Company's obligations under the New Credit Facility, subject to
customary exceptions for transactions of this type. The borrowers' and
guarantors' obligations under the New Credit Facility are secured by a first
priority perfected security interest, subject to customary restrictions, in
substantially all of the tangible and intangible assets of the Company and its
subsidiaries. The senior secured notes discussed below, and the guarantees in
respect thereof, are equal in right of payment to the New Credit Facility, and
the guarantees in respect thereof. The liens in respect of the senior secured
notes are junior to the liens securing the New Credit Facility and guarantees
thereof.
Voluntary prepayments may be made at any time on the term loan borrowings
or the revolving borrowings upon customary prior notice. Prepayments on the term
loan borrowings may be made at any time without premium or penalty unless a
simultaneous reduction of the revolving loan commitment amount is being made or
if any such reduction of the revolving loan commitment amount has been made
previously. Reductions of the revolving loan commitment are subject to certain
premiums specified in the New Credit Facility. Mandatory repayments are required
under certain circumstances, including a sale of assets or the issuance of debt
or equity.
The New Credit Facility requires the Company to observe certain customary
conditions, affirmative covenants and negative covenants including financial
covenants. The New Credit Facility also contains events of default customary for
these types of facilities, including, without limitation, payment defaults,
material misrepresentations, covenant defaults, bankruptcy and a change of
ownership of the Company, NFC or ACP Holding Company, NFC's immediate parent
company. The Company is prohibited from paying dividends and is restricted to a
maximum yearly stock repurchase of $250,000.
At September 30, 2005, the Company is in compliance with existing bank
covenants.
Subsequent to the end of fiscal 2005, the Company further amended the New
Credit Facility to allow the $6.5 million settlement in connection with the
Mercer litigation, discussed above, to
- 24 -
be added back in the calculation of Adjusted EBITDA. The amendment was executed
and became effective on December 9, 2005.
11% Senior Secured Notes due 2010. The Company has outstanding Senior
Secured Notes due 2010 in the principal amount of $133.1 million, with a coupon
rate of 11%. These notes were issued at a price which included a discount of
$11.7 million. The obligations under the Senior Secured Notes due 2010 are equal
in right of payment to the Credit Facility and the associated guarantees. The
liens securing the senior secured notes are junior to the liens securing the
Credit Facility and guarantees thereof. Interest on the Senior Secured Notes due
2010 is payable on a semi-annual basis. The Company's obligations under the
notes are guaranteed on a secured basis by each of its wholly owned
subsidiaries. Subject to the restrictions in the Credit Facility, the notes are
redeemable at the Company's option in whole or in part at any time on or after
September 30, 2007, with not less than 30 days nor more than 60 days notice, at
the redemption price specified in the indenture governing the notes (105.500% of
the principal amount redeemed beginning September 30, 2007, 104.125% beginning
September 30, 2008, and 102.750% beginning September 30, 2009 and thereafter),
plus accrued and unpaid interest up to the redemption date. Upon the occurrence
of a "change of control" as defined in the indenture governing the notes, the
Company may be required to make an offer to purchase the secured notes at 101%
of the outstanding principal amount thereof, plus accrued and unpaid interest up
to the purchase date. The secured notes contain customary covenants typical to
this type of financing, such as limitations on (1) indebtedness, (2) restricted
payments (among other things, currently limiting most dividends and similar
payments by Neenah and its subsidiaries to no more than approximately $14
million), (3) liens, (4) restrictions on distributions from restricted
subsidiaries, (5) sale of assets, (6) affiliate transactions, (7) mergers and
consolidations and (8) lines of business. The secured notes also contain
customary events of default typical to this type of financing, such as (1)
failure to pay principal and/or interest when due, (2) failure to observe
covenants, (3) certain events of bankruptcy, (4) the rendering of certain
judgments or (5) the loss of any guarantee.
13% Senior Subordinated Notes due 2013. The Company has outstanding Senior
Subordinated Notes due 2013 in the principal amount of $100 million, with a
coupon rate of 13%. The obligations under the senior subordinated notes are
senior to the Company's subordinated unsecured indebtedness, if any, and are
subordinate to the Credit Facility and the senior secured notes. Interest on the
senior subordinated notes is payable on a semi-annual basis. Not less than five
percent of the interest on the senior subordinated notes must be paid in cash
and up to 8% interest may be paid-in-kind. To date, all interest payments have
been made in cash. The Company's obligations under the notes are guaranteed on
an unsecured basis by each of its wholly owned subsidiaries. Subject to the
restrictions in the Credit Facility, the notes are redeemable at our option in
whole or in part at any time, with not less than 30 days nor more than 60 days
notice, at the redemption price specified in the indenture governing the notes
(currently 101% of the principal amount redeemed, and 100% beginning September
30, 2006 and thereafter), plus accrued and unpaid interest up to the redemption
date. Upon the occurrence of a "change of control" as defined in the indenture
governing the notes, the Company may be required to make an offer to purchase
the subordinated notes at 101% of the outstanding principal amount thereof, plus
accrued and unpaid interest up to the purchase date. The subordinated notes
contain customary covenants typical to this type of financing, such as
limitations on (1) indebtedness, (2) restricted payments (among other things,
currently limiting
- 25 -
most dividends and similar payments by Neenah and its subsidiaries to no more
than approximately $14 million), (3) liens, (4) restrictions on distributions
from restricted subsidiaries, (5) sale of assets, (6) affiliate transactions,
(7) mergers and consolidations and (8) lines of business. The subordinated notes
also contain customary events of default typical to this type of financing, such
as, (1) failure to pay principal and/or interest when due, (2) failure to
observe covenants, (3) certain events of bankruptcy, (4) the rendering of
certain judgments or (5) the loss of any guarantee.
For the fiscal years ended September 30, 2005, 2004 and 2003, capital
expenditures were $17.6 million, $12.7 million and $11.9 million, respectively.
These amounts represent a level of capital expenditures necessary to maintain
equipment and facilities.
The Company's principal source of cash to fund its liquidity needs will be
net cash from operating activities and borrowings under the revolving loan
commitment under the Credit Facility. Net cash provided by operating activities
for the fiscal year ended September 30, 2005 was $33.6 million, an increase of
$30.9 million from cash provided by operating activities for the fiscal year
ended September 30, 2004 of $2.7 million. The increase in net cash provided by
operating activities was primarily due to the increase in net income, as well as
a decrease in working capital accounts (primarily from accounts receivable). Net
cash provided by operating activities for the fiscal year ended September 30,
2004 was $2.7 million, a decrease of $20.3 million from cash provided by
operating activities for the fiscal year ended September 30, 2003 of $23.0
million. The decrease in net cash provided by operating activities was primarily
due to a large increase in the accounts receivable balance proportional to our
increased sales volume. The $23.0 million cash provided by operating activities
for the fiscal year ended September 30, 2003 included an income tax refund that
the Company received in December 2002 of $18.4 million from the carryback of net
operating losses.
Future Capital Needs. Despite our significant decrease in leverage as a
result of the Plan of Reorganization, we are still significantly leveraged and
our ability to meet our debt obligations will depend upon future operating
performance which will be affected by many factors, some of which are beyond our
control. Based on our current level of operations, we anticipate that our
operating cash flows and available credit facilities will be sufficient to fund
our anticipated operational investments, including working capital and capital
expenditure needs, for at least the next twelve months. If, however, we are
unable to service our debt requirements as they become due or are unable to
maintain ongoing compliance with restrictive covenants, we may be forced to
adopt alternative strategies that may include reducing or delaying capital
expenditures, selling assets, restructuring or refinancing indebtedness or
seeking additional equity capital. There can be no assurances that any of these
strategies could be effected on satisfactory terms, if at all.
Adjusted EBITDA. Our borrowing arrangement contains certain financial
covenants which are tied to ratios based on Adjusted EBITDA. Adjusted EBITDA is
defined in the Company's Credit Facility as "EBITDA" and is generally calculated
as the sum of net income (excluding non-recurring non-cash charges and certain
one-time cash charges), income taxes, interest expense, and depreciation and
amortization. Adjusted EBITDA is presented herein because it is a material
component of the covenants contained within the Company's Credit Facility.
Non-compliance with the covenants could result in the requirement to immediately
repay all amounts outstanding under the Credit Facility which could have a
material adverse effect on our results of
- 26 -
operations, financial position and cash flow. Management also believes that
certain investors use information concerning Adjusted EBITDA as a measure of a
company's performance and ability to service its debt. Adjusted EBITDA should
not be considered a substitute for, or more meaningful than, income from
operations, net income, cash flows or other measures of financial performance
prepared in accordance with accounting principles generally accepted in the
United States. Adjusted EBITDA, as presented by the Company, may not be
comparable to similarly titled measures reported by other companies.
A reconciliation of Adjusted EBITDA for the fiscal years ended September
30, 2005 and 2004 is provided below (in thousands):
2005 2004
--------- -------
Net income..................................... $ 15,095 $ 3,255
Income tax provision........................... 3,409 3,881
Net interest expense........................... 33,406 33,363
Depreciation and amortization.................. 18,864 17,992
Loss on disposal of equipment.................. 953 465
Loss from discontinued operations.............. - 359
Neenah non-cash inventory charge............... 242 -
Gregg non-cash inventory charge................ - 1,172
Deeter non-cash inventory charge............... - 624
Gregg write-off of lease deposits.............. 64 -
--------- -------
Adjusted EBITDA (as defined above)............. $ 72,033* $61,111
========= =======
* Adjusted EBITDA for the year ended September 30, 2005 is $6.5 million lower
than it would have been without the $6.5 million litigation settlement paid in
August, 2005. As discussed above, effective December 9, 2005, the Credit
Facility was amended to allow the $6.5 million settlement in connection with the
Mercer litigation to be added back in the calculation of Adjusted EBITDA.
- 27 -
OFF-BALANCE SHEET ARRANGEMENTS
None.
CONTRACTUAL OBLIGATIONS
The following table includes the Company's significant contractual
obligations at September 30, 2005 (in millions):
Expected Payments due by Period
--------------------------------------------
Less More
than than
1 1-3 3-5 5
Total years years Years years
------- ------ ------ ------- ------
Long term debt...................................... $ 241.3 $ 3.2 $ 6.4 $ 131.7 $100.0
Interest on long term debt.......................... 179.6 28.5 56.6 55.5 39.0
Revolving line of credit............................ 30.5 30.5 - - -
Interest and fees on revolving line of credit....... 0.9 0.9 - - -
Operating leases.................................... 6.6 2.0 2.9 1.2 0.5
------- ------ ------ ------- ------
Total contractual obligations....................... $ 458.9 $ 65.1 $ 65.9 $ 188.4 $139.5
======= ====== ====== ======= ======
As of September 30, 2005, the Company had no material purchase obligations
other than those created in the ordinary course of business related to inventory
and property, plant and equipment, which generally have terms of less than 90
days. The Company also has long-term obligations related to its pension and
post-retirement plans which are discussed in detail in Note 9 of the Notes to
Consolidated Financial Statements. As of the most recent actuarial measurement
date, the Company anticipates making $5.1 million of contributions to pension
plans in fiscal 2006. Post-retirement medical claims are paid as they are
submitted and are anticipated to be $0.5 million in fiscal 2006.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those that are, in management's view,
both very important to the portrayal of our financial condition and results of
operations and require management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
Future events and their effects cannot be determined with absolute
certainty. The determination of estimates, therefore, requires the exercise of
judgment. Actual results may differ from those estimates, and such differences
may be material to the financial statements. Our
- 28 -
accounting policies are more fully described in Note 2 in the Notes to
Consolidated Financial Statements.
We believe that the most significant accounting estimates inherent in the
preparation of our financial statements include estimates associated with the
evaluation of the recoverability of certain assets including goodwill, other
intangible assets and property, plant and equipment as well as those estimates
used in the determination of reserves related to the allowance for doubtful
accounts, inventory obsolescence, workers compensation and pensions and other
post-retirement benefits. Various assumptions and other factors underlie the
determination of these significant estimates. In addition to assumptions
regarding general economic conditions, the process of determining significant
estimates is fact-specific and accounts for such factors as historical
experience, product mix and, in some cases, actuarial techniques. We constantly
reevaluate these significant factors and make adjustments where facts and
circumstances necessitate. Historically, our actual results have not
significantly deviated from those determined using the estimates described
above.
We believe the following critical accounting estimates affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:
- - Defined-Benefit Pension Plans. We account for our defined benefit pension
plans in accordance with Statement of Financial Accounting Standards No.
87, "Employers' Accounting for Pensions" ("SFAS 87"), which requires that
amounts recognized in financial statements be determined on an actuarial
basis. The most significant element in determining our pension expense in
accordance with SFAS 87 is the expected return on plan assets. We have
assumed that the expected long-term rate of return on plan assets will be
7.50% to 8.50%, depending on the plan. Over the long term, our pension
plan assets have earned in excess of these rates; therefore, we believe
that our assumption of future returns is reasonable. The plan assets,
however, have earned a rate of return substantially less than these rates
in the last three years. Should this trend continue, our future pension
expense would likely increase. At the measurement date, we determine the
discount rate to be used to discount plan liabilities. In developing this
rate, we use the Moody's Average AA Corporate Bonds index. At the
measurement date of June 30, 2005, we determined the discount rate to be
5.25%. Changes in discount rates over the past few years have not
materially affected our pension expense. The net effect of changes in this
rate, as well as other changes in actuarial assumptions and experience,
have been deferred as allowed by SFAS 87.
- - Other Postretirement Benefits. We provide retiree health benefits to
qualified employees under an unfunded plan. We use various actuarial
assumptions including the discount rate and the expected trend in health
care costs and benefit obligations for our retiree health plan. Consistent
with our pension plans, we used a discount rate of 5.25%. In 2005, our
assumed healthcare cost trend rate was 8.0% decreasing gradually to 5.0%
in 2010 and then remaining at that level thereafter. Changes in these
rates could materially affect our future operating results and net worth.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is exposed to market risk related to changes in interest
rates. The company does not use derivative financial instruments for
speculative or trading purposes.
Interest Rate Sensitivity. The company's earnings are affected by changes
in short-term interest rates as a result of its borrowings under the New Credit
Facility. If market interest rates for such borrowings change by 1%, the
company's interest expense would increase or decrease by approximately $0.5
million. This analysis does not consider the effects of changes in the level of
overall economic activity that could occur due to interest rate changes.
Further, in the event of an upward change of such magnitude, management could
take actions to further mitigate its exposure to the change. However, due to
the uncertainty of the specific actions that would be taken and their possible
effects, the sensitivity analysis assumes no changes in the company's financial
structure.
- 29 -
BUSINESS
Overview
The Company manufactures and markets a wide range of iron castings and
forgings for the heavy municipal market and selected segments of the industrial
markets. Neenah began business in 1872 and has built a strong reputation for
producing quality iron castings. Neenah is one of the largest manufacturers of
heavy municipal iron castings in the United States. Neenah's broad range of
heavy municipal iron castings includes manhole covers and frames, storm sewer
frames and grates, heavy duty airport castings, specialized trench drain
castings, specialty flood control castings and ornamental tree grates. Neenah
sells these municipal castings throughout the United States to state and local
government entities, utility companies, precast concrete manhole structure
producers and contractors for both new construction and infrastructure
replacement. In addition, Neenah is also a leading manufacturer of a wide range
of complex industrial castings, including castings for the transportation
industry, a broad range of castings for the farm equipment industry, and
specific components for compressors used in heating, ventilation and air
conditioning (HVAC) systems.
Background
On April 30, 1997, pursuant to an Agreement and Plan of Reorganization
with NC Merger Company and NFC, Neenah Corporation (the predecessor company) was
acquired by NFC, a holding company and a wholly owned subsidiary of ACP. Prior
to July 1, 1997, Neenah Foundry Company was one of three wholly owned
subsidiaries of Neenah Corporation, a holding company with no significant assets
or operations other than its holdings in the common stock of its three wholly
owned subsidiaries. The other two wholly owned subsidiaries were Neenah
Transport, Inc. and Hartley Controls Corporation, an entity that was later sold.
On July 1, 1997, Neenah Foundry Company merged with and into Neenah Corporation
and the surviving company changed its name to Neenah Foundry Company.
On March 30, 1998, Neenah acquired all the capital stock of Deeter for
$24.3 million. Since 1945, Deeter has been producing gray iron castings for the
heavy municipal market. The municipal casting product line of Deeter includes
manhole frames and covers, storm sewer inlet frames, grates and curbs, trench
grating and tree grates. Deeter also produces a wide variety of special
application construction castings. These products are utilized in waste
treatment plants, airports, telephone and electrical construction projects.
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On April 3, 1998, Neenah acquired all the capital stock of Mercer for
$47.0 million in cash. Founded in 1954, Mercer produces complex-shaped forged
components for use in transportation, railroad, mining and heavy industrial
applications. Mercer is also a producer of microalloy forgings.
On September 8, 1998, Neenah acquired all the capital stock of Dalton for
$102.0 million in cash. Dalton manufactures and sells gray iron castings for
refrigeration systems, air conditioners, heavy equipment, engines, gear boxes,
stationary transmissions, heavy duty truck transmissions and other automotive
parts.
On September 8, 1998, the capital stock of Advanced Cast Products, an
entity held by ACP prior to the time ACP acquired its interest in NFC, was
contributed to Neenah by ACP. Advanced Cast Products is an independent
manufacturer of ductile iron castings. Advanced Cast Products' production
capabilities also include a range of finishing operations including austempering
and machining. Advanced Cast Products sells its products primarily to companies
in the heavy truck, construction equipment, railroad, mining and automotive
industries.
On December 31, 1998, Neenah purchased Cast Alloys, a manufacturer of
investment-cast titanium and stainless steel golf clubheads, for $40.1 million
in cash. Neenah discontinued the operations of Cast Alloys in January 2002.
On November 30, 1999, Neenah purchased Gregg, a manufacturer of gray and
ductile iron castings, for $22.9 million in cash.
On October 2, 2000, Neenah sold all of the issued and outstanding shares
of common stock of Hartley Controls Corporation.
On August 8, 2002, Neenah sold substantially all of the assets of Peerless
Corporation.
On December 27, 2002, Neenah sold substantially all of the assets of
Belcher Corporation.
Bankruptcy Proceedings
Beginning in 2000, several trends converged to create an extremely
difficult operating environment for the Company. First, there were dramatic
cyclical declines in some of Neenah's most important markets including trucks,
railroad, construction and agriculture equipment. Second, there was a major
inventory adjustment by manufacturers in the residential segment of the HVAC
equipment industry, resulting in fewer orders for Dalton's HVAC castings. Third,
domestic foundries had been suffering from underutilized capacity, significantly
increased foreign competition, continued price reduction pressure from customers
and other competitors, and increased costs associated with heightened safety and
environmental regulations. These factors caused and to some extent continue to
cause a substantial number of foundries to cease operations or file for
bankruptcy protection.
Beginning in May 2000, the Company took aggressive steps to offset the
impact of the decline in sales and earnings and improve cash flow in the
difficult market environment: William Barrett was appointed as the new chief
executive officer of NFC; Hartley Controls was sold in
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September 2000 for $5.0 million in total proceeds; other excess assets were sold
for $5.3 million in late 2001; the operations of Cast Alloys, Inc. were
discontinued in January 2002; substantially all of the assets of Advanced Cast
Product's subsidiary Peerless Corporation were sold for $0.3 million in August
2002; and the assets of Belcher Corporation, a subsidiary of Advanced Cast
Products, were sold for $4.0 million in December 2002. Furthermore, management
also implemented a significant reduction in the number of employees, a
significant reduction in capital expenditures and selected price increases. In
January 2003, the Company engaged Houlihan Lokey Howard & Zukin Capital to
assist in the formulation and evaluation of various options for a restructuring,
reorganization, or other strategic alternatives.
Despite these steps, the credit rating agencies began to downgrade our
outstanding debt obligations in early 2000. Our 11 1/8% Notes became highly
illiquid and traded infrequently. According to data obtained from Telerate, the
price of the notes fell from a trailing 12 month high of $57.50 in June 2002 to
a trailing 12 month low of $30.00 in late December 2002. The trailing six month
average price as of June 23, 2003 was approximately $38.60. As of May 2003,
Neenah was not in compliance with the March 31, 2003 EBITDA covenant of its old
credit facility and lacked sufficient liquidity to make the then-due interest
payment on the 11 1/8% Notes and maintain the liquidity covenants under the old
credit facility.
On May 1, 2003, we launched both an exchange offer for the 11 1/8% Notes
and the pre-petition solicitation of acceptances of the plan of reorganization
in accordance with section 1126(b) of the Bankruptcy Code. The exchange offer,
which was to be completed outside of Bankruptcy Court, did not result in the
requisite percentage of 11 1/8% Notes tendered and both the exchange offer and
the solicitation of acceptances for the May 1, 2003 plan of reorganization were
allowed to expire.
On July 1, 2003, we launched a pre-petition solicitation of acceptances
with respect to an alternative joint plan of reorganization that was ultimately
approved. Having received sufficient votes to approve the plan of
reorganization, Neenah together with ACP, NFC and all of our wholly-owned
domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of
the United States Bankruptcy Code, as amended, with the United States Bankruptcy
Court for the District of Delaware on August 5, 2003. On that same date we
submitted to the Bankruptcy Court our Amended Prepackaged Joint Plan of
Reorganization, which we refer to as the Plan of Reorganization, and the
Disclosure Statement that we used to solicit votes for that plan.
At the time of the Chapter 11 bankruptcy filing, we had approximately $157
million of existing senior debt under our old credit facility and $282 million
of principal and accrued and unpaid interest under our 11 1/8% Notes. We
negotiated the continued use of our own cash collateral with our senior lenders,
thereby enabling us to utilize our own cash to conduct business operations
during the pendency of the Chapter 11 filing.
Pursuant to the Plan of Reorganization, we conducted a rights offering,
whereby holders of the 11 1/8% Notes were given the opportunity to provide up to
$110 million additional financing through the purchase of up to $119.996 million
face amount of 11% Senior Secured Notes and warrants to acquire up to 34.2
million shares of common stock of ACP. In case holders of the 11 1/8% Notes
failed to subscribe for the full $110.0 million, we also obtained standby
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commitment agreements from MacKay Shields LLC, Exis Differential Holdings Ltd.,
Citicorp Mezzanine III, L.P., Trust Company of the West and Metropolitan Life
Insurance Company (the "Standby Purchasers) whereby these Standby Purchasers
collectively agreed to provide up to $110 million of financing for the Plan of
Reorganization by participating in the rights offering (to the extent that they
were holders of the 11 1/8% Notes) as well as purchasing any and all
unsubscribed securities not subscribed for by the other holders of 11 1/8%
Notes. Approximately 94% of the holders of the 11 1/8% Notes participated in the
rights offering and the Standby Purchasers were, therefore, only required to
fund the shortfall of approximately $6.4 million.
By order dated September 26, 2003, the Bankruptcy Court confirmed the Plan
of Reorganization and the Plan of Reorganization became effective on October 8,
2003. October 8, 2003 is hereinafter referred to as the Effective Date. The Plan
of Reorganization allowed us to emerge from bankruptcy with an improved capital
structure and, because we had arranged to continue paying our trade debt on a
timely basis during the pendency of the Chapter 11 case, at the time of
emergence, we had sufficient trade credit to continue operations in the ordinary
course of business.
The Plan of Reorganization resulted in significant changes to our capital
structure. Among other things, the Plan of Reorganization provided for the
repayment in full of our old credit facility, the cancellation of $282.0 million
in principal amount of 11 1/8% Notes, the cancellation of the PIK Note
(originally issued to Citicorp Mezzanine III, L.P. by our indirect parent
company, ACP) and the elimination of the interests of the former equity owners
of ACP. The cash proceeds necessary to consummate the Plan of Reorganization
were provided from the consummation of the New Credit Facility and the issuance
of the 11% Senior Secured Notes due 2010. The claims and interests
of our various creditors were satisfied as follows:
- our old credit facility was repaid in cash;
- the PIK Note was cancelled and Citicorp Mezzanine III, L.P., the holder of
that note, received 11% Senior Secured Notes due 2010 with a principal
amount equal to $13.134 million, warrants to acquire 3.8 million shares of
common stock of ACP and cash in the amount of $45,400;
- our outstanding 11 1/8% Notes were cancelled and each holder of 11 1/8%
Notes received its pro rata share of (i) $30.0 million in cash, (ii)
$100.0 million in aggregate principal amount of new 13% Senior
Subordinated Notes due 2013 of the Company, (iii) 38 million shares of
common stock of ACP and (iv) rights to acquire for $110 million in cash in
the aggregate, units for up to $119.996 million face amount of 11% Senior
Secured Notes due 2010 and warrants to acquire up to 34.2 million shares
of common stock of ACP;
- the following debt and equity instruments were cancelled without further
consideration: 12% senior subordinated notes issued by ACP, 12% senior
subordinated notes issued by NFC and all equity interests of ACP; and
- the following claims and equity interests passed through our Chapter 11
bankruptcy proceedings unimpaired: all tax claims, intercompany debt,
other secured debt and general
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unsecured debt and the equity interests of ACP in NFC, equity interests of
NFC in Neenah and equity interests of Neenah in its direct and indirect
subsidiaries.
Exploration of Potential Sale Transaction
On July 29, 2005, Neenah and ACP announced that Citigroup Global Markets
Inc. had been engaged to assist in exploring the potential sale or merger of
Neenah or ACP or a significant portion of their assets or capital stock. On
November 29, 2005, Neenah announced that its board of directors, which is also
the board of directors of ACP, had unanimously voted to end the sale or merger
process and turn the Company's focus to successfully implementing the Company's
business plan. The Company's business plan recognizes a consolidating market and
is intended to position the Company for growth by expanding its revenues and
further penetrating existing markets that are already being served. It also
involves exploring other strategic alternatives that would have the effect of
reducing costs and expanding capacity in selected markets.
BUSINESS SEGMENTS - OVERVIEW
We have two reportable segments, Castings and Forgings. The Castings
segment manufactures and sells iron castings for the municipal and industrial
markets, while the Forgings segment manufactures and sells forged components for
the industrial market. The segments were determined based upon the production
process utilized and the type of product manufactured.
Financial information about our reportable segments and geographic areas
is contained in Note 10 in the Notes to Consolidated Financial Statements.
CASTINGS SEGMENT
We are a leading producer of iron castings for use in heavy municipal and
industrial applications. This segment sells directly to tier-one suppliers, as
well as to other industrial end users.
Products, Customers and Markets
The castings segment provides a variety of products to both the heavy
municipal and industrial markets. Sales to the heavy municipal market are
comprised of storm and sanitary sewer castings, manhole covers and frames and
storm sewer frames and grates. Sales also include heavy airport castings,
specialized trench drain castings, specialty flood control castings and
ornamental tree grates. Customers for these products include state and local
government entities, utility companies, precast concrete structure producers and
contractors. Sales to the industrial market are comprised of differential
carriers, transmission, gear and axle housings, yokes, planting and harvesting
equipment parts and compressor components. Markets for these products include
medium and heavy-duty truck, farm equipment and HVAC manufacturers.
Heavy Municipal
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Our broad heavy municipal product line consists of two general categories
of castings, "standard" and "specialty" castings. Standard castings principally
consist of storm and sanitary sewer castings that are consistent with
pre-existing dimensional and strength specifications established by local
authorities. Standard castings are generally higher volume items that are
routinely used in new construction and infrastructure replacement. Specialty
castings are generally lower volume products which include heavy-duty airport
castings, trench drain castings, flood control castings, special manhole and
inlet castings and ornamental tree grates. These specialty items are frequently
selected and/or specified from our municipal product catalog and tree grate
catalog, which together encompass over 4,400 standard and specialty patterns.
For many of these specialty products, we believe that we are the only
manufacturer with existing patterns to produce such a particular casting,
although a competing manufacturer could elect to make the investment in patterns
or equipment necessary to produce a similar casting. We hold a number of patents
and trademarks related to our heavy municipal product line.
We sell our municipal castings to state and local government entities,
utility companies, pre-cast concrete manhole structure producers and contractors
for both new construction and infrastructure replacement. Our active municipal
customers generally make purchase decisions based on a number of criteria,
including acceptability of the product per local specification, quality,
service, price and the customer's relationship with the foundry.
During the 70 years that we have manufactured municipal products, we have
emphasized servicing specific marketing needs and believe that we have built a
strong reputation for customer service. We believe that we are one of the
leaders in U.S. heavy municipal casting production and that we have strong name
recognition. We have one of the largest sales and marketing force of any foundry
serving the heavy municipal market. Our dedicated sales force works out of
regional sales offices to market municipal castings to contractors and state and
local governmental entities throughout the United States. We operate a number of
regional distribution and sales centers throughout the United States. We believe
that this regional approach enhances our knowledge of local specifications and
our position in the heavy municipal market.
Industrial
Industrial castings have increased in complexity and are generally
produced in higher numbers than municipal castings. Complexity in the industrial
market is determined by the intricacy of a casting's shape, the thinness of its
walls and the amount of processing by a customer required before a part is
suitable for use. OEMs and their first tier suppliers have been demanding higher
complexity parts principally to reduce labor costs in their own production
processes by using fewer parts to manufacture the same finished product or
assembly and by using parts that require less preparation before being
considered a finished product.
We primarily sell our industrial castings to a limited number of customers
with whom we have established close working relationships. These customers base
their purchasing decisions on, among other things, our technical ability, price,
service, quality assurance systems, facility capabilities and reputation. Our
assistance in product engineering plays an important role in winning bids for
industrial castings. For the average industrial casting, 12 to 18 months
typically elapse between the design phase and full production. The product life
cycle of a typical industrial
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casting is quite long. Although the patterns for industrial castings are owned
by the customer and not the foundry, as is the case with the patterns for
municipal castings, industrial patterns are not readily transferable to other
foundries without, in most cases, significant additional investment. Foundries,
including our company, generally do not design industrial castings.
Nevertheless, a close working relationship between the foundry and the customer
during a product launch is critical to reduce potential production problems and
minimize the customer's risk of incurring lost sales or damage to its reputation
due to a delayed launch. Involvement by a foundry early in the design process
generally increases the likelihood that the customer will design a casting
within the manufacturing capabilities of such foundry and also improves the
likelihood that such foundry will be awarded the casting for full production.
We estimate that we have historically retained approximately 90% of the
castings that we have been awarded throughout the product life cycle, which is
typical for the industry. We believe industrial customers will continue to seek
out a foundry with a strong reputation for performance that is capable of
providing a cost-effective combination of manufacturing technology and quality.
Our strategy is to augment our relationships with existing customers by
participating in the development and production of more complex industrial
castings, while seeking out selected new customers who would value our
performance reputation, technical ability and high level of quality and service.
We employ a dedicated industrial casting sales force at all of our
subsidiary locations, with the exception of Deeter. Our sales force supports
ongoing customer relationships, as well as working with customers' engineers and
procurement representatives and our engineers, manufacturing management and
quality assurance representatives throughout all stages of the production
process to ensure that the final product consistently meets or exceeds the
specifications of our customers. This team approach, consisting of sales,
marketing, manufacturing, engineering and quality assurance efforts is an
integral part of our marketing strategy.
Manufacturing Process
Our foundries manufacture gray and ductile iron and cast it into intricate
shapes according to customer metallurgical and dimensional specifications. We
continually invest in the improvement of process controls and product
performance and believe that these investments and our significant experience in
the industry have made us one of the most efficient manufacturers of industrial
and heavy municipal casting products.
The casting process involves using metal, wood or urethane patterns to
make an impression of a desired shape in a mold made primarily of sand. Cores,
also made primarily of sand, are used to make the internal cavities and openings
in a casting. Once the casting impression is made in the mold, the cores are set
into the mold and the mold is closed. Molten metal is then poured into the mold,
which fills the mold cavity and takes on the shape of the desired casting. Once
the iron has solidified and cooled, the mold sand is separated from the casting
and the sand is recycled. The selection of the appropriate casting method,
pattern, core-making equipment and sand, and other raw materials depends on the
final product and its complexity, specifications and function as well as the
intended production volumes. Because the casting process involves many critical
- 36 -
variables, such as choice of raw materials, design and production of tooling,
iron chemistry and metallurgy and core and molding sand properties, it is
important to monitor the process parameters closely to ensure dimensional
precision and metallurgical consistency. We continually seek out ways to expand
the capabilities of existing technology to improve our manufacturing processes.
We also achieve productivity gains by improving upon the individual steps
of the casting process such as reducing the amount of time required to make a
pattern change or to produce a different casting product. Such time reductions
enable us to produce castings in medium volume quantities on high volume,
cost-effective molding equipment. Additionally, our extensive effort in real
time process controls permits us to produce a consistent, dimensionally accurate
casting, which saves time and effort in the final processing stages of
production. This dimensional accuracy contributes significantly to our
manufacturing efficiency.
Continual testing and monitoring of the manufacturing process is important
to maintain product quality. We, therefore, have adopted sophisticated quality
assurance techniques and policies for our manufacturing operations. During and
after the casting process, we perform numerous tests, including tensile,
proof-load, radiography, ultrasonic, magnetic particle and chemical analysis. We
utilize statistical process controls to measure and control significant process
variables and casting dimensions. We document the results of this testing in
metallurgical certifications that are sometimes included with each shipment to
our industrial customers. We strive to maintain systems that provide for
continual improvement of operations and personnel, emphasize defect prevention,
safety and reduce variation and waste in all areas.
Raw Materials
The primary raw materials used to manufacture ductile and gray iron
castings are steel scrap, pig iron, metallurgical coke and silica sand. While
there are multiple suppliers for each of these commodities, we have generally
elected to maintain single-source arrangements with our suppliers for most of
these major raw materials except pig iron. Due to long standing relationships
with each of our suppliers, we believe that we will continue to be able to
secure the proper amount and type of raw materials at competitive prices.
Although the prices of the raw materials used vary, fluctuations in the
price of scrap metal are the most significant to us. We have arrangements with
our industrial customers that enable us to adjust industrial casting prices to
reflect scrap price fluctuations. In periods of rapidly rising or falling scrap
prices, these adjustments will lag the current scrap price because they are
generally based on average market prices for prior periods. Such prior periods
vary by customer, but are generally no longer than three months. Castings are
sometimes sold to the heavy municipal market on a bid basis and after a bid is
won the price for the municipal casting generally cannot be adjusted for
increases in the prices of raw materials. Rapidly fluctuating scrap prices may,
however, have an adverse or positive effect on our business, financial condition
and results of operations.
