-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OPM4KKkTKN3VbIfM3WxYNP6/YOykzzxXSXUti630oMVfh+1SUP/MlJrn6fDGAS8x UUSHTGJoXhGavK/vyGGW/A== 0000950123-97-004875.txt : 19970610 0000950123-97-004875.hdr.sgml : 19970610 ACCESSION NUMBER: 0000950123-97-004875 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19970609 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEENAH CORP CENTRAL INDEX KEY: 0001040579 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 391580331 STATE OF INCORPORATION: WI FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28751 FILM NUMBER: 97620590 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEENAH TRANSPORT INC CENTRAL INDEX KEY: 0001040597 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 391378433 STATE OF INCORPORATION: WI FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28751-01 FILM NUMBER: 97620591 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARTLEY CONTROLS CORP CENTRAL INDEX KEY: 0001040598 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 391378433 STATE OF INCORPORATION: WI FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28751-02 FILM NUMBER: 97620592 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEENAH FOUNDRY CO CENTRAL INDEX KEY: 0001040599 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 390496210 STATE OF INCORPORATION: WI FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28751-03 FILM NUMBER: 97620593 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 4147257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 S-4 1 NEENAH CORPORATION 1 REGISTRATION NO. 333- ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ NEENAH CORPORATION NEENAH FOUNDRY COMPANY HARTLEY CONTROLS CORPORATION NEENAH TRANSPORT, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) WISCONSIN 3321 39-1580331 WISCONSIN 3321 39-0496210 WISCONSIN 3321 39-0842568 WISCONSIN 3321 39-1378433 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
2121 BROOKS AVENUE, BOX 729, NEENAH, WISCONSIN 54927 (414) 725-7000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) C/O GARY W. LACHEY VICE PRESIDENT -- FINANCE, TREASURER AND SECRETARY NEENAH CORPORATION 2121 BROOKS AVENUE, BOX 729, NEENAH, WISCONSIN 54927 (414) 725-7000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPY TO: LANCE C. BALK KIRKLAND & ELLIS 153 EAST 53RD STREET NEW YORK, NEW YORK 10022-4675 TELEPHONE: (212) 446-4800 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE ================================================================================
PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE - -------------------------------------------------------------------------------------------------------------------------- Neenah Corporation's 11 1/8% Senior Subordinated Notes due 2007, Series B.................................. $150,000,000 $1,000 $150,000,000 $51,724.14 Neenah Foundry Company's Guarantee of 11 1/8% Senior Subordinated Notes due 2007, Series B............... * * * None Hartley Controls Corporation's Guarantee of 11 1/8% Senior Subordinated Notes due 2007, Series B........ * * * None Neenah Transport, Inc.'s Guarantee of 11 1/8% Senior Subordinated Notes due 2007, Series B............... * * * None ==========================================================================================================================
* Not applicable (1) Estimated solely for the purpose of calculating the registration fee. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 CROSS REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-4
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS ------------------------------------------- ------------------------------------------- 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus..... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus.............................. Inside Front Cover Page; Outside Back Cover Page 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information.............. Prospectus Summary; The Company; Risk Factors; Unaudited Pro Forma Consolidated Financial Information; Selected Consolidated Financial and Other Data 4. Terms of the Transaction................... Outside Front Cover Page; Prospectus Summary; The Exchange Offer; Description of Exchange Notes; Certain Federal Income Tax Consequences 5. Pro Forma Financial Information............ Unaudited Pro Forma Consolidated Financial Information 6. Material Contracts with the Company Being Acquired................................... Inapplicable 7. Additional Information Required............ Inapplicable 8. Interests of Named Experts and Counsel..... Legal Matters; Experts 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................ Inapplicable 10. Information with Respect to S-3 Registrants................................ Inapplicable 11. Incorporation of Certain Information by Reference.................................. Inapplicable 12. Information with Respect to S-3 or S-2 Registrants................................ Inapplicable 13. Incorporation of Certain Information by Reference.................................. Inapplicable 14. Information with Respect to Registrants other than S-3 or S-2 Registrants.......... Outside Front Cover Page; Prospectus Summary; Risk Factors; Use of Proceeds; The Transactions; Capitalization; Unaudited Pro Forma Consolidated Financial Information; Selected Consolidated Financial and Other Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Industry; Business; Management; Security Ownership; Certain Relationships and Related Transactions; Description of Credit Agreement
3
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS ------------------------------------------- ------------------------------------------- 15. Information with Respect to S-3 Companies.. Inapplicable 16. Information with Respect to S-3 or S-2 Companies.................................. Inapplicable 17. Information with Respect to Companies Other Than S-3 or S-2 Companies.................. Inapplicable 18. Information if Proxies, Consents or Authorizations are to be Solicited......... Inapplicable 19. Information if Proxies, Consents or Authorizations are not to be Solicited or in an Exchange Offer....................... Management; Security Ownership; Certain Relationships and Related Transactions
4 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell nor the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under securities laws of any such State. SUBJECT TO COMPLETION, DATED JUNE , 1997 PRELIMINARY PROSPECTUS OFFER FOR ALL OUTSTANDING 11 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE FOR 11 1/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2007 OF NEENAH CORPORATION THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 1997 UNLESS EXTENDED NEENAH CORPORATION, a Wisconsin corporation (the "Company"), hereby offers to exchange an aggregate principal amount of up to $150,000,000 of its 11 1/8% Senior Subordinated Notes due 2007 (the "New Notes") for a like principal amount of its 11 1/8% Senior Subordinated Notes due 2007 (the "Old Notes") outstanding on the date hereof upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"). The New Notes and the Old Notes are collectively hereafter referred to as the "Notes." The terms of the New Notes are identical in all material respects to those of the Old Notes, except for certain transfer restrictions and registration rights relating to the Old Notes. The New Notes will be issued pursuant to, and entitled to the benefits of, the Indenture (as defined) governing the Old Notes. The New Notes will be unsecured and will be subordinated to all existing and future Senior Indebtedness (as defined) of the Company. The New Notes will rank pari passu with any future Senior Subordinated Indebtedness (as defined) of the Company and will rank senior to all subordinated indebtedness of the Company. The New Notes will be fully guaranteed (the "Subsidiary Guaranties") by each of the Company's principal operating subsidiaries, Neenah Foundry Company ("Neenah Foundry"), Hartley Controls Corporation ("Hartley Controls"), and Neenah Transport, Inc. ("Neenah Transport") (collectively, the "Guarantor Subsidiaries"). The Company is a holding company that will derive substantially all of its operating income and cash flow from its subsidiaries. The Guarantor Subsidiaries guarantee the Senior Bank Facilities (as defined) and are jointly and severally liable on a senior basis with the Company for all obligations thereunder. Such obligations are secured by pledges of all the capital stock of the Guarantor Subsidiaries and security interests in, or liens on, substantially all other tangible and intangible assets located in the United States of the Guarantor Subsidiaries. See "Description of Senior Bank Facilities" and "Description of Notes." The New Notes are being offered hereunder in order to satisfy certain obligations of the Company and the Guarantor Subsidiaries contained in the Exchange and Registration Rights Agreement dated April 30, 1997 (the "Registration Rights Agreement"), among the Company, the Guarantor Subsidiaries and Chase Securities Inc. and Morgan Stanley & Co. Incorporated (the "Initial Purchasers"), with respect to the initial sale of the Old Notes. The Company will not receive any proceeds from the Exchange Offer. The Company will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date (as defined) for the Exchange Offer. In the event the Company terminates the Exchange Offer and does not accept for exchange any Old Notes with respect to the Exchange Offer, the Company will promptly return such Old Notes to the holders thereof. See "The Exchange Offer." Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivery of a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as it may be amended or supplemented from time to time may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. Each of the Company and the Guarantor Subsidiaries has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." - -------------------------------------------------------------------------------- Prior to the Exchange Offer, there has been no public market for the Old Notes. If a market for the New Notes should develop, such New Notes could trade at a discount from their principal amount. The Company currently does not intend to list the New Notes on any securities exchange or to seek approval for quotation through any automated quotation system and no active public market for the New Notes is currently anticipated. There can be no assurance that any public market for the New Notes will develop. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange pursuant to the Exchange Offer. SEE "RISK FACTORS" COMMENCING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER. - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1997. 5 AVAILABLE INFORMATION The Company and the Guarantor Subsidiaries have filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-4 (the "Exchange Offer Registration Statement", which term shall encompass all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the New Notes being offered hereby. This Prospectus does not contain all the information set forth in the Exchange Offer Registration Statement. For further information with respect to the Company, the Guarantor Subsidiaries and the Exchange Offer, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Exchange Offer Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Exchange Offer Registration Statement, including the exhibits thereto, can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such Web site is: http://www.sec.gov. As a result of the Exchange Offer, the Company will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will be required to file periodic reports and other information with the Commission. In the event the Company ceases to be subject to the informational requirements of the Exchange Act, the Company will be required under the Indenture to continue to file with the Commission the annual and quarterly reports, information, documents or other reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K, which would be required pursuant to the informational requirements of the Exchange Act. The Company will also furnish such other reports as may be required by law. Information contained in this Prospectus contains "forward-looking statements" which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other similar terminology, or by discussions of strategy. The Company's actual results could differ materially from those anticipated by any such forward-looking statements as a result of certain factors, including those set forth under the "Risk Factors" beginning on page 14 and elsewhere in this Prospectus. ------------------------ 2 6 SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and related notes thereto included elsewhere in this Prospectus. Prospective investors are urged to read this Prospectus in its entirety. Unless otherwise indicated in this Prospectus, all market share percentages are based on industry information compiled by Georgetown Economic Services, an independent market research firm that compiles information on behalf of the foundry industry. Unless otherwise stated in this Prospectus or unless the context otherwise requires, references herein to the "Company" are to Neenah Corporation and its currently active subsidiaries, Neenah Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc., for periods prior to the Merger and to Neenah Corporation, as the surviving entity in the Merger, and its subsidiaries, for periods thereafter. Neenah Corporation is a Wisconsin corporation organized in 1987 as a holding company for its operating subsidiaries. The Company's fiscal year ends on March 31, and unless otherwise indicated all annual references herein refer to such fiscal year. THE COMPANY OVERVIEW The Company, founded in 1872, is one of the largest manufacturers of a wide range of high quality ductile and gray iron castings for the heavy municipal market and selected segments of the industrial market. The Company believes it is the largest manufacturer of heavy municipal iron castings in the United States with approximately a 19% market share in calendar year 1996. The Company's broad range of heavy municipal iron castings includes manhole covers and frames, storm sewer frames and grates, heavy duty airport castings, specialized trench drain castings, specialty flood control castings and ornamental tree grates. These municipal castings are sold throughout the United States to state and local government entities, utility companies, precast concrete manhole structure producers and contractors for both new construction and infrastructure replacement. The municipal market generated approximately 43% of the Company's 1997 net sales. The