Seasonality
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We have historically experienced moderate cyclicality in the heavy
municipal market as sales of municipal products are influenced by, among other
things, public spending. There is generally not a large backlog of business in
the municipal market due to the nature of the market. In the industrial market,
we experience cyclicality in sales resulting from fluctuations in our markets,
including the medium and heavy-duty truck and the farm equipment markets, which
are subject to general economic trends.
We experience seasonality in our municipal business where sales tend to be
higher during the construction season, which occurs during the warmer months,
generally the third and fourth quarters of our fiscal year. We attempt to
maintain level production throughout the year in anticipation of such
seasonality and therefore do not experience significant production volume
fluctuations. We build inventory in anticipation of the construction season.
This inventory build-up has a negative impact on working capital and increases
our liquidity needs during the second quarter. We have not historically
experienced significant seasonality in industrial casting sales.
Competition
The markets for our products are highly competitive. Competition is based
mainly on price, but also on quality of product, range of capability, level of
service and reliability of delivery. We compete with numerous domestic
foundries, as well as with a number of foreign iron foundries. We also compete
with several large domestic manufacturers whose products are made with materials
other than ductile and gray iron, such as steel or aluminum. Industry
consolidation over the past 20 years has resulted in a significant reduction in
the number of foundries and a rise in the share of production by larger
foundries, some of which have significantly greater financial resources than do
we. Competition from foreign foundries has had an ongoing presence in the heavy
municipal market and continues to be a factor, primarily in the western and
eastern United States, due in part to costs associated with transportation.
FORGINGS SEGMENT
Our forgings segment, operated by Mercer, produces complex-shaped forged
components for use in transportation, railroad, mining and heavy industrial
applications. Mercer also produces micro alloy forgings. Mercer sells directly
to original equipment manufacturers ("OEMs"), as well as to industrial end
users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and
castings for Mercer and other industrial applications. Until the mid-1980's,
Mercer produced military tank parts, but successfully converted from a defense
contractor to a commercial manufacturer. Mercer produces approximately 500
individually forged components and has developed specialized expertise in
forgings of micro alloy steel.
Products, Customers and Markets
Mercer manufactures its products to customer specification with typical
production runs of 1,000 or more units. Mercer currently operates mechanical
press lines, from 1,300 tons to 4,000 tons. Key markets for Mercer include truck
and automotive parts, railroad equipment and general industrial machinery.
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Mercer's in-house sales organization sells directly to end users and OEMs.
A key element of Mercer's sales strategy is its ability to develop strong
customer relationships through responsive engineering capability, dependable
quality and just-in-time delivery performance.
Demand for forged products closely follows the general business cycles of
the various market segments and the demand level for capital goods. While there
is a more consistent base level of demand for the replacement parts portion of
the business, the strongest expansions in the forging industry coincide with the
periods of industrial segment economic growth. Mercer's largest industry
segment, the heavy truck segment, is extremely weak. Mercer's other market
segments are also showing weakness following general economic slowdowns in those
industrial areas. Management attributes this to normal industrial cycles in
these markets and adjustments to overbuilds in inventory levels as well as high
energy costs.
Manufacturing Process
Forgings and castings (together with a third process, fabrication) are the
principal commercial metal working processes. In forging, metal is pressed,
pounded or squeezed under great pressure, with or without the use of heat, into
parts that retain the metal's original grain flow, imparting high strength,
ductility and resistance properties.
Forging itself usually entails one of four principal processes: impression
die; open die; cold; and seamless rolled ring forging. Impression die forging,
commonly referred to as "closed die" forging, is the principal process employed
by Mercer, and involves bringing two or more dies containing "impressions" of
the part shape together under extreme pressure, causing the forging stock to
take the desired shape. Because the metal flow is restricted by the die, this
process can yield more complex shapes and closer tolerances than the "open die"
forging process. Impression die forging is used to produce products such as
military and off-highway track and drive train parts; automotive and truck drive
train and suspension parts; railroad engine, coupling and suspension parts;
military ordinance parts and other items where close tolerances are required.
Once a rough forging is produced, regardless of the forging process, it
must generally still be machined. This process, known as "finishing" or
"conversion," smoothes the component's exterior and mating surfaces and adds any
required specification, such as groves, threads and bolt holes. The finishing
process can contribute significantly to the value of the end product, in
particular in certain custom situations where high value specialized machining
is required. Machining can be performed either in-house by the forger, by a
machine shop which performs this process exclusively or by the end-user.
An internal staff of engineers designs products to meet customer
specifications incorporating computer assisted design workstations for tooling
design. Because its forged products are inherently less expensive and stronger,
Mercer has been successful in replacing certain cast parts previously supplied
by third party foundries. Management believes that Mercer is an industry leader
in forging techniques using micro alloy steel which produces parts which are
lighter and stronger than those forged from conventional carbon steel.
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Raw Materials
The principal raw materials used in Mercer's products are carbon and micro
alloy steel. Mercer purchases substantially all of its carbon steel from four
principal sources. While Mercer has never suffered an interruption of materials
supply, management believes that, in the event of any disruption from any
individual source, adequate alternative sources of supply are available within
the immediate vicinity.
Seasonality
Mercer has experienced moderate cyclicality in sales resulting from
fluctuations in the medium and heavy-duty truck market and the heavy industrial
market, which are subject to general economic trends.
Competition
Mercer competes primarily in a highly fragmented industry which includes
several dozen other press forgers and hammer forge shops. Hammer shops cannot
typically match press forgers for high volume, single component manufacturing or
close tolerance production. Competition in the forging industry has also
historically been determined both by product and geography, with a large number
of relatively small forgers across the country carving out their own product and
customer niches. In addition, most end users manufacture some forgings
internally, often maintaining a critical minimum level of production in-house
and contracting out the balance. The primary basis of competition in the forging
industry is price, but engineering, quality and dependability are also
important, particularly with respect to building and maintaining customer
relationships. Some of Mercer's competitors have significantly greater resources
than Mercer. There can be no assurance that Mercer will be able to maintain or
improve its competitive position in the markets in which it competes.
INTELLECTUAL PROPERTY
We have registered, and are in the process of registering, various
trademarks and service marks with the U.S. Patent and Trademark Office.
EMPLOYEES
As of September 30, 2005, we had approximately 3,000 full time employees,
of whom 2,448 were hourly employees and 552 were salaried employees. Nearly all
of the hourly employees at Neenah, Dalton, Advanced Cast Products and Mercer are
members of either the United Steelworkers of America or the Glass, Molders,
Pottery, Plastics and Allied Workers International Union. A collective
bargaining agreement is negotiated every three to five years. The current
agreements expire as follows: Neenah, December 2006; Dalton-Warsaw, April 2008;
Dalton-Kendallville, June 2007; Advanced Cast Products-Meadville, October 2010;
and Mercer, June 2008. All employees at Deeter and Gregg are non-union. We
believe that we have a good relationship with our employees.
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ENVIRONMENTAL MATTERS
Our facilities are subject to federal, state and local laws and
regulations relating to the protection of the environment and worker health and
safety, including those relating to discharges to air, water and land, the
handling and disposal of solid and hazardous waste and the cleanup of properties
affected by hazardous substances. Such laws include the Federal Clean Air Act,
the Clean Water Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA"), and the Occupational Health and Safety Act. We believe that each of
our operations are currently in substantial compliance with applicable
environmental laws, and that we have no liabilities arising under such
environmental laws which would have a material adverse effect on our operations,
financial condition or competitive position. However, some risk of environmental
liability and other cost is inherent in each of our businesses. Any of our
businesses might in the future incur significant costs to meet current or more
stringent compliance, cleanup or other obligations pursuant to environmental
requirements. Such costs may include expenditures related to remediation of
historical releases of hazardous substances or clean-up of physical structures
prior to decommissioning.
Under the Federal Clean Air Act Amendments of 1990, the Environmental
Protection Agency ("EPA") is directed to establish maximum achievable control
technology ("MACT") standards for certain industrial operations that are major
sources of hazardous air pollutants ("HAPs"). The iron foundry industry will be
required to implement the MACT emission limits, control technologies or work
practices by April 2007. We estimate that the total cost for compliance with the
MACT standard will be less than $3.0 million.
The Federal Water Pollution Control Act (Clean Water Act) requires point
dischargers to obtain stormwater discharge permits. The Wisconsin Department of
Natural Resources (WDNR) was given permitting authority by the Environmental
Protection Agency (EPA) in 1974 and continues to administer this program. Neenah
has a General Permit to Discharge Stormwater Associated with Industrial Activity
and is required to discharge stormwater that complies with EPA Benchmark values
for various stormwater contaminants. $1.2 million is budgeted for fiscal 2006 to
install stormwater treatment devices needed to achieve compliance with the EPA
Benchmarks the WDNR is using for permit compliance.
PROPERTIES
We maintain the following manufacturing, machining, and office facilities.
All of the facilities are owned, with the exception of Mercer's machining
facility, which is leased.
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ENTITY LOCATION PURPOSE
------ -------- -------
CASTINGS SEGMENT:
Neenah Foundry Company Neenah, WI 2 manufacturing facilities
Office facility
Dalton Corporation Warsaw, IN Manufacturing and office
Kendallville, IN facilities
Stryker, OH Manufacturing facility
Machining facility
Advanced Cast Products, Inc. Meadville, PA Manufacturing and office facility
Deeter Foundry, Inc. Lincoln, NE Manufacturing and office facility
Gregg Industries, Inc. El Monte, CA Manufacturing and office facility
FORGINGS SEGMENT:
Mercer Forge Corporation Mercer, PA Manufacturing and office facility
Sharon, PA Machining facility
In addition to the facilities above, Neenah operates thirteen distribution
and sales centers. Six of those properties are owned and seven are leased.
The principal equipment at the facilities consists of molding machines,
presses, machining equipment, welding, grinding and painting equipment. We
regard our plant and equipment as well maintained and adequate for its needs.
Substantially all of the Company's tangible and intangible assets are
pledged to secure the 11% Senior Secured Notes and the Company's Credit
Facility. See Note 6 in the Notes to Consolidated Financial Statements.
LEGAL PROCEEDINGS
As described above, on November 22, 2004, Neenah entered into a letter of
intent ("LOI") with respect to a proposed management buyout of all the
outstanding stock of our wholly owned subsidiary Mercer Forge Corporation
("Mercer"). The parties to the LOI, however, were unable to agree on the terms
of a definitive agreement by the extended termination date of the LOI, which had
lapsed. The long-lived assets of Mercer were classified as held for use as of
September 30, 2004 and continue to be so classified. On January 24, 2005, JD
Holdings, LLC ("JDH"), one of the counterparties to the LOI, filed a complaint
in the United States District Court for the Southern District of New York
against Neenah alleging, among other things, that Neenah breached the terms of
the LOI by not consummating the sale of the stock of Mercer to JDH. The
complaint sought an order of specific performance of the LOI or, in the
alternative, no
- 42 -
less than $35 million in damages and, in either case, an order temporarily,
preliminarily and permanently restraining Neenah from transferring the stock of
Mercer to any third party.
Neenah answered the complaint, denying the material allegations thereof,
and filed a counterclaim against JDH alleging breach of the LOI and seeking
damages for the costs associated with the negotiation of the potential
transaction. The parties agreed to mediate this dispute and the litigation was
stayed pending the outcome of the mediation and of follow-on settlement
discussions.
On August 5, 2005, the parties agreed to settle this matter. The
settlement provided for a $6.5 million cash payment by the Company to JDH and
the exchange of full and final releases by the parties on behalf of themselves
and their respective members, officers, directors, affiliates and shareholders.
Each party dismissed with prejudice the claims pending against the other in the
Southern District of New York. The entry into the settlement, and the consequent
avoidance of the costs and distractions of continued litigation, as well as of
the uncertainty associated with the judicial process, was deemed to be in the
best interests of the Company.
We are involved in routine litigation incidental to our business. Such
litigation is not, in our opinion, likely to have a material adverse effect on
our financial condition or results of operations.
- 43 -
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information with respect to the persons
who are members of the board of directors and executive officers of the Company.
All executive officers hold office at the pleasure of the board of directors.
Under the Company's bylaws, each director holds office until the next annual
meeting of shareholders and until the director's successor has been elected and
qualified. All of the directors of the Company are also directors of ACP.
NAME AGE POSITION
- ---- --- --------
William M. Barrett............. 58 President, Chief Executive Officer,
Director and Chairman of the Board
Gary W. LaChey................. 59 Corporate Vice President -- Finance,
Treasurer, Secretary and Chief Financial
Officer
James Ackerman................. 61 President -- Mercer Forge
John H. Andrews................ 60 Corporate Vice President and Chief
Operating Officer -- Manufacturing
Joseph L. DeRita............... 67 Division President, Dalton Corporation
Frank Headington............... 56 Vice President -- Technology
Timothy Koller................. 55 Vice President -- Municipal Sales &
Engineering
Joseph Varkoly................. 43 Vice President -- Industrial Sales and
Marketing
Andrew B. Cohen................ 34 Director
Benjamin C. Duster, IV, Esq.... 50 Director
Michael J. Farrell............. 55 Director
Jeffrey G. Marshall............ 61 Director
Mr. Barrett has served as our President and Chief Executive Officer since May
2000. Mr. Barrett joined us in 1992 serving as General Sales Manager --
Industrial Castings until May 1, 1997. Mr. Barrett was Vice President and
General Manager from May 1, 1997 to September 30, 1998 and President from
October 1, 1998 to April 30, 2000. From 1985 to 1992, Mr. Barrett was the Vice
President -- Sales for Harvard Industries Cast Products Group. Mr. Barrett has
also been one of our directors and Chairman of the Board since May 2000.
Mr. LaChey has served as our Corporate Vice President -- Finance since June
2000. Mr. LaChey joined us in 1971 and has served in a variety of positions of
increasing responsibility in the finance department. Mr. LaChey was most
recently Vice President -- Finance, Treasurer and Secretary.
- 44 -
Mr. Ackerman has served as the President of Mercer Forge since 2000. Previously,
Mr. Ackerman served as the Vice President/CFO of Mercer Forge since 1990. Prior
to joining Mercer Forge in 1990, Mr. Ackerman worked for Sheet Metal Coating &
Litho as its Controller, Dunlop Industrial/Angus Fire Armour Corp. as its
Controller and Ajax Magnethermic Corporation as its Vice President-Finance
(CFO).
Mr. Andrews has served as our Corporate Vice President -- Manufacturing since
August 2003. Effective February 1, 2006, Mr. Andrews received the additional
title of Chief Operating Officer with respect to manufacturing operations in
recognition of his expanded role of being responsible for the manufacturing
operations of Neenah and its subsidiaries. Mr. Andrews joined us in 1988 and has
served in a variety of manufacturing positions with increasing responsibility.
Prior to joining Neenah, Mr. Andrews was Division Manager for Dayton Walther
Corporation's Camden Casting Center from 1986 to 1988 and served as
Manufacturing Manager and then Plant Manager for Waupaca Foundry's Marinette
Plant from 1973 to 1986.
Mr. DeRita has served as Division President of the Dalton Corporation since
1999. He joined Newnam Manufacturing in 1989 and became the Vice President --
Sales when the Dalton Corporation acquired Newnam Manufacturing in 1992. Prior
to joining our company, Mr. DeRita was the Manager of Engineering and
Maintenance at Erie Malleable, the same position he held previously at Zurn
Industries.
Mr. Headington has served as the Vice President - Technology since August 2003.
Previously, Mr. Headington was our Manager of Technical Services and Director of
Product Reliability since January 1989. Prior to joining the Company, Mr.
Headington co-founded and operated Sintered Precision Components, a powdered
metal company. Prior to his involvement with Precision Components, he was
employed by Wagner Casting Company as Quality Manager.
Mr. Koller has served as the Vice President - Municipal Sales & Engineering
since May 1998. Mr. Koller has worked within our Municipal products area for the
last 27-years serving with increasing responsibility as Sales Representative,
Specifications Manager, and General Sales Manager.
Mr. Varkoly has served as the Vice President -- Industrial Sales & Marketing
since August 2003. Previously, Mr. Varkoly was our Vice President of Business
Development since March 2000. Prior to joining our company in 2000, he served as
the Director -- Finance of Betzdearborn, Inc. Previously, he was a Manager for
Performance Improvement Management Consulting with Ernst & Young LLP and the
Business Development Manager of FMC Corporation.
Mr. Cohen has served as a director since October 2003. Mr. Cohen is currently a
Managing Director at Dune Capital Management, LP. Previously, Mr. Cohen was
employed by SAC Capital Advisors for three years. Prior to his employment at SAC
Capital Advisors, he spent six years in the investment banking division of
Morgan Stanley. Mr. Cohen received his BA and MBA degrees from the University of
Pennsylvania.
Mr. Duster has served as a director since October 2003. Mr. Duster is currently
Chairman of the Board of Algoma Steel, Inc., a Toronto Stock Exchange listed
integrated steel manufacturer based in Canada. Mr. Duster is also a principal in
Masson & Company, a financial restructuring advisory and turnaround management
firm based in New York.
- 45 -
Mr. Farrell has served as a director since February 2003. Mr. Farrell is
currently the President of Farrell & Co., a merchant banking firm specializing
in heavy manufacturing companies, and the Chief Executive Officer of Standard
Steel, LLC. Mr. Farrell has also served in executive capacities for MK Rail
Corporation, Motor Coils Manufacturing Co. and Season-ALL Industries. Mr.
Farrell currently also serves as a director of Federated Investors, Inc. Mr.
Farrell is a certified public accountant.
Mr. Marshall has served as a director since October 2003. Mr. Marshall is
currently the Chairman of Smith Marshall, a subsidiary of the NextMedia Company
Limited. Previously, he was the President and Chief Executive Officer of Aluma
Enterprises, Inc., a construction technology company, for six years. Prior to
joining Aluma Enterprises, Inc., Mr. Marshall successively held the positions of
President and Chief Executive Officer at Marshall Steel Limited, Marshall
Drummond McCall Inc. and the Ontario Clean Water Agency.
AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT
The current members of the Audit Committee of the board of directors
are Michael J. Farrell and Jeffrey G. Marshall. The board of directors has
determined that all members of the Audit Committee are independent and
financially literate in accordance with the audit committee requirements of the
New York Stock Exchange. The board has determined that Mr. Michael J. Farrell is
an audit committee financial expert within the meaning of SEC rules.
CODE OF ETHICS
In December 2004, the Company adopted a Code of Ethics applicable to
all officers of the Company as well as certain other key accounting staff. A
copy of the Code of Ethics can be obtained free of charge by writing to the
Company.
BOARD COMPOSITION
The board of directors of ACP, the ultimate parent company of Neenah
consists of five directors. ACP's Amended and Restated Bylaws permits the
holders of a majority of the shares of common stock of ACP then entitled to vote
at an election of directors, to remove any director or the entire board of
directors at any time, with or without cause. Under ACP's Amended and Restated
Bylaws, vacancies on the board of directors may be filled by the affirmative
vote of a majority of the holders of ACP's outstanding stock entitled to vote
thereon.
Under the Stockholders Agreement discussed below, MacKay Shields LLC
designated two members to the board of directors of ACP and Citicorp Mezzanine
III, L.P and Trust Company of the West designated one member to the board of
directors of ACP. The MacKay Shields LLC designees are Andrew B. Cohen and
Benjamin C. Duster, IV, Esq. The Citicorp Mezzanine III, L.P and Trust Company
of the West designees are Michael J. Farrell and Jeffrey G. Marshall,
respectively. Under the Stockholders Agreement, the board of directors of any
subsidiary of ACP, including Neenah, is required to consist of the same number
of directors and have the same composition as the board of directors of ACP.
- 46 -
COMPENSATION COMMITTEE
The current members of the compensation committee of the board of
directors are Andrew B. Cohen and Benjamin C. Duster, IV, Esq.
STOCKHOLDERS AGREEMENT
Under the terms of the Plan of Reorganization, ACP and each person
or entity that held common stock of ACP or warrants to purchase ACP common stock
as of October 8, 2003, the Effective Date of the Plan of Reorganization (the
"Stockholders"), are subject to a stockholders agreement dated as of October 8,
2003 (the "Stockholders Agreement"). The Stockholders Agreement, among other
things, (i) governs the composition of the board of directors of ACP and its
subsidiaries, (ii) establishes the requisite approvals for certain significant
corporate transactions (including acquisitions and dispositions of material
businesses or assets, and the incurrence of debt), and (iii) provides for
certain rights, requirements and restrictions with respect to the sale or
transfer of ACP common stock or warrants to purchase ACP common stock.
The Stockholders Agreement provides that the stockholders shall vote
all of their shares of ACP common stock to cause the board of directors of ACP
to be comprised of the then duly elected and acting chief executive officer of
ACP, one member each designated by MacKay Shields LLC, Citicorp Mezzanine III,
L.P. and Trust Company of the West, in each case, so long as they, together with
their respective affiliates, hold at least 10.0% of the ACP common stock on a
fully diluted basis (the "Minimum Ownership"); however, so long as MacKay
Shields LLC is the holder of at least 20% of the ACP common stock on a fully
diluted basis, it shall be entitled to designate one additional member. In
addition, no designated member of the board of directors of ACP may be removed
without the consent of the Stockholder which has the right to designate such
member. Further, the Stockholders Agreement provides that each of MacKay Shields
LLC, Citicorp Mezzanine III, L.P and Trust Company of the West (subject to the
Minimum Ownership) has the ability to approve or veto the sale of ACP and/or its
subsidiaries (through sale of shares, merger, recapitalization, asset sale or
similar transaction) (a "Sale of the Company"), amendments to the respective
charter and bylaws of each company, modifications to the number of directors of
each company and affiliate transactions. The board of directors of any
subsidiary of ACP is required to consist of the same number of directors and
shall have the same composition as the board of directors of ACP.
In addition to the general governance issues discussed above, the
Stockholders Agreement provides that, so long as MacKay Shields LLC, Citicorp
Mezzanine III, L.P and Trust Company of the West each have the Minimum Ownership
certain sales or transfers or series of sales or transfers by any stockholder or
a "group" of stockholders of ACP common stock or warrants to purchase ACP common
stock which owns 10% or more of the shares of ACP common stock on a fully
diluted basis may be subject to the prior right of ACP and the Stockholders
party to the Stockholders Agreement who own more than 5% of the ACP common stock
on a fully diluted basis ("5% Stockholders") to purchase such shares. Also, the
Stockholders Agreement provides for "tag-along" rights for 5% Stockholders with
respect to certain sales or transfers of ACP common stock and warrants to
purchase ACP common stock by other 5% Stockholders. Furthermore, the
Stockholders Agreement provides that the board of
- 47 -
directors, by the vote of at least three directors, shall have the right to
cause a Sale of the Company and to cause all Stockholders to consent to, approve
and participate in a Sale of the Company; provided that (i) all Stockholders
receive the same consideration on a per share basis, (ii) the identity of such
purchaser is approved (which approval shall not be unreasonably withheld) by
MacKay Shields LLC, Citicorp Mezzanine III, L.P and Trust Company of the West
(subject to the Minimum Ownership) and (iii) such purchaser is not MacKay
Shields LLC, Citicorp Mezzanine III, L.P or Trust Company of the West or any
other 5% Stockholder, or an affiliate of any of the foregoing.
The foregoing description of the Stockholders Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Stockholders Agreement, which is filed as an exhibit to the registration
statement of which the prospectus is a part.
DIRECTOR COMPENSATION
Subject to certain limitations, each member of the Board of Directors of
ACP who is not an officer of ACP is entitled to receive annual compensation for
their services in the amount $40,000 ($80,000 for members of the audit
committee), payable in cash quarterly in four equal installments, and is
entitled to receive reimbursement by ACP for all reasonable out-of-pocket
expenses, including, without limitation, travel expenses, incurred in connection
with the performance of the director's duties. In addition, each member of the
Board of Directors that is not an officer of our company is paid a fee of $1,000
for in person attendance at annual, regular, special and adjourned meetings of
the Board of the Directors of the company or committee meetings of the Board of
the Directors of the company. On the Effective Date, ACP issued 200,000 shares
of common stock representing 0.25% of ACP's common stock on a fully-diluted
basis as of the Effective Date to each outside director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of ACP's Board of
Directors are Andrew B. Cohen and Benjamin C. Duster, IV, Esq. The current
members of the Audit Committee of ACP's Board of Directors are Michael J.
Farrell and Jeffrey G. Marshall.
During fiscal 2005, no executive officer of ACP:
- served as a member of the compensation committee or other board
committee performing similar functions or, in the absence of any
such committee, the board of directors, of
- 48 -
another entity, one of whose executive officers served on ACP's
Compensation Committee;
- served as a director of another entity, one of whose executive
officers served on ACP's Compensation Committee; or
- served as a member of the compensation committee or other board
committee performing similar functions or, in the absence of any
such committee, the board of directors, of another entity, one of
whose executive officers served as a director of ACP.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Amended and Restated Bylaws of ACP which became effective on October
8, 2003, provide that, to the extent permitted by the Delaware General
Corporation Law, or DGCL, it will indemnify its current and former directors and
officers against all expenses actually and reasonably incurred by them as a
result of their being threatened with or otherwise involved in any action, suit
or proceeding by virtue of the fact that they are or were an officer or director
of ACP. ACP, however, is not required to indemnify an officer or director for an
action, suit or proceeding commenced by that officer or director unless it
authorized that director or officer to commence the action, suit or proceeding.
The Amended and Restated Bylaws of ACP also provide that ACP shall advance
expenses incurred by any person it is obligated to indemnify, upon presentation
of appropriate documentation.
Furthermore, the Amended and Restated Bylaws of ACP provide that ACP may
purchase and maintain insurance on behalf of its directors and officers against
any liability, expense or loss, whether or not it would otherwise have the power
to indemnify such person under its Amended and Restated Bylaws or the DGCL.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for directors, officers and controlling persons of ACP
pursuant to the foregoing provisions, or otherwise, ACP has been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table summarizes
compensation awarded to, earned by or paid to our Chief Executive Officer and
each of our other four most highly compensated executive officers (collectively,
the "named executive officers") for services rendered to ACP, NFC, and the
Company during the 2005, 2004 and 2003 fiscal years.
- 49 -
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- -----------------------------------
AWARDS PAYOUTS
------------------------ -------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPENSATION STOCK UNDERLYING LTIP COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY $ BONUS $ $(2) AWARDS $(3) OPTIONS # PAYOUTS $(4)
- --------------------------- ----------- -------- ------- ------------ ----------- ---------- ------- ------------
William M. Barrett ............... 2005 550,000 558,292 -- -- -- -- 27,520
President and Chief 2004(1) 483,337 160,800 -- -- -- -- 26,719
Executive 2003(1) 342,704 103,137 -- 9,410 -- -- 23,991
Officer and Director
Gary W. LaChey ................... 2005 286,749 336,400 -- -- -- -- 27,200
Corporate Vice 2004(1) 242,996 74,100 -- -- -- -- 26,306
President--Finance, 2003(1) 234,996 102,399 -- 7,196 -- -- 23,449
Treasurer, Secretary and
Chief Financial Officer
James Ackerman ................... 2005 180,000 149,000 -- -- -- -- 14,647
President -- Mercer Forge 2004 180,000 144,000 -- -- -- -- 13,968
2003 180,000 -- -- -- -- -- 12,668
John H. Andrews .................. 2005 214,004 252,791 -- -- -- -- 26,694
Corporate Vice President 2004(1) 193,336 60,000 -- -- -- -- 25,687
-- Manufacturing 2003(1) 172,501 35,049 -- 1,107 -- -- 22,758
Joseph L. DeRita ................. 2005 256,000 313,645 -- -- -- -- 18,700
Division President, 2004(1) 243,000 74,100 -- -- -- -- 14,281
Dalton Corporation 2003(1) 235,000 1,015 -- 3,044 -- -- 17,972
- ----------
(1) Certain prior year amounts have been reclassified.
(2) The Company provides its executive officers with personal benefits as part
of providing a competitive compensation program. These may include such benefits
as a company automobile, and personal liability insurance. These benefits are
valued based upon the incremental cost to the Company. The incremental cost to
the Company of such benefits did not exceed the SEC's disclosure threshold for
any named executive officer for any of the three years.
(3) The aggregate unvested restricted stock holdings of ACP common stock at the
end of fiscal 2005 for the named executive officers were as follows: Mr. Barrett
- - 312,500 shares, Mr. LaChey - 238,971 shares, Mr. Ackerman - 0 shares, Mr.
Andrews - 36,765 shares, and Mr. DeRita - 101,103 shares. Because there was no
public market for the common stock at that date, the fair market value per share
of the common stock is not able to be determined by any reference to any
published price data. On October 8, 2003, Messrs. Barrett, LaChey, Ackerman,
Andrews, and DeRita, respectively, were granted 1,250,000, 955,882, 0, 147,059,
and 404,412 shares of ACP common stock. One-fourth of the shares vested on the
date of grant, and the balance vest on an annual straight-line basis over the
ensuing three years. Dividends, if any, paid on the common stock would be paid
on the restricted stock.
(4) All other compensation for fiscal 2005 for Messrs. Barrett, LaChey,
Ackerman, Andrews, and DeRita, respectively, includes: (i) matching
contributions to the 401(k) plan for each named executive officer of $5,250,
$5,250, $5,593, $5,250, and $6,300; (ii) contributions pursuant to the profit
sharing plan for each named executive officer of $15,375, $15,375, $0, $15,375,
and $0; (iii) an executive life insurance premium for each named executive
officer of $2,838, $2,518, $5,026, $2,012, and $7,064; and (iv) health insurance
reimbursement premiums for each named executive officer of $4,057, $4,057,
$4,028, $4,057, and $5,336.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of the named
executive officers, other than Mr. Ackerman. The agreements establish a base
salary as well as providing for a severance payment calculation in the event of
termination (pursuant to the 2003 Severance and Change of Control Plan described
below), health (subject to satisfying insurability requirements), 401(k) and
other benefits that the named employees are entitled to receive. Non-competition
and non-solicitation agreements have been signed as part of the employment
agreements, which will apply during a period of three years for our chief
executive officer and two years for the chief financial officer and other
members of management of the Company, in each case, after termination.
- 50 -
2003 MANAGEMENT ANNUAL INCENTIVE PLAN
Under the 2003 Management Annual Incentive Plan, members of
management and certain other specified employees will receive annual performance
awards if the Company achieves certain Adjusted EBITDA targets set by the board
of directors of the Company at the beginning of each fiscal year. The bonus paid
will equal (i) 50% of the target bonus amount for each individual should the
Company reach 85% of the Adjusted EBITDA target, (ii) 100% of the target bonus
on reaching 100% of the target Adjusted EBITDA, and (iii) 200% of the target
bonus on reaching 120% of the target Adjusted EBITDA. For 2005, the $6.5 million
settlement in connection with the Mercer litigation was added back to calculate
Adjusted EBITDA for purposes of the bonus calculation.
Target bonuses range up to 30.0% of base salary depending upon job
responsibility. In addition, the 2003 Management Annual Incentive Plan was
amended to allow management the ability to earn additional cash compensation
based on varying levels of debt reduction achieved during the year. Earned bonus
is payable within ten business days of the approval of the Company's audited
financial statements by the board of directors.
In addition, a one time aggregate incremental $450,000 emergence
bonus was paid upon emergence from Chapter 11 bankruptcy in fiscal 2004 to
certain members of management upon the Effective Date.
For fiscal 2006, the executives and certain other specified
employees will be entitled to receive annual performance awards upon achieving
certain milestones, including EBITDA targets, debt reduction targets and other
certain criteria as determined from time to time by the compensation committee
of the board of directors. Target bonus as a percentage of salary for each
member of management will be consistent with historical levels. Target levels,
timing of payments and other terms and conditions of the annual incentive plan
will be determined by the compensation committee.
2003 MANAGEMENT EQUITY INCENTIVE PLAN
Under the 2003 Management Equity Incentive Plan, which was
established on the Effective Date, certain members of management received
restricted shares which represented 5% of the common stock of ACP on a fully
diluted basis as of the Effective Date. The 4,000,000 restricted shares issued
pursuant to the 2003 Management Equity Incentive Plan were 25% vested upon grant
and the balance vest on an annual straight-line basis over the ensuing three
years subject to acceleration in the event of a Significant Transaction, as
defined in the award agreement. The 2003 Management Equity Incentive Plan also
provides that a pool of options for an additional 4,000,000 shares of common
stock of ACP be reserved for future grants as determined by the compensation
committee of the board of directors.
2003 SEVERANCE AND CHANGE OF CONTROL PLAN
Under the 2003 Severance and Change of Control Plan, the executives
with whom we have executed employment agreements, shall be entitled to receive
Severance Payments, as defined in the 2003 Severance and Change of Control Plan,
health benefits and outplacement services if the Company terminates his or her
employment without cause or if he or she
- 51 -
terminates his or her employment for Good Reason and a Change of Control
Payment, health benefits and outplacement services if a participating
executive's employment is terminated or the executive resigns from employment
for Good Reason within 180 days of a Change of Control, as such terms are
defined in the 2003 Severance and Change of Control Plan.
The Severance Payment is equal to (1) the severance multiple listed in each
executive's employment agreement multiplied by (2) the base salary of such
executive. The Change of Control Payment is equal to (1) the change of control
multiple listed in each executive's employment agreement multiplied by (2) the
base salary of such executive. The severance multiples for Messrs. Barrett,
LaChey, Andrews, and DeRita, respectively are 2.70, 2.03, 1.88, and 2.03. The
change of control multiples for Messrs. Barrett, LaChey, Andrews, and DeRita,
respectively are 3.38, 2.70, 1.88, and 2.03. The plan also requires payments in
certain circumstances to executives sufficient to make them whole for any excise
tax imposed under Section 4999 of the Internal Revenue Code.
- 52 -
SELLING NOTEHOLDERS
The following table sets forth certain information furnished by each of
the selling noteholders with respect to the amount of Notes offered by such
selling noteholder, which in each case is equal to the amount of notes
beneficially owned by each of the selling noteholders as of June 30, 2004.
NOTES BENEFICIALLY OWNED NOTES BENEFICIALLY OWNED
PRIOR TO THE OFFERING AMOUNT OF AFTER THE OFFERING
----------------------------- NOTES BEING -----------------------
NAME OF SELLING NOTEHOLDER(1) AMOUNT PERCENTAGE OFFERED AMOUNT PERCENTAGE
- --------------------------------------------- ---------------- ---------- ---------------- -------- ----------
TCW Group Inc.(2) ........................... $ 7,606,381 7.6% $ 7,606,381 $ 0 0%
CVC Capital Funding, LLC(3)(4) .............. $ 10,638,298 10.6% $ 10,638,298 $ 0 0%
All other holders of Notes or future
transferees, pledgees, donees or
successors and any such holders eligible
to be named as a selling noteholder
in a post-effective amendment ............ $ 81,755,321 81.76% $ 81,755,321 $ 0 0%
Total ....................................... $ 100,000,000 100% $ 100,000,000 $ 0 0%
- ----------
(1) Upon being notified by a selling noteholder that a donee, pledgee,
transferee or other successor in interest intends to sell Notes under this
prospectus, if required, we will file a supplement to this prospectus
identifying such successor as a selling noteholder.
(2) Mark Altanasio has sole voting and dispositive power over these Notes.
(3) This selling noteholder is an affiliate of a broker-dealer, and has
indicated to us that it purchased the securities for which these Notes
were delivered in the ordinary course of business, and at the time of such
purchase, had no agreements or understandings, directly or indirectly,
with any person to distribute Notes.
(4) Richard E. Mayberry, Jr., William T. Comfort, Michael Neborak and Byron
Kinief share sole voting and dispositive power over these Notes.
- 53 -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH ACP
ACP is the parent company of NFC, and thus ACP indirectly owns 100% of the
common stock of Neenah. William M. Barrett, who serves as the President and
Chief Executive Officer of Neenah, currently serves as President and Chief
Executive Officer of ACP.
RELATIONSHIP WITH THE STANDBY PURCHASERS
As a result of the standby purchase agreements that we entered into with
the Standby Purchasers in connection with the Plan of Reorganization, we gave
certain of the Standby Purchasers the right to name members to our board of
directors. Mackay Shields LLC may designate two members of our board of
directors and Citicorp Venture Capital, Ltd. and Trust Company of the West may
each designate one member of our board of directors. See "Management -
Stockholders Agreement."
- 54 -
SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information known to us with respect to the
beneficial ownership of the common stock of ACP, our ultimate parent company, as
of December 16, 2005, or as otherwise indicated, by:
- each person or entity who owns beneficially more than 5% or more of
any class of ACP's voting securities;
- each of the named executive officers;
- each director; and
- all directors and executive officers as a group.
SHARES BENEFICIALLY OWNED
------------------------
NAME OF BENEFICIAL OWNER (1) (2) NUMBER PERCENTAGE
- --------------------------------- ---------- ----------
MacKay Shields LLC (3) ............................................. 19,698,751 24.4%
Harbert Distressed Investment Master Fund, Ltd. (4) ................ 12,144,764 15.0%
Citicorp Mezzanine III, L.P. (5) ................................... 11,890,846 14.7%
Trust Company of the West (6) ...................................... 6,206,107 7.7%
William M. Barrett (7) ............................................. 1,250,000 1.5%
Gary W. LaChey (8) ................................................. 955,882 1.2%
Joseph L. DeRita (9) ............................................... 404,412 *
John H. Andrews (10) ............................................... 147,059 *
James Ackerman ..................................................... 0 *
Andrew B. Cohen (11) ............................................... 200,000 *
Benjamin C. Duster, IV, Esq (11) ................................... 200,000 *
Michael J. Farrell (11) ............................................ 200,000 *
Jeffrey G. Marshall (11) ........................................... 200,000 *
All executive officers and directors as a group (12 persons) (12) .. 4,366,176 5.4%
- ----------
* Less than 1 %
(1) As used in this table, a beneficial owner of a security includes any
person who, directly or indirectly, through contract, arrangement,
understanding, relationship or otherwise has or shares (1) the power to
vote, or direct the voting of, such security or (2) investing power which
includes the power to dispose, or to direct the disposition of, such
security. In addition, a person is deemed to be the beneficial owner of a
security if that person has the right to acquire beneficial ownership of
such security within 60 days of December 16, 2005. Except as otherwise
noted, the persons and entities listed on this table have sole voting and
investment power with respect to all of the shares of common stock owned
by them. Calculations are based on a total of 80,800,000 shares of common
stock deemed to be outstanding as of December 16, 2005, which includes
warrants to purchase common stock. The warrants have a nominal exercise
price of $.01 per share
- 55 -
(2) Includes the following number of shares issuable upon exercise of warrants
presently exercisable: 9,812,706 warrants held by MacKay Shields LLC;
5,244,764 warrants held by Harbert Distressed Investment Master Fund, Ltd.
The following data is the most recent available and is as of October 8,
2003: 90,644 warrants held by Exis Differential Holdings Ltd.; 7,848,293
warrants held by Citicorp Mezzanine III, L.P.; 3,113,554 warrants held by
Trust Company of the West and 217,547 warrants held by Metropolitan Life
Insurance Company.
(3) The address for MacKay Shields LLC is 9 West 57th Street, 33rd Floor, New
York, NY 10019.
(4) The address for Harbert Distressed Investment Master Fund, Ltd. is Third
Floor, Bishop's Square, Redmond's Hill, Dublin 2, Ireland.
(5) The number of shares listed above for Citicorp Mezzanine III, L.P. is as
of October 8, 2003. Citicorp Mezzanine III, L.P. received 4,096,665
warrants for being a Standby Purchaser and 3,751,628 warrants in exchange
for cancellation of the PIK Note. The address for Citicorp Mezzanine III,
L.P. is 399 Park Avenue, 14th Floor, New York, NY 10043.
(6) The number of shares listed above for Trust Company of the West is as of
October 8, 2003. Includes shares held by TCW Shared Opportunity Fund II,
L.P., Shared Opportunity Fund IIB LLC, TCW Shared Opportunity Fund IV,
L.P., TCW Shared Opportunity Fund IVB, L.P., AIMCO CDO, Series 2000-A, TCW
High Income Partners, Ltd. and TCW High Income Partners II, Ltd. The Trust
Company of the West is the ultimate beneficial holder of these shares. The
address for Trust Company of the West is 11100 Santa Monica Boulevard,
Suite 2000, Los Angeles, CA 90025.
(7) Includes 312,500 unvested shares of restricted stock. These shares shall
vest on the next anniversary of the Effective Date (October 8, 2006), if
as of such date, Mr. Barrett is still in our employ.
(8) Includes 238,970 unvested shares of restricted stock. These shares shall
vest on the next anniversary of the Effective Date (October 8, 2006), if
as of such date, Mr. LaChey is still in our employ.
(9) Includes 101,103 unvested shares of restricted stock. These shares shall
vest on the next anniversary of the Effective Date (October 8, 2006), if
as of such date, Mr. DeRita is still in our employ.
(10) Includes 36,765 unvested shares of restricted stock. These shares shall
vest on the next anniversary of the Effective Date (October 8, 2006), if
as of such date, Mr. Andrews is still in our employ.
(11) Pursuant to the Plan of Reorganization, Messrs. Cohen, Duster, Farrell and
Marshall each received 200,000 shares of common stock as of the Effective
Date.
(12) Excludes 433,824 shares beneficially owned by other managerial employees.
Collectively, our management and directors own an aggregate of 4,800,000
shares of common stock.
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DESCRIPTION OF NEW CREDIT FACILITY
STRUCTURE
The New Credit Facility matures on October 9, 2009 and provides for a
revolving credit line of up to $92.1 million (with a $5.0 million sublimit
available for letters of credit) and a term loan in the aggregate original
principal amount of $22.085 million. Availability under the revolver is based on
various advance rates compared against a borrowing base consisting of Neenah's
accounts receivable, inventory and property, plant and equipment. Based on the
formulas under the New Credit Facility, as of December 31, 2005 we had $15.8
million in terms loans outstanding under the New Credit Facility, $35.4 million
outstanding in revolving loans and the maximum amount of unused commitment
available was $40.9 million. The New Credit Facility is secured by a first
priority, perfected security interest in substantially all of Neenah's tangible
and intangible assets.
Capitalized terms used in this section and not defined herein are defined
in the credit agreement governing the New Credit Facility, that we hereinafter
refer to as the Credit Agreement.
INTEREST RATES AND FEES
Interest on borrowings under the New Credit Facility accrues daily with
reference to the base rate, hereinafter referred to as the Base Rate, plus the
applicable interest margin; however, the Company may elect that all or a portion
of the borrowings under the facility bear interest at the Adjusted LIBOR Rate
plus the applicable interest margin. The Base Rate is defined as the higher of
(i) the prime rate for commercial loans announced or quoted and in effect on
such day and (ii) the federal funds rate in effect on such date, plus 1/2%. The
Adjusted LIBOR Rate is defined as the rate offered for deposits in U.S. dollars
for a period of time comparable to the applicable interest period which appears
on the Telerate page 3730.
The New Credit Facility contains provisions under which commitment fees
and interest rates are adjusted in increments based on the ratio, hereinafter
referred to as the Fixed Charge Coverage Ratio, of consolidated EBITDA to
interest expense and scheduled principal payments on our outstanding debt which
are each adjusted in accordance with the Credit Agreement.
Outstanding principal balances under the New Credit Facility will accrue
interest at the base rate or the LIBOR rate, as applicable, plus in each case,
the margin applicable to such advances shall be determined as set forth in the
following table.
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BASE RATE BASE RATE LIBOR LIBOR
REVOLVING TERM REVOLVING TERM UNUSED
FIXED CHARGE COVERAGE RATIO PORTION PORTION PORTION PORTION LINE FEE
- ------------------------------------------------------------- --------- --------- --------- ------- --------
Less than 1.15 to 1.00 ...................................... 1.00% 1.50% 2.50% 3.00% 0.500
Greater than or equal to 1.15 to 1.00 and less than 1.25 to
1.00 ....................................................... 0.75% 1.25% 2.25% 2.75% 0.500
Greater than or equal to 1.25 to 1.00 and less than 1.45 to
1.00 ....................................................... 0.50% 1.00% 2.00% 2.50% 0.375
Greater than or equal to 1.45 to 1.00 ....................... 0.25% 0.75% 1.75% 2.25% 0.375
The initial Applicable Margin (as amended on July 28, 2005) for the Base
Rate Revolving Portion, the Base Rate Term Portion, the LIBOR Revolving Portion,
the LIBOR Term Portion and the Unused Line Fee is 0.25%, 0.75%, 1.75%, 2.25% and
0.375%, respectively.
We have agreed to pay certain fees with respect to the New Credit Facility
including (i) fees on the unused commitments of lenders equal to the Applicable
Margin for the Unused Line Fee, (ii) letter of credit fees on the aggregate face
amount of outstanding letters of credit equal to the then applicable borrowing
margin for LIBOR Revolving Portions and a fronting fee of 0.125% per annum on
the face amount of outstanding letters of credit and an issuing bank fee for the
bank issuing a letter of credit, and (iii) agent, arrangement and other similar
fees.
LIMITATION ON INDEBTEDNESS
The New Credit Facility prevents Neenah and its subsidiaries from creating
or incurring any debt other than the obligations owed (i) under the New Credit
Facility; (ii) under the 13% Senior Subordinated Notes due 2013; (iii) under the
Notes, (iv) on their capitalized lease obligations; (v) prior to the execution
of the New Credit Facility; (vi) that are permitted guaranties; (vii) that are
permitted indebtedness including certain enumerated liens; (viii) from the
ordinary course of business, subject to certain limits and restrictions and (ix)
in connection with the refinancing of any indebtedness permitted under the New
Credit Facility, subject to certain restrictions.
FINANCIAL COVENANTS
During the term of the New Credit Facility and so long as any obligations
thereunder remain outstanding, Neenah and the subsidiary borrowers are required
to comply with a fixed charge coverage ratio as described below. For purposes of
calculating such ratio Neenah and the subsidiary borrowers agree to the
application of certain defined terms to the operative sections of the New Credit
Facility. The defined terms include EBITDA, fixed charge coverage ratio, fixed
charges and interest expense.
Under the financial covenants, Neenah and the borrower subsidiaries must
maintain their fixed charge coverage ratio higher than or equal to 1.15 to 1.00.
SECURITY AND GUARANTEES
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NFC and the inactive subsidiaries of Neenah jointly and severally
guarantee Neenah's obligations under the New Credit Facility. Our obligations
under the New Credit Facility are secured by a first priority security interest
in all or substantially all of the assets of each borrower and each guarantor.
The Notes, and the guarantees in respect thereof, are equal in right of payment
to the New Credit Facility, and the guarantees in respect thereof. The liens in
respect of the Notes are junior to the liens securing the New Credit Facility
and guarantees thereof.
COVENANTS
The New Credit Facility requires Neenah to observe certain customary
conditions, affirmative covenants and negative covenants (including financial
covenants).
MATURITY AND AMORTIZATION
The term loan advanced under the New Credit Facility is repayable in equal
consecutive quarterly installments, based on a seven-year straight line
amortization rate, and the remaining outstanding principal is repaid at
maturity, which is from October 8, 2008. There is no cash flow sweep mechanism
that would require additional principal repayments on the term loan.
PREPAYMENTS
Optional Prepayments. Optional prepayments are permitted under the New
Credit Facility, including the right to reduce the commitments under the
revolving loan facility, subject to a 0.50% fee based on the amount of the
underlying commitments terminated before October 8, 2007.
Mandatory Prepayments. Mandatory prepayments are required as follows: (i)
50% of the net proceeds from the issuance of debt or equity to non-affiliates;
(ii) 100% of the net proceeds received from the sale or disposition of all or
any part of the assets other than: (A) sales in the ordinary course of business,
(B) permitted sales to be agreed, subject to the reinvestment of the net
proceeds thereof (or the commitment to reinvest) within 180 days, (C) other
sales not in the ordinary course of business not to exceed in any fiscal year an
amount to be agreed and (D) assets secured by purchase money security interest;
(iii) 100% of insurance proceeds not reinvested or not committed to reinvestment
within 180 days with such commitment reinvestment to occur within 360 days from
when the insurance proceeds are received and (iv) 100% of the proceeds from tax
refunds, indemnity payments of pension plan reversions actually received.
COSTS AND EXPENSES
Neenah paid and shall pay all reasonable costs and expenses of the
administrative agent (including all reasonable fees, expenses and disbursements
of outside counsel and other professional advisors retained by the
administrative agent) in connection with the preparation, execution and delivery
of the definitive credit documentation and the funding of all loans in
connection therewith.
- 59 -
DESCRIPTION OF THE NOTES
The Notes were issued under an Indenture, dated October 8, 2003 (the
"Indenture"), among the Company, the Subsidiary Guarantors and The Bank of New
York, as trustee (the "Trustee"). The following is a summary of certain
provisions of the Indenture and the Notes.
The definitions of certain capitalized terms used in this description are
set forth below under "Certain Definitions." References in this "Description of
the Notes" section to the "Company" mean only Neenah Foundry Company and not any
of its subsidiaries.
GENERAL
The Notes were issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Company appointed
the Trustee to serve as registrar and paying agent under the Indenture at its
offices in New York, New York. No service charge will be made for any
registration of transfer or exchange of the Notes, except for any tax or other
governmental charge that may be imposed in connection therewith.
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes are limited to $100,000,000 million aggregate principal amount
and will mature on September 30, 2013. Subject to compliance with the covenant
described under "-- Certain Covenants -- Limitation on the Incurrence of
Indebtedness and Issuance of Disqualified Stock," the Company may issue
Additional Notes from time to time in the future. Any Additional Notes will be
part of the same issue as the Notes being issued in this offering and will vote
on all matters as one class with the Notes being issued in this offering. For
purposes of this "Description of the Notes," except for the covenants described
under "-- Certain Covenants -- Limitations on Indebtedness," references to the
Notes include Additional Notes, if any. The coupon rate on the Notes is 13% per
annum. Cash interest on the Notes will accrue at a rate of 5% per annum and 8%
interest may be paid-in-kind. Interest on the Notes will be payable semiannually
in arrears on January 1 and July 1 of each year (each an "Interest Payment
Date"), commencing July 1, 2004, to the holders of record of Notes on the
preceding December 15 or June 15, as applicable. Interest will be computed on
the basis of a 360-day year consisting of twelve 30-day months and will be paid
to holders of the Notes from the date of original issuance.
RANKING
The Notes are:
- general unsecured obligations of the Company;
- subordinate in right of payment with all existing and future Senior
Indebtedness of the Company; and
- senior in right of payment to any existing and future subordinated
unsecured Indebtedness of the Company.
Pursuant to the Indenture, the Notes are senior to all of the Company's
subordinated unsecured indebtedness and subordinate to the New Credit Facility
and the 11% Senior Secured Notes due 2010. Five percent of the interest on the
Notes will be paid in cash and 8% interest may be paid-in-kind. As of December
31, 2005 we had approximately $51.2 million of
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Indebtedness outstanding under the Credit Agreement, with $40.9 million in
additional revolving loan capacity. In addition, under the Indenture, the
Company may also incur additional Indebtedness as described below under "--
Certain Covenants -- Limitation on Additional Indebtedness" and "Certain
Covenants -- Limitation on Liens." Any amounts drawn under our New Credit
Facility will rank senior to the Notes. See "Description of New Credit
Facility."
GUARANTEES OF THE NOTES
Each of the Subsidiary Guarantors has unconditionally guaranteed on a
joint and several basis all of the Company's Obligations under the Notes,
including its obligations to pay principal, premium and interest with respect to
the Notes.
Each Guarantee is:
- a general unsecured obligation of the Guarantor;
- subordinate in right of payment with all existing and future Senior
Indebtedness of the Subsidiary Guarantors; and
- senior in right of payment to existing and future subordinated
unsecured Indebtedness of the Subsidiary Guarantors.
- senior in right of payment to any existing and future subordinated
Indebtedness of the Company.
The obligations of each Subsidiary Guarantor will not be discharged except
by complete performance of the Obligations contained in the Notes and Indenture.
Each Guarantor that makes a payment or distribution under a Subsidiary Guarantee
shall be entitled to seek contribution from each non-paying Subsidiary Guarantor
so long as the exercise of such right does not impair the rights of Holders
under the Subsidiary Guarantees.
The Company shall cause each Restricted Subsidiary issuing a Subsidiary
Guarantee after the date of the Indenture to execute and deliver to the Trustee
a supplemental indenture and the applicable documents and certificates required
by the Indenture, pursuant to which such Restricted Subsidiary shall become a
party to the Indenture and thereby unconditionally guarantee all of the
Company's Obligations under the Notes and the Indenture on the terms set forth
therein. Thereafter, such Restricted Subsidiary shall (unless released in
accordance with the terms of the Indenture) be a Subsidiary Guarantor for all
purposes of the Indenture.
The Obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee are junior and subordinated to the Senior Indebtedness to the extent
applicable to such Subsidiary Guarantor on the same basis as the Notes are
junior and subordinated to the Senior Indebtedness of the Company. For the
purposes of the foregoing sentence, the Trustee and the Holders shall have the
right to receive and/or retain payments by any of the Subsidiary Guarantors only
at such times as they may receive and/or retain payments in respect of the Notes
pursuant to the Indenture.
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The Indenture provides that if the Notes thereunder are defeased in
accordance with the terms of the Indenture, all of the assets of a Subsidiary
Guarantee sold or disposed of in a transaction that complies with the Indenture
or the Company designates a Subsidiary Guarantor to be an Unrestricted
Subsidiary in a transaction that complies with the Indenture, then such
Subsidiary Guarantor (in the event of a sale or other disposition of all of the
Equity Interests of such Subsidiary Guarantor) or the corporation acquiring such
assets (in the event of a sale or other disposition of all or substantially all
of the assets of such Subsidiary Guarantor) shall be released and discharged of
its Subsidiary Guarantee obligations under the Indenture and the Notes.
As of December 31, 2005, the Subsidiary Guarantors had an aggregate of $0
in senior indebtedness.
SUBORDINATION
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or any Restricted Subsidiary or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or any Restricted Subsidiary or its property, an assignment for the
benefit of creditors or any marshaling of the Company's or any Restricted
Subsidiary's assets and liabilities, in each such case whether voluntary or
involuntary, domestic or foreign:
(a) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash or Cash Equivalents of all Obligations due in
respect of such Senior Indebtedness (including interest after the
commencement of any such proceeding) in accordance with the terms of the
applicable Senior Indebtedness before Holders shall be entitled to receive
any payment or other distribution in respect of the Subordinated
Obligations; and
(b) until all Obligations with respect to Senior Indebtedness are
paid in full in cash or Cash Equivalents, any such distribution to which
Holders would be entitled shall be made to the holders of such Senior
Indebtedness;
provided that notwithstanding the foregoing, Holders may receive: (i) Capital
Stock (other than Disqualified Stock); (ii) securities that are subordinated at
least to the same extent as the Notes, to Senior Indebtedness and to any
securities issued in exchange for such Senior Indebtedness; and (iii) payments
made from the trust described in "-- Legal Defeasance and Covenant Defeasance"
below to the extent deposited into such trust prior to the commencement of the
applicable proceeding.
In order to enable the Representative to enforce its rights hereunder in
any of the aforesaid actions or proceedings, the Representative is hereby
irrevocably authorized in its discretion, to the extent that the Trustee does
not do so at least 30 days before the expiration of the time to do so, to file
and vote such proofs of claim in respect of the Subordinated Obligations as the
Representative deems appropriate, and to collect any and all dividends or other
payments or disbursements made thereon in whatever form the same may be paid or
issued. The Representative is hereby authorized to demand, sue for, collect and
receive each of the aforesaid
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payments and distributions and give acquittance therefore, and to take such
other actions as the Representative deems necessary or advisable to enforce said
rights.
Neither the Company nor any Restricted Subsidiary may make, and neither
the Trustee or any Holder may accept, any payment with respect to the
Subordinated Obligations other than:
- regularly scheduled payments of interest in respect of the Notes on
a non-accelerated basis,
- regularly scheduled payments of principal in respect of the Notes on
a non-accelerated basis,
- payments of indemnities, costs and expenses reimbursable by the
Company and the Restricted Subsidiaries pursuant to the terms of the
Notes and the Indenture,
- Note repurchases out of Excess Proceeds as provided in "-- Certain
Covenants -- Asset Sales" below and
- payments set forth in "-- Subordination -- Liquidation;
Dissolution; Bankruptcy" above (collectively, "Permitted Payments").
Notwithstanding the foregoing, no Permitted Payment may be made by
the Company or any Restricted Subsidiary or received by the Trustee
or any Holder if: (i) a default in the payment of the principal,
premium, if any, or interest on any Senior Indebtedness occurs and
is continuing beyond any applicable period of grace; or (ii) any
other default occurs and is continuing with respect to Senior
Indebtedness or would occur as a consequence of such payment that
permits holders of the Senior Indebtedness as to which such default
relates to accelerate its maturity and the Trustee receives a
written notice of such default (a "Payment Blockage Notice") from
the Representative of the Senior Indebtedness.
The Company may and shall resume payment on the Notes: (1) in the case of
a payment default, upon the date on which such default is cured or waived or
otherwise has ceased to exist, and (2) in the case of a non-payment default, the
earlier of the date on which such other default is cured or waived or otherwise
has ceased to exist or 179 days after the date on which the applicable Payment
Blockage Notice is received (a "Payment Blockage Period"), unless, in the case
of either clause (1) or (2), the maturity of any Senior Indebtedness has been
accelerated, and such acceleration remains in full force and effect. Payment
Blockage Periods shall not exceed an aggregate of 179 days during any period of
360 consecutive days. No default in respect of Senior Indebtedness shall be
deemed to have been waived for these purposes unless and until the Company shall
have received a written waiver from the holders of such Senior Indebtedness to
that effect. No non-payment default that existed or was continuing on the date
of delivery of any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice, unless the same shall have
ceased to exist for a period of at least 60 consecutive days. Following the
expiration of any period during which the Company and the Restricted
Subsidiaries are prohibited from making payments on the Notes pursuant to a
Payment Blockage Notice, the Company will be obligated to resume making any and
all required payments in respect of the Notes, including without limitation any
missed payments, unless either a payment default is in existence or the maturity
of any Senior Indebtedness has been accelerated, and such acceleration remains
in full force and effect.
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In the event that the Trustee receives or is holding, or any Holder
receives, any payment of any principal, premium or interest on the Notes at a
time when the Trustee or such Holder, as applicable, has actual knowledge (in
the case of the Trustee as described in "-- Subordination -- Rights of Trustee
and Paying Agent" below), that such payment is prohibited by "-- Subordination
- -- Liquidation; Dissolution; Bankruptcy" or as otherwise prohibited under the
Indenture, such payment shall be held by the Trustee or such Holder, in trust
for the benefit of, and shall be paid forthwith over and delivered to, the
holders of Senior Indebtedness as their interests may appear or to the
Representative or agent under the indenture or other agreement (if any) pursuant
to which Senior Indebtedness may have been issued, as their respective interests
may appear, for application to the payment of all Obligations with respect to
the Senior Indebtedness remaining unpaid to the extent necessary to pay such
Obligations in full in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform only such obligations on the part of the Trustee as are specifically
set forth in the Indenture, and no implied covenants or obligations with respect
to the holders of Senior Indebtedness shall be read into this Indenture against
the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness, and shall not be liable to any such holders if
the Trustee shall pay over or distribute to or on behalf of Holders or the
Company or any other Person money or assets to which any holders of Senior
Indebtedness shall be entitled by virtue of the Indenture, except if such
payment is made as a result of the willful misconduct or gross negligence of the
Trustee.
After all Senior Indebtedness is paid in full and until the Notes are paid
in full, Holders shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness. A distribution made under the Indenture to
holders of Senior Indebtedness that otherwise would have been made to Holders is
not, as between the Company and Holders, a payment by the Company on the Notes.
If any payment or distribution to which the Holders would otherwise have
been entitled but for the provisions of the Indenture shall have been applied,
pursuant to the provisions of the Indenture, to the payment of all amounts
payable under the Senior Indebtedness, then and in such case the Holders shall
be entitled to receive from the holders of such Senior Indebtedness at the time
outstanding any payments or distributions received by such holders of such
Senior Indebtedness in excess of the amount sufficient to pay all amounts
payable under or in respect of such Senior Indebtedness in full; provided that
such payments or distributions shall be paid first pro rata to Holders that
previously paid amounts then pro rata to all Holders.
OPTIONAL REDEMPTION
The Notes are and will be redeemable at the option of the Company, in
whole or in part, from time to time at the option of the Company and subject to
compliance with the requirements of the Indenture, at the Redemption Prices
(expressed as a percentage of principal amount) set forth below, with respect to
the indicated Redemption Date plus accrued
- 64 -
and unpaid interest thereon, if any, to, but excluding the Redemption Date, if
redeemed during the 12-month period beginning on September 30, of the years
indicated below:
REDEMPTION
YEAR PRICE
- ---- ----------
2003................... 103%
2004................... 102%
2005................... 101%
2006 and thereafter.... 100%
The Company may acquire the Notes by means other than a redemption,
whether by tender offer, open market purchases, negotiated transactions or
otherwise, in accordance with applicable securities laws, so long as such
acquisition does not otherwise violate the terms of the Indenture.
In the event that less than all of the Notes are to be redeemed at any
time pursuant to an optional redemption, selection of such Notes for redemption
will be made by the Trustee in compliance with the requirements of any
applicable depository, legal and national securities exchange or automated
quotation system, if any, on which the Notes are listed or, if the Notes are not
then listed on a national securities exchange, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate; provided, however,
that no Notes of a principal amount of $1,000 or less shall be redeemed in part.
Notice of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before a Redemption Date to the Trustee and each Holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. On and after
the Redemption Date, interest will cease to accrue on any Notes or portions
thereof called for redemption as long as the Company has deposited with the
paying agent for the Notes funds in satisfaction of the applicable redemption
price pursuant to the Indenture.
Factors that may influence the Company's decision to redeem the Notes
include the ability to refinance the Notes at a lower interest rate.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
In the event that a Change of Control occurs, each Holder shall have the
right, at such Holder's option, subject to the terms and conditions of the
Indenture, to require the Company to repurchase all or any part of such Holder's
Notes (provided, that the principal amount of such Notes must be $1,000 or an
integral multiple thereof) on a date to be established by the Company (the
"Change of Control Payment Date") after the occurrence of such Change of
Control, at a cash price (the "Change of Control Repurchase Price") equal to
101% of the aggregate principal amount thereof, together with accrued and unpaid
interest thereon to, but excluding, the Change of Control Payment Date.
If a Change of Control were to occur and all holders subsequently caused
the Company to redeem their Notes at 101% of the face amount together with
accrued and unpaid interest thereon, we may not have all funds necessary at that
time to satisfy our obligations under the Indenture and our Credit Agreement.
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In the event that, pursuant to the terms of the Indenture, the Company
shall be required to commence an offer to purchase the Notes (the "Change of
Control Offer"), the Company will comply with the terms of the Indenture and all
applicable tender offer laws and regulations and any violation of the provisions
of the Indenture relating to such Change of Control Offer occurring as a result
of such compliance shall not be deemed an Event of Default or an event that,
with the passing of time or giving of notice, or both, would constitute an Event
of Default.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
CERTAIN COVENANTS
Limitation on Incurrence of Indebtedness and Issuance of Disqualified
Stock. The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to (collectively,
"incur" and, correlatively, "incurred" and "incurrence") any Indebtedness
(including, without limitation, Acquired Debt), and the Company shall not issue
any Disqualified Stock and shall not permit any of its Restricted Subsidiaries
to issue any preferred stock; provided, however, that the Company and its
Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) if
after giving effect to the incurrence of such Indebtedness and the application
of the proceeds thereof, the Consolidated Coverage Ratio of the Company and its
Restricted Subsidiaries (on a consolidated basis) would not exceed 2.00 to 1.00.
The foregoing limitations shall not apply to:
(i) Indebtedness incurred by the Company and its Restricted
Subsidiaries under the Credit Agreement in an aggregate principal amount
at the time incurred equal to the greater of (i) $102 million and (ii) the
Borrowing Base Amount;
(ii) Indebtedness represented by the Senior Secured Notes;
(iii) additional Indebtedness incurred by the Company in respect of
Capital Lease Obligations or Purchase Money Obligations in an aggregate
principal amount not to exceed $10,000,000 at any time outstanding;
(iv) Indebtedness represented by the Notes and the Indenture;
(v) Hedging Obligations incurred by the Company pursuant to
agreements or other arrangements designed to protect the Company against
fluctuations in interest rates and/or currency exchange rates resulting
from its borrowings under the Credit Agreement;
(vi) additional unsecured Indebtedness which is subordinate in right
of payment to the Notes, not to exceed $5,000,000 at any time outstanding;
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(vii) Indebtedness of the Company to any of its Wholly Owned
Subsidiaries that is a Restricted Subsidiary, and Indebtedness of any
Wholly Owned Subsidiary of the Company that is a Restricted Subsidiary to
the Company or any of its Wholly Owned Subsidiaries that is a Restricted
Subsidiary (the Indebtedness incurred pursuant to this clause (vii) being
hereinafter referred to as "Intercompany Indebtedness"); provided that in
the case of Intercompany Indebtedness of the Company (other than
Intercompany Indebtedness pursuant to the Credit Agreement) such
obligations shall be unsecured and subordinated in all respects to the
Company's obligations pursuant to the Notes; provided, further, that an
incurrence of Indebtedness shall be deemed to have occurred upon (a) any
sale or other disposition of Intercompany Indebtedness to a Person other
than the Company or any of its Restricted Subsidiaries, (b) any sale or
other disposition of Equity Interests of any Restricted Subsidiary of the
Company which holds Intercompany Indebtedness such that such Restricted
Subsidiary ceases to be a Restricted Subsidiary after such sale or other
disposition or (c) designation of a Restricted Subsidiary as an
Unrestricted Subsidiary;
(viii) the incurrence by the Company of Indebtedness issued in
exchange for, or the proceeds of which are used to extend, refinance,
renew, replace, defease or refund Indebtedness incurred pursuant to the
Consolidated Coverage Ratio test set forth in the first paragraph of this
covenant or pursuant to clauses (i), (ii) or (iv) of this covenant in
whole or in part (the "Refinancing Indebtedness"); provided, however, that
(A) (i) the aggregate principal amount of any Refinancing Indebtedness
(other than a Credit Agreement Refinancing Indebtedness) shall not exceed
the aggregate principal amount of Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded and (ii) the aggregate principal
amount of any Credit Agreement Refinancing Indebtedness may exceed the
aggregate principal amount of Indebtedness incurred under the Credit
Agreement so extended, refinanced, renewed, replaced, defeased or refunded
only to the extent permitted under Clause (i) of this caption "-- Certain
Covenants -- Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock"; (B) the Refinancing Indebtedness shall have a
Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; (C) if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is pari
passu with or subordinated in right of payment to the Notes, the
Refinancing Indebtedness shall be pari passu with or subordinated, as the
case may be, in right of payment to the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded (any such extension, refinancing, renewal,
replacement, defeasance or refunding being referred to as a "Permitted
Refinancing");
(ix) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities, or obligations in respect of
purchase price adjustments, in connection with the acquisition or
disposition of any business, assets or Subsidiary of the Company permitted
under the Indenture;
(x) Indebtedness of the Company or a Restricted Subsidiary owed to
any Person in connection with liability insurance provided by such Person
to the Company or such
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Restricted Subsidiary, pursuant to reimbursement or indemnification
obligations to such Person, in each case incurred in the ordinary course
of business;
(xi) Guarantees of Indebtedness permitted to be incurred under the
Indenture;
(xii) Indebtedness in respect of performance bonds; and
(xiii) Indebtedness not included in paragraphs (i) through (xii)
above which does not exceed at any time, in the aggregate, $2,000,000.