Company believes it is also a leading manufacturer of a wide range of complex industrial castings, including castings for medium- and heavy-duty truck drive line components, a broad range of castings for the farm equipment industry and specific components for compressors used in heating, ventilation and air conditioning systems ("HVAC"). The industrial market generated approximately 53% of the Company's 1997 net sales. In addition, the Company engineers, manufactures and sells customized sand control systems and related products, which are an essential part of the casting process, to other iron foundries. Sales of these sand control systems and related products represented approximately 4% of the Company's 1997 net sales. The Company currently operates two modern foundries with an annual aggregate rated capacity of approximately 187,000 tons at a single site in Neenah, Wisconsin. Since 1985, the Company has invested approximately $100 million in its production facilities, with approximately $73 million invested in a major plant modernization program from 1985 to 1990. This plant modernization program was a critical part of a long-term strategy to produce higher volume, value-added castings for its existing industrial customers and to penetrate other selected segments of the industrial market, while preserving its position as the leader in the heavy municipal market. This modernization program entailed the closing of the Company's oldest foundry, Plant 1, and the updating of the Company's other two foundries, Plants 2 and 3, which enabled the Company both to produce higher volume, complex castings for selected industrial segments and to improve the Company's cost position in the heavy municipal market. Following the completion of the modernization program, the Company has steadily decreased its production of lower margin products such as axle covers and brake drums and increased the production of higher margin, more complex parts such as transmission and axle housings. As a result of this strategy, the Company's ongoing improvements in its manufacturing process and increased demand for medium- and heavy-duty truck components, 3 7 net sales and EBITDA (as defined) have increased substantially. From 1992 to 1997, net sales have grown from $116.5 million to $165.4 million, representing a compound annual growth rate of 7.3%, and EBITDA has grown from $13.4 million to $38.0 million during the same period, representing a compound annual growth rate of 23.2%. COMPETITIVE ADVANTAGES The Company believes it benefits from the following competitive advantages, which have enabled it to increase sales and operating profitability and to maintain its position as one of the leaders in the iron casting industry. Leading Market Position. The Company believes it is the largest manufacturer of heavy municipal iron castings in the United States with approximately a 19% market share in calendar year 1996. Furthermore, the Company, which has produced municipal castings for over 70 years has, according to its estimates, over a 50% market share in nine of the top ten states in which the Company sells heavy municipal castings. Sales in those states represented approximately 69% of the Company's municipal sales in 1997. The Company believes it is also one of the largest manufacturers of iron castings for selected segments of the industrial market, including the medium-and heavy-duty truck and farm equipment segments. The Company is the sole sourced supplier for over 85% of the industrial products it produces and has multi-year arrangements with certain of its largest customers. The Company believes it can continue to capitalize on its strong market position to generate additional revenues and realize economies of scale, thereby increasing margins and earnings. Low Cost Structure. As a result of its size, significant investment in equipment and technology and focus on improving efficiency, the Company believes it possesses a highly competitive cost structure. Since 1985, the Company has invested approximately $100 million in its production facilities, with approximately $73 million invested in plant modernization and new equipment from 1985 to 1990. These investments, combined with the Company's ongoing improvements to its manufacturing process, have substantially increased efficiency and manufacturing productivity. From 1992 to 1997, the Company reduced its scrap rate from 3.5% to 2.0%, which the Company believes is one of the lowest scrap rates in the industry. During the same period, the Company reduced its employee hours per ton by approximately 40% from 14.8 to 9.0, while improving product quality levels and producing higher margin, more complex parts. Broad Product Offering. The Company carries a broad range of products, offering more than 4,400 patterns that can produce over 20,000 part combinations for the heavy municipal market, and more than 350 patterns for the industrial market. The Company believes its municipal catalog offers the largest castings selection of any foundry serving the heavy municipal market. This extensive product offering, which includes hundreds of one-of-a-kind specialty items, enables the Company to compete throughout the United States and provide a substantial number of the many types of municipal castings required for individual projects. Heavy municipal castings are manufactured from Company-owned patterns which have been appraised by independent appraisers to be in excess of $22 million. Additionally, the Company's extensive and growing offering of complex industrial castings enables it to more effectively service its customers' increasing needs for highly engineered cast parts and often positions the Company as the sole source of supply to original equipment manufacturers ("OEMs") and their first tier suppliers. The Company's broad industrial product offering and its recognized casting engineering expertise have become increasingly important as large industrial customers seek to reduce the number of suppliers with whom they conduct business. Strong, Diverse Customer Relationships. The Company continually focuses on establishing and maintaining strong relationships with its customers. In the heavy municipal market, the Company currently sells to over 17,000 active customers in all 50 states, with the majority of its sales concentrated in the midwestern states. The Company believes it has the largest sales and marketing 4 8 effort of any foundry serving the heavy municipal market, including 47 Company employees and 26 commissioned representatives. The Company believes the size of its marketing effort, the breadth of its product offering and the level of its technical support provide it with a significant competitive advantage and will allow it to further strengthen its leading position in the heavy municipal market. With respect to the industrial market, the Company has established strong relationships with leading manufacturers of medium- and heavy-duty truck components, farm equipment and HVAC systems. The Company is the sole sourced provider for over 85% of the products it currently supplies to its industrial customer base and has multi-year arrangements with certain of its largest customers. Furthermore, the average industrial casting typically takes between 12 and 18 months to go from the design phase to full production and has an average life cycle of approximately 