Limitation on Restricted Payments. The Company shall not, and shall not
permit any of its Restricted Subsidiaries to, directly or indirectly:
(a)
(i) declare or pay any dividend or make any distribution on account
of Equity Interests, other than
(A) dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company; or
(B) dividends or distributions payable to the Company or a
Wholly Owned Subsidiary of the Company that is a Restricted
Subsidiary;
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company (other than any such Equity Interests
owned by the Company or a Wholly Owned Subsidiary of the Company that is a
Restricted Subsidiary);
(iii) purchase, redeem, repay, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated in right of payment
to the Notes except for regularly scheduled payments of interest when due
or payment of principal at maturity thereof;
(iv) make any Investment (other than a Permitted Investment);
(all such payments and other actions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted
Payments");
unless, at the time of and after giving effect to such Restricted
Payment:
(A) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(B) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Consolidated Coverage Ratio
test set forth under "-- Certain
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Covenants -- Limitation on the Incurrence of Indebtedness and
Issuance of Disqualified Stock"; and
(C) such Restricted Payment (the amount of any such payment,
if other than cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by
a resolution in an Officers' Certificate delivered to the Trustee),
together with the aggregate of all other Restricted Payments made by
the Company and its Restricted Subsidiaries after the date of the
Indenture (including Restricted Payments permitted by the next
succeeding paragraph, except as set forth therein), shall not exceed
the sum of (w) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) commencing on the first
day of the Company's first fiscal quarter beginning after the
initial issuance of the Notes and ending on the last day of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, 100% of such deficit as a negative number), plus (x) 100%
of the aggregate net cash proceeds received by the Company from the
issuance or sale since the date of initial issuance of the Notes of
Equity Interests of the Company or of debt securities of the Company
that have been converted into such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock), plus
(y) the aggregate cash received by the Company as capital
contributions to the Company after the date of initial issuance of
the Notes (other than from a Subsidiary), plus (z) any cash received
by the Company after the date of initial issuance of the Notes as a
dividend or distribution from any of its Unrestricted Subsidiaries
or from the sale of any of its Unrestricted Subsidiaries less the
cost of disposition and taxes, if any (but in each case excluding
any such amounts included in Consolidated Net Income).
(b) The foregoing provisions shall not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture;
(ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company, or the defeasance, redemption or
repurchase of subordinated Indebtedness in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of Equity Interests of the Company (other than any
Disqualified Stock) or out of the net proceeds of a substantially
concurrent cash capital contribution received by the Company; provided
that the amount of any such proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from Clause (C)(x) above this section "-- Certain Covenants
-- Limitation on Restricted Payments";
(iii) the repayment, defeasance, redemption or repurchase of
subordinated Indebtedness with the net proceeds from an incurrence of
Refinancing Indebtedness in a Permitted Refinancing;
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(iv) any Investment made with the proceeds of a substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of
Capital Stock of the Company (other than Disqualified Stock); provided,
however, the proceeds of such sale shall not be (and have not been)
included in Clause (C) above this section "-- Certain Covenants --
Limitation on Restricted Payments";
(v) other restricted payments of up to $5,000,000 in the aggregate;
or
(vi) the payment of a dividend or distribution by the Company and
its Subsidiaries, directly or indirectly, to ACP Holding in an amount
sufficient to permit ACP Holding to pay its consolidated, combined or
unitary United States federal, state and local tax liabilities relating to
the business of the Company and its Subsidiaries, provided that ACP
Holding applies the amount of such dividend or distribution for such
purpose at such time;
(vii) payments by the Company to NFC Castings or ACP Holding not to
exceed an amount necessary to permit NFC Castings or ACP Holding to (A)
make payments in respect to its indemnification obligations owing to
directors, officers, or other Persons under NFC Castings' or ACP Holding's
charter or by-laws or pursuant to written agreements with any such Person,
(B) make payments in respect of its other operational expenses (other than
taxes) incurred in the ordinary course of business, or (C) make payments
in respect of indemnification obligations and costs and expenses incurred
by ACP Holding in connection with any offering of common stock of ACP
Holding; or
(viii) distributions by the Company and the Restricted Subsidiaries
in amounts necessary to permit such Person to repurchase securities of
such Person from employees of such Person upon the termination of their
employment, so long as the aggregate cash amount of all such Distributions
by all such Persons, measured at the time when made, does not exceed
$250,000 in any fiscal year of the Company.
provided, further, however, that at the time of, and after giving effect
to, any Restricted Payment permitted under clauses (i), (ii), (iii), (v) and
(viii) above no Default or Event of Default shall have occurred and be
continuing; provided, further, that the Restricted Payments described in clauses
(vi) and (vii), shall not be counted in computing the aggregate amount of all
Restricted Payments made pursuant to the Indenture.
For purposes of the foregoing calculations, the amount of any Investment
that constitutes a Restricted Payment shall be equal to the greater of (i) the
net book value of such Investment and (ii) the fair market value of such
Investment (in each case as certified by a resolution of the independent
directors of the Company if the book value or fair market value of such
investment exceeds $1,000,000).
Limitation on Liens. The Company shall not, and shall not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Liens on any asset now owned or acquired after the
date of the Indenture or any income or profits therefrom or assign or convey any
right to receive income therefrom, except Permitted Liens; provided, that, in
the case of Permitted Liens securing Indebtedness that is expressly subordinate
or junior in right of payment to the Notes or a Subsidiary Guarantee, the Notes
or such
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Subsidiary Guarantee is secured by a Lien on such property, assets or proceeds
that is senior in priority to such Liens.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company shall not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries (a) on its Capital Stock or (b) with
respect to any other interest or participation in, or measured by, its
profits;
(ii) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries;
(iii) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(iv) transfer any of its properties or assets to the Company or any
of its Restricted Subsidiaries;
except for such encumbrances or restrictions existing under or by reason of (a)
the agreements evidencing the Senior Indebtedness and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of those agreements; provided that they are not
materially more restrictive than the similar restrictions contained in those
agreements on the date of the Indenture, (b) the Indenture and the Notes, (c)
applicable law, (d) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, (e) customary nonassignment provisions in leases entered
into in the ordinary course of business and consistent with past practices, (f)
Purchase Money Obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iv) above
on the property so acquired, (g) Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Refinancing Indebtedness
are no more restrictive with respect to the provisions set forth in clauses (i),
(ii), (iii) and (iv) above than those contained in the agreements governing the
Indebtedness being refinanced, (h) any agreement for the sale or other
disposition of a Restricted Subsidiary that restricts distributions by that
Restricted Subsidiary pending its sale or other disposition or (i) restrictions
on cash or other deposits or net worth imposed by customers or suppliers under
contracts entered into in the ordinary course of business.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit, cause, or suffer any Restricted Subsidiary of the Company to,
directly or indirectly, sell, lease, license, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into any contract, agreement, understanding, loan, advance or
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guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless:
(i) such Affiliate Transaction is on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable arms' length transaction by
the Company or such Restricted Subsidiary with an unrelated Person; and
(ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction involving aggregate payments in excess of $500,000,
a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with
clause (i) above and such Affiliate Transaction is approved by a majority
of the disinterested members, if any, of the Board of Directors and (b)
with respect to any Affiliate Transaction involving aggregate payments in
excess of $20,000,000, an opinion as to the fairness to the Company or
such Restricted Subsidiary from a financial point of view issued by a
nationally recognized independent financial advisor;
provided, however, that the foregoing limitations shall not apply to (i) any
reasonable fees, advances and compensation (including incentive compensation)
provided to, and indemnity provided on behalf of, officers, directors and
employees of NFC Castings, ACP Holding, the Company and its Restricted
Subsidiaries as determined in good faith by the Board of Directors of the
Company, (ii) transactions between or among the Company and its Wholly Owned
Subsidiaries that are Restricted Subsidiaries, (iii) Restricted Payments
permitted under "Limitation on Restricted Payments", (iv) payment of principal
of, and interest on, the Notes or the Senior Subordinated Notes held by
Affiliates, (v) payment of the Commitment Fee, (vi) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (vii) transactions pursuant
to agreements entered into or in effect on the date of the Indenture, including
amendments thereto entered into after the date of the Indenture, provided that
(A) the terms of any such amendment are not, in the aggregate, less favorable to
the Company or such Restricted Subsidiary than the terms of such agreement prior
to such amendment and (B) the transactions contemplated by such amendment are
otherwise permitted by the Indenture, (viii) Intercompany Indebtedness permitted
to be incurred under "-- Certain Covenants -- Limitation on the Incurrence of
Indebtedness and Issuance of Disqualified Stock" or (ix) non-exclusive licenses
of intellectual property among the Company and the Restricted Subsidiaries or
among the Restricted Subsidiaries.
Limitation on Lines of Business. The Company shall not, and shall not
permit any Restricted Subsidiary to, engage in any business other than a Related
Business.
Limitation on Layering Debt. Neither the Company nor any Subsidiary
Guarantor shall incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
any Senior Indebtedness of the Company and senior in any respect in right of
payment to the Notes or the Subsidiary Guarantees, as applicable.
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Future Guarantors. The Company shall cause each Person that (a) becomes a
Domestic Restricted Subsidiary following the date of the Indenture and (b)
guarantees any Indebtedness of the Company or any Subsidiary thereof to execute
and deliver to the Trustee a Subsidiary Guarantee at the time such Person
becomes obligated under any such Guarantee.
Payments for Consent. Neither the Company, nor any of the Company's
Subsidiaries, shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or agreed to be paid to all holders of the Notes which so
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Asset Sales. Neither the Company nor any of its Restricted Subsidiaries
shall engage in any Asset Sale, unless:
(i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to
the Fair Market Value (evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee) of the
assets sold or otherwise disposed of; and
(ii) at least 20% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of Cash or Cash
Equivalents; provided, however, that if the Fair Market Value of the
assets sold or otherwise disposed of exceeds $10,000,000, at least 75% of
the consideration therefor received by the Company or such Restricted
Subsidiaries is in the form of Cash or Cash Equivalents;
provided, further, however, that the amount of (a) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet or in
the notes thereto) of the Company or such Restricted Subsidiary (other than
liabilities that are by their terms subordinated in right of payment to the
Notes) that are assumed by the transferee of any such assets and (b) any notes
or other obligations received by the Company or such Restricted Subsidiary from
such transferee that are converted within 60 days by the Company or such
Restricted Subsidiary into cash (to the extent of the cash so received), shall
be deemed to be cash for purposes of clause (ii) above.
Within 180 days after the receipt of the Net Proceeds from an Asset Sale,
the Company shall apply the Net Proceeds from such Asset Sale to repay the Term
Loan, and to the extent such Indebtedness is paid in full, to repay the Revolver
(but shall not permanently reduce the commitment thereunder). Pending the final
application of any such Net Proceeds, the Company may invest such Net Proceeds
in any manner that is not prohibited by this Indenture. Any Net Proceeds from
the Asset Sale that are not applied as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate cumulative amount of Excess Proceeds exceeds
$5,000,000, the Company shall make an offer to all Holders of Notes to purchase
the maximum principal amount of Notes that may be purchased with the Excess
Proceeds, at an offer price in cash in an amount
- 73 -
equal to 100% of the principal amount thereof plus accrued and unpaid interest
thereon to the date of purchase, in accordance with the procedures set forth in
this section "-- Certain Covenants -- Asset Sales" (an "Asset Sale Offer"). To
the extent that the aggregate principal amount of Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Company may use such
deficiency for general corporate purposes in any manner not prohibited by the
Indenture.
If the aggregate principal amount of Notes surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
In the event that the Company shall be required to commence an Asset Sale
Offer to all Holders to purchase Notes pursuant to this section "-- Certain
Covenants -- Asset Sales", it shall follow the procedures specified below.
The Asset Sale Offer shall be commenced within 30 days following the first
date on which the Company has cumulative Excess Proceeds of at least $5,000,000
and remain open for a period of at least 30 and not more than 40 days, except to
the extent that a longer period is required by applicable law (the "Repurchase
Offer Period"). No later than five Business Days after the termination of the
Offer Period (the "Repurchase Date"), the Company shall purchase the principal
amount of Notes required to be purchased pursuant to this section "-- Certain
Covenants -- Asset Sales" hereof (the "Repurchase Price") or, if Notes having an
aggregate principal amount less than the amount of Excess Proceeds subject to
such Asset Sale Offer have been tendered, all Notes tendered in response to the
Asset Sale Offer. Payment for any Notes so purchased shall be made in the same
manner as interest payments are made.
If the Repurchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send, by
first class mail, a notice to the Trustee or to each of the Holders, with a copy
to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this section
"-- Certain Covenants -- Asset Sales" and the length of time the Asset
Sale Offer shall remain open;
(b) the Asset Sale Offer, the Repurchase Price and the Repurchase
Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
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(d) that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest after the Repurchase Date;
(e) that Holders electing to have a Note purchased pursuant to a
Asset Sale Offer may only elect to have all of such Note purchased and may
not elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three days before the Asset Sale Purchase
Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Repurchase Offer Period, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note the Holder delivered for purchase
and a statement that such Holder is withdrawing his election to have such
Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Repurchase Price, the Trustee shall select the Notes
to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Trustee so that only Notes in denominations of
$1,000, or integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered (or transferred by book-entry transfer).
The Company, the Depositary or the Paying Agent, as the case may be, shall
promptly (but in any case not later than five days after the Repurchase Date)
mail or deliver to each tendering Holder an amount equal to the purchase price
of the Notes tendered by such Holder and accepted by the Company for purchase,
and the Company shall promptly issue a new Note, and the Trustee, upon written
order from the Company shall authenticate and mail or deliver such new Note to
such Holder, in a principal amount equal to any unpurchased portion of the Note
surrendered. Any Note not so accepted shall be promptly mailed or delivered by
the Company to the Holder thereof. The Company shall publicly announce the
results of the Asset Sale Offer on the Repurchase Date.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws, rules and regulations thereunder to
the extent such laws, rules and regulations are applicable in connection with
the repurchase of Notes pursuant to Asset Sale Offer.
Calculation of Original Issue Discount. The Company shall file with the
Trustee promptly at the end of each calendar year (i) a written notice
specifying the amount of original issue discount (including daily rates and
accrual periods) accrued on Outstanding Notes as of the end of such
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year and (ii) such other specific information relating to such original issue
discount as may then be relevant under the Code from time to time.
EVENTS OF DEFAULT
Under the Indenture, an "Event of Default," means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) failure to pay any installment of interest on any of the Notes
as and when the same becomes due and payable, and the continuance of such
failure for a period of 30 days, whether or not such payment is prohibited
by the Indenture;
(b) failure to pay all or any part of the principal of, or premium,
if any, on the Notes when and as the same become due and payable at
maturity, redemption, repurchase or otherwise, whether or not such payment
is prohibited by the Indenture;
(c) failure by the Company to comply with the provisions set forth
in "-- Certain Covenants -- Asset Sales" or "Limitation on Merger,
Consolidation or Sale of Assets";
(d) failure by the Company or any Restricted Subsidiary to observe
or perform any covenant or agreement contained in the Notes or the
Indenture (other than a default in the performance of any covenant or
agreement which is specifically dealt with elsewhere in this section
"Events of Default"), and continuance of such failure for a period of 30
days after there has been given, by registered or certified mail, to the
Company by the Trustee, or to the Company and the Trustee by Holders of at
least 25% in aggregate principal amount of the then outstanding Notes, a
written notice specifying such failure, requesting it to be remedied and
stating that such notice is a "Notice of Default";
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of such Indebtedness when due and prior to the
expiration of the grace period provided in such Indebtedness (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case described in clauses (a) and (b) of
this subsection (e), the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5,000,000 or more;
(f) failure of the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $5,000,000, which judgments
have not been paid, stayed, bonded or discharged for a period (during
which execution shall not be effectively stayed) of 60 days (or, in the
case of any such final judgment which provides for payment over time,
which shall so remain unstayed, unbonded or undischarged beyond any
applicable payment date provided therein);
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(g) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudging the Company or any of its
Restricted Subsidiaries as bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization of the Company or any of its
Restricted Subsidiaries under any bankruptcy or similar law, and such
decree, judgment, or order shall have continued undischarged and unstayed
for a period of 60 days; or a decree or order of a court of competent
jurisdiction over the appointment of a receiver, liquidator, trustee, or
assignee in bankruptcy or insolvency of the Company, any of its Restricted
Subsidiaries, or of the property of any such Person, or for the winding up
or liquidation of the affairs of any such Person, shall have been entered,
and such decree, judgment, or order shall have remained in force
undischarged and unstayed for a period of 60 days; or
(h) the Company or any of its Restricted Subsidiaries shall
institute proceedings to be adjudicated a voluntary bankrupt, or shall
consent to the filing of a bankruptcy proceeding against it, or shall file
a petition or answer or consent seeking reorganization under any
bankruptcy or similar law or similar statute, or shall consent to the
filing of any such petition, or shall consent to the appointment of a
Custodian, receiver, liquidator, trustee, or assignee in bankruptcy or
insolvency of it or any of its assets or property, or shall make a general
assignment for the benefit of creditors; or take any corporate action in
furtherance of or to facilitate, conditionally or otherwise, any of the
foregoing; or
(i) any Subsidiary Guaranty relating to the Notes ceases to be in
full force and effect (other than in accordance with the terms of such
Subsidiary Guaranty), or any Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty relating to the Notes.
Notwithstanding the 30-day period and notice requirement contained in
Section 6.1(d) above, with respect to a default under "Offer to Purchase Upon
Change of Control", the 30-day period referred to above shall be deemed to have
begun as of the date the Change of Control notice is required to be sent in the
event that the Company has not complied with the provisions of "Offer to
Purchase Upon Change of Control" and the Trustee or Holders of at least 25% in
principal amount of the outstanding Notes thereafter give the Notice of Default
referred to above to the Company and, if applicable, the Trustee; provided,
however, that if the breach or default is a result of a default in the payment
when due of the Repurchase Price on the Repurchase Date, such Event of Default
shall be deemed, for purposes of this section "Events of Default" to arise no
later than on the last Repurchase Date.
The occurrence of any of the following is as an "Event of Default" under
the Indenture:
(a) failure to pay principal of (or premium, if any, on) any Note
when due at stated maturity, upon acceleration, redemption, optional
redemption, required repurchase or otherwise;
(b) failure to pay any interest on any Note when due, continued for
30 days or more;
(c) failure to perform or comply with any of the provisions
described under "-- Certain Covenants -- Asset Sales" and "Offer to
Purchase upon Change of Control" above;
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(d) failure to perform any other covenant, warranty or agreement of
the Company under the Indenture or the Notes or of the Subsidiary
Guarantors under the Indenture or the Guarantees continued for 30 days or
more after written notice to the Company by the Trustee or Holders of at
least 25% in aggregate principal amount of the outstanding Notes;
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of such Indebtedness when due and prior to the
expiration of the grace period provided in such Indebtedness (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case described in clauses (a) and (b) of
this subsection (e), the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5,000,000 or more;
(f) failure of the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $5,000,000, which judgments
have not been paid, stayed, bonded or discharged for a period (during
which execution shall not be effectively stayed) of 60 days (or, in the
case of any such final judgment which provides for payment over time,
which shall so remain unstayed, unbonded or undischarged beyond any
applicable payment date provided therein);
(g) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudging the Company or any of its
Restricted Subsidiaries as bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization of the Company or any of its
Restricted Subsidiaries under any bankruptcy or similar law, and such
decree, judgment, or order shall have continued undischarged and unstayed
for a period of 60 days; or a decree or order of a court of competent
jurisdiction over the appointment of a receiver, liquidator, trustee, or
assignee in bankruptcy or insolvency of the Company, any of its Restricted
Subsidiaries, or of the property of any such Person, or for the winding up
or liquidation of the affairs of any such Person, shall have been entered,
and such decree, judgment, or order shall have remained in force
undischarged and unstayed for a period of 60 days; or
(h) the Company or any of its Restricted Subsidiaries shall
institute proceedings to be adjudicated a voluntary bankrupt, or shall
consent to the filing of a bankruptcy proceeding against it, or shall file
a petition or answer or consent seeking reorganization under any
bankruptcy or similar law or similar statute, or shall consent to the
filing of any such petition, or shall consent to the appointment of a
Custodian, receiver, liquidator, trustee, or assignee in bankruptcy or
insolvency of it or any of its assets or property, or shall make a general
assignment for the benefit of creditors; or take any corporate action in
furtherance of or to facilitate, conditionally or otherwise, any of the
foregoing; or
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(i) any Subsidiary Guaranty relating to the Notes ceases to be in
full force and effect (other than in accordance with the terms of such
Subsidiary Guaranty), or any Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty relating to the Notes.
Notwithstanding the 30-day period and notice requirement above, with
respect to a default under "Offer to Purchase Upon Change of Control", the
30-day period shall be deemed to have begun as of the date the Change of Control
notice is required to be sent in the event that the Company has not complied
with the provisions of "Offer to Purchase Upon Change of Control" and the
Trustee or Holders of at least 25% in principal amount of the outstanding Notes
thereafter give the Notice of Default to the Company and, if applicable, the
Trustee; provided, however, that if the breach or default is a result of a
default in the payment when due of the Repurchase Price on the Repurchase Date,
such Event of Default shall be deemed, to arise no later than on the last
Repurchase Date.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any obligations
of the Company or any of its Affiliates under the Notes or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect,
except as to surviving rights of registration of transfer or exchange of the
Notes, as to all Notes issued when:
(a) either:
(i) the Company delivers to the Trustee all outstanding Notes
for cancellation; or
(ii) all outstanding Notes have become due and payable,
whether at maturity or on a specified redemption date as a result of
the mailing of a notice of redemption pursuant to the section "--
Optional Redemption,"
(b) the Company irrevocably deposits with the Trustee money
sufficient to pay at maturity or upon redemption all outstanding Notes,
including interest and premium thereon to maturity or such redemption
date, and if in either case the Company pays all other sums payable under
the Indenture by the Company, and
(c) if the Notes have been called for redemption and the redemption
date has not occurred, the Company delivers to the Trustee an Opinion of
Counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
actions and will be subject to federal income tax on the same amounts, in
the same manner and at the
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same time as would have been the case if such actions had not occurred,
then this Indenture shall cease to be of further effect except for,
(i) the Company's claim to deposits unclaimed after two years,
certain reporting obligations, and amounts owed to the Trustee, and
(ii) if the Notes have been called for redemption and the
redemption date has not occurred, the Company's obligation to pay
the redemption price on such redemption date.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, provided that no Default or Event of Default has occurred
and is continuing or would arise therefrom (or, with respect to a Default or
Event of Default from bankruptcy or insolvency events, occurs at any time on or
prior to the 91st calendar day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
91st day)) under the Indenture, terminate its and the Subsidiary Guarantors'
substantive obligations in respect of the Notes (except for its obligations to
pay the principal, premium and interest on the Notes and the Subsidiary
Guarantors' Guarantee thereof) ("Covenant Defeasance") by:
(1) depositing with the Trustee, under the terms of an irrevocable
trust agreement, cash in United States dollars, non-callable government
securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
certified public accountants, to pay all remaining principal, premium and
interest on such Notes;
(2) delivering to the Trustee either an Opinion of Counsel from
nationally recognized tax counsel reasonably acceptable to the Trustee
confirming that the Holders of the Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such deposit and
termination of obligations; and
(3) complying with certain other requirements set forth in the
Indenture.
In addition, the Company may, provided that no Default or Event of Default
has occurred and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default from bankruptcy or insolvency events, occurs at any
time on or prior to the 91st calendar day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until after
such 91st day)) under the Indenture, terminate all of its and the Subsidiary
Guarantors' substantive obligations in respect of the Notes (including its
obligations to pay the principal, premium and interest on the Notes and the
Subsidiary Guarantors' Guarantee thereof) ("Legal Defeasance") by:
(1) depositing with the Trustee, under the terms of an irrevocable
trust agreement, cash in United States dollars, non-callable government
securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
certified public accountants, to pay all remaining principal, premium and
interest on such Notes;
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(2) delivering to the Trustee either an Opinion of Counsel from
nationally recognized tax counsel reasonably acceptable to the Trustee
confirming that the Holders of the Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such deposit and
termination of obligations; and
(3) complying with certain other requirements set forth in the
Indenture.
GOVERNING LAW
The Indenture, the Collateral Documents (other than certain Collateral
Documents relating to Foreign Restricted Subsidiaries), the Notes and the
Guarantees will be governed by the laws of the State of New York without regard
to principles of conflicts of laws.
MODIFICATION AND WAIVER
Supplements and amendments of the Indenture and the Notes may be made by
the Company, the Subsidiary Guarantors and the Trustee with the consent of the
Holders of a majority in aggregate principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for the Notes); provided, however, that:
(1) no such modification or amendment to the Indenture or the Notes
may, without the consent of the Holder of each Note affected thereby:
(a) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter the optional or mandatory redemption provisions (other than
provisions relating to the covenants described in "-- Certain Covenants
-- Asset Sales" and "Offer to Purchase Upon Change of Control" above) or
reduce the prices at which the Company shall offer to purchase such Notes
pursuant to such sections;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal,
premiums or interest on, or redemption payment with respect to, any Note
(other than a Default in the payment of an amount due as a result of an
acceleration if the Holders of Notes rescind such acceleration);
(e) make any Note payable in money other than that stated in the
Note;
(f) make any change in the provisions of the Indenture relating to
waiver of past defaults or to the rights of Holders to receive payments of
principal, premiums or interest on the Notes or to this clause (f);
(g) waive a redemption payment with respect to any Note;
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(h) make any change to any of the subordination provisions described
under "-- Subordination" above, that adversely affects Holders of Notes;
or
(i) make any change in the foregoing amendment and waiver
provisions.
Without the consent of any Holder, the Company, the Subsidiary Guarantors
and the Trustee may amend the Indenture and the Notes to: (1) to cure any
ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in
addition to or in place of certificated Notes; (3) to provide for the assumption
of the Company's or a Subsidiary Guarantor's Obligations to Holders in the case
of a merger or consolidation; (4) to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights of any Holder of the Notes; (5) to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the TIA; (6) to provide for the issuance of Additional
Notes in accordance with the limitations set forth in the Indenture as of
October 8, 2003; or (7) to allow any Subsidiary Guarantor to execute a
supplemental indenture and/or a Subsidiary Guarantee with respect to the Notes.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
and the Subsidiary Guarantors with certain restrictive provisions of the
Indenture or the Notes. Subject to certain rights of the Trustee, as provided in
the Indenture, the Holders of a majority in aggregate principal amount of the
Notes, on behalf of all Holders, may waive any past default under the Indenture
(including any such waiver obtained in connection with a tender offer or
exchange offer for the Notes), except a default in the payment of principal,
premium or interest or a default arising from failure to purchase any Notes
tendered pursuant to a Change of Control Offer, or a default in respect of a
provision that under the Indenture cannot be modified or amended without the
consent of the Holder of each Note that is affected.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, any Guarantor or any other obligor upon the
Notes, to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claim as security or otherwise.
The Trustee is permitted to engage in other transactions with the Company or an
Affiliate of the Company; provided, however, that if it acquires any conflicting
interest (as defined in the Indenture or in the Trust Indenture Act), it must
eliminate such conflict or resign.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACP Holding" means ACP Holding Company, a Delaware corporation.
"Acquired Debt" means, with respect to any specified Person: (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Additional Notes" means any Notes (other than Initial Notes and Notes
issued under certain sections of the Indenture) issued under the Indenture in
accordance with the terms of the Indenture, as part of the same series as the
Initial Notes or as an additional series.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities (or the
equivalents) of a Person shall be deemed to be control.
"Asset Sale" means any sale, transfer or other disposition (including,
without limitation, by merger, consolidation or sale-and-leaseback transaction)
of (i) shares of Capital Stock of a Subsidiary of the Company (other than
directors' qualifying shares), including any issuance of such Capital Stock, or
(ii) property or assets of the Company or any Restricted Subsidiary of the
Company other than in the ordinary course of business; provided, however, that
an Asset Sale shall not include (a) any sale, transfer or other disposition of
shares of Capital Stock, property or assets by a Restricted Subsidiary of the
Company to the Company or to any Restricted Subsidiary that is a Wholly Owned
Subsidiary of the Company, (b) any sale, transfer or other disposition of
defaulted receivables for collection, (c) any sales, transfers or other
dispositions that do not involve aggregate consideration in excess of $2,500,000
in any fiscal year, (d) the grant in the ordinary course of business of any
license of patents, trademarks, registrations therefor and other similar
intellectual property, (e) any Lien (or foreclosure thereon) securing
Indebtedness to the extent that such Lien is granted in compliance with the
Indenture, (f) any Restricted Payment or Permitted Investment permitted by the
Indenture, (g) any disposition of assets or property to the extent such assets
are obsolete, worn-out or no longer useful in the Company's or any Restricted
Subsidiary's business, (h) the sale, lease, conveyance or other disposition of
all or substantially all of the assets of the Company as permitted by Article V
of the Indenture, (i) any disposition that constitutes a Change of Control, (j)
any transaction or
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series of transactions pertaining to sales, transfers or other dispositions of
properties or assets of the Company or any Restricted Subsidiary in connection
with closures of plants for a purchase price not exceeding 10% of the total
consolidated assets of the Company as reflected on its consolidated balance
sheet as of the Company's fiscal year end immediately preceding the first sale
of such property or assets, (k) the disposition of any Investment in Cash
Equivalents, (l) sales, leases and other dispositions of the Non-Core Fixed
Assets; or (m) so long as no Event of Default exists, sales, leases and other
dispositions of fixed assets that are worn, scrap, excess, damaged or obsolete,
the net proceeds of which are used to prepay the outstanding principal amount of
the Term Loan or the Revolver (regardless of whether the corresponding revolving
commitment thereunder is reduced in connection therewith).
"Asset Sale Offer" means an offer made by the Company when the aggregate
cumulative amount of Excess Proceeds exceeds $5.0 million to all Holders of
Notes to purchase the maximum principal amount of Notes that may be purchased
with the Excess Proceeds at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest thereon to the
date of purchase in accordance with the terms of the Indenture.
"Bankruptcy Law" means title 11, U.S. Code, or any similar federal, state
or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the board of directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such Person.
"Borrowing Base Amount" means, as to the Company and its Restricted
Subsidiaries, the sum of (x) 65% of the gross value of Inventory plus (y) 85% of
the gross value of Receivables, in each case, determined on a consolidated basis
in accordance with GAAP, as reflected in the most recent quarterly consolidated
financial statements delivered pursuant to Section 4.7 of the Indenture.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means (i) any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, (ii) in the
case of a partnership, partnership interests (whether general or limited) and
(iii) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash" means such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and private
debts.
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"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than twelve
months from the date of acquisition, (iii) certificates of deposit and
Eurodollar time deposits with maturities of twelve months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding twelve months
and overnight bank deposits, in each case with any domestic commercial bank
having capital and surplus in excess of $500,000,000, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Corporation and in each case maturing within
nine months after the date of acquisition and (vi) shares of any money market
mutual fund, or similar fund, in each case having assets in excess of
$500,000,000, which invests solely in investments of the types described in
clauses (i) through (v) above.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of ACP Holding, NFC Castings or the Company and the
Restricted Subsidiaries, taken as a whole, to any "person" (as that term
is used in Section 13(d)(3) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or
dissolution of NFC Castings or ACP Holding (or any other direct or
indirect parent of the Company) or the Company;
(3) the consummation of any transaction, as a result of which any
"person" (as referenced in clause (2) above), other than the Permitted
Holders, becomes the Beneficial Owner, directly or indirectly, of, in the
aggregate, more than 50% of the total voting power of the Voting Stock of
the Company, NFC Castings or ACP Holding, whether as a result of issuance
of securities of NFC Castings or ACP Holding (or any other direct or
indirect parent of the Company) or the Company, any merger, consolidation,
liquidation or dissolution of NFC Castings or ACP Holding (or any other
direct or indirect parent of the Company) or the Company or otherwise,
provided, however, that the Permitted Holders Beneficially Own, directly
or indirectly, less than such "person"; or
(4) the first day on which a majority of the members of the Board of
Directors of any of the Company, NFC Castings or ACP Holding are not
Continuing Directors;
provided, however, for purposes of clause (3), the Permitted Holders shall be
deemed to Beneficially Own any Voting Stock of a Person held by any other Person
(the "parent entity") so long as the Permitted Holders Beneficially Own,
directly or indirectly, in the aggregate a majority of the voting power of the
Voting Stock of the parent entity.
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"Change of Control Offer" shall have the meaning specified above in "--
Offer to Purchase upon Change of Control."
"Change of Control Payment Date" shall have the meaning specified above in
"-- Offer to Purchase upon Change of Control."
"Change of Control Put Date" shall have the meaning specified above in "--
Offer to Purchase upon Change of Control."
"Change of Control Repurchase Price" shall have the meaning specified
above in "-- Offer to Purchase upon Change of Control."
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitment Fee" means the Commitment Fee payable to the Permitted Holders
pursuant to the Standby Funding Commitment Letters, dated June 30, 2003, between
the Company and each of the Permitted Holders.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement entered into by the Company or
any of its Restricted Subsidiaries designed to protect the Company or any of its
Restricted Subsidiaries against fluctuations in the price of commodities
actually used in the ordinary course of business of the Company and its
Restricted Subsidiaries each, as may be amended, supplemented or otherwise
modified from time to time.