8 to 10 years. This lengthy development process, in which the Company actively participates, provides the Company with an inventory of products that cannot be quickly replicated by its competitors. Historically, the foundry that has originally manufactured an industrial part has continued to manufacture that part throughout its product life cycle. The Company's participation in both the heavy municipal and industrial markets helps to diversify the Company's business and to reduce the Company's reliance on individual customers or end-use markets. High Quality Products and Customer Service. The Company believes it enjoys a reputation for providing a high level of customer service and is recognized for its ability to consistently manufacture high-quality, complex products. The Company believes its manufacturing capabilities and process controls allow it to manufacture high quality castings which are dimensionally and metallurgically consistent. In addition to providing high quality products, the Company emphasizes customer service by providing tooling and engineering development support to its customers, consistent on-time delivery utilizing its own fleet of trucks for delivery of many of its municipal products and a small portion of the Company's industrial products and follow-up through its sales and marketing team. The Company believes its ability to provide such product quality and responsive service has fostered customer loyalty and long-term relationships. Experienced Management Team with Significant Equity Stake. The top seven members of the Company's senior operating management have an average of approximately 12 years with the Company and 23 years in the iron foundry industry. Certain members of the Company's management (the "Management Investors") beneficially own, on a fully diluted basis, approximately 10% of the common stock of the Company. BUSINESS STRATEGY The Company's strategy for achieving continued growth in sales and profitability includes: (i) increasing the sale of higher margin products, (ii) selectively entering new markets, (iii) improving operating performance and (iv) making selective acquisitions. Increasing the Sale of Higher Margin Products. The Company continually strives to improve the margins on the parts it produces. In the heavy municipal market, the Company has historically maintained strong margins by periodically implementing price increases and introducing new, higher value-added products. For example, the Company is currently leading the market in the sale of lightweighted municipal castings, which are less costly to handle and require less raw material to produce. The Company believes incremental margin improvements will be realized from the Company's increased production of these lightweighted products. In the industrial market, the Company increased its focus on manufacturing complex, highly engineered castings in the early 1990s following substantial capital investment in the late 1980s. Since 1991, the Company has steadily increased the volume, array and complexity of the parts it produces for its industrial customers. The Company intends to continue to pursue opportunities to produce more complex, higher value-added castings, thereby continuing to improve product margins. Selectively Entering New Markets. The Company intends to selectively expand its presence in both the heavy municipal and industrial markets. In the heavy municipal market, the Company is 5 9 considering expanding its product offering in high volume markets such as New York and Nevada where the Company already has sales representatives in place and for which the Company has already invested in certain of the toolings necessary to meet potential product demand. In addition, the Company is exploring further opportunities in New Jersey, New Hampshire and Massachusetts. The Company's strategy in its chosen industrial segments is to continue to increase its penetration of existing customers and to develop similar relationships with other selected industrial companies which would value the Company's technical ability and high level of product quality and customer service. The Company also intends to explore opportunities in austempering (heat-treating ductile iron) and machining and assembling sub-components for specific industrial customers. Improving Operating Performance. The Company operates two modern foundries, and believes it possesses a highly competitive cost structure. The Company intends to continue to seek ways to capitalize on and extend its technological expertise and operating efficiencies, thereby reducing its operating costs. In contrast to the major investments made from 1985 to 1990, which significantly improved both manufacturing capacity and efficiency, the Company's near term capital expenditures will be focused primarily on incrementally improving efficiency and reducing costs through projects such as: (i) sand system optimization, (ii) material handling improvements and (iii) energy utilization improvements. Making Selective Acquisitions. The United States iron foundry industry is highly fragmented despite significant consolidation over the past decade. In 1986, there were approximately 880 foundries engaged in the casting of iron, with an aggregate capacity of approximately 15 million tons according to Stratecasts, Inc., a foundry industry research and consulting organization. By 1996, the number of iron foundries decreased to approximately 730, with an aggregate capacity of approximately 13 million tons. Management believes the consolidation that has occurred will continue, particularly in the industrial market, as technical, environmental and quality standards continue to increase. The Company intends to pursue selective acquisition opportunities that complement its existing product offering or enable the Company to expand its presence in selected geographic areas of the heavy municipal market. The Company believes such acquisitions will provide opportunities for incremental revenue and cash flow by leveraging the Company's current expertise in manufacturing, sales and marketing, and product and process engineering. THE MERGER NFC Castings, Inc. ("Holdings") and its wholly-owned subsidiary, NC Merger Company ("NC Merger"), were organized by Citicorp Venture Capital, Ltd. ("CVC") and its affiliate, ACP Holding Company, to effect the acquisition of the Company. On April 30, 1997, pursuant to an Agreement and Plan of Reorganization, dated November 20, 1996, as amended (the "Merger Agreement"), among Holdings, NC Merger and the Company, NC Merger merged with and into the Company, with the Company as the surviving corporation (the "Merger"). Holdings is a wholly-owned subsidiary of ACP Holding Company ("ACP Holdings"). ACP Holdings is wholly-owned by ACP Products, L.L.C., which in turn is owned in part by CVC and certain other investors (collectively, the "Investor Group"). The Management Investors also own an interest in ACP Products, L.L.C. The consideration for the Merger was $236.9 million in cash (the "Merger Consideration"), subject to a closing date net worth adjustment. Upon consummation of the Merger, the Company paid $11.3 million to certain former stockholders of the Company (the "Former Stockholder Payment" and, together with the Merger Consideration, the "Merger Price"). Pro forma for a March 31, 1997 closing, the closing date net worth adjustment would have been $9.1 million which would result in a total pro forma Merger Price of $258.3 million (including acquisition costs of $1.0 million). The Merger Price reflects the use of approximately $25.3 million of cash on the Company's balance sheet pro forma for a March 31, 1997 closing (resulting in a valuation of the Company's business and other assets of approximately $233.0 million). In order to finance the Merger Price, including the payment of related fees and expenses: (i) NC Merger consummated the Offering; 6 10 (ii) NC Merger entered into a credit agreement providing for (a) a term loan (the "Tranche A Term Loan") in the amount of $20.0 million and a second term loan (the "Tranche B Term Loan" and, together with the Tranche A Term Loan, the "Term Loans") in the amount of $25.0 million, and (b) a revolving credit facility (the "Revolving Credit Facility" and, together with the Term Loans, the "Senior Bank Facilities") in the amount of $30.0 million, subject to a borrowing base formula; (iii) Holdings made an equity contribution (the "Equity Contribution") of $45.0 million to NC Merger; and (iv) $25.3 million of cash (pro forma for a March 31, 1997 closing) was utilized. Concurrently with the consummation of the Offering, the Company, as the surviving corporation in the Merger, assumed, pursuant to the Merger, the obligations under the Notes and the Senior Bank Facilities. The Offering, the establishment of the Senior Bank Facilities, the Equity Contribution and the Merger are referred to collectively herein as the "Transactions." The sources and uses of funds for the Merger and related Transactions, assuming that the Merger occurred on March 31, 1997, were as follows (dollars in millions): SOURCES OF FUNDS Senior Bank Facilities:(1)(2) Tranche A Term Loan............................................... $ 20.0 Tranche B Term Loan............................................... 25.0 Senior Subordinated Notes due 2007.................................. 150.0 Equity Contribution(3).............................................. 45.0 Excess Cash and Borrowings under Revolving Credit Facility(2)....... 26.2 ------ Total..................................................... $266.2 ======
USES OF FUNDS Merger Price(2)(4).................................................. $258.3 Financing Costs..................................................... 7.9 ------ Total..................................................... $266.2 ======
- --------------- (1) Total borrowings of up to $30.0 million under the Revolving Credit Facility are available, subject to borrowing base limitations, for working capital and general corporate purposes, including up to $15.0 million for letters of credit. At March 31, 1997, on a pro forma basis after giving effect to the Offering, the other Transactions, and the application of the proceeds therefrom, as well as borrowing base limitations and $0.6 million of outstanding letters of credit, the Company estimates that it would have had the ability to borrow approximately $24.8 million under the Revolving Credit Facility. See "Description of Senior Bank Facilities." (2) Based on the Company's results of operations since March 31, 1997, the Company estimates the closing net worth adjustment will be approximately $12.6 million resulting in a total Merger Price of approximately $261.8 million, cash on hand of approximately $11.5 million, substantially all of which will be applied to fund the Merger Price, and approximately $1.0 million will be drawn under the Revolving Credit Facility in order to provide the remainder of the necessary financing. (3) Holdings made an Equity Contribution of $45.0 million for which it received all of the Company's common stock. See "Ownership of Securities." (4) The Merger Price includes a net worth adjustment, which would have been $9.1 million based on a March 31, 1997 pro forma closing. 7 11 THE EXCHANGE OFFER Securities Offered......... Up to $150,000,000 aggregate principal amount of 11 1/8% Senior Subordinated Notes due 2007 (the "New Notes"). The terms of the New Notes and Old Notes are identical in all material respects, except for certain transfer restrictions and registration rights relating to the Old Notes. The Exchange Offer......... The New Notes are being offered in exchange for a like principal amount of Old Notes. Old Notes may be exchanged only in integral multiples of $1,000. The issuance of the New Notes is intended to satisfy obligations of the Company and the Guarantor Subsidiaries contained in the Registration Rights Agreement. Expiration Date; Withdrawal of Tender................ The Exchange Offer will expire 5:00 p.m. New York City time, on , 1997, or such later date and time to which it is extended by the Company. The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Certain Conditions to the Exchange Offer........... The Company's obligation to accept for exchange, or to issue New Notes in exchange for, any Old Notes is subject to certain customary conditions relating to compliance with any applicable law, or any applicable interpretation by any staff of the Commission, or any order of any governmental agency or court of law, which may be waived by the Company in its reasonable discretion. The Company currently expects that each of the conditions will be satisfied and that no waivers will be necessary. See "The Exchange Offer -- Certain Conditions to the Exchange Offer." Procedures for Tendering Old Notes................ Each holder of Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with such Old Notes and any other required documentation, to the Exchange Agent (as defined) at the address set forth herein. See "The Exchange Offer -- Procedures for Tendering Old Notes." Use of Proceeds............ There will be no proceeds to the Company from the exchange of Notes pursuant to the Exchange Offer. Exchange Agent............. United States Trust Company of New York is serving as the Exchange Agent in connection with the Exchange Offer. Federal Income Tax Consequences............. The exchange of Notes pursuant to the Exchange Offer should not be a taxable event for federal income tax purposes. See "Certain Federal Income Tax Considerations." 9 12 CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER Based on certain interpretive letters issued by the staff of the Commission to third parties in unrelated transactions, the Company is of the view that holders of Old Notes (other than any holder who is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who exchange their Old Notes for New Notes pursuant to the Exchange Offer generally may offer such New Notes for resale, resell such New Notes and otherwise transfer such New Notes without compliance with the registration and prospectus delivery provisions of the Securities Act, provided such New Notes are acquired in the ordinary course of the holders' business and such holders have no intention, or any arrangement with any person, to participate in a distribution of such New Notes. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, if applicable, the New Notes may not be offered for sale unless they have been registered or qualified for sale in such jurisdiction or an exemption from registration or qualification is available and is complied with. The Company has agreed, pursuant to the Registration Rights Agreement and subject to certain specified limitations therein, to register or qualify the New Notes for offer or sale under the securities or blue sky laws of such jurisdictions as any holder of the Notes reasonably requests in writing. If a holder of Old Notes does not exchange such Old Notes for New Notes pursuant to the Exchange Offer, such Old Notes will continue to be subject to the restrictions on transfer contained in the legend thereon. In general, the Old Notes may not be offered for sale, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Holders of Old Notes do not have any appraisal or dissenters' rights under Delaware General Corporation Law in connection with the Exchange Offer. See "The Exchange Offer -- Consequences of Failure to Exchange; Resales of New Notes." The Old Notes are currently eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. Following commencement of the Exchange Offer but prior to its consummation, the Old Notes may continue to be traded in the PORTAL market. Following consummation of the Exchange Offer, the New Notes will not be eligible for PORTAL trading. THE OFFERING The terms of the New Notes are identical in all material respects to the Old Notes, except for certain transfer restrictions on registration rights relating to the Old Notes. Issuer..................... Neenah Corporation. Securities Offered......... $150,000,000 aggregate principal amount of 11 1/8% Senior Subordinated Notes due 2007. Maturity................... May 1, 2007. Interest Payment Dates..... May 1 and November 1 of each year, commencing November 1, 1997. Optional Redemption........ Except as described below, the Company may not redeem the New Notes (or the Old Notes) prior to May 1, 2002. On or after such date, the Company may redeem the New Notes (and any outstanding Old Notes), in whole or in part, at any time at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. In addition, at any time and from time to time on or prior to May 1, 2000, the Company may, subject to certain requirements, redeem up to 40% 9 13 of the original aggregate principal amount of the Notes with the net cash proceeds of one or more Public Equity Offerings (as defined) by the Company, Holdings, or ACP Holdings, for which there is a Public Market (as defined), at a redemption price equal to 111.125% of the principal amount of the Notes to be redeemed, together with accrued and unpaid interest, if any, to the date of redemption, provided that at least 60% of the original aggregate principal amount of the Notes remains outstanding immediately after each such redemption. See "Description of Notes -- Optional Redemption." Change of Control.......... Upon the occurrence of a Change of Control (as defined), (i) the Company will have the option, at any time prior to May 1, 2002, to redeem the New Notes (and any outstanding Old Notes) at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium (as defined), together with accrued and unpaid interest, if any, to the date of redemption; and (ii) if the Company does not redeem the New Notes (or such Old Notes) pursuant to the preceding clause (i) or if such Change of Control occurs after May 1, 2002, each holder will have the right to require the Company to make an offer to repurchase the New Notes (and such Old Notes) at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. See "Description of Notes -- Change of Control." Subsidiary Guaranties...... The New Notes will be (as are the Old Notes) fully guaranteed on an unsecured, senior subordinated basis by the Guarantor Subsidiaries. Neenah Corporation is a holding company that derives substantially all of its income from its principal subsidiaries, Neenah Foundry Company, Hartley Controls Corporation, and Neenah Transport, Inc. The Guarantor Subsidiaries have guaranteed the Senior Bank Facilities (as defined), and are jointly and severally liable on a senior basis with the Company for the obligations thereunder. Such obligations are secured by pledges of all the capital stock of the Company and the Guarantor Subsidiaries and security interests in, or liens on, substantially all other tangible and intangible assets of the Company and the Guarantor Subsidiaries. See "Description of Notes -- Subsidiary Guaranties" and "-- Certain Covenants -- Future Note Guarantors." Ranking.................... The New Notes will be (as are the Old Notes) unsecured and will be subordinated to all existing and future Senior Indebtedness (as defined) of the Company. The New Notes will (as do the Old Notes) rank pari passu with any future Senior Subordinated Indebtedness of the Company and will rank senior to all other subordinated indebtedness of the Company. The Subsidiary Guaranties are unsecured, senior subordinated obligations of the Guarantor Subsidiaries, subordinated in right of payment to existing and future Senior Indebtedness of the Guarantor Subsidiaries. As of March 31, 1997, on a pro forma basis, after giving effect to the Merger, the Offering, the other Transactions, and the application of the net proceeds therefrom, the Company and the Guarantor Subsidiaries would have had outstanding $46.0 mil- 10 14 lion (excluding $0.6 million of outstanding letters of credit) aggregate amount of Senior Indebtedness (all of which is Secured Indebtedness), no Senior Subordinated Indebtedness other than the indebtedness represented by the Notes and no indebtedness that is subordinate or junior in right of repayment to the indebtedness represented by the Notes. Restrictive Covenants...... The indenture (the "Indenture") governing the New Notes, which is the Indenture governing the Old Notes, limits (i) the incurrence of additional Indebtedness by the Company and its Restricted Subsidiaries (as defined); (ii) the payment of dividends on, and redemption of, capital stock of the Company and its Restricted Subsidiaries and the redemption of certain Subordinated Obligations of the Company and its Restricted Subsidiaries; (iii) certain other restricted payments, including without limitation, investments; (iv) sales of assets and Restricted Subsidiary stock; (v) certain transactions with affiliates; (vi) the sale or issuance of capital stock of its Restricted Subsidiaries; (vii) the creation of liens; (viii) the lines of business in which the Company and its Restricted Subsidiaries may operate; (ix) consolidations, mergers and transfers of all or substantially all of the Company's assets; and (x) sale and leaseback transactions. The Indenture also prohibits certain restrictions on distributions from Restricted Subsidiaries. However, all of these limitations and prohibitions are subject to a number of important qualifications and exemptions. See "Description of Notes -- Certain Covenants" and "-- Merger and Consolidation." Transfer Restrictions; Absence of a Public Market for the Notes............ The New Notes are new securities and there is currently no established market for the New Notes. Accordingly, there can be no assurance as to the development or liquidity of any market for the New Notes. The Initial Purchasers have advised the Company that they currently intend to make a market in the New Notes. However, they are not obligated to do so, and any market making with respect to the New Notes may be discontinued without notice. The Company does not intend to apply for listing of the New Notes on any national securities exchange or for their quotation through the National Association of Securities Dealers Automated Quotation System. The address for the Company and each of the Guarantor Subsidiaries is 2121 Brooks Avenue, Box 729, Neenah, Wisconsin 54927 and the telephone number is (414) 725-7000. RISK FACTORS Holders of Old Notes should carefully consider all of the information set forth in this Prospectus and, in particular, should evaluate the specific factors under "Risk Factors" beginning on page 14 for risks in connection with the Exchange Offer. 11 15 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA The following table sets forth summary historical consolidated, financial and other data of the Company for the five years ended March 31, 1997, and certain financial and other data for the year ended March 31, 1997. The summary historical consolidated financial and other data, (with the exception of tons produced, employees, employee hours per ton and scrap rate) are derived from the audited historical consolidated financial statements and the "Unaudited Pro Forma Financial Information" of the Company, all of which are included elsewhere in this Prospectus. The historical consolidated balance sheets for 1995, 1996 and 1997 and the historical consolidated statements of income for 1994, 1995, 1996 and 1997 were audited by Ernst & Young LLP, independent auditors. The historical consolidated balance sheets for 1993 and 1994 and the historical consolidated statement of income for 1993 were audited by other auditors. The unaudited pro forma balance sheet data as of March 31, 1997 gives effect to the Transactions as if such transactions had occurred on March 31, 1997. The unaudited pro forma consolidated statement of income for the year ended March 31, 1997 gives effect to the Transactions as if such transactions were consummated on April 1, 1996. The unaudited pro forma financial and other data do not purport to represent what the Company's financial position or results of operations would actually have been had the Transactions in fact occurred on the assumed dates or to project the Company's financial position or results of operations for any future date or future period. The information contained in the following table should also be read in conjunction with "Capitalization," "Selected Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Consolidated Financial Information," and the Company's historical consolidated financial statements and related notes included elsewhere in this Prospectus. 12 16 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
PRO FISCAL YEAR ENDED MARCH 31, FORMA -------------------------------------------------------- -------- 1993 1994 1995 1996 1997 1997 -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Net sales(1).................... $133,422 $131,982 $160,621 $166,951 $165,426 $165,426 Gross profit.................... 25,143 25,451 39,640 45,320 48,690 48,747 Operating income................ 6,106 11,837 22,967 28,337 31,143 29,718 Interest expense (income), net........................... 2,118 1,043 397 (481) (1,162) 20,365 Net income...................... 5,080 6,581 13,704 17,142 19,838 4,549 OTHER DATA: EBITDA(2)....................... $ 13,399 $ 18,577 $ 29,809 $ 35,113 $ 38,024 $ 41,539 Depreciation and amortization... 7,293 6,740 6,842 6,776 6,881 12,979 Capital expenditures............ 3,967 4,583 3,665 7,275 4,546 4,546 Cash interest expense(3)........ 2,128 1,049 624 84 39 20,408 Tons produced................... 137,260 136,754 171,727 168,400 155,134 155,134 Employees....................... 1,169 931 952 922 910 910 Employee hours per ton(4)....... 13.3 10.7 8.7 8.6 9.0 9.0 Scrap rate(5)................... 3.3% 2.9% 2.2% 2.0% 2.0% 2.0% BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents....... $ 79 $ 118 $ 238 $ 10,126 $ 22,403 $ -- Working capital(6).............. 13,425 14,596 15,174 18,094 21,438 29,032 Total assets.................... 87,388 74,327 73,813 82,957 93,869 308,955 Total debt...................... 21,409 13,325 887 241 134 196,020 Total stockholders' equity...... 36,862 37,929 43,198 54,790 68,857 45,000
- --------------- (1) Net sales for the years ended March 31, 1993 and 1994 include sales of products manufactured in Plant 1, which was closed in 1994 as part of the Company's strategy to increase its focus on higher volume, complex parts for its industrial customers. The majority of the parts produced in Plant 1 were then discontinued. Plant 1 provided sales of $30.9 million and $4.4 million for the fiscal years ended March 31, 1993 and 1994, respectively. (2) EBITDA represents operating income plus depreciation and amortization. The Company has included information concerning EBITDA because management believes that EBITDA is generally accepted as providing useful information regarding a company's ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows or other income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. (3) Cash interest expense is defined as interest expense less amortization of debt issuance cost. (4) Employee hours per ton represents the number of hours worked by hourly employees during this period (excluding supervisory employee hours) divided by the number of tons produced. (5) The scrap rate is the percentage of castings that are determined to be unusable prior to delivery to customers. (6) Working capital represents total current assets (excluding cash and cash equivalents) less total current liabilities (excluding the revolving credit facility and the current portion of long-term debt). 13 17 RISK FACTORS Holders of Old Notes should carefully consider the following factors in addition to the other information set forth in this Prospectus in connection with the Exchange Offer. The risk factors set forth below are generally applicable to the Old Notes as well as the New Notes. SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE INDEBTEDNESS The Company is highly leveraged. As of March 31, 1997, on a pro forma basis, after giving effect to the Merger, the Offering, the other Transactions, and the application of the proceeds therefrom, the Company and the Guarantor Subsidiaries would have had $46.0 million (excluding $0.6 million of outstanding letters of credit) aggregate amount of Senior Indebtedness (all of which is Secured Indebtedness), no Senior Subordinated Indebtedness other than that represented by the Notes and no indebtedness that is junior in right of repayment to the indebtedness represented by the Notes. As of March 31, 1997, on a pro forma basis, after giving effect to the Merger, the Offering, the other Transactions, and the application of the proceeds therefrom, as well as borrowing base limitations and $0.6 million of outstanding letters of credit, the Company estimates that it would have had the ability to borrow approximately $24.8 million under the Revolving Credit Facility. Subject to the restrictions in the Senior Bank Facilities and the Indenture, the Company may incur additional indebtedness from time to time, including additional Senior Indebtedness. The degree to which the Company is leveraged could have important consequences to holders of the New Notes (and to holders of Old Notes), including the following: (i) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be limited; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of interest on the New Notes (and any outstanding Old Notes), and interest