"Common Stock" means, with respect to any Person, Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Company" means Neenah Foundry Company until a successor replaces it
pursuant to the Indenture, and thereafter means such successor.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that
(1) if the Company or any Restricted Subsidiary has incurred any
Indebtedness since the beginning of such period that remains outstanding
on such date of determination or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an incurrence of
Indebtedness, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness and the application of the proceeds thereof as if such
Indebtedness had been incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on
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the first day of such period (except that in the case of Indebtedness to
finance seasonal fluctuations in working capital needs incurred under a
revolving credit or similar arrangement, the amount thereof shall be
deemed to be the average daily balance of such Indebtedness during such
four quarter period);
(2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have disposed of any assets constituting all
or substantially all of the assets of an operating unit of a business (a
"Disposal"), (x) the EBITDA for such period shall be reduced by an amount
equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Disposal for such period or increased by an
amount equal to the EBITDA (if negative) directly attributable thereto for
such period and (y) Consolidated Interest Expense for such period shall be
reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in
connection with such Disposal for such period (or, if the Capital Stock of
any Restricted Subsidiary is sold, the Consolidated Interest Expense for
such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale);
(3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made under the Indenture, which constitutes all or
substantially all of the assets of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the incurrence of any
Indebtedness in connection therewith) as if such Investment or acquisition
occurred on the first day of such period; and
(4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Disposal or any Investment or acquisition of assets
that would have required an adjustment pursuant to clause (2) or (3) above
if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Disposal,
Investment or acquisition of assets occurred on the first day of such
period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating thereto
and the amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term as at the date of determination in excess of 12 months). If any
Indebtedness
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bears, at the option of the Company or a Restricted Subsidiary, a fixed or
floating rate of interest and is being given pro forma effect, then (i) if any
interest had accrued on such Indebtedness prior to the date of determination,
the interest expense on such Indebtedness shall be computed by applying a fixed
or floating rate of interest as selected by the Company or such Restricted
Subsidiary for the interest period immediately preceding such determination or
(ii) if no interest accrued on such Indebtedness prior to the date of
determination, the interest expense on such Indebtedness shall be computed by
applying, at the option of the Company or such Restricted Subsidiary, either a
fixed or floating rate. If any Indebtedness which is being given pro forma
effect was incurred under a revolving credit facility that was in effect
throughout the applicable period, the interest expense on such Indebtedness
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate consolidated interest, whether expensed or capitalized,
paid, accrued or scheduled to be paid or accrued, of such Person and its
Restricted Subsidiaries for such period (including (i) amortization of original
issue discount and deferred financing costs and non-cash interest payments and
accruals, (ii) the interest portion of all deferred payment obligations,
calculated in accordance with the effective interest method, and (iii) the
interest component of any payments associated with Capital Lease Obligations and
net payments (if any) pursuant to Hedging Obligations, in each case, to the
extent attributable to such period, but excluding (x) commissions, discounts and
other fees and charges incurred with respect to letters of credit and bankers'
acceptances financing and (y) any interest expense on Indebtedness of another
Person that is Guaranteed by such Person or secured by a Lien on assets of such
Person) determined in accordance with GAAP. Consolidated Interest Expense of the
Company shall not include any prepayment premiums or amortization of original
issue discount or deferred financing costs, to the extent such amounts are
incurred as a result of the prepayment on the date of the Indenture of any
Indebtedness of the Company with the proceeds of the Notes.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP, adjusted to exclude (only to the extent included and without
duplication): (i) all gains which are extraordinary or are non-recurring
(including any gain from the sale or other disposition of assets outside the
ordinary course of business or from the issuance or sale of Capital Stock); (ii)
all gains resulting from currency or hedging transactions; (iii) the Net Income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition; (iv) depreciation, amortization or other
expenses recorded as a result of the application of purchase accounting in
accordance with Statements of Financial Accounting Standards Nos. 141 and 142;
and (v) the cumulative effect of a change in accounting principles; provided
that (a) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of cash dividends or cash distributions actually paid to
the referent Person or a Wholly Owned Subsidiary thereof that is a Restricted
Subsidiary and (b) the Net Income of any Person that is an Unrestricted
Subsidiary shall be included only to the extent of the amount of cash dividends
or cash distributions paid to the referent Person or a Restricted Subsidiary
thereof.
"Covenant Defeasance" shall have the meaning specified above in "Legal
Defeasance and Covenant Defeasance".
- 88 -
"Credit Agreement" means the Credit Agreement, dated October 8, 2003,
among the Company, certain of the Subsidiary Guarantors party thereto, the
lenders from time to time party to such agreement, Fleet Capital Corporation, as
Agent and Fleet Securities, Inc., as Arranger, including any related notes,
collateral documents, letters of credit and documentation and guarantees and any
appendices, exhibits or schedules to any of the foregoing, as well as any and
all of such agreements (and any other agreements that refinance any and all such
agreements in accordance with the provisions of clause (viii) under "Limitation
on the Incurrence of Indebtedness and Issuance of Disqualified Stock", as may be
amended, restated, modified or supplemented from time to time, or renewed,
refunded, refinanced, restructured, replaced, repaid or extended from time to
time (including increases in principal amount) in accordance with the provisions
of whether with the original agents and lenders or with other agents or lenders.
"Credit Agreement Refinancing Indebtedness" means Indebtedness issued in
exchange for, or the proceeds of which are used to extend, refinance, renew,
replace, defease or refund Indebtedness incurred pursuant to the Credit
Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Restricted Subsidiaries in the ordinary course of business
against fluctuation in the values of the currencies of the countries (other than
the United States) in which the Company or its Restricted Subsidiaries conduct
business each, as may be amended, supplemented or otherwise modified from time
to time.
"Default" means any event or condition that is, or with the passage of
time or the giving of notice, or both, would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
or is convertible or exchangeable for Indebtedness at the option of the holder
thereof, in whole or in part, on or prior to 90 days after the Stated Maturity
of the Notes; provided that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Notes shall not constitute Disqualified Stock if (i) the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are no more favorable to the holders of such Capital Stock than the provisions
in favor of Holders of Notes set forth under "-- Certain Covenants -- Asset
Sales" and "Offer to Purchase Upon Change of Control", as the case may be, (ii)
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to "--
Certain Covenants -- Asset Sales" and "Offer to Purchase Upon Change of Control"
and (iii) such Capital Stock is redeemable within 90 days of the "asset sale" or
"change of control" events applicable to such Capital Stock.
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"Domestic Restricted Subsidiary" means any Restricted Subsidiary other
than (a) a Foreign Restricted Subsidiary or (b) a Subsidiary of a Foreign
Restricted Subsidiary.
"EBITDA" means, for any period, an amount equal to, for the Company and
its consolidated Restricted Subsidiaries:
(a) the sum of Consolidated Net Income for such period, plus the
following to the extent reducing Consolidated Net Income for such period:
(1) the provision for taxes based on income or profits or
utilized in computing net loss,
(2) Consolidated Interest Expense,
(3) depreciation,
(4) amortization of intangibles, and
(5) any other non-cash items (other than any such non-cash
item to the extent that it represents an accrual of, or reserve for,
cash expenditures in any future period), minus
(b) all non-cash items increasing Consolidated Net Income for such
period (other than any such non-cash item to the extent that it will
result in the receipt of cash payments in any future period).
Notwithstanding the foregoing clause (a), the provision for taxes and the
depreciation, amortization and non-cash items of a Restricted Subsidiary shall
be added to Consolidated Net Income to compute EBITDA only to the extent (and in
the same proportion) that the net income of such Restricted Subsidiary was
included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Restricted Subsidiary or its shareholders.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" shall have the meaning specified above in "-- Events
of Default."
"Excess Proceeds" shall have the meaning specified above in "-- Certain
Covenants -- Asset Sales."
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under
- 90 -
pressure or compulsion to complete the transaction; provided, that, the Fair
Market Value of any such asset or assets shall be determined by the Board of
Directors of the Company, acting in good faith and by unanimous resolution, and
which determination shall be evidenced by an Officers' Certificate delivered to
the Trustee.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary which is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect in the United States on the date of the
Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness as may be amended, supplemented or otherwise modified from time to
time.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) Interest Rate Agreements, (ii) Currency Agreements and
(iii) Commodity Agreements.
"Holder" or "Noteholder" means the person in whose name a Note is
registered on the Registrar's books.
"Indebtedness" means, with respect to any Person, without duplication, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or bankers'
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether or
not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee of any Indebtedness of such Person or any
other Person.
"Indenture" means the Indenture governing the Company's 13% Senior
Subordinated Notes due 2013, as amended or supplemented from time to time in
accordance with its terms.
"Intercompany Indebtedness" shall have the meaning specified above in "--
Certain Covenants -- Limitations on the Incurrence of Indebtedness and Issuance
of Disqualified Stock.
"Interest Payment Date" means the stated due date of an installment of
interest on the Notes.
- 91 -
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement entered into by the Company or any of its Restricted Subsidiaries
designed to protect the Company or any of its Restricted Subsidiaries in the
ordinary course of business against fluctuations in interest rates each, as may
be amended, supplemented or otherwise modified from time to time.
"Inventory" means, with respect to the Company and its Restricted
Subsidiaries, the consolidated inventory of the Company, determined at the lower
of cost or market in accordance with GAAP.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Issue Date" means October 8, 2003.
"Legal Defeasance" shall have the meaning specified above in "Legal
Defeasance and Covenant Defeasance."
"Lenders" means, at any time, the parties to the Credit Agreement then
holding (or committed to provide) loans, letters of credit or other extensions
of credit that constitute (or when provided will constitute) Indebtedness
secured by a Priority Lien outstanding under the Credit Agreement.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.)
"Lien Subordination Agreement" means that certain Lien Subordination
Agreement, dated October 8, 2003, by and among the Company, the Restricted
Subsidiaries, the Trustee (on behalf of the Noteholders) and the Agent under the
Credit Agreement, as amended (including any amendments and restatements
thereof), supplemented or otherwise modified from time to time.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any sale of assets (including, without
limitation, dispositions pursuant to sale/leaseback transactions) or (b) the
disposition of any securities or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries, and (ii) any extraordinary gain
(but not loss), together with any related provision for taxes on such
extraordinary gain (but not loss).
- 92 -
"Net Proceeds" means the aggregate amount of consideration received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale in
the form of cash or Cash Equivalents (including, without limitation, any cash
received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof, amounts required to be applied to the
repayment of Indebtedness secured by a Lien on the asset or assets (including
Equity Interests) the subject of such Asset Sale and any reserve for adjustment
in respect of the sale price of such asset or assets.
"NFC Castings" means NFC Castings, Inc., a Delaware corporation.
"Non-Core Fixed Assets" shall have the meaning specified in the Credit
Agreement as in effect on October 8, 2003.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as guarantor or otherwise),
or (c) constitutes the lender; (ii) no default with respect to which (including
any rights that the holders thereof may have to take enforcement action against
an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both)
any holder of any other Indebtedness of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Notice of Default" shall have the meaning specified above in "-- Events
of Default."
"Obligations" means with respect to any Indebtedness, the principal,
premium, if any, and interest on (such interest on such Indebtedness, wherever
referred to in the Indenture, is deemed to include interest accruing after the
filing of a petition initiating any proceeding pursuant to any bankruptcy law in
accordance with and at the rate (including any rate applicable upon any default
or event of default, to the extent lawful) specified in any document evidencing
such Indebtedness, whether or not the claim for such interest is allowed as a
claim after such filing in any proceeding under such bankruptcy law) and other
amounts, including, but not limited to, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by (i) the Chief Executive Officer or President and (ii) the Chief
Financial Officer or chief accounting officer of such Person.
"Opinion of Counsel" means a written opinion from legal counsel which
complies with the requirements of the Indenture.
"Original Issue Date" of any Note (or portion thereof) means the earlier
of (a) the date of such Note or (b) the date of any Note (or portion thereof)
for which such Note was issued (directly or indirectly) on registration of
transfer, exchange or substitution.
"Payment Blockage Period" shall have the meaning specified above in "--
Subordination."
- 93 -
"Payment Default" shall have the meaning specified above in "-- Events of
Default."
"Permitted Holders" means each of MacKay Shields LLC, Citicorp Mezzanine
III, L.P., Metropolitan Life Insurance Company, Exis Differential Holdings,
Ltd., TCW Shared Opportunity Fund II, L.P., Shared Opportunity Fund IIB LLC, TCW
Shared Opportunity Fund IV, L.P., TCW Shared Opportunity Fund IVB, L.P., AIMCO
CDO, Series 2000-A, TCW High Income Partners, Ltd. and TCW High Income Partners
II, Ltd. and its Related Persons and Affiliates.
"Permitted Investments" means (i) any Investment in the Company or in a
Restricted Subsidiary; (ii) any Investment in Cash Equivalents; (iii)
Investments by the Company or any Restricted Subsidiary of the Company in a
Person, if as a result of such Investment (a) such Person becomes a Wholly Owned
Subsidiary of the Company that is a Restricted Subsidiary or (b) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Subsidiary of the Company that is a Restricted Subsidiary; (iv) any
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made in compliance with the Indenture; (v) any Investment
solely in exchange for the issuance of Equity Interests (other than Disqualified
Stock) of the Company; (vi) any Investments received in compromise of
obligations of such persons incurred in the ordinary course of trade creditors
or customers that were incurred in the ordinary course of business, including
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of any trade creditor or customer; and (vii)
Investments existing on October 8, 2003.
"Permitted Liens" means (i) Liens in favor of the Company or a Restricted
Subsidiary; (ii) Liens securing Senior Indebtedness of the Company or a
Restricted Subsidiary that was permitted to be incurred pursuant to the
Indenture (i) at the time incurred; (iii) Liens on property of a Person existing
at the time such Person is merged into, consolidated with or otherwise acquired
by the Company or any Restricted Subsidiary of the Company, provided that such
Liens were not created in contemplation of such merger, consolidation or
acquisition and do not extend to any assets other than those of the Person
merged into or consolidated with Company or such Restricted Subsidiary; (iv)
Liens on property existing at the time of acquisition thereof by the Company or
any Restricted Subsidiary of the Company; provided that such Liens were not
created in contemplation of such acquisition and do not extend to any other
assets of the Company or any Restricted Subsidiary of the Company; (v) Liens on
the property of the Company or any Restricted Subsidiary Incurred in the
ordinary course of business to secure performance of obligations with respect to
statutory or regulatory requirements, performance or return-of-money bonds,
surety bonds or other obligations of a like nature and incurred in a manner
consistent with industry practice, in each case which are not Incurred in
connection with the borrowing of money, the obtaining of advances or credit or
the payment of the deferred purchase price of property and which do not in the
aggregate impair in any material respect the use of property in the operation of
the business of the Company and the Restricted Subsidiaries taken as a whole;
(vi) Liens existing on the date of the Indenture; (vii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor; (viii) Liens arising in the ordinary course
- 94 -
of business with respect to amounts not yet delinquent or being contested in
good faith by appropriate proceedings if a reserve or other appropriate
provisions, if any, shall be required by GAAP shall have been made therefor;
(ix) zoning restrictions, easements, licenses, covenants, reservations,
restrictions on the use of real property or minor irregularities of title
incident thereto that do not, in the aggregate, materially detract from the
value of the property or the assets of the Company or of any Restricted
Subsidiary or impair the use of such property in the operation of the Company's
or any Restricted Subsidiary's business; (x) judgment Liens to the extent that
such judgments do not cause or constitute an Event of Default; (xi) Liens to
secure the payment of all or a part of the purchase price of property or assets
acquired or constructed in the ordinary course of business on or after the date
of the Indenture, provided that (a) such property or assets are used in the same
or a similar line of business as the Company or the applicable Restricted
Subsidiary was engaged in on the date of the Indenture, (b) at the time of
incurrence of any such Lien, the aggregate principal amount of the obligations
secured by such Lien shall not exceed the cost of the assets or property (or
portions thereof) so acquired or constructed, (c) each such Lien shall encumber
only the assets or property (or portions thereof) so acquired or constructed and
shall attach to such property within 120 days of the purchase or construction
thereof and (d) any Indebtedness secured by such Lien shall have been permitted
to be incurred under Section 4.11; (xii) precautionary filings of any financial
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction made in connection with Capital Lease Obligations permitted to be
incurred under the terms of the Indenture; (xiii) Liens incurred in the ordinary
course of business securing assets having a fair market value not in excess of
$500,000 in the aggregate; (xiv) Liens to secure permitted Refinancing
Indebtedness incurred to refinance existing Indebtedness or permitted
Refinancing Indebtedness which is secured by Liens permitted by this clause
(xiv); provided, that such Liens do not extend to any categories of assets other
than the categories of assets securing existing Indebtedness as of the date of
the Indenture; (xv) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof; (xvi)
Liens incurred in the ordinary course of business in connection with (a)
worker's compensation, social security, unemployment insurance and other like
laws or (b) sales contracts, leases, statutory obligations, work in progress
advances and other similar obligations not incurred in connection with the
borrowing of money or the payment of the deferred purchase price of property;
(xvii) Liens in favor of customs and revenues authorities which secure payment
of customs duties in connection with the importation of inventory; (xviii) Liens
on insurance policies and the proceeds thereof securing the financing of the
premiums with respect thereto; (xix) Liens consisting of rights of set-off of a
customary nature or banker's liens on amounts on deposit in accounts, whether
arising by contract or operation of law, incurred in the ordinary course of
business; and (xx) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its Restricted
Subsidiaries.
"Permitted Refinancing" shall have the meaning specified above in "--
Limitation on the Incurrence of Indebtedness and Issuance of Disqualified
Stock."
"Person" or "person" means an individual, limited or general partnership,
corporation, limited liability company, association, unincorporated
organization, trust, joint stock company or joint venture, or a government or
any agency or political subdivision thereof.
- 95 -
"principal" of any Indebtedness means the principal of such Indebtedness
plus, without duplication, any applicable premium, if any, on such Indebtedness.
"property" means any right or interest in or to property or assets of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchase Money Obligations" of any Person means any obligations of such
Person or any of its Restricted Subsidiaries to any seller or any other Person
incurred or assumed in connection with the purchase of real or personal property
or in the Capital Stock of a Person owning such real or personal property to be
used in the business of such Person or any of its subsidiaries within 180 days
of such incurrence or assumption.
"Qualified Stock" means any Capital Stock of the Company that is not
Disqualified Stock.
"Receivables" means the consolidated trade receivables of the Company, net
of allowance for doubtful accounts, as determined in accordance with GAAP.
"Record Date" means a Record Date specified in the Notes whether or not
such Record Date is a Business Day.
"Redemption Date" means, when used with respect to any Note to be
redeemed, the date fixed for such redemption pursuant to the terms of the
Indenture and the Note.
"Redemption Price" means, when used with respect to any Note to be
redeemed, the redemption price for such redemption pursuant to the terms of the
Note, which shall include, without duplication, in each case, accrued and unpaid
interest, if any, to and including the Redemption Date.
"Refinancing Indebtedness" shall have the meaning specified above in "--
Certain Covenants -- Limitation on the Incurrence of Indebtedness and Issuance
of Disqualified Stock."
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of the Company and its
Restricted Subsidiaries on October 8, 2003.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Common Stock of such Person
(or, in the case of a Person that is not a corporation, 5% or more of the equity
interests in such Person) or (b) 5% or more of the combined voting power of the
Voting Stock of such Person.
"Representative" means, any trustee, agent to representative (if any) for
an issue of Senior Indebtedness of the Company. For purposes specified in "--
Subordination", the "Representative" of Senior Indebtedness shall be deemed to
be solely the agent or similar designee under the Credit Agreement until such
time as no Credit Agreement remains in existence; thereafter, the
"Representative" shall be deemed to be solely the trustee, agent or similar
designee under the Senior Secured Note Indenture.
"Repurchase Date" shall have the meaning specified above in "-- Certain
Covenants -- Asset Sales."
"Repurchase Offer Period" shall have the meaning specified above in "--
Certain Covenants -- Asset Sales."
- 96 -
"Repurchase Price" shall have the meaning specified above in "-- Certain
Covenants -- Asset Sales."
"Restricted Investment" means an Investment other than a Permitted
Investment. With respect to Unrestricted Subsidiaries or Restricted
Subsidiaries, the amount of Restricted Investments shall be calculated as the
greater of (i) the book value of assets contributed by the Company or a
Restricted Subsidiary or (ii) the Fair Market Value of the assets contributed by
the Company or a Restricted Subsidiary (as certified by a resolution of
independent directors of the Company.
"Restricted Payment" shall have the meaning specified above in "Certain
Covenants -- Limitation on Restricted Payments."
"Restricted Subsidiary" means (i) any Subsidiary of the Company (other
than a Subsidiary that is also a Subsidiary of an Unrestricted Subsidiary)
organized or acquired after the date of the Indenture, unless such Subsidiary
shall have been designated as an Unrestricted Subsidiary by resolution of the
Board of Directors as provided in and in compliance with the definition of
"Unrestricted Subsidiary" and (ii) any Unrestricted Subsidiary which is
designated as a Restricted Subsidiary by the Board of Directors of the Company;
provided that immediately after giving effect to the designation referred to in
clause (ii), no Default or Event of Default shall have occurred and be
continuing and the Company could incur at least $1.00 of additional Indebtedness
under the terms of the Indenture. The Company shall evidence any such
designation to the Trustee by promptly filing with the Trustee an Officers'
Certificate certifying that such designation has been made and stating that such
designation complies with the requirements of the immediately preceding
sentence.
"Revolver" means the revolving credit facility extended to the Company as
part of the New Credit Facility under the Credit Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Senior Indebtedness" means, with respect to the Company and its
Restricted Subsidiaries, the Obligations of the Company and its Restricted
Subsidiaries under (i) the Credit Agreement, and (ii) the Senior Secured Notes
Indenture and the Senior Secured Notes.
"Senior Secured Notes" means the Company's 11% Senior Secured Notes due
2010, issued pursuant to the Senior Secured Notes Indenture, and any securities
issued in exchange or in substitution therefor.
"Senior Secured Notes Indenture" means the Indenture, dated the date
hereof, among the Company the Subsidiary Guarantors parties thereto and The Bank
of New York, as trustee, relating to the Senior Secured Notes, as may be
amended, supplemented, or otherwise modified from time to time in accordance
with the terms thereof.
"Stated Maturity," when used with respect to any Note, means September 30,
2013.
"Subordinated Obligations" means, with respect to the Company and its
Restricted Subsidiaries, the Obligations of the Company and its Restricted
Subsidiaries under the Indenture, the Notes and all related agreements,
instruments and documents.
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"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person or a combination
thereof and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Persons or one or more Subsidiaries
of such Person or any combination thereof.
"Subsidiary Guarantee" means a guarantee on the terms set forth in the
Indenture by a Subsidiary Guarantor of the Company's obligations with respect to
the Notes.
"Subsidiary Guarantor" means each Domestic Restricted Subsidiary and any
other Person that becomes a Subsidiary Guarantor pursuant to the provisions of
the Indenture or who otherwise exercises and delivers supplemental indenture to
the Trustee providing for a Subsidiary Guarantee.
"Term Loan" means the term loan made to the Company and certain of the
Restricted Subsidiaries as part of the New Credit Facility under the Credit
Agreement.
"TIA" means the Trust Indenture Act of 1939, as amended and in effect on
the date of the execution of the Indenture unless otherwise specified herein.
"Trustee" means the party named as such in the Indenture until a successor
replaces it in accordance with the provisions of the Indenture and thereafter
means such successor. At the Issue Date, the Trustee was The Bank of New York, a
New York corporation.
"Unrestricted Subsidiary" means, until such time as any of the following
shall be designated as a Restricted Subsidiary of the Company by the Board of
Directors of the Company as provided in and in compliance with the definition of
"Restricted Subsidiary," (i) any Subsidiary of the Company or of a Restricted
Subsidiary of the Company organized or acquired after the date of the Indenture
that is designated concurrently with its organization or acquisition as an
Unrestricted Subsidiary by resolution of the Board of Directors of the Company,
(ii) any Subsidiary of any Unrestricted Subsidiary and (iii) any Restricted
Subsidiary of the Company that is designated as an Unrestricted Subsidiary by
resolution of the Board of Directors of the Company, provided that (a)
immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing, (b) any such designation shall be
deemed, at the election of the Company at the time of such designation, to be
either (but not both) (x) the making of a Restricted Payment at the time of such
designation in an amount equal to the Investment in such Subsidiary subject to
the restrictions contained in the Indenture or (y) the making of an Asset Sale
at the time of such designation in an amount equal to the Investment in such
Subsidiary subject to the restrictions contained in the Indenture, and (c) such
Subsidiary or any of its Subsidiaries does not own any Capital Stock or
Indebtedness of, or own or hold any Lien on any property of, the Company or any
other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be
so designated. A Person may be designated as an Unrestricted Subsidiary only if
and for so long as such Person (i) has no Indebtedness other than Non-
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Recourse Debt; (ii) is a Person with respect to which neither the Company nor
any of its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to make any payment to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; and (iii) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries. The Company shall evidence
any designation pursuant to clause (i) or (iii) of the first sentence hereof to
the Trustee by filing with the Trustee within 45 days of such designation an
Officers' Certificate certifying that such designation has been made and, in the
case of clause (iii) of the first sentence hereof, the related election of the
Company in respect thereof.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers,
general partners or trustees of any Person (irrespective of whether or not, at
the time, Capital Stock of any other class or classes shall have, or might have,
voting power by reasons of the happening of any contingency) or, with respect to
a partnership (whether general or limited), any general partner interest in such
partnership.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall be at the time be beneficially
owned by such Person either directly or indirectly through Wholly Owned
Subsidiaries.
BOOK-ENTRY; DELIVERY AND FORM
THE GLOBAL NOTES
The certificates representing the notes were issued in fully registered
form. Except as described below, the notes are represented by one or more global
notes in fully registered form without interest coupons. The global notes have
been deposited with or on behalf of DTC and registered in the name of Cede &
Co., as nominee of DTC, or will remain in the custody of the trustee pursuant to
the FAST Balance Certificate Agreement between DTC and the trustee.
Ownership of beneficial interests in each global note will be limited to
persons who have accounts with DTC, which we refer to as DTC participants, or
persons who hold interests through DTC participants. We expect that under
procedures established by DTC, ownership of beneficial interests in each global
note will be shown on, and transfer of ownership of those interests will be
effected only through, records maintained by DTC, with respect to interests of
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DTC participants, and the records of DTC participants, with respect to other
owners of beneficial interests in the global note.
BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC set forth below
are controlled by that settlement system and may be changed at any time. We
undertake no obligation to update you regarding changes in these operations and
procedures and urge investors to contact DTC or its participants directly to
discuss these matters.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the
State of New York;
- a banking organization within the meaning of the New York State
Banking Law;
- a member of the Federal Reserve System;
- a clearing corporation within the meaning of the Uniform Commercial
Code; and
- a clearing agency registered under Section 17A of the Exchange Act.
DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions between its participants
through electronic book-entry changes to the accounts of its participants,
thereby eliminating the need for physical transfer and delivery of certificates.
DTC's participants include securities brokers and dealers, including the initial
purchasers; banks and trust companies; clearing corporations and other
organizations. Indirect access to DTC's system is also available to others such
as banks, brokers, dealers and trust companies; these indirect participants
clear through or maintain a custodial relationship with a DTC participant,
either directly or indirectly. Investors who are not DTC participants may
beneficially own securities held by or on behalf of DTC only through DTC
participants or indirect participants in DTC.
We expect that pursuant to procedures established by DTC:
- Ownership of beneficial interest in the global notes will be limited
to persons who have accounts with DTC, who are referred to as
participants, or persons who hold interests through participants.
- Ownership of the beneficial interests in the notes will be shown on,
and the transfer of ownership thereof will be effected only through,
records maintained by DTC, with respect to the interests of
participants, and the records of participants and the indirect
participants, with respect to the interests of persons other than
participants.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of those securities in definitive form.
Accordingly, the ability to transfer interests in the
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notes represented by a global note to these persons may be limited. In addition,
because DTC can act only on behalf of its participants, who in turn act on
behalf of persons who hold interests though participants, the ability of a
person having an interest in notes represented by a global note to pledge or
transfer that interest to persons or entities that do not participate in DTC's
system, or to otherwise take actions in respect of that interest, may be
affected by the lack of a physical definitive security in respect of that
interest.
So long as DTC's nominee is the registered owner of a global note, that
nominee will be considered the sole owner or holder of the notes represented by
that global note for all purposes under the indenture. Except as provided below,
owners of beneficial interests in a global note:
- are not entitled to have notes represented by the global note
registered in their names;
- do not receive and are not entitled to receive physical,
certificated notes and
- are not considered the owners or holders of the notes under the
indenture for any purpose, including with respect to the giving of
any direction, instruction or approval to the trustee under the
indenture.
As a result, each investor who owns a beneficial interest in a global note
must rely on the procedures of DTC to exercise any rights of a holder of notes
under the indenture, and, if the investor is not a participant or an indirect
participant in DTC, on the procedures of the DTC participant through which the
investor owns its interest. We understand that under existing industry practice,
in the event that we request any action of holders of notes, or a holder of the
notes that is an owner of a beneficial interest in a global note desires to take
any action that DTC, as the holder of the global note, is entitled to take, DTC
would authorize the participants to take action and the participants would
authorize holders of the notes owning through the participants to take action or
would otherwise act upon the instruction of those holders of the notes. Neither
we nor the trustee will have any responsibility or liability for any aspect of
the records relating to or payments made on account of notes by DTC, or for
maintaining, supervising or reviewing any records of DTC relating to those
notes.
Payments of principal, premium and interest with respect to the notes
represented by a global note will be made by the trustee to DTC's nominee as the
registered holder of the global note. Neither we nor the trustee will have any
responsibility or liability for the payment of amounts to owners of beneficial
interests in a global note, for any aspect of the records relating to or
payments made on account of those interests by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to those interests.
Payments by participants and indirect participants in DTC to the owners of
beneficial interests in a global note will be governed by standing instructions
and customary industry practice and will be the responsibility of those
participants or indirect participants and DTC.
Transfers between participants in DTC will be effected under DTC's
procedures and will be settled in same-day funds. Transfers between participants
in Euroclear or Clearstream will be effected in the ordinary way under the rules
and operating procedures of those systems.
- 101 -
CERTIFICATED NOTES
Notes in physical, certificated form will be issued and delivered to each
person that DTC identifies as a beneficial owner of the related notes only if:
- DTC notifies us at any time that it is unwilling or unable to
continue as depositary for the global notes and a successor
depositary is not appointed within 90 days,
- DTC ceases to be registered as a clearing agency under the Exchange
Act and a successor depositary is not appointed within 90 days,
- we, at our option, notify the trustee that we elect to cause the
issuance of certificated notes; or
- certain other events provided in the indenture should occur.
Neither we nor the trustee will be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related notes and each such person may conclusively rely on, and will be
protected in relying on, instructions from DTC for all purposes, inducting with
respect to the registration and delivery, and the respective principal amounts,
of the notes to be issued.
SECURITIES ELIGIBLE FOR FUTURE SALE
We relied, based on the confirmation order we received from the Bankruptcy
Court, on Section 1145(a)(1) of the Bankruptcy Code to exempt both the offer of
the post-bankruptcy common stock, warrants to purchase common stock, the 13%
Senior Subordinated Notes due 2013 and the 11% Senior Secured Notes due 2010
(other than the 11% Notes sold to the standby purchasers) (the "Securities")
which may have been deemed to have occurred through the solicitation of
acceptances of the Plan of Reorganization and the issuance of the Securities
pursuant to the Plan of Reorganization, from the registration requirements of
the Securities Act of 1933, as amended.
Section 1145(a)(1) exempts the offer or sale of securities pursuant to a
plan of reorganization from the registration requirements of the Securities Act
and from registration under state securities laws if the following conditions
are satisfied: (1) the securities are issued by a company (a "debtor" under the
Bankruptcy Code), or its affiliates or successors, under a plan of
reorganization; (2) the recipients of the securities hold a claim against, an
interest in, or a claim for an administrative expense against the debtor; and
(3) the securities are issued in exchange for the recipients' claim against or
interest in the debtor, or principally in such exchange and partly for cash or
property. In general, offers and sales of securities made in reliance on the
exemption afforded under section 1145(a)(1) of the Bankruptcy Code are deemed to
be made in a public offering, so that the recipients thereof, other than
underwriters, are free to resell such securities without registration under the
Securities Act. In addition, such securities generally may be resold without
registration under state securities laws pursuant to various exemptions provided
by the
- 102 -
respective laws of the several states. However, recipients of the Securities
were advised to consult with their own legal counsel as to the availability of
any such exemption from registration under state law in any given instance and
as to any applicable requirements or conditions to such availability. It was a
condition to consummation of the Plan of Reorganization that the Section 1145
exemption apply to the Securities.
The exemption from the registration requirements of the Securities Act for
resales provided by section 1145(a) was not available to a recipient of the
Securities if such individual or entity was deemed to be an "underwriter" with
respect to such securities, as that term is defined in section 1145(b) of the
Bankruptcy Code. Section 1145(b) of the Bankruptcy Code defines the term
"underwriter" as one who (1) purchases a claim with a view toward distribution
of any security to be received in exchange for the claim, (2) offers to sell
securities issued under a plan for the holders of such securities, (3) offers to
buy securities issued under a plan from persons receiving such securities, if
the offer to buy is made with a view toward distribution, or (4) is a control
person of the issuer of the securities.
Notwithstanding the foregoing, statutory underwriters may be able to sell
securities without registration pursuant to Rule 144 under the Securities Act
(subject, however, to any resale limitations contained therein) which, in
effect, permits the resale of securities (including those securities received by
statutory underwriters pursuant to a Chapter 11 plan), subject to applicable
volume limitations, notice and manner of sale requirements and certain other
conditions. Recipients of post-bankruptcy common stock and Notes under the Plan
of Reorganization who believed they may have been statutory underwriters as
defined by Section 1145 of the Bankruptcy Code were advised to consult with
their own counsel as to the availability of the exemption provided by Rule 144.
The Securities issued under the Plan of Reorganization to persons who were
deemed to be underwriters under Section 1145(b) of the Bankruptcy Code, are
considered restricted securities and therefore may not be resold unless an
exemption under the Securities Act is available or a registration statement is
filed and declared effective. Some holders of the Securities, however, have
rights to have their shares registered for resale under the Securities Act.
PLAN OF DISTRIBUTION
Each of the selling noteholders, which term shall include their pledgees,
transferees or other successors in interest, is offering the Notes for its own
account, and not for our account. We will not receive any of the net proceeds of
the offering.
The selling noteholders may offer our Notes for sale in one or more
transactions, including:
- block transactions;
- at a fixed price or prices, which may be changed;
- at market prices prevailing at the time of sale;
- 103 -
- at prices related to such prevailing market prices; or
- at prices determined on a negotiated or competitive bid basis.
The selling noteholders may sell Notes directly, through agents designated
by them, from time to time, or by such other means as we may specify in any
applicable prospectus supplement. The selling noteholders who are broker-dealers
are "underwriters" with respect to the Notes they are offering for resale.