and principal on the Senior Bank Facilities and the Company's other existing indebtedness, thereby reducing the funds available to the Company for other purposes; (iii) all of the indebtedness under the Senior Bank Facilities will be at variable rates of interest, which will cause the Company to be vulnerable to increases in interest rates; (iv) all of the indebtedness outstanding under the Senior Bank Facilities will be secured by pledges of all the capital stock of the Company and the Guarantor Subsidiaries and security interests in, or liens on, substantially all other assets of the Company and the Guarantor Subsidiaries, and will become due prior to the time the principal on the Notes will become due; (v) the Company may be hindered in its ability to adjust rapidly to changing market conditions; and (vi) the Company's substantial degree of leverage could make it more vulnerable in the event of a downturn in general economic conditions or in its business. The Company's ability to pay interest on the New Notes (and any outstanding Old Notes) and to satisfy its other debt obligations will depend on its future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond the Company's control. If the Company's cash flow from operations and capital resources is insufficient to fund its debt service obligations, the Company may be forced to reduce or delay capital expenditures, sell assets, obtain additional equity capital or restructure its debt. There can be no assurance that the Company's cash flow from operations and capital resources will be sufficient for payment of its indebtedness in the future. In the absence of such operating results and resources, the Company could face substantial liquidity problems and might be required to dispose of material assets or operations to meet its debt service and other obligations, and there can be no assurance as to the timing of such sales or the proceeds that the Company could realize therefrom. The financial covenants and other restrictions in the Senior Bank Facilities and the Indenture will limit the Company's ability to borrow additional funds and dispose of certain assets. See "Description of Senior Bank Facilities" and "Description of Notes." 14 18 SUBORDINATION; ASSET ENCUMBRANCE The payment of principal of and interest on, and any premium or other amounts owing in respect of, the New Notes will be (as is the case with the Old Notes) subordinated to the prior payment in full of all existing and future Senior Indebtedness of the Company, including all amounts owing or guaranteed under the Senior Bank Facilities. Consequently, in the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding with respect to the Company, assets of the Company will be available to pay obligations of the New Notes (and any outstanding Old Notes) only after all Senior Indebtedness of the Company has been paid in full, and there can be no assurance that there will be sufficient assets to pay amounts due on all or any of the New Notes (and any outstanding Old Notes). Payments in respect of the respective Subsidiary Guaranties of the New Notes will be (as is the case with the Old Notes) subordinated to the prior payment in full of all existing and future Senior Indebtedness of the respective Guarantor Subsidiaries, including all amounts guaranteed in respect of the Senior Bank Facilities. As of March 31, 1997, on a pro forma basis after giving effect to the Merger, the Offering, the other Transactions, and the application of the proceeds therefrom, the aggregate principal amount of such Senior Indebtedness would have been $46.0 million (excluding $0.6 million of outstanding letters of credit) guaranteed under the Senior Bank Facilities. Consequently, in the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding with respect to a Guarantor Subsidiary, its assets will be available to pay obligations only after the Senior Indebtedness of such Guarantor Subsidiary has been paid in full, and there can be no assurance that there will be sufficient assets to pay amounts due in respect of such Guarantor Subsidiary's guaranty of the New Notes (or any outstanding Old Notes). The Indenture permits the Company and the Guarantor Subsidiaries to incur certain Secured Indebtedness, including indebtedness under the Senior Bank Facilities, which will be secured by pledges of all the capital stock of the Company and the Guarantor Subsidiaries, and security interests in, or liens on, substantially all other assets of the Company and the Guarantor Subsidiaries. The New Notes (and the Old Notes) and the Subsidiary Guaranties are unsecured and therefore do not have the benefit of such collateral. Accordingly, if an event of default occurs under the Senior Bank Facilities, the lenders will have a prior right to the assets of the Company and the Guarantor Subsidiaries, and may foreclose upon such collateral to the exclusion of the holders of the New Notes (and of any of the Old Notes), notwithstanding the existence of an event of default with respect thereto. In such event, such assets would first be used to repay in full amounts outstanding under the Senior Bank Facilities, resulting in all or a portion of the Company's and the Guarantor Subsidiaries' assets being unavailable to satisfy the claims of the holders of the New Notes (and of any of the Old Notes) and other unsecured indebtedness. RESTRICTIVE LOAN COVENANTS The Senior Bank Facilities will include certain covenants that, among other things, will restrict the ability of the Company and its subsidiaries to: (i) dispose of assets; (ii) incur additional indebtedness; (iii) incur guarantee obligations; (iv) prepay other indebtedness or amend other debt instruments; (v) pay dividends; (vi) create liens on assets; (vii) enter into sale and leaseback transactions; (viii) make investments, loans or advances; (ix) make acquisitions; (x) engage in mergers or consolidations; (xi) change the business conducted by the Company; (xii) make capital expenditures; or (xiii) engage in certain transactions with affiliates and otherwise restrict certain corporate activities. In addition, under the Senior Bank Facilities the Company will be required to comply with specified financial ratios and tests, including minimum interest coverage ratios, maximum leverage ratios and minimum net worth tests. There can be no assurance that these requirements will be met in the future. If they are not, the holders of the indebtedness under the Senior Bank Facilities would be entitled to declare such indebtedness immediately due and payable. See "Description of Senior Bank Facilities." 15 19 HOLDING COMPANY STRUCTURE; POSSIBLE UNENFORCEABILITY OF THE SUBSIDIARY GUARANTIES The Company is a holding company which derives substantially all of its operating income from its subsidiaries. The holders of the New Notes (and of any of the Old Notes) will have no direct claim against the Guarantor Subsidiaries other than the claim created by the Subsidiary Guaranties, which may themselves be subject to legal challenge in the event of the bankruptcy of a Guarantor Subsidiary. See "-- Fraudulent Conveyance." If such a challenge were upheld, the Subsidiary Guaranties would be unenforceable. To the extent that the Subsidiary Guaranties are not enforceable, the rights of holders of the New Notes (and of any of the Old Notes) to participate in any distribution of assets of