Participating agents or broker-dealers in the distribution of any of the Notes
may be deemed to be "underwriters" within the meaning of the Securities Act. Any
discount or commission received by any underwriter and any participating agents
or broker-dealers, and any profit on the resale of shares of the Notes purchased
by any of them may be deemed to be underwriting discounts or commissions under
the Securities Act.
The selling noteholders may loan or pledge the Notes to a broker-dealer
and the broker-dealer may effect sales of the pledged Notes pursuant to this
prospectus. In connection with the distribution of the Notes or otherwise, the
selling noteholders may enter into hedging transactions with broker-dealers. The
selling noteholders may enter into option or other transactions with
broker-dealers that require the delivery to the broker-dealer of the Notes,
which the broker-dealer may resell or otherwise transfer pursuant to this
prospectus. In connection with these hedging transactions, broker-dealers may
engage in short sales of the Notes in the course of hedging the positions they
assume with the selling noteholders. The selling noteholders may sell Notes
short or otherwise enter into hedging positions with respect to the Notes and
deliver the Notes to close out these short positions and hedges.
The selling noteholders may sell their Notes through a broker-dealer
acting as agent or broker or to a broker-dealer acting as principal. In the
latter case, the broker-dealer may then resell such Notes to the public at
varying prices to be determined by the broker-dealer at the time of resale.
Underwriters, dealers and agents may engage in transactions with or perform
services for us or our subsidiaries in the ordinary course of their business.
To the extent required, the number and amount of the Notes to be sold,
information relating to the underwriters, the purchase price, the public
offering price, if applicable, the name of any underwriter, agent or
broker-dealer, and any applicable commissions, discounts or other items
constituting compensation to such underwriters, agents or broker-dealers with
respect to a particular offering will be set forth in an appropriate supplement
to this prospectus. Upon being notified by a selling noteholder that a donee,
pledgee, transferee of other successor in interest intends to sell Notes under
this prospectus, if required, we will file a supplement to this prospectus
identifying such successor as a selling noteholder.
If underwriters are used in a sale, Notes will be acquired by the
underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. The Notes may be
offered to the public either through underwriting syndicates represented by one
or more managing underwriters or directly by one or more firms acting as
underwriters. The underwriter or underwriters with respect to a particular
underwritten offering, and if an underwriting syndicate is used, the managing
underwriter or underwriters will be stated on the
- 104 -
cover of the prospectus supplement. Underwriters, dealers and agents may be
entitled, under agreements to be entered into among us and the selling
noteholders, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act. If any material
change is made with respect to this plan of distribution, we will file a
post-effective amendment to the registration statement of which this prospectus
forms a part.
Under the securities laws of some states, the Notes covered by this
prospectus may be sold in those states only through registered or licensed
brokers or dealers.
Certain persons that participate in the distribution of the Notes may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Notes, including over allotment, stabilizing and short-covering transactions
in such securities, and the imposition of penalty bids, in connection with an
offering. Any person participating in the distribution of the Notes registered
under the registration statement that includes this prospectus and any
supplement will be subject to applicable provisions of the Exchange Act and the
applicable SEC rules and regulations, including, among others, Regulation M,
which may limit the timing of purchases and sales of any of our Notes by any
such person. Furthermore, Regulation M may restrict the ability of any person
engaged in the distribution of our securities to engage in market-making
activities with respect to our Notes. These restrictions may affect the
marketability of our Notes and the ability of any person or entity to engage in
market-making activities with respect to our Notes.
Upon sale under the registration statement that includes this prospectus
and any supplement, the Notes registered by the registration statement will be
freely tradable in the hands of persons other than our affiliates.
EXPERTS
Ernst & Young LLP, independent registered public accounting firm, have
audited the consolidated financial statements and schedule of Neenah at
September 30, 2004 and 2005, and for of the years then ended and of our
Predecessor Company, Neenah Foundry Company, for the year ended September 30,
2003, as set forth in their reports. We have included our financial statements
and schedule in this prospectus and elsewhere in this registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933, as amended, relating to
the Notes that includes important business and financial information about us
that is not included in or delivered with this prospectus. This prospectus does
not contain all of the information included in the registration statement. This
information is available from us without charge to anyone who receives this
prospectus.
Under the terms of the indenture, we agree that, whether or not required
by the rules and regulations of the Commission, so long as any Notes are
outstanding, we will furnish to the
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
(a) (1) Consolidated Financial Statements of Neenah Foundry Company
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholder's Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors
Neenah Foundry Company
We have audited the accompanying consolidated balance sheets of Neenah Foundry
Company and Subsidiaries (the Company) as of September 30, 2005 and 2004
(Reorganized Company), and the related consolidated statements of operations,
changes in stockholder's equity (deficit) and cash flows for the year ended
September 30, 2005 and the period from October 1, 2003 to September 30, 2004
(Reorganized Company) and the year ended September 30, 2003 (Predecessor
Company) and the portion of October 1, 2003 related to the Predecessor Company's
reorganization gain. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Reorganized
Company at September 30, 2005 and 2004, and the consolidated results of
operations and cash flows for the year ended September 30, 2005 and the period
from October 1, 2003 to September 30, 2004 (Reorganized Company) and the year
ended September 30, 2003 (Predecessor Company) and the portion of October 1,
2003 related to the Predecessor Company's reorganization gain, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective October 8, 2003,
the Company was reorganized under a plan of reorganization confirmed by the
United States Bankruptcy Court, District of Delaware. The financial statements
of the Reorganized Company reflect the impact of adjustments to reflect the fair
value of assets and liabilities under fresh start accounting, which was applied
effective October 1, 2003. As a result, the financial statements of the
Reorganized Company are presented on a different basis than those of the
Predecessor Company and, therefore, are not comparable in all respects.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
November 4, 2005
F-2
Neenah Foundry Company
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
REORGANIZED
SEPTEMBER 30
-------------------
2005 2004
-------- --------
ASSETS
Current assets:
Cash $ 3,484 $ --
Accounts receivable, less allowance for doubtful
accounts of $2,093 in 2005 and $1,142 in 2004 85,795 81,320
Inventories 59,123 61,119
Deferred income taxes 3,304 --
Other current assets 6,897 6,978
Current assets of discontinued operations -- 200
-------- --------
Total current assets 158,603 149,617
Property, plant and equipment:
Land 6,708 6,287
Buildings and improvements 16,917 15,668
Machinery and equipment 74,026 63,542
Patterns 12,753 11,026
Construction in progress 2,994 1,551
-------- --------
113,398 98,074
Less accumulated depreciation 22,148 10,798
-------- --------
91,250 87,276
Deferred financing costs, net of accumulated
amortization of $1,012 in 2005 and $487 in 2004 2,192 2,566
Identifiable intangible assets, net of accumulated
amortization of $14,245 in 2005 and $7,121 in 2004 69,192 76,316
Goodwill 86,699 86,699
Other assets 4,619 4,966
-------- --------
162,702 170,547
-------- --------
$412,555 $407,440
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 30,305 $ 29,150
Income taxes payable 5,562 2,831
Accrued wages and employee benefits 16,586 12,881
Accrued interest 7,134 7,140
Other accrued liabilities 2,411 2,122
Deferred income taxes -- 1,360
Current portion of long-term debt 33,668 44,215
-------- --------
Total current liabilities 95,666 99,699
Long-term debt 238,086 239,586
Deferred income taxes 23,759 28,636
Postretirement benefit obligations 10,404 10,575
Other liabilities 27,287 20,160
-------- --------
Total liabilities 395,202 398,656
Commitments and contingencies
Stockholder's equity:
Common stock, par value $100 per share; 1,000 shares
authorized, issued and outstanding 100 100
Capital in excess of par value 5,429 5,429
Retained earnings 18,350 3,255
Accumulated other comprehensive loss (6,526) --
-------- --------
Total stockholder's equity 17,353 8,784
-------- --------
$412,555 $407,440
======== ========
See accompanying notes.
F-3
Neenah Foundry Company
Consolidated Statements of Operations
(In Thousands)
REORGANIZED PREDECESSOR
YEARS ENDED ------------------------
SEPTEMBER 30 YEAR ENDED
------------------- OCTOBER 1 SEPTEMBER 30
2005 2004 2003 2003
-------- -------- --------- ------------
Net sales $541,772 $450,942 $ -- $375,063
Cost of sales 440,818 375,124 -- 321,834
-------- -------- ------- --------
Gross profit 100,954 75,818 -- 53,229
Selling, general and administrative expenses 34,467 27,374 -- 26,132
Litigation settlement 6,500 -- -- --
Amortization expense 7,124 7,121 -- 3,819
Loss on disposal of property, plant and
equipment 953 465 -- 195
-------- -------- ------- --------
Operating income 51,910 40,858 -- 23,083
Other income (expense):
Interest expense (33,419) (33,392) -- (47,445)
Interest income 13 29 -- 825
Reorganization gain (expense) -- -- 43,943 (7,874)
-------- -------- ------- --------
Income (loss) from continuing operations
before income taxes 18,504 7,495 43,943 (31,411)
Provision (credit) for income taxes 3,409 3,881 -- (8,541)
-------- -------- ------- --------
Income (loss) from continuing operations 15,095 3,614 43,943 (22,870)
Discontinued operations:
Loss from discontinued operations, net of
income tax benefit of $(240) in 2004
and $(590) in 2003 -- (359) -- (1,095)
Loss on sale of discontinued operations,
net of income benefit of $(860) -- -- -- (1,596)
-------- -------- ------- --------
Net income (loss) $ 15,095 $ 3,255 $43,943 $(25,561)
======== ======== ======= ========
See accompanying notes.
F-4
Neenah Foundry Company
Consolidated Statements of Changes in Stockholder's Equity (Deficit)
(In Thousands)
ACCUMULATED
RETAINED OTHER
CAPITAL EARNINGS COMPREHENSIVE
COMMON IN EXCESS OF (ACCUMULATED (LOSS)
STOCK PAR VALUE DEFICIT) INCOME TOTAL
-------- ------------ ------------ ------------- --------
PREDECESSOR COMPANY
Balance at September 30, 2002 $100 $ 51,317 $(55,563) $(8,000) $(12,146)
Components of comprehensive loss:
Net loss -- -- (25,561) -- (25,561)
Pension liability adjustment,
net of tax effect of $952 -- -- -- (1,309) (1,309)
--------
Total comprehensive loss (26,870)
---- -------- -------- ------- --------
Balance at September 30, 2003 100 51,317 (81,124) (9,309) (39,016)
Effect of fresh start accounting under
plan of reorganization -- (45,888) 81,124 9,309 44,545
---- -------- -------- ------- --------
REORGANIZED COMPANY
Balance at October 1, 2003 100 5,429 -- -- 5,529
Net income -- -- 3,255 -- 3,255
---- -------- -------- ------- --------
Balance at September 30, 2004 100 5,429 3,255 -- 8,784
Components of comprehensive income:
Net income -- -- 15,095 -- 15,095
Pension liability adjustment,
net of tax effect of $4,350 -- -- -- (6,526) (6,526)
--------
Total comprehensive income 8,569
---- -------- -------- ------- --------
Balance at September 30, 2005 $100 $ 5,429 $ 18,350 $(6,526) $ 17,353
==== ======== ======== ======= ========
See accompanying notes.
F-5
Neenah Foundry Company
Consolidated Statements of Cash Flows
(In Thousands)
REORGANIZED PREDECESSOR
YEARS ENDED ------------------------
SEPTEMBER 30 YEAR ENDED
------------------- OCTOBER 1 SEPTEMBER 30
2005 2004 2003 2003
-------- -------- --------- ------------
OPERATING ACTIVITIES
Net income (loss) $ 15,095 $ 3,255 $ 43,943 $(25,561)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Noncash reorganization expense (gain) -- -- (68,299) 1,464
Provision for obsolete inventories 356 456 -- 424
Provision for bad debts 2,153 1,043 -- 1,760
Lower of cost or market inventory adjustment -- -- -- 1,228
Depreciation 11,740 10,871 -- 22,530
Amortization of identifiable intangible assets 7,124 7,121 -- 3,819
Amortization of deferred financing costs and
premium/discount on notes 2,110 2,070 -- 2,242
Loss on sale of discontinued operations -- -- -- 2,456
Loss on disposal of property, plant and equipment 953 465 -- 195
Deferred income taxes (5,191) 3,620 -- (10,337)
Changes in operating assets and liabilities:
Accounts receivable (6,628) (26,847) -- (794)
Inventories 1,640 (2,013) -- (6,995)
Other current assets 281 (1,254) -- (3,047)
Accounts payable 1,155 (2,619) -- 3,184
Accrued liabilities 6,719 7,749 -- 29,978
Postretirement benefit obligations (171) 256 -- 575
Other liabilities (3,749) (1,428) -- (119)
-------- -------- -------- --------
Net cash provided by (used in) operating activities 33,587 2,745 (24,356) 23,002
INVESTING ACTIVITIES
Proceeds from disposition of business, net of fees -- -- -- 648
Purchase of property, plant and equipment (17,572) (12,713) -- (11,900)
Proceeds from sale of property, plant and equipment 905 55 -- 40
Other 347 475 -- (105)
-------- -------- -------- --------
Net cash used in investing activities (16,320) (12,183) -- (11,317)
FINANCING ACTIVITIES
Proceeds from long-term debt 84 14,450 -- 815
Payments on long-term debt (13,716) (5,012) -- (13,017)
Debt issuance costs (151) -- -- (1,291)
-------- -------- -------- --------
Net cash provided by (used in) financing activities (13,783) 9,438 -- (13,493)
-------- -------- -------- --------
Increase (decrease) in cash and cash equivalents 3,484 -- (24,356) (1,808)
Cash and cash equivalents at beginning of year -- -- 24,356 26,164
-------- -------- -------- --------
Cash and cash equivalents at end of year $ 3,484 $ -- $ -- $ 24,356
======== ======== ======== ========
Supplemental disclosures of cash flows information:
Interest paid $ 31,315 $ 24,182 $ -- $ 34,995
Income taxes paid (refunded) 5,622 568 -- (18,032)
See accompanying notes.
F-6
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Neenah Foundry Company (Neenah), together with its subsidiaries (collectively,
the Company), manufactures gray and ductile iron castings and forged components
for sale to industrial and municipal customers. Industrial castings are
custom-engineered and are produced for customers in several industries,
including the medium and heavy-duty truck components, farm equipment, heating,
ventilation and air-conditioning industries. Municipal castings include manhole
covers and frames, storm sewer frames and grates, tree grates and specialty
castings for a variety of applications and are sold principally to state and
local government entities, utilities and contractors. The Company's sales
generally are unsecured.
Neenah is a wholly owned subsidiary of NFC Castings, Inc., which is a wholly
owned subsidiary of ACP Holding Company. Neenah has the following subsidiaries,
all of which are wholly owned: Deeter Foundry, Inc. (Deeter); Mercer Forge
Corporation and subsidiaries (Mercer); Dalton Corporation and subsidiaries
(Dalton); Advanced Cast Products, Inc. and subsidiaries (Advanced Cast
Products); Gregg Industries, Inc. (Gregg); Neenah Transport, Inc. (Transport)
and Cast Alloys, Inc. (Cast Alloys), which is inactive. Deeter manufactures gray
iron castings for the municipal market and special application construction
castings. Mercer manufactures forged components for use in transportation,
railroad, mining and heavy industrial applications and microalloy forgings for
use by original equipment manufacturers and industrial end users. Dalton
manufactures gray iron castings for refrigeration systems, air conditioners,
heavy equipment, engines, gear boxes, stationary transmissions, heavy-duty truck
transmissions and other automotive parts. Advanced Cast Products manufactures
ductile and malleable iron castings for use in various industrial segments,
including heavy truck, construction equipment, railroad, mining and automotive.
Gregg manufactures gray and ductile iron castings for industrial and commercial
use. Transport is a common and contract carrier licensed to operate in the
continental United States. The majority of Transport's revenues are derived from
transport services provided to the Company.
On August 5, 2003, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court, District of Delaware (the Bankruptcy Court). On September 26,
2003, the Bankruptcy Court confirmed the Company's Plan of Reorganization, and
on October 8, 2003, the Company consummated the Plan of Reorganization and
emerged from its Chapter 11 reorganization proceedings with a significantly
restructured balance sheet. The accompanying consolidated financial statements
for
F-7
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)
the year ended September 30, 2003, and the portion of October 1, 2003 related to
the reorganization gain have been prepared in accordance with American Institute
of Certified Public Accountant's Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code" (SOP 90-7).
The Company implemented the fresh start accounting provisions (fresh start) of
SOP 90-7 as of October 1, 2003. Under fresh start, the fair value of the
reorganized Company was allocated among its assets and liabilities, and its
accumulated deficit as of October 1, 2003 was eliminated. The implementation of
fresh start resulted in a substantial reduction in the carrying value of the
Company's long-lived assets, including property, plant and equipment and
intangible assets, and long-term liabilities. As a result, the Predecessor
financial statements are not comparable to the financial statements of the
reorganized company.
Although the effective date of the Plan of Reorganization was October 8, 2003,
due to the immateriality of the results of operations for the period between
October 1, 2003 and the effective date, the Company has accounted for the
consummation of the Plan of Reorganization as if it had occurred on October 1,
2003 and implemented fresh start reporting as of that date. Fresh start required
that the Company adjust the historical cost of its assets and liabilities to
their fair value. The fair value of the reorganized Company, or the
reorganization value, of approximately $290,000 was determined by an independent
party based on multiples of earnings before interest, income taxes, depreciation
and amortization (EBITDA) and discounted cash flows under the Company's
financial projections.
Reorganization gain for the Predecessor on October 1, 2003 consisted of the
following:
Net gain on extinguishment of debt $ 168,208
Net loss resulting from fresh start fair value
adjustments to assets and liabilities (124,265)
---------
Total reorganization gain $ 43,943
=========
F-8
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Neenah and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE
The Company evaluates the collectibility of its accounts receivable based on a
number of factors. For larger accounts, an allowance for doubtful accounts is
recorded based on the applicable parties' ability and likelihood to pay based on
management's review of the facts. For all other accounts, the Company recognizes
an allowance based on the length of time the receivable is past due based on
historical experience.
INVENTORIES
Inventories at September 30, 2005 and 2004 are stated at the lower of cost or
market. The cost of inventories for Neenah and Dalton is determined on the
last-in, first-out (LIFO) method for substantially all inventories except
supplies, for which cost is determined on the first-in, first-out (FIFO) method.
The cost of inventories for Deeter, Mercer, Advanced Cast Products and Gregg is
determined on the FIFO method. LIFO inventories comprise 42% and 47% of total
inventories at September 30, 2005 and 2004, respectively. If the FIFO method of
inventory valuation had been used by all companies, inventories would have been
approximately $6,901 and $4,938 higher than reported at September 30, 2005 and
2004, respectively. Additionally, cost of sales in the accompanying consolidated
statement of operations would have been approximately $1,039 higher for the year
ended September 30, 2005 had the Company not experienced a decrement in
inventory quantities that are valued on the LIFO method.
F-9
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment acquired prior to September 30, 2003 are stated at
fair value, as required by fresh start accounting. Additions to property, plant
and equipment subsequent to October 1, 2003 are stated at cost. Depreciation for
financial reporting purposes is provided over the estimated useful lives (3 to
40 years) of the respective assets using the straight-line method.
DEFERRED FINANCING COSTS
Costs incurred to obtain long-term financing are amortized using the effective
interest method over the term of the related debt.
IDENTIFIABLE INTANGIBLE ASSETS
Identifiable intangible assets are amortized on a straight-line basis over the
estimated useful lives of 10 to 40 years.
GOODWILL
Goodwill is tested for impairment annually during the fourth fiscal quarter or
more frequently if an event indicates that the goodwill might be impaired in
accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets." Based on such tests, there was no
impairment of goodwill recorded in fiscal 2005 or 2004.
IMPAIRMENT OF LONG-LIVED ASSETS
Property, plant and equipment and identifiable intangible assets are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected undiscounted
cash flows is less than the carrying value of the related asset or group of
assets, a loss is recognized for the difference between the fair value and
carrying value of the asset or group of assets. Such analyses necessarily
involve significant judgment.
F-10
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues are recognized when all of the following criteria are met: persuasive
evidence of an arrangement exists; delivery has occurred and ownership has
transferred to customer; the price to the customer is fixed and determinable;
and collectibility is reasonably assured. The Company meets these criteria for
revenue recognition upon shipment of product, which corresponds with transfer of
title.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in cost of sales.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs for continuing
operations were $470, $525 and $445 for the years ended September 30, 2005, 2004
and 2003, respectively.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of the Company's assets and liabilities
and are measured using currently enacted tax rates and laws.
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including cash,
accounts receivable and accounts payable approximate fair value. The fair value
of the Company's long-term debt is approximately $285,838 at September 30, 2005.
The fair value of the Senior Subordinated and Senior Secured Notes with a face
value of $233,130 is based on quoted market prices.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial statements
to conform to the current year presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 151, "Inventory Costs, an Amendment of ARB No. 43, Chapter 4." SFAS No. 151
clarifies that abnormal amounts of idle facility expense, freight, handling
costs, and wasted materials (spoilage) should be recognized as current-period
charges and requires the allocation of fixed production overhead to inventory
based on the normal capacity of the production facilities. SFAS No. 151 is
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. Adoption of SFAS No. 151 is not expected to have a material impact on
the Company's financial condition, results of operations or cash flows.
On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment," which is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123(R) supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and amends SFAS No. 95, "Statement of Cash Flows."
Generally, the approach in SFAS No. 123(R) is similar to the approach described
in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative.
Under the amended compliance dates adopted by the Securities and Exchange
Commission, SFAS No. 123(R) must be adopted by the Company no later than October
1, 2005, the beginning of the Company's next fiscal year. The adoption of SFAS
No. 123(R) will not have a material impact on the Company's results of
operations or financial position as the Company has no stock-based compensation
plans.
3. DISCONTINUED OPERATIONS
On December 27, 2002, the Company sold substantially all of the assets of
Belcher Corporation (Belcher) foundry (a wholly-owned subsidiary of Advanced
Cast Products) for cash of $648 (net of fees and escrow deposits), a $1,500 note
receivable and $1,000 of preferred stock of the buyer. The disposition of
Belcher resulted in a loss of $1,596, net of taxes of $860. Included in the loss
on disposal is a curtailment loss on Belcher's defined-benefit pension plan of
$367, net of taxes of $198, which was retained by the Company. The results of
operations of Belcher have been reported as discontinued operations in the
consolidated statements of operations for all periods presented.
F-11
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
3. DISCONTINUED OPERATIONS (CONTINUED)
Revenues for Belcher, which were previously included in the Castings segment,
for the year ended September 30, 2003 were $3,186. Interest allocated to Belcher
of $139 for the year ended September 30, 2003 was based on the purchase price of
Belcher in relation to the purchase price of all other acquisitions funded by
additional Company borrowings.
4. INVENTORIES
Inventories consist of the following as of September 30:
2005 2004
------- -------
Raw materials $ 6,905 $ 5,218
Work in process and finished goods 37,088 41,566
Supplies 15,130 14,335
------- -------
$59,123 $61,119
======= =======
5. INTANGIBLE ASSETS
Identifiable intangible assets consist of the following as of September 30:
2005 2004
----------------------- -----------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
-------- ------------ -------- ------------
Amortizable intangible assets:
Customer lists $67,000 $13,401 $67,000 $6,700
Tradenames 16,282 823 16,282 411
Other 155 21 155 10
------- ------- ------- ------
$83,437 $14,245 $83,437 $7,121
======= ======= ======= ======
The Company does not have any intangible assets deemed to have indefinite lives.
The Company expects to recognize amortization expense of $7,124 in each of the
five fiscal years subsequent to September 30, 2005.
F-12
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
6. LONG-TERM DEBT
Long-term debt consists of the following as of September 30:
2005 2004
-------- --------
13% Senior Subordinated Notes $100,000 $100,000
11% Senior Secured Notes, less unamortized discount of $7,921
and $9,506 124,607 123,022
Term Loan Facilities 16,564 19,719
Revolving Credit Facility 30,502 39,477
Other 81 1,583
-------- --------
271,754 283,801
Less current portion 33,668 44,215
-------- --------
$238,086 $239,586
======== ========
The Company's Credit Facility provides for a revolving credit line of up to
$92,085 (with a $5,000 sublimit available for letters of credit and a term loan
in the aggregate original principal amount of $22,085 which requires annual
principal payments of $3,155 through fiscal 2008, with the remainder due in
fiscal 2009). The Credit Facility matures on October 8, 2009. The Credit
Facility contains various financial and nonfinancial covenants and is secured by
substantially all of the Company's tangible and intangible assets. The interest
rate on the Credit Facility is based on LIBOR (4% at September 30, 2005) or
prime plus an applicable margin, based upon the Company meeting certain
financial statistics. The weighted-average interest rate on the revolving credit
line outstanding borrowings at September 30, 2005 is 5.85%. Substantially all of
Neenah's wholly owned subsidiaries are co-borrowers with Neenah under the Credit
Facility and are jointly and severally liable with Neenah for all obligations
under the Credit Facility, subject to customary exceptions for transactions of
this type. In addition, NFC Castings, Inc. (NFC), Neenah's immediate parent, and
the remaining wholly owned subsidiaries of Neenah jointly and severally
guarantee Neenah's obligations under the Credit Facility, subject to customary
exceptions for transactions of this type. The borrowers' and guarantors'
obligations under the Credit Facility are secured by a first priority perfected
security interest, subject to customary restrictions, in substantially all of
the tangible and intangible assets of the Company and its subsidiaries. The
Senior Secured Notes, and the guarantees in respect thereof, are equal in right
of payment to the Credit Facility, and the guarantees in respect thereof. The
liens in respect of the Senior Secured Notes are junior to the liens securing
the Credit Facility and guarantees thereof. Borrowings under the Revolving
Credit Facility have been classified as current liabilities in the accompanying
consolidated balance sheets in accordance with the consensus of Emerging Issues
Task Force No. 95-22,
F-13
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
"Balance Sheet Classification of Borrowings Outstanding under Revolving Credit
Agreements that include both a Subjective Acceleration Clause and a Lock-Box
Arrangement."
The Senior Secured Notes mature on September 30, 2010 and bear interest at 11%.
Interest is payable semiannually on January 1 and July 1. The Senior Secured
Notes are secured by substantially all of the Company's tangible and intangible
assets; however, they are second in priority to the borrowings under the Credit
Facility. The Company's obligations under the Senior Secured Notes are
guaranteed on a secured basis by each of its wholly owned subsidiaries.
F-14
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
6. LONG-TERM DEBT (CONTINUED)
The Senior Subordinated Notes are unsecured, mature on September 30, 2013 and
bear interest at 13%. Interest of 5% is payable in cash and 8% may be
paid-in-kind semiannually on January 1 and July 1. Through July 1, 2005, the
Company has paid the interest in cash.
The Senior Secured and the Senior Subordinated Notes contain covenants which
restrict the Company from incurring additional indebtedness and restricts
dividend payments, stock redemptions and certain other transactions. The Senior
Secured and the Senior Subordinated Notes are fully, unconditionally, jointly
and severally guaranteed by all subsidiaries.
Scheduled annual principal payments on long-term debt for fiscal years
subsequent to September 30, 2005 are:
2006 $ 33,668
2007 3,166
2008 3,167
2009 7,112
2010 124,620
Thereafter 100,021
--------
$271,754
========
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain plants, warehouse space, machinery and equipment,
office equipment and vehicles under operating leases. Rent expense for
continuing operations under these operating leases for the years ended September
30, 2005, 2004 and 2003 totaled $2,920, $2,999 and $2,885, respectively.
Minimum rental payments due under operating leases for fiscal years subsequent
to September 30, 2005, are as follows:
2006 $2,015
2007 1,637
2008 1,267
2009 689
2010 538
Thereafter 479
------
$6,625
======
F-15
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is partially self-insured for workers' compensation claims. An
accrued liability is recorded for claims incurred but not yet paid or reported
and is based on current and historical claim information. The accrued liability
may ultimately be settled for an amount different than the recorded amount.
Adjustments of the accrued liability are recorded in the period in which they
become known.
Approximately 67% of the Company's work force is covered by collective
bargaining agreements. The collective bargaining agreement for Advanced Cast
Products was scheduled to expire in October 2005 and has been extended through
fiscal 2009.
In the normal course of business, the Company is named in legal proceedings.
There are currently no material legal proceedings pending with respect to the
Company. On August 5, 2005 the Company settled a legal matter related to the
proposed sale of one of its subsidiaries by paying a cash settlement of $6,500.
8. INCOME TAXES
The provision (credit) for income taxes consists of the following:
REORGANIZED PREDECESSOR
---------------- -----------
YEARS ENDED SEPTEMBER 30
------------------------------
2005 2004 2003
------- ------ --------
Current:
Federal $ 7,032 $ (700) $ --
State 1,568 721 346
8,600 21 346
Deferred (5,191) 3,620 (10,337)
------- ------ --------
$ 3,409 $3,641 $ (9,991)
======= ====== ========
The provision (credit) for income taxes is included in the consolidated
statements of operations as follows:
REORGANIZED PREDECESSOR
--------------- -----------
YEARS ENDED SEPTEMBER 30
-----------------------------
2005 2004 2003
------ ------ -------
Continuing operations $3,409 $3,881 $(8,541)
Discontinued operations -- (240) (1,450)
------ ------ -------
$3,409 $3,641 $(9,991)
====== ====== =======
F-16
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
8. INCOME TAXES (CONTINUED)
The provision (credit) for income taxes differs from the amount computed by
applying the federal statutory rate of 35% to income (loss) before income taxes
as follows:
REORGANIZED PREDECESSOR
---------------- -----------
YEARS ENDED SEPTEMBER 30
------------------------------
2005 2004 2003
------- ------ --------
Provision (credit) at statutory rate $ 6,476 $2,414 $(12,443)
State income taxes, net of federal taxes 815 469 225
Reorganization expenses -- -- 2,244
Permanent differences due to reorganization (885) 763 --
Change in tax method of determining LIFO inventory (2,679) -- --
Other (318) (5) (17)
------- ------ --------
Provision (credit) for income taxes $ 3,409 $3,641 $ (9,991)
======= ====== ========
F-17
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
8. INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities consist of the following as of
September 30:
2005 2004
-------- --------
Deferred income tax liabilities:
Inventories $ (905) $ (4,118)
Property, plant and equipment (10,939) (10,243)
Identifiable intangible assets (27,677) (30,526)
Other (382) (570)
-------- --------
(39,903) (45,457)
Deferred income tax assets:
Employee benefit plans 14,972 12,208
Accrued vacation 2,191 2,148
Other accrued liabilities 1,414 587
State net operating loss carryforwards 264 --
Other 871 518
-------- --------
Total deferred tax assets 19,712 15,461
Valuation allowance for deferred income tax assets (264) --
======== ========
19,448 15,461
======== ========
Net deferred income tax liability $(20,455) $(29,996)
======== ========
Included in the consolidated balance sheets as:
Current deferred income tax asset (liability) $ 3,304 $ (1,360)
Noncurrent deferred income tax liability (23,759) (28,636)
-------- --------
$(20,455) $(29,996)
======== ========
As of September 30, 2005, the Company has state net operating loss carryforwards
of $2,733 which expire through fiscal 2015. A full valuation allowance has been
established for all state net operating loss carryforwards due to the
uncertainty regarding the realization of the deferred tax benefit through future
earnings.
F-18
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
9. EMPLOYEE BENEFIT PLANS
DEFINED-BENEFIT PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company sponsors five defined-benefit pension plans covering the majority of
its hourly employees. Retirement benefits under the pension plans are based on
years of service and defined-benefit rates. The Company has elected a
measurement date of June 30 for all of its pension plans. The Company funds the
pension plans based on actuarially determined cost methods allowable under
Internal Revenue Service regulations.
The Company also sponsors unfunded defined-benefit postretirement health care
plans covering substantially all salaried and hourly employees at Neenah and
their dependents. For salaried employees at Neenah, benefits are provided from
the date of retirement for the duration of the employee's life, while benefits
for hourly employees at Neenah are provided from retirement to age 65. Retirees'
contributions to the plans are based on years of service and age at retirement.
The Company funds benefits as incurred. The Company has elected a measurement
date of June 30 for these plans.
FASB Financial Staff Position No. FAS 106-2, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003" (the Act), addresses the impact of the Act enacted in
December 2003. The Act provides a prescription drug subsidy benefit for Medicare
eligible employees starting in 2006. During fiscal 2005, it was determined that
the benefit levels of the Company's defined-benefit postretirement health care
plan covering salaried employees met the criteria set forth by the Act to
qualify for the subsidy. Effective with the June 30, 2005 measurement date, the
effects of the subsidy were used in measuring the plan's benefit obligation and
net periodic postretirement benefit cost. The effect of the subsidy was to
reduce the net periodic postretirement benefit cost by approximately $56 for the
year ended September 30, 2005 and reduce the accumulated postretirement benefit
obligation by approximately $415 as of the June 30, 2005 measurement date. The
amount of subsidy payments expected to be received is approximately $42 per year
in fiscal 2006 and future years.
F-19
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
OBLIGATIONS AND FUNDED STATUS
The following table summarizes the funded status of the pension plans and
postretirement benefit plans and the amounts recognized in the consolidated
balance sheets at September 30, 2005 and 2004:
PENSION POSTRETIREMENT
BENEFITS BENEFITS
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
Change in benefit obligation:
Benefit obligation, October 1 $ 62,190 $ 60,049 $ 8,914 $ 10,319
Service cost 2,008 1,964 161 215
Interest cost 3,870 3,663 363 393
Plan amendments -- -- -- (461)
Actuarial (gains) losses 12,548 (1,761) (1,655) (1,185)
Benefits paid (2,454) (1,725) (432) (367)
-------- -------- -------- --------
Benefit obligation, September 30 $ 78,162 $ 62,190 $ 7,351 $ 8,914
======== ======== ======== ========
Change in plan assets:
Fair value of plan assets, October 1 $ 49,020 $ 43,489 $ -- $ --
Actual return on plan assets 3,892 3,845 -- --
Company contributions 4,190 3,411 432 367
Benefits paid (2,454) (1,725) (432) (367)
-------- -------- -------- --------
Fair value of plan assets, September 30 $ 54,648 $ 49,020 $ -- $ --
======== ======== ======== ========
Funded status of the plans:
Benefit obligation in excess of plan assets $(23,514) $(13,170) $ (7,351) $ (8,914)
Unrecognized prior service cost -- -- (429) (461)
4th quarter contributions 1,200 -- 109 122
Unrecognized net (gains) losses 10,789 (1,986) (2,733) (1,322)
-------- -------- -------- --------
$(11,525) $(15,156) $(10,404) $(10,575)
======== ======== ======== ========
Amounts recognized in the consolidated
balance sheets at September 30:
Accrued pension or postretirement
benefit liability $(22,401) $(15,156) $(10,404) $(10,575)
Deferred income tax asset 4,350 -- -- --
Accumulated other comprehensive loss 6,526 -- -- --
-------- -------- -------- --------
$(11,525) $(15,156) $(10,404) $(10,575)
======== ======== ======== ========
The accumulated benefit obligation for the Company's defined benefit pension
plans was $78,162 and $62,190 at September 30, 2005 and 2004, respectively.
F-20
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
BENEFIT COSTS
Components of net periodic benefit cost for the years ended September 30 are as
follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS
--------------------------- -----------------------
2005 2004 2003 2005 2004 2003
------- ------- ------- ----- ---- ------
Service cost $ 2,008 $ 1,964 $ 1,798 $ 161 $286 $ 319
Interest cost 3,870 3,663 3,433 363 523 592
Expected return on
plan assets (4,157) (3,630) (3,265) -- -- --
Amortization of prior
service cost -- -- 146 (32) (32) 45
Recognized net
actuarial (gain) loss 2 20 515 (244) (33) 47
------- ------- ------- ----- ---- ------
Net periodic benefit
cost $ 1,723 $ 2,017 $ 2,627 $ 248 $744 $1,003
======= ======= ======= ===== ==== ======
The net periodic benefit costs are included in continuing operations in the
consolidated statements of operations for all periods, except for the year ended
September 30, 2003, of which $195 is recorded as discontinued operations.
ASSUMPTIONS
Weighted-average assumptions used to determine benefit obligations as of
September 30 are as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS
---------------- -----------------------
2005 2004 2005 2004
---- ---- ---- ----
Discount rate 5.25% 6.25% 5.25% 6.25%
F-21
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
Weighted-average assumptions used to determine net periodic benefit cost for the
years ended September 30 are as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS
--------------------------------------------- -----------------------
2005 2004 2003 2005 2004 2003
------------- ------------- ------------- ---- ---- ----
Discount rate 6.25% 6.25% 6.25% to 7.25% 6.25% 6.25% 6.25%
Expected long-term rate
of return on plan
assets 7.50% TO 8.50% 7.50% to 8.50% 7.50% to 8.50% -- -- --
For measurement purposes, the healthcare cost trend rate was assumed to be 8%
decreasing gradually to 5.0% in 2010 and then remaining at that level
thereafter. The healthcare cost trend rate assumption has a significant effect
on the amounts reported. A one percentage point change in the healthcare cost
trend rate would have the following effect:
1% Increase 1% Decrease
----------- -----------
Effect on total of service cost and interest cost $ 114 $ (87)
Effect on postretirement benefit obligation 1,454 (1,122)
PENSION PLAN ASSETS
The following table summarizes the weighted-average asset allocations of the
pension plans at September 30:
2005 2004
---- ----
Asset category:
Equity securities 47% 47%
Debt securities 34 37
Real estate 3 3
Other 16 13
--- ---
100% 100%
=== ===
F-22
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company employs a total return investment approach whereby a mix of equities
and fixed income investments are used to maximize the long-term return of plan
assets for a prudent level of risk. The intent of this strategy is to minimize
plan expenses by maximizing investment returns within that prudent level of
risk. The investment portfolio contains a diversified blend of equity and fixed
income investments. Furthermore, equity investments are diversified across U.S.
and non-U.S. stocks as well as growth, value, and small and large
capitalizations. The Company's targeted asset allocation ranges as a percentage
of total market value are as follows: equity securities 45% to 50% and debt
securities 35% to 40%. None of the plans' equity securities are invested in
common stock of the plan sponsor's parent company, ACP Holding Company.
Additionally, cash balances are maintained at levels adequate to meet near term
plan expenses and benefit payments. Investment risk is measured and monitored on
an ongoing basis through quarterly investment portfolio reviews.
The Company's overall expected long-term rate of return on assets is 7.50% to
8.50%. The expected long-term rate of return is based on the portfolio as a
whole and not on the sum of the returns on individual asset categories. The
return is based on historical returns adjusted to reflect the current view of
the long-term investment market.
BENEFIT PAYMENTS AND CONTRIBUTIONS
The following benefit payments, which reflect expected future service, as
appropriate, and are net of expected Medicare subsidy receipts, are expected to
be paid for fiscal years subsequent to September 30, 2005:
2006 $ 2,613
2007 2,758
2008 2,907
2009 3,259
2010 3,471
2011 - 2015 22,017
-------
$37,025
=======
The Company expects to contribute $5,071 to its pension plans during fiscal
2006.
F-23
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
DEFINED-CONTRIBUTION RETIREMENT PLANS
The Company sponsors various defined-contribution retirement plans (the Plans)
covering substantially all salaried and certain hourly employees. The Plans
allow participants to make 401(k) contributions in amounts ranging from 1% to
15% of their compensation. The Company matches between 35% and 50% of the
participants' contributions up to a maximum of 6% of the employee's
compensation, as defined. The Company may make additional voluntary
contributions to the Plans as determined annually by the Board of Directors.
Total Company contributions for continuing operations amounted to $1,861, $1,195
and $1,694 for the years ended September 30, 2005, 2004 and 2003, respectively.
OTHER EMPLOYEE BENEFITS
The Company provides unfunded supplemental retirement benefits to certain active
and retired employees at Dalton. At September 30, 2005, the present value of the
current and long-term portion of these supplemental retirement obligations
totaled $232 and $2,347, respectively. At September 30, 2004, the present value
of the current and long-term portion of these supplemental retirement
obligations totaled $215 and $2,656, respectively.
Certain of Dalton's hourly employees are covered by a multi-employer,
defined-benefit pension plan pursuant to a collective bargaining agreement. The
Company's expense for the years ended September 30, 2005, 2004 and 2003, was
$337, $361 and $417, respectively.
Substantially all of Mercer's union employees are covered by a multiemployer,
defined-benefit pension plan pursuant to a collective bargaining agreement. The
Company's expense for the years ended September 30, 2005, 2004 and 2003, was
$290, $141 and $102, respectively.
10. SEGMENT INFORMATION
The Company has two reportable segments, Castings and Forgings. The Castings
segment manufactures and sells gray and ductile iron castings for the industrial
and municipal markets, while the Forgings segment manufactures forged components
for the industrial market. The Other segment includes machining operations and
freight hauling.
F-24
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
10. SEGMENT INFORMATION (CONTINUED)
The Company evaluates performance and allocates resources based on the operating
income before depreciation and amortization charges of each segment. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies. Intersegment sales and
transfers are recorded at cost plus a share of operating profit. The following
segment information is presented for continuing operations:
REORGANIZED PREDECESSOR
------------------- -----------
YEARS ENDED SEPTEMBER 30
---------------------------------
2005 2004 2003
-------- -------- -----------
Revenues from external customers:
Castings $491,159 $414,575 $ 349,410
Forgings 44,348 29,853 20,861
Other 22,507 22,035 19,185
Elimination of intersegment revenues (16,242) (15,521) (14,393)
-------- -------- ---------
$541,772 $450,942 $ 375,063
======== ======== =========
Income (loss) from continuing operations:
Castings $ 15,095 $ 3,614 $ (22,870)
Forgings (570) (2,482) (6,819)
Other 189 1,980 (150)
Elimination of intersegment loss 381 502 6,969
-------- -------- ---------
$ 15,095 $ 3,614 $ (22,870)
======== ======== =========
Total assets:
Castings $475,725 $478,820 $ 641,870
Forgings 7,040 8,110 38,454
Other 13,268 12,097 10,971
Elimination of intersegment assets (83,478) (91,587) (154,461)
-------- -------- ---------
$412,555 $407,440 $ 536,834
======== ======== =========
F-25
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
10. SEGMENT INFORMATION (CONTINUED)
CASTINGS FORGINGS OTHER TOTAL
-------- -------- ------ -------
Year ended September 30, 2005 (Reorganized):
Interest expense $29,543 $3,387 $ 489 $33,419
Interest income 13 -- -- 13
Provision for income taxes 1,642 479 1,288 3,409
Depreciation and amortization expense 16,979 815 1,070 18,864
Expenditures for long-lived assets 15,966 948 658 17,572
Year ended September 30, 2004 (Reorganized):
Interest expense $29,392 $3,476 $ 524 $33,392
Interest income 29 -- -- 29
Provision (credit) for income taxes 3,648 (385) 618 3,881
Depreciation and amortization expense 16,254 749 989 17,992
Expenditures for long-lived assets 11,589 398 726 12,713
Year ended September 30, 2003 (Predecessor):
Interest expense $41,907 $4,803 $ 735 $47,445
Interest income 825 -- -- 825
Provision (credit) for income taxes (8,331) (622) 412 (8,541)
Depreciation and amortization expense 22,522 2,277 1,296 26,095
Expenditures for long-lived assets 11,112 217 571 11,900
GEOGRAPHIC INFORMATION
LONG-LIVED
NET SALES ASSETS (1)
--------- ----------
Year ended September 30, 2005 (Reorganized):
United States $509,104 $ 91,250
Foreign countries 32,668 --
-------- --------
$541,772 $ 91,250
======== ========
Year ended September 30, 2004 (Reorganized):
United States $428,081 $ 87,276
Foreign countries 22,861 --
-------- --------
$450,942 $ 87,276
======== ========
Year ended September 30, 2003 (Predecessor):
United States $364,318 $162,969
Foreign countries 10,745 --
-------- --------
$375,063 $162,969
======== ========
(1) Represents tangible long-lived assets only.
F-26
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
11. GUARANTOR SUBSIDIARIES
The following tables present condensed consolidating financial information for
fiscal 2005 and the period from October 1, 2003 to September 30, 2004
(Reorganized Company) and fiscal 2003 (Predecessor Company) for: (a) Neenah, and
(b) on a combined basis, the guarantors of the Senior Secured Notes and the
Senior Subordinated Notes, which include all of the wholly owned subsidiaries of
Neenah (Subsidiary Guarantors). Separate financial statements of the Subsidiary
Guarantors are not presented because the guarantors are jointly, severally and
unconditionally liable under the guarantees, and the Company believes separate
financial statements and other disclosures regarding the Subsidiary Guarantors
are not material to investors.
F-27
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
11. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2005
SUBSIDIARY
NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
ASSETS
Current assets:
Cash (overdraft) and cash equivalents $ 4,952 $ (1,468) $ -- $ 3,484
Accounts receivable, net 37,085 48,710 -- 85,795
Inventories 22,754 36,369 -- 59,123
Deferred income taxes 4,537 (1,233) -- 3,304
Other current assets 3,908 2,989 -- 6,897
-------- -------- --------- --------
Total current assets 73,236 85,367 -- 158,603
Investments in and advances to subsidiaries 114,430 -- (114,430) --
Property, plant and equipment, net 36,519 54,731 -- 91,250
Deferred financing costs, identifiable
intangible assets and goodwill, net 140,435 17,648 -- 158,083
Other assets 1,834 2,785 -- 4,619
-------- -------- --------- --------
$366,454 $160,531 $(114,430) $412,555
======== ======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 8,442 $ 21,863 $ -- $ 30,305
Net intercompany payable -- 81,907 (81,907) --
Income taxes payable 5,562 -- -- 5,562
Accrued wages and employee benefits 7,701 8,885 -- 16,586
Accrued interest 7,134 -- -- 7,134
Other accrued liabilities 469 1,942 -- 2,411
Current portion of long-term debt 33,658 10 -- 33,668
-------- -------- --------- --------
Total current liabilities 62,966 114,607 (81,907) 95,666
Long-term debt 238,015 71 -- 238,086
Deferred income taxes 20,539 3,220 -- 23,759
Postretirement benefit obligations 10,404 -- -- 10,404
Other liabilities 17,177 10,110 -- 27,287
Stockholder's equity 17,353 32,523 (32,523) 17,353
-------- -------- --------- --------
$366,454 $160,531 $(114,430) $412,555
======== ======== ========= ========
F-28
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
11. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2004
SUBSIDIARY
NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
ASSETS
Current assets:
Cash (overdraft) and cash equivalents $ 1,683 $ (1,683) $ -- $ --
Accounts receivable, net 39,487 41,833 -- 81,320
Inventories 25,481 35,638 -- 61,119
Deferred income taxes 4,086 (4,086) -- --
Other current assets 3,638 3,540 -- 7,178
-------- -------- --------- --------
Total current assets 74,375 75,242 -- 149,617
Investments in and advances to subsidiaries 111,982 -- (111,982) --
Property, plant and equipment, net 31,683 55,593 -- 87,276
Deferred financing costs, identifiable
intangible assets and goodwill, net 146,515 19,066 -- 165,581
Other assets 1,895 3,071 -- 4,966
-------- -------- --------- --------
$366,450 $152,972 $(111,982) $407,440
======== ======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 8,457 $ 20,693 $ -- $ 29,150
Net intercompany payable -- 73,527 (73,527) --
Income taxes payable 2,831 -- -- 2,831
Accrued wages and employee benefits 5,616 7,265 -- 12,881
Accrued interest 7,140 -- -- 7,140
Other accrued liabilities 467 1,655 -- 2,122
Deferred income taxes -- 1,360 -- 1,360
Current portion of long-term debt 42,632 1,583 -- 44,215
-------- -------- --------- --------
Total current liabilities 67,143 106,083 (73,527) 99,699
Long-term debt 239,586 -- -- 239,586
Deferred income taxes 27,747 889 -- 28,636
Postretirement benefit obligations 10,575 -- -- 10,575
Other liabilities 12,615 7,545 -- 20,160
Stockholder's equity 8,784 38,455 (38,455) 8,784
-------- -------- --------- --------
$366,450 $152,972 $(111,982) $407,440
======== ======== ========= ========
F-29
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
11. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - REORGANIZED COMPANY
YEAR ENDED SEPTEMBER 30, 2005
SUBSIDIARY
NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
Net sales $241,467 $306,635 $ 6,330) $541,772
Cost of sales 177,897 269,251 (6,330) 440,818
-------- -------- ------- --------
Gross profit 63,570 37,384 -- 100,954
Selling, general and
administrative expenses 24,169 16,798 -- 40,967
Amortization expense 5,705 1,419 -- 7,124
Loss on disposal of equipment 367 586 -- 953
-------- -------- ------- --------
Operating income 33,329 18,581 -- 51,910
Other income (expense):
Interest expense (17,767) (15,652) -- (33,419)
Interest income -- 13 -- 13
-------- -------- ------- --------
(17,767) (15,639) -- (33,406)
-------- -------- ------- --------
Income from operations before
income taxes and equity in
losses of subsidiaries 15,562 2,942 -- 18,504
Provision (credit) for income
taxes (3,784) 7,193 -- 3,409
-------- -------- ------- --------
19,346 (4,251) -- 15,095
Equity in losses of subsidiaries (4,251) -- 4,251 --
-------- -------- ------- --------
Net income (loss) $ 15,095 $ (4,251) $ 4,251 $ 15,095
======== ======== ======= ========
F-30
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
11. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - REORGANIZED COMPANY
YEAR ENDED SEPTEMBER 30, 2004
SUBSIDIARY
NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
Net sales $198,331 $258,266 $(5,655) $450,942
Cost of sales 144,649 236,130 (5,655) 375,124
-------- -------- ------- --------
Gross profit 53,682 22,136 -- 75,818
Selling, general and
administrative expenses 13,249 14,125 -- 27,374
Amortization expense 5,705 1,416 -- 7,121
Loss on disposal of equipment 465 -- -- 465
-------- -------- ------- --------
Operating income 34,263 6,595 -- 40,858
Other income (expense):
Interest expense (17,295) (16,097) -- (33,392)
Interest income 21 8 -- 29
-------- -------- ------- --------
(17,274) (16,089) -- (33,363)
-------- -------- ------- --------
Income (loss) from continuing
operations before income taxes
and equity in losses of
subsidiaries 16,989 (9,494) -- 7,495
Provision (credit) for income
taxes (1,890) 5,771 -- 3,881
-------- -------- ------- --------
18,879 (15,265) -- 3,614
Equity in losses of subsidiaries (15,624) -- 15,624 --
-------- -------- ------- --------
Income (loss) from continuing
operations 3,255 (15,265) 15,624 3,614
Loss from discontinued
operations, net of income taxes -- (359) -- (359)
-------- -------- ------- --------
Net income (loss) $ 3,255 $(15,624) $15,624 $ 3,255
======== ======== ======= ========
F-31
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
11. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - PREDECESSOR COMPANY
YEAR ENDED SEPTEMBER 30, 2003
SUBSIDIARY
NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
Net sales $160,529 $220,102 $(5,568) $375,063
Cost of sales 117,301 210,101 (5,568) 321,834
-------- -------- ------- --------
Gross profit 43,228 10,001 -- 53,229
Selling, general and
administrative expenses 11,766 14,366 -- 26,132
Amortization expense 1,832 1,987 -- 3,819
Loss on disposal of equipment 214 (19) -- 195
-------- -------- ------- --------
Operating income (loss) 29,416 (6,333) -- 23,083
Other income (expense):
Interest expense (25,589) (21,856) -- (47,445)
Interest income 822 3 -- 825
Reorganization expense (7,874) -- -- (7,874)
-------- -------- ------- --------
(32,641) (21,853) -- (54,494)
-------- -------- ------- --------
Loss from continuing operations
before income taxes and equity
in losses of subsidiaries (3,225) (28,186) -- (31,411)
Provision (credit) for income
taxes (8,846) 305 -- (8,541)
-------- -------- ------- --------
5,621 (28,491) -- (22,870)
Equity in losses of subsidiaries (31,182) -- 31,182 --
-------- -------- ------- --------
Loss from continuing operations (25,561) (28,491) 31,182 (22,870)
Loss from discontinued
operations, net of
income taxes -- (1,095) -- (1,095)
Loss on sale of discontinued
operations, net of income tax -- (1,596) -- (1,596)
======== ======== ======= ========
Net loss $(25,561) $(31,182) $31,182 $(25,561)
======== ======== ======= ========
F-32
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
11. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - REORGANIZED COMPANY
YEAR ENDED SEPTEMBER 30, 2005
SUBSIDIARY
NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 15,095 $(4,251) $ 4,251 $ 15,095
Noncash adjustments 6,637 12,608 -- 19,245
Changes in operating assets and
liabilities 5,428 (6,181) -- (753)
-------- ------- ------- --------
Net cash provided by operating
activities 27,160 2,176 4,251 33,587
INVESTING ACTIVITIES
Investments in and advances to
subsidiaries (4,129) 8,380 (4,251) --
Purchase of property, plant and
equipment (7,678) (9,894) -- (17,572)
Other 197 1,055 -- 1,252
-------- ------- ------- --------
Net cash used in investing
activities (11,610) (459) (4,251) (16,320)
FINANCING ACTIVITIES
Proceeds from long-term debt -- 84 -- 84
Payments on long-term debt (12,130) (1,586) -- (13,716)
Debt issuance costs (151) -- -- (151)
-------- ------- ------- --------
Net cash used in financing
activities (12,281) (1,502) -- (13,783)
-------- ------- ------- --------
Increase in cash and cash
equivalents 3,269 215 -- 3,484
Cash (overdraft) and cash
equivalents at beginning of
year 1,683 (1,683) -- --
-------- ------- ------- --------
Cash (overdraft) and cash
equivalents at end of year $ 4,952 $(1,468) $ -- $ 3,484
======== ======= ======= ========
F-33
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
11. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - REORGANIZED COMPANY
YEAR ENDED SEPTEMBER 30, 2004
SUBSIDIARY
NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 3,255 $(15,624) $ 15,624 $ 3,255
Noncash adjustments 8,792 16,854 -- 25,646
Changes in operating assets and
liabilities (11,999) (14,157) -- (16,156)
-------- -------- -------- --------
Net cash provided by (used in)
operating activities 48 (12,927) 15,624 2,745
INVESTING ACTIVITIES
Investments in and advances to
subsidiaries (6,749) 22,373 (15,624) --
Purchase of property, plant and
equipment (3,897) (8,816) -- (12,713)
Other 121 409 -- 530
-------- -------- -------- --------
Net cash provided by (used in)
investing activities (10,525) 13,966 (15,624) (12,183)
FINANCING ACTIVITIES
Proceeds from long-term debt 14,450 -- -- 14,450
Payments on long-term debt (2,366) (2,646) -- (5,012)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 12,084 (2,646) -- 9,438
-------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents 1,607 (1,607) -- --
Cash (overdraft) and cash
equivalents at beginning of
year 76 (76) -- --
-------- -------- -------- --------
Cash (overdraft) and cash
equivalents at end of year $ 1,683 $ (1,683) $ -- $ --
======== ======== ======== ========
F-34
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
11. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - PREDECESSOR
YEAR ENDED SEPTEMBER 30, 2003
SUBSIDIARY
NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
OPERATING ACTIVITIES
Net loss $(25,561) $(31,182) $ 31,182 $(25,561)
Noncash adjustments 2,711 23,070 -- 25,781
Changes in operating assets and
liabilities 32,264 (9,482) -- 22,782
-------- -------- -------- --------
Net cash provided by (used in)
operating activities 9,414 (17,594) 31,182 23,002
INVESTING ACTIVITIES
Investments in and advances to
subsidiaries 1,086 30,096 (31,182) --
Purchase of property, plant and
equipment (4,930) (6,970) -- (11,900)
Other 89 494 -- 583
-------- -------- -------- --------
Net cash provided by (used in)
investing activities (3,755) 23,620 (31,182) (11,317)
FINANCING ACTIVITIES
Proceeds from long-term debt 815 -- -- 815
Payments on long-term debt (10,041) (2,976) -- (13,017)
Debt issuance costs (1,291) -- -- (1,291)
-------- -------- -------- --------
Net cash used in financing
activities (10,517) (2,976) -- (13,493)
-------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents (4,858) 3,050 -- (1,808)
Cash (overdraft) and cash
equivalents at beginning of
year 29,290 (3,126) -- 26,164
-------- -------- -------- --------
Cash (overdraft) and cash
equivalents at end of year $ 24,432 $ (76) $ -- $ 24,356
======== ======== ======== ========
F-35
Neenah Foundry Company
Notes to Consolidated Financial Statements (continued)
(In Thousands)
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
YEAR ENDED SEPTEMBER 30, 2005
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Net sales $121,864 $131,527 $145,685 $142,696
Gross profit 19,168 20,460 31,347 30,979
Net income 612 1,175 6,130(a) 7,178
YEAR ENDED SEPTEMBER 30, 2004
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Net sales $89,825 $105,113 $124,717 $131,287
Gross profit 11,482 13,739 26,063 24,534
Net income (loss) (4,684) (3,644) 8,786 2,797
(a) Net income as previously reported $3,451
Adjustment to recognize tax benefit of
change in tax method 2,679
------
Net income as restated $6,130
======
The Company made an election to change its tax method of determining LIFO
inventory resulting in a tax benefit of $2,679. The effect is to increase
previously reported fiscal 2005 third quarter net income by $2,679.
F-36
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable by Neenah Foundry
Company in connection with this registration statement. All of such expenses are
estimates, other than the filing and quotation fees payable to the Securities
and Exchange Commission.
Filing fee -- Securities and Exchange Commission............ $ 3,056
Fees and expenses of legal counsel.......................... $ 130,000
Printing expenses........................................... $ 138,000
Fees and expenses of accountants............................ $ 100,000
Miscellaneous expenses...................................... $ 5,000
Total..................................................... $ 376,056
All of the amounts shown are estimates except for the filing fee payable
to the Securities and Exchange Commission.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Advanced Cast Products, Inc is a corporation organized under the laws
of the State of Delaware.
Article Seven of the Certificate of Incorporation of Advanced Cast P
Products, Inc. provides that:
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or may hereafter be amended, a Director of this
corporations shall not be liable to the corporation or its stockholder for
monetary damages for breach of fiduciary duty as a Director.
Article Thirteen of the By-Laws of Advanced Cast Products, Inc. provides
that:
The corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or serves or served any
other enterprise at the request of the corporation, against any and all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him in connection with
such action, suit or proceeding, in any circumstances, and to the full
extent, permitted by Section 145 of the Delaware Corporation Law, any
amendment thereto, or any law of similar import.
(b) Mercer Forge Corporation is a corporation organized under the laws of
the State of Delaware.
Article Four of the By-Laws of Mercer Forge Corporation provides that:
Every person now or hereafter serving as a director or officer of the
corporation and every such director or officer serving at the request of
- II-1 -
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
be indemnified by the corporation in accordance with and to the fullest
extent permitted by law for the defense of, or in connection with, any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of
an undertaking by or on behalf of such director of officer to repay such
amount unless it shall be ultimately determined that he is entitled to be
indemnified by the corporation as authorized in Article Four of the
By-Laws.
The right of indemnification provided shall not be deemed exclusive of any
other rights to which any such director or officer may now or hereafter be
entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such person.
The Certificate of Incorporation of Mercer Forge Corporation contains no
provision relating to indemnification.
(c) Neenah Foundry Company is a corporation organized under the laws of
the State of Wisconsin.
Article Six of the Amended and Restated Articles of Incorporation of
Neenah Foundry provides that:
To the fullest extent permitted by the Business Corporation Law of the
State of Wisconsin as the same exists or may hereafter be amended, a
director of this Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for a breach of fiduciary duty as a
director. Any repeal or modification of this provision shall not adversely
affect any right or protection of a director of the Corporation existing
at the time of such repeal or modification.
Under Section 180.0851(1) of the Wisconsin Business Corporation Law (the
"WBCL"), a corporation shall indemnify a director or officer, to the extent that
he or she has been successful on the merits or otherwise in the defense of a
proceeding, for all reasonable expenses incurred in the proceeding if the
director or officer was a party because he or she is a director or officer of
the corporation, and that, to the extent a director or officer has not been
successful on the merits or otherwise in the defense of a proceeding, the
corporation shall indemnify the director or officer unless liability was
incurred because the director or officer breached or failed to perform a duty
that he or she owes to the corporation and the breach or failure to perform
constitutes any of the following (1) a willful failure to deal fairly with the
corporation or its shareholders in connection with a matter in which the
director or officer has a material conflict of interest; (2) a violation of the
criminal law, unless the director or officer had reasonable cause to
- II-2 -
believe that his or her conduct was unlawful; (3) a transaction from which the
director or officer derived an improper personal profit; or (4) willful
misconduct.
Section 180.0858(1) of the WBCL provides that, subject to certain
limitations, the mandatory indemnification provisions do not preclude any
additional right to indemnification or allowance of expenses that a director or
officer may have under a Wisconsin corporation's articles of incorporation,
bylaws, any written agreement or a resolution of the board of directors or
shareholders.
Section 180.0859 of the WBCL provides that it is the public policy of the
State of Wisconsin to require or permit indemnification, allowance of expenses
and insurance to the extent required or permitted under Sections 180.0850 to
180.0858 of the WBCL, for any liability incurred in connection with a proceeding
involving a federal or state statute, rule or regulation regulating the offer,
sale or purchase of securities.
Section 180.0828 of the WBCL provides that, with certain exceptions, a
director is not liable to a corporation, its shareholders, or any person
asserting rights on behalf of the corporation or its shareholders, for damages,
settlements, fees, fines, penalties or other monetary liabilities arising from a
breach of, or failure to perform, any duty resulting solely from his or her
status as a director, unless the person asserting liability proves that the
breach or failure to perform constitutes any of the four exceptions to mandatory
indemnification under Section 180.0851(2) referred to above.
Under Section 180.0833 of the WBCL, directors of a Wisconsin corporation
against whom claims are asserted with respect to the declaration of improper
dividends or distributions to shareholders or certain other improper acts which
they approved are entitled to contribution from other directors who approved
such actions and from shareholders who knowingly accepted an improper dividend
or distribution, as provided therein.
Article Eight of the By-Laws of Neenah Foundry Company provides for
indemnification of the corporation's officers and directors in accordance with
the WBCL.
(d) Neenah Transport, Inc. is a corporation organized under the laws of
the State of Wisconsin.
Under Section 180.0851(1) of the Wisconsin Business Corporation Law (the
"WBCL"), a corporation shall indemnify a director or officer, to the extent that
he or she has been successful on the merits or otherwise in the defense of a
proceeding, for all reasonable expenses incurred in the proceeding if the
director or officer was a party because he or she is a director or officer of
the corporation, and that, to the extent a director or officer has not been
successful on the merits or otherwise in the defense of a proceeding, the
corporation shall indemnify the director or officer unless liability was
incurred because the director or officer breached or failed to perform a duty
that he or she owes to the corporation and the breach or failure to perform
constitutes any of the following (1) a willful failure to deal fairly with the
corporation or its shareholders in connection with a matter in which the
director or officer has a material conflict of interest; (2) a violation of the
criminal law, unless the director or officer had reasonable cause to
- II-3 -
believe that his or her conduct was unlawful; (3) a transaction from which the
director or officer derived an improper personal profit; or (4) willful
misconduct.
Section 180.0858(1) of the WBCL provides that, subject to certain
limitations, the mandatory indemnification provisions do not preclude any
additional right to indemnification or allowance of expenses that a director or
officer may have under a Wisconsin corporation's articles of incorporation,
bylaws, any written agreement or a resolution of the board of directors or
shareholders.
Section 180.0859 of the WBCL provides that it is the public policy of the
State of Wisconsin to require or permit indemnification, allowance of expenses
and insurance to the extent required or permitted under Sections 180.0850 to
180.0858 of the WBCL, for any liability incurred in connection with a proceeding
involving a federal or state statute, rule or regulation regulating the offer,
sale or purchase of securities.
Section 180.0828 of the WBCL provides that, with certain exceptions, a
director is not liable to a corporation, its shareholders, or any person
asserting rights on behalf of the corporation or its shareholders, for damages,
settlements, fees, fines, penalties or other monetary liabilities arising from a
breach of, or failure to perform, any duty resulting solely from his or her
status as a director, unless the person asserting liability proves that the
breach or failure to perform constitutes any of the four exceptions to mandatory
indemnification under Section 180.0851(2) referred to above.
Under Section 180.0833 of the WBCL, directors of a Wisconsin corporation
against whom claims are asserted with respect to the declaration of improper
dividends or distributions to shareholders or certain other improper acts which
they approved are entitled to contribution from other directors who approved
such actions and from shareholders who knowingly accepted an improper dividend
or distribution, as provided therein.
Neither the Amended and Restated Articles of Incorporation nor the By-Laws
of Neenah Transport, Inc. contain provisions relating to indemnification.
(e) Cast Alloys, Inc. is a corporation organized under the laws of the
State of California.
Article Five of the Restated Articles of Incorporation of Cast Alloys,
Inc. provides that:
To the fullest extent permitted by the General Corporation Law of the
State of California as the same exists or may hereafter be amended, a
director of this corporation shall not be liable to the corporation or its
stockholders for monetary damages for a breach of fiduciary duty as a
director. Any repeal or modification of this provision shall not adversely
affect any right or protection of a director of the Corporation existing
at the time of such repeal or modification.
Section 317 of the California General Corporation Law empowers California
corporations to indemnify any person who was or is a director, officer, employee
or other agent of the corporation, or who is or was serving at the request of
the corporation as a director, officer, employee or agent of
- II-4 -
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, or who was a director, officer, employee or agent of a foreign
or domestic corporation that was a predecessor corporation of the corporation or
of another enterprise at the request of the predecessor corporation, (other than
an action by or in right of the corporation), against expenses (including
attorneys' fees), judgments, fines, settlements and other amounts actually and
reasonably incurred by such person in connection with any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative or
investigative. To be indemnified, such person must have acted (i) in good faith
and (ii) in a manner that he or she reasonably believed to be in the best
interests of the corporation; and, in the case of a criminal proceeding, such
person must have acted without reasonable cause to believe that his or her
conduct was unlawful. In respect of any action by or in right of the
corporation, a corporation may indemnify any person who was or is an agent of
the corporation against expenses actually and reasonably incurred by such person
in connection with the defense or settlement of the action if he or she acted
(i) in good faith and (ii) in a manner he or she believed to be in the best
interests of the corporation and its shareholders.
The By-Laws of Cast Alloys, Inc. contain no provision relating to
indemnification.
(f) Gregg Industries, Inc. is a corporation organized under the laws of
the State of California.
Section 317 of the California General Corporation Law empowers California
corporations to indemnify any person who was or is a director, officer, employee
or other agent of the corporation, or who is or was serving at the request of
the corporation as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
who was a director, officer, employee or agent of a foreign or domestic
corporation that was a predecessor corporation of the corporation or of another
enterprise at the request of the predecessor corporation, (other than an action
by or in right of the corporation), against expenses (including attorneys'
fees), judgments, fines, settlements and other amounts actually and reasonably
incurred by such person in connection with any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative.
To be indemnified, such person must have acted (i) in good faith and (ii) in a
manner that he or she reasonably believed to be in the best interests of the
corporation; and, in the case of a criminal proceeding, such person must have
acted without reasonable cause to believe that his or her conduct was unlawful.
In respect of any action by or in right of the corporation, a corporation may
indemnify any person who was or is an agent of the corporation against expenses
actually and reasonably incurred by such person in connection with the defense
or settlement of the action if he or she acted (i) in good faith and (ii) in a
manner he or she believed to be in the best interests of the corporation and its
shareholders.
The Amended and Restated Articles of Incorporation of Gregg Industries,
Inc. contain no provision relating to indemnification.
Section Six of the By-Laws of Gregg Industries, Inc. provides for
indemnification (including expenses) consistent with Section 317 of the
California General Corporation Law.
- II-5 -
(g) A & M Specialties, Inc. is a corporation organized under the laws of
the State of Pennsylvania.
Article Three of the Articles of Incorporation of A & M Specialties, Inc.
provides that the corporation is incorporated under the Business Corporation Law
of the State of Pennsylvania.
Under the Pennsylvania Business Corporation Law of 1988, as amended (the
"PBCL"), Pennsylvania corporations have the power to indemnify any person acting
as a representative of the corporation against liabilities incurred in such
capacity provided certain standards are met, including good faith and the belief
that the particular action or failure to take action is in the best interests of
the corporation. In general, this power to indemnify does not exist in the case
of actions against any person by or in the right of the corporation if the
person otherwise entitled to indemnification shall have been adjudged to be
liable to the corporation unless a court determines that despite the
adjudication of liability but in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for expenses that the
court deems proper. A corporation is required to indemnify representatives of
the corporation against expenses they may incur in defending actions against
them in such capacities if they are successful on the merits or otherwise in the
defense of such actions. In all other cases, if a representative of the
corporation acted, or failed to act, in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, indemnification is discretionary, except as may be otherwise
provided by a corporation's bylaws, agreement, vote of shareholders or
disinterested directors or otherwise. Indemnification so otherwise provided may
not, however, be made if the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful misconduct
or recklessness. Expenses (including attorneys' fees) incurred in defending any
such action may be paid by the corporation in advance of the final disposition
of the action upon receipt of an undertaking by or on behalf of the
representative to repay the amount if it is ultimately determined that he or she
is not entitled to be indemnified by the corporation. In addition, a director of
a Pennsylvania Corporation does not have personal liability for monetary damages
to the Corporation and its stockholders for breaches of fiduciary duty as a
director, except in circumstances involving a breach of a director's duty of
loyalty to the Corporation or its stockholders, acts or omissions not in good
faith or which involve intentional misconduct or knowing violations of the law,
the unlawful payment of dividends or repurchase of stock or self-dealing.
Article IV of the By-Laws of A & M Specialties, Inc. provides that:
A director shall not be personally liable, as such, for monetary damages
for any action taken, or any failure to take any action, unless: (a) the
director has breached or failed to perform the duties of his or her office
under this section; and (b) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness. The preceding provisions
shall not apply to the responsibility or liability of a director pursuant
to any criminal statute or the liability of a director for the payment of
taxes pursuant to local, State or Federal law.
(h) Peerless Corporation is a corporation organized under the laws of the
State of Ohio.
- II-6 -
Article Three of the Articles of Incorporation of Peerless Corporation,
provides that the corporation is incorporated under the General Corporation Laws
of the State of Ohio.
Under Ohio law, Ohio corporations are authorized to indemnify directors,
officers, employees and agents within prescribed limits and must indemnify them
under certain circumstances. Ohio law does not provide statutory authorization
for a corporation to indemnify directors, officers, employees and agents for
settlements, fines or judgments in the context of derivative suits. However, it
provides that directors (but not officers, employees or agents) are entitled to
mandatory advancement of expenses, including attorneys' fees, incurred in
defending any action, including derivative actions, brought against the
director, provided that the director agrees to cooperate with the corporation
concerning the matter and to repay the amount advanced if it is proved by clear
and convincing evidence that the director's act or failure to act was done with
deliberate intent to cause injury to the corporation or with reckless disregard
for the corporation's best interests.
Ohio law does not authorize payment of judgments to a director, officer,
employee or agent after a finding of negligence or misconduct in a derivative
suit absent a court order. Indemnification is permitted, however, to the extent
such person succeeds on the merits. In all other cases, if a director, officer,
employee or agent acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, indemnification
is discretionary except as otherwise provided by a corporation's articles, code
of regulations or by contract except with respect to the advancement of expenses
of directors.
Under Ohio law, a director is not liable for monetary damages unless it is
proved by clear and convincing evidence that his action or failure to act was
undertaken with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation. There is, however,
no comparable provision limiting the liability of officers, employees or agents
of a corporation. The statutory right to indemnification is not exclusive in
Ohio and Ohio corporations may, among other things, procure insurance for such
persons.
Article IV of the Code of Regulations of Peerless Corporation provides
that:
The Corporation shall indemnify any Director or officer to the fullest
extent provided by, or permissible under, Section 17.01.13(E), Ohio
Revised Code; and the Corporation is hereby specifically authorized to
take any and all further action to effectuate any indemnification of any
Director or officer which any Ohio corporation may have power to take, by
any vote of the Shareholders, vote of disinterested Directors, by any
Agreement, or otherwise. This Section of the Code of Regulations of the
Corporation shall be interpreted in all respects to expand such power to
indemnify to the maximum extent permissible to any Ohio Corporation with
regard to the particular facts of each case, and not in any way to limit
any statutory or other power to indemnify, or right of any individual
indemnification.
The Corporation may purchase and maintain insurance for protection of the
Corporation and for protection of any Director, officer, employee and/or
any other person for whose protection, and to the fullest extent,
- II-7 -
such insurance may be purchased and maintained under Section
1701.13(E)(7), Ohio Revised Code or otherwise. Such policy or policies of
insurance may provide such coverage and be upon such terms and conditions
as shall be authorized or approved from time to time by the Board of
Directors or the Shareholders of the Corporation.
(i) Dalton Corporation, Ashland Manufacturing Facility and Dalton
Corporation, Stryker Manufacturing Facility are corporations organized under the
laws of the State of Ohio.
Article Three of the Articles of Incorporation of Dalton Corporation,
Ashland Manufacturing Facility and Dalton Corporation, Stryker Manufacturing
Facility provides that the corporation is incorporated under the General
Corporation Laws of the State of Ohio.
Under Ohio law, Ohio corporations are authorized to indemnify directors,
officers, employees and agents within prescribed limits and must indemnify them
under certain circumstances. Ohio law does not provide statutory authorization
for a corporation to indemnify directors, officers, employees and agents for
settlements, fines or judgments in the context of derivative suits. However, it
provides that directors (but not officers, employees or agents) are entitled to
mandatory advancement of expenses, including attorneys' fees, incurred in
defending any action, including derivative actions, brought against the
director, provided that the director agrees to cooperate with the corporation
concerning the matter and to repay the amount advanced if it is proved by clear
and convincing evidence that the director's act or failure to act was done with
deliberate intent to cause injury to the corporation or with reckless disregard
for the corporation's best interests.
Ohio law does not authorize payment of judgments to a director, officer,
employee or agent after a finding of negligence or misconduct in a derivative
suit absent a court order. Indemnification is permitted, however, to the extent
such person succeeds on the merits. In all other cases, if a director, officer,
employee or agent acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, indemnification
is discretionary except as otherwise provided by a corporation's articles, code
of regulations or by contract except with respect to the advancement of expenses
of directors.
Under Ohio law, a director is not liable for monetary damages unless it is
proved by clear and convincing evidence that his action or failure to act was
undertaken with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation. There is, however,
no comparable provision limiting the liability of officers, employees or agents
of a corporation. The statutory right to indemnification is not exclusive in
Ohio and Ohio corporations may, among other things, procure insurance for such
persons.
Article Seven of the Articles of Incorporation of Dalton Corporation,
Ashland Manufacturing Facility and Dalton Corporation, Stryker Manufacturing
Facility provides that:
The Corporation shall indemnify the officers, directors, employees and
agents of the Corporation (including expenses) asserted or incurred in the
defense of any proceeding to which the
- II-8 -
individual was made a party or a witness because of his status with the
Corporation and in which the individual was (a) wholly successful on the
merits or otherwise or (b) in which the Corporation and in (acting in
accordance with this provision) determines that the individual's conduct
and beliefs met the standard of conduct prescribed by the Code, although
the individual is entitled to indemnification. However, in a proceeding
brought by or in the right of the Corporation, if an individual was
adjudged liable to the Corporation, indemnification shall be made only
upon order of a court acting upon the individual's application for
court-ordered indemnification.
(j) Deeter Foundry, Inc. is a corporation organized under the laws of the
State of Nebraska.
Sections 21-20, 103 through 21-20, 111 of the Nebraska Business
Corporation Act ("NBCA") provide, in part, that the directors and officers of a
corporation may, under certain circumstances, be indemnified by the corporation
against all liability expenses incurred by or imposed upon them as a result of
actions, suits or proceedings brought against them as such directors and
officers, or as directors or officers of any other organization at the request
of the corporation, if they act in good faith and in a manner they reasonably
believe to be in, or not opposed to, the best interests of the corporation, and
with respect to any criminal action or proceeding, have no reasonable cause to
believe their conduct was unlawful, except that no indemnification shall be made
against expenses in respect of any claim, issue or matter as to which they shall
have been adjudged to be liable to the corporation unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, they are fairly and reasonably entitled to indemnity
for such expenses which such court shall deem proper.
With certain limitations, Sections 721 through 726 of the NCBL permit a
corporation to indemnify a director or officer made a party to an action (a) by
a corporation or in its right in order to procure a judgment in its favor unless
he or she shall have breached his or her duties, or (b) other than an action by
or in the right of the corporation in order to procure a judgment in its favor,
if such director or officer acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to such corporation's interest, and,
in criminal actions, had no reasonable cause to believe his or her conduct was
unlawful.
Article VII of the By-Laws of Deeter Foundry, Inc. provides for compliance
with the terms of the NBCA described above.
(k) Dalton Corporation, Dalton Corporation, Warsaw Manufacturing Facility
and Dalton Corporation, Kendallville Manufacturing Facility are corporations
organized under the laws of the State of Indiana.
Subdivision E of the Articles of Acceptance of Dalton Corporation, Dalton
Corporation, Warsaw Manufacturing Facility and Dalton Corporation, Kendallville
Manufacturing Facility provides that:
The corporation accepts all of the terms and provisions of The Indiana
General Corporation Act.
- II-9 -
The Indiana Business Corporation Law ("IBCL") empowers an Indiana
corporation to indemnify present and former directors, officers, employers or
agents or any person who may have served at the request of the corporation as a
director, officer, employee, or agent of another corporation ("Eligible
Persons") against liability incurred in any proceeding, civil or criminal, in
which the Eligible Person is made a party by reason of being or having been in
any such capacity, or arising out of his status as such, if the individual acted
in good faith and reasonably believed that (a) the individual was acting in the
best interests of the corporation, or (b) if the challenged action was taken
other than in the individual's official capacity as an officer, director,
employee or agent, the individual's conduct was at least not opposed to the
corporation's best interests, or (c) if in a criminal proceeding, either the
individual had reasonable cause to believe his conduct was lawful or no
reasonable cause to believe his conduct was unlawful.
The IBCL further empowers a corporation to payor reimburse the reasonable
expenses incurred by an Eligible Person in connection with the defense of any
such claim, including counsel fees; and, unless limited by its articles of
incorporation, the corporation is required to indemnify an Eligible Person
against reasonable expenses if he is wholly successful in any such proceeding,
on the merits or otherwise. Directors and officers qualify as Eligible Persons
under the IBCL. Under certain circumstances, a corporation may pay or reimburse
an Eligible Person for reasonable expenses prior to final disposition of the
matter. Unless a corporation's articles of incorporation otherwise provide, an
Eligible Person may apply for indemnification to a court which may order
indemnification upon a determination that the Eligible Person is entitled to
mandatory indemnification for reasonable expenses or that the Eligible Person is
fairly and reasonably entitled to indemnification in view of all the relevant
circumstances without regard to whether his actions satisfied the appropriate
standard of conduct.
Before a corporation may indemnify any Eligible Person against liability
or reasonable expenses under the IBCL, a quorum consisting of directors who are
not parties to the proceeding must: (a) determine that indemnification is
permissible in the specific circumstances because the Eligible Person met the
requisite standard of conduct; (b) authorize the corporation to indemnify the
Eligible Person; and (c) if appropriate, evaluate the reasonableness of expenses
for which indemnification is sought. If it is not possible to obtain a quorum of
uninvolved directors, the foregoing action may be taken by a committee of two or
more directors who are not parties to the proceeding, special legal counsel
selected by the Board or such a committee, or by the stockholders of the
corporation.
In addition to the foregoing, the IBCL states that the indemnification it
provides shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any provisions of the articles of
incorporation or bylaws, resolution of the board of directors or stockholders,
or any other authorization adopted after notice by a majority vote of all the
voting shares then issued and outstanding. The IBCL also empowers an Indiana
corporation to purchase and maintain insurance on behalf of any Eligible Person
against any liability asserted against or incurred by him in any capacity as
such, or arising out of his status as such, whether or not the corporation would
have had the power to indemnify him against such liability.
Article VII of the Code of By-Laws of Dalton Corporation provides that:
- II-10 -
The Corporation shall, to the fullest extent permitted by law, indemnify
and hold harmless each person who shall serve at any time as a director,
officer or employee of the Corporation against any judgments, fines,
amounts paid in settlement and reasonable expenses, including attorney's
fees, actually and necessarily incurred as a result of any threatened,
pending or completed claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative, arising out of the fact that
such person is or was a director, officer or employee of the Corporation,
or is or was serving at the request of the Corporation as a director,
officer or employee of another corporation, partnership, joint venture,
trust or other enterprise, including pending or completed claims, actions,
suits or proceedings arising out of any actual or alleged act or failure
to act on the part of such person in connection with the administration
(including establishment, operation and termination) of any pension plan,
profit-sharing plan or other employee benefit plan or plans maintained by
the Corporation, provided that such person acted in good faith and for a
purpose which he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such person
did not act in good faith or for a purpose which he reasonably believed to
be in or not opposed to the best interests of the Corporation and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
The Code of By-Laws of Dalton Corporation, Warsaw Manufacturing Facility
and Dalton Corporation, Kendallville Manufacturing Facility contain no provision
relating to indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On October 8, 2003, the effective date of the Plan of Reorganization,
Neenah Foundry Company issued (i) $100 million in the aggregate principal amount
of 13% Senior Subordinated Notes due 2013 and (ii) $133 million in the aggregate
principal amount 11% Senior Secured Notes due 2010. We believe that the issuance
of all of such Notes was exempt from the registration requirements of the
Securities Act, and state securities and "blue sky" laws pursuant to Section
4(2) of the Securities Act, as a private offering to a limited number of
sophisticated persons, and pursuant to Section 1145(a)(1) of Title 11 of the
Bankruptcy Code, which we relied on pursuant to a court order from the
Bankruptcy Court.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
See Exhibit Index.
(b) Financial Statement Schedule.
Schedule II
Report of Independent Registered Public accounting Firm........... II-12
Valuation and Qualifying accounts of Neenah Foundry Company....... II-13
- II-11 -
Report of Independent Registered Public Accounting Firm
The Board of Directors
Neenah Foundry Company
We have audited the consolidated financial statements of Neenah Foundry Company
as of September 30, 2005 and 2004 (Reorganized Company) and for the years ended
September 30, 2005 and 2004 (Reorganized Company) and the year ended September
30, 2003 (Predecessor Company) and have issued our report thereon dated November
4, 2005 (included elsewhere in this Annual Report on Form 10-K). Our audits also
included the financial statement schedule listed in the index at Item 15(a).
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
November 4, 2005
- II-12 -
Schedule II
NEENAH FOUNDRY COMPANY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 2003, 2004, AND 2005
(Dollars in Thousands)
BALANCE
AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS PERIOD
Allowance for
doubtful accounts
receivable:
2003 $ 1,062 $ 1,760 $ 447 (A) $2,375
======= ======= ======= ======
2004 $ 2,375 $ 1,043 $ 2,276 $1,142
======= ======= ======= ======
2005 $ 1,142 $ 2,153 $ 1,202 $2,093
======= ======= ======= ======
(A) Uncollectible accounts written off, net of recoveries
Reserve for obsolete
inventory:
2003 $ 829 $ 424 $ 59 (B) $ 1,194
======= ======= ======== =======
2004 $1,194 $ 231 $ 690 (B) $ 735
====== ======= ======== =======
2005 $ 735 $ 356 $ 90 (B) $ 1,001
======= ======= ======== =======
(B) Reduction for disposition of inventory
- II-13 -
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10 (a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for purposes of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
- II-14 -
* * *
(5) That, for the purpose of determining liability under the Securities
Act of 1933 to any purchaser:
(i) If the registrant is relying on Rule 430B:
(A) Each prospectus filed by the registrant pursuant to Rule
424(b)(3) shall be deemed to be part of the registration statement as of the
date the filed prospectus was deemed part of and included in the registration
statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for
the purpose of providing the information required by section 10(a) of the
Securities Act of 1933 shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of prospectus is
first used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided in Rule
430B, for liability purposes of the issuer and any person that is at that date
an underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of securities at that time
shall be deemed to be the initial bona fide offering thereof. Provided, however,
that no statement made in a registration statement or prospectus that is part of
the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus that is
part of the registration statement will, as to a purchaser with a time of
contract of sale prior to such effective date, supercede or modify any statement
that was made in the registration statement or made in any such document
immediately prior to such effective date; or
(ii) If the registrant is subject to Rule 430C, each prospectus
filed pursuant to Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements rely on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and
included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use, supercede or
modify any statement that was made in the registration statement or made in any
such document immediately prior to such date of first use.
- II-15 -
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
Registrants has duly caused this Post-Effective amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Neenah, State of Wisconsin, on January 31, 2006.
NEENAH FOUNDRY COMPANY
ADVANCED CAST PRODUCTS, INC.
DALTON CORPORATION
DALTON CORPORATION, WARSAW
MANUFACTURING FACILITY
DALTON CORPORATION, STRYKER
MACHINING FACILITY CO.
DALTON CORPORATION, ASHLAND
MANUFACTURING FACILITY
DALTON CORPORATION, KENDALL VILLE
MANUFACTURING FACILITY
DEETER FOUNDRY, INC.
GREGG INDUSTRY, INC.
MERCER FORGE CORPORATION
A&M SPECIALTIES, INC.
NEENAH TRANSPORT, INC.
CAST ALLOYS, INC.
BELCHER CORPORATION
PEERLESS CORPORATION
By: /s/ GARY W. LACHEY
------------------------------------
Name: Gary W. LaChey
Title: Corporate Vice President
- Finance
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective amendment to the Registration Statement has been signed by the
following persons in the capacities indicated on January 31, 2006.
William M. Barrett* /s/ Gary W. LaChey
- ---------------------- ------------------
William M. Barrett Gary W. LaChey
President and Chief Executive Officer, Corp, Vice President - Finance
Director (Principal Executive Officer) (Principal Financial and Principal
Accounting Officer)
Jeffrey G. Marshall* Michael J. Farrell*
- -------------------- -------------------
Jeffrey G. Marshall Michael J. Farrell
Director Director
Benjamin C. Duster, IV, Esq.* Andrew B. Cohen*
- ----------------------------- ----------------
Benjamin C. Duster, IV, Esq. Andrew B. Cohen
Director Director
* By: /s/ Gary W. LaChey
-------------------
Gary W. LaChey, by Power of Attorney
S-1
NEENAH FOUNDRY COMPANY
(THE "REGISTRANT")
(COMMISSION FILE NO. 333-28751)
EXHIBIT INDEX
TO
POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-1
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO HEREWITH
- ------- ----------------------------------------- ---------------------------------------- --------
2.1 Disclosure Statement for Pre-Petition Exhibit T3E-1 to application for
of Votes with respect to the qualification of indenture on Form T-3
Prepackaged Joint Plan of filed 7/1/03 (File No. 022-28687)
Reorganization of ACP Holding Company,
NFC Castings, Inc., and Neenah Foundry
Company
2.2 Prepackaged Joint Plan of Exhibit T3E-2 to application for
Reorganization of ACP Holding Company, qualification of indenture on Form T-3
NFC Castings, Inc. Neenah Foundry filed 7/1/03 (File No. 022-28687)
Company and Certain of its
Subsidiaries under Chapter 11 of the
United States Bankruptcy Code
3.1 Amended and Restated Certificate Exhibit 3.1 to 2005 Form 10-K
[Articles] of Incorporation of Neenah
Foundry Company
3.2 Third Amended and Restated Certificate of Exhibit 3.2 to 2005 Form 10-K
Incorporation of ACP Holding Company
3.3 Amended and Restated Certificate of Exhibit 3.3 to 2005 Form 10-K
Incorporation of NFC Castings, Inc.
3.4 Amended and Restated Certificate of Exhibit 3.2 to Amendment No. 1 to the
Incorporation of Advanced Cast Registrant's Form S-4 Registration
Products, Inc. Statement (File No. 333-111008) filed on
January 28, 2004 (the "1/28/04 S-4
Amendment")
S-2
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO HEREWITH
- ------- ----------------------------------------- ---------------------------------------- --------
3.5 Amended and Restated Articles of Exhibit 3.3 to the 1/28/04 S-4 Amendment
Incorporation of Dalton Corporation
3.6 Certificate of Incorporation of Dalton Exhibit 3.4 to the 1/28/04 S-4 Amendment
Corporation, Warsaw Manufacturing
Facility
3.7 Amended and Restated Articles of Exhibit 3.5 to the 1/28/04 S-4 Amendment
Incorporation of Dalton Corporation,
Stryker Machining Facility Co.
3.8 Articles of Incorporation of Dalton Exhibit 3.6 to the 1/28/04 S-4 Amendment
Corporation, Ashland Manufacturing
Facility
3.9 Articles of Incorporation of Dalton Exhibit 3.7 to the 1/28/04 S-4 Amendment
Corporation, Kendallville
Manufacturing facility
3.10 Articles of Incorporation of Deeter Exhibit 3.8 to the 1/28/04 S-4 Amendment
Foundry, Inc.
3.11 Articles of Incorporation of Gregg Exhibit 3.9 to the 1/28/04 S-4 Amendment
Industries, Inc.
3.12 Articles of Incorporation of A&M Exhibit 3.10 to the 1/28/04 S-4 Amendment
Specialties, Inc.
3.13 Restated Articles of Incorporation of Exhibit 3.11 to the 1/28/04 S-4 Amendment
Neenah Transport, Inc.
3.14 Restated Articles of Incorporation of Exhibit 3.12 to the 1/28/04 S-4 Amendment
Cast Alloys, Inc.
3.15 [Reserved]
3.16 [Reserved]
3.17 Certificate of Incorporation of Mercer Exhibit 3.17 to 2005 Form 10-K
Forge Corporation
S-3
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO HEREWITH
- ------- ----------------------------------------- ---------------------------------------- --------
3.18 Amended and Restated Bylaws of ACP Holding Exhibit 3.18 to 2005 Form 10-K
Company
3.19 Amended Bylaws of NFC Castings, Inc. Exhibit 3.19 to 2005 Form 10-K
3.20 Amended Bylaws of Neenah Foundry Exhibit 3.15 to the 1/28/04 S-4 Amendment
Company
3.21 Bylaws of Advanced Cast Products, Inc. Exhibit 3.16 to the 1/28/04 S-4 Amendment
3.22 Amended Code of Bylaws of Dalton Exhibit 3.17 to the 1/28/04 S-4 Amendment
Corporation
3.23 Amended Code of Bylaws of Dalton Exhibit 3.18 to the 1/28/04 S-4 Amendment
Corporation, Warsaw Manufacturing
Facility
3.24 Code of Regulations of Dalton Exhibit 3.19 to the 1/28/04 S-4 Amendment
Corporation, Stryker Manufacturing
Facility
3.25 Amended and Restated Code of Exhibit 3.20 to the 1/28/04 S-4 Amendment
Regulations of Dalton Corporation,
Ashland Manufacturing Facility
3.26 Amended Code of Bylaws of Dalton Exhibit 3.21 to the 1/28/04 S-4 Amendment
Corporation, Kendallville
Manufacturing Facility
3.27 Bylaws of Deeter Foundry, Inc. Exhibit 3.22 to the 1/28/04 S-4 Amendment
3.28 Bylaws of Gregg Industries, Inc. Exhibit 3.23 to the 1/28/04 S-4 Amendment
3.29 Amended A&M Specialties, Inc. Bylaws Exhibit 3.24 to the 1/28/04 S-4 Amendment
3.30 Amended Neenah Transport, Inc. Bylaws Exhibit 3.25 to the 1/28/04 S-4 Amendment
S-4
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO HEREWITH
- ------- ----------------------------------------- ---------------------------------------- --------
3.31 Bylaws of Cast Alloys, Inc. Exhibit 3.26 to the 1/28/04 S-4 Amendment
3.32 [Reserved]
3.33 Bylaws of Mercer Forge Corporation Exhibit 3.33 to 2005 Form 10-K
4.1 Warrant Agreement, dated October 8, by Exhibit 10.4 hereto
and between ACP Holding Company and
the Bank of New York as warrant agent
4.2 Stockholders Agreement, dated October Exhibit 10.6 hereto
8, 2003, by and among ACP Holding Company,
the Standby Purchasers, the Executives
and Directors (as such terms are defined
therein)
4.3 Indenture by and among Neenah Foundry Exhibit 10.7 hereto
Company, the guarantors named therein,
and the Bank of New York, as Trustee,
dated October 8, 2003, for the 13%
Senior Subordinated Notes due 2013
4.4 Form of Note for the 13% Senior Exhibit 10.8 hereto
Subordinated Notes due 2013
4.5 Indenture by and among Neenah Foundry Exhibit 10.21 hereto
Company, the guarantors named therein
and The Bank of New York, as Trustee,
dated October 8, 2003, for the 11%
Senior Secured Notes due 2010
4.6 Form of Note for the 11% Senior Exhibit 10.22 hereto
Secured Notes due 2010
10.1 Loan and Security Agreement, dated Exhibit 10.1 to the 1/28/04 S-4 Amendment
October 8, 2003, by and among Neenah
Foundry
S-5
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO HEREWITH
- ------- ----------------------------------------- ---------------------------------------- --------
Company, its subsidiaries
party thereto, the various lenders
party thereto and Fleet Capital
Corporation, as agent
10.2 Amendment No. 1 to Loan and Security Exhibit 10.1 to the Registrant's Form
Agreement, dated October 8, 2003, by 8-K dated July 28, 2005
and among Neenah Foundry Company, its
subsidiaries party thereto, the
various lenders party thereto and
Fleet Capital Corporation, as agent
10.2(a) Amendment No. 2 to Loan and Security Exhibit 10.2 to 2005 Form 10-K
Agreement, dated October 8, 2003, by
and among Neenah Foundry Company, its
subsidiaries party thereto, the
various lenders party thereto and
Fleet Capital Corporation, as agent
10.3 Subscription Agreement, dated as of Exhibit 10.2 to the Registrant's Form
October 7, 2003, by and among ACP S-4 Registration Statement (File No.
Holding Company, Neenah Foundry 333-111008) filed on December 8, 2003
Company, the subsidiary Guarantors (the "Form S-4")
named therein and the Investors as
defined therein
10.4 Warrant Agreement, dated October 8, Exhibit 10.4 to 2005 Form 10-K
2003, by and between ACP Holding
Company and the Bank of New York as
warrant agent
10.5 Registration Rights Agreement, dated Exhibit 10.4 to the 1/28/04 S-4 Amendment
October 8, 2003, by and between ACP
Holding Company and the initial holders
10.6 Stockholders Agreement, dated October Exhibit 10.5 to the Form S-4
8, 2003, by and among
S-6
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO HEREWITH
- --------- ----------------------------------------- ---------------------------------------- --------
ACP Holding Company, the Standby
Purchasers, the Executives and Directors
(as such terms are defined therein)
10.7 Indenture by and among Neenah Foundry Exhibit 10.6 to the Form S-4
Company, the guarantors named therein,
and the Bank of New York, as Trustee,
dated October 8, 2003, for the 13%
Senior Subordinated Notes due 2013
10.8 Form of Note for the 13% Senior Exhibit 10.6 to the Form S-4
Subordinated Notes due 2013
10.9 Registration Rights Agreement, dated Exhibit 10.8 to the Form S-4
October 8, 2003, by and among ACP
Holding Company and the parties named
therein for the 13% Senior
Subordinated Noted due 2013
10.10* Form of Amendment to the Employment Exhibit 10.10 to 2005 Form 10-K
Agreements and Restricted Grants listed
in Exhibits 10.10(a) through 10.18
10.10(a)* Employment Agreement and Restricted Exhibit 10.9 to the 1/28/04 S-4 Amendment
Stock Grant by and among Neenah
Foundry Company, ACP Holding Company
and John Andrews
10.11* Employment Agreement and Restricted Exhibit 10.10 to the 1/28/04 S-4
Stock Grant by and among Neenah Amendment
Foundry Company, ACP Holding Company
and William M. Barrett
10.12* Employment Agreement and Restricted Exhibit 10.11 to the 1/28/04 S-4
Stock Grant by and among Dalton Amendment
Corporation, ACP Holding Company and
Joseph L.
S-7
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO HEREWITH
- -------- ----------------------------------------- ---------------------------------------- --------
DeRita
10.13* Employment Agreement and Restricted Exhibit 10.12 to the 1/28/04 S-4
Stock Grant by and among Neenah Amendment
Foundry Company, ACP Holding Company
and Frank C. Headington
10.14* Employment Agreement and Restricted Exhibit 10.13 to the 1/28/04 S-4
Stock Grant by and among Neenah Amendment
Foundry Company, ACP Holding Company
and Timothy Koller
10.15* Employment Agreement and Restricted Exhibit 10.14 to the 1/28/04 S-4
Stock Grant by and among Neenah Amendment
Foundry Company, ACP Holding Company
and Gary W. LaChey
10.16* Employment Agreement and Restricted Exhibit 10.15 to the 1/28/04 S-4
Stock Grant by and among Neenah Amendment
Foundry Company, ACP Holding Company
and William Martin
10.17* Employment Agreement and Restricted Exhibit 10.16 to the 1/28/04 S-4
Stock Grant by and among Dalton Amendment
Corporation, ACP Holding Company and
Steve Shaffer
10.18* Employment Agreement and Restricted Exhibit 10.17 to the 1/28/04 S-4
Stock Grant by and among Neenah Amendment
Foundry Company, ACP Holding Company
and Joseph Varkoly
10.19* Neenah Foundry Company 2003 Management Exhibit 10.18 to the Form S-4
Annual Incentive Plan
10.19(a) Summary of Amendment to Neenah Foundry Exhibit 10.19 to 2005 Form 10-K
Company 2003
S-8
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO HEREWITH
- ------- ----------------------------------------- ---------------------------------------- --------
* Management Annual Incentive Plan
10.20* Neenah Foundry Company 2003 Severance Exhibit 10.19 to the Form S-4
and Change of Control Plan
10.21 Indenture by and among Neenah Foundry Exhibit 4.1 to the Form S-4
Company, the guarantors named therein
and The Bank of New York, as Trustee,
dated October 8, 2003, for the 11%
Senior Secured Notes due 2010
10.22 Form of Note for the 11% Senior Exhibit 4.1 to the Form S-4
Secured Notes due 2010
10.23 Lien Subordination Agreement, dated Exhibit 4.3 to the Form S-4
October 8, 2003, by and among Fleet
Capital Corporation, Neenah Foundry
Company, the subsidiaries named
therein, NFC Castings, Inc. and The
Bank of New York as Trustee on behalf
of the Noteholders under the Indenture
governing the 11% Senior Secured Notes
due 2010
10.24 Registration Rights Agreement, dated Exhibit 4.4 to the Form S-4
October 8, 2003, by and among Neenah
Foundry Company, the Guarantors named
therein and The Bank of New York as
Trustee for the 11% Senior Secured
Notes due 2010
10.25 Subordinated Security Agreement, dated Exhibit 4.5 to the Form S-4
October 8, 2003, by Neenah Foundry
Company and the guarantors named
therein in favor of The Bank of New
York as Trustee for the Noteholders
under the
S-9
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO HEREWITH
- ------- ----------------------------------------- ---------------------------------------- --------
Indenture governing the 11%
Senior Secured Noted due 2010
10.26 Subordinated Pledge Agreement, dated Exhibit 4.6 to the Form S-4
October 8, 2003, by Dalton Corporation
in favor of The Bank of New York as
Trustee for the Noteholders under the
Indenture governing the 11% Senior
Secured Notes due 2010.
10.27 Subordinated Pledge Agreement, dated Exhibit 4.7 to the Form S-4
October 8, 2003, by Mercer Forge
Corporation in favor of The Bank of
New York as Trustee for the
Noteholders under the Indenture
governing the 11% Senior Secured Notes
due 2010
10.28 Subordinated Copyright, Patent, Exhibit 4.8 to the Form S-4
Trademark and License Mortgage, dated
October 8, 2003, by Neenah Foundry
Company in favor of The Bank of New
York as Trustee for the Noteholders
under the Indenture governing the 11%
Senior Secured Notes due 2010
10.29 Subordinated Copyright, Patent, Exhibit 4.9 to the Form S-4
Trademark and License Mortgage, dated
October 8, 2003, by Advanced Cast
Products, Inc. in favor of The Bank of
New York as Trustee for the
Noteholders under the Indenture
governing the 11% Senior Secured Notes
due 2010
10.30 Subordinated Copyright, Patent, Exhibit 4.10 to the Form S-4
Trademark and License Mortgage, dated
October 8, 2003, by Peerless
Corporation in favor of
S-10
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO HEREWITH
- ------- ----------------------------------------- ---------------------------------------- --------
The Bank of New York as Trustee for the
Noteholders under the Indenture
governing the 11% Senior Secured Notes
due 2010
10.31 Subordinated Pledge Agreement, dated Exhibit 4.11 to the Form S-4
October 8, 2003, by Neenah Foundry
Company in favor of The Bank of New
York as Trustee for the Noteholders
under the Indenture governing the 11%
Senior Securities due 2010
10.32 Subordinated Pledge Agreement, dated Exhibit 4.12 to the Form S-4
October 8, 2003, by Advanced Cast
Products, Inc. in favor of The Bank of
New York as Trustee for the
Noteholders under the Indenture
governing the 11% Senior Securities
due 2010
10.33* 2003 Management Equity Incentive Plan Exhibit 10.33 to 2005 Form 10-K
21 Subsidiaries of Neenah Foundry Company Exhibit 21 to 2005 Form 10-K
23 Consent of Independent Registered Public
Accounting Firm X
24 Power of Attorney Exhibit 24.1 to S-4 filed on 12/08/03
- -------------------
* Denotes management contract or executive compensation plan or arrangement.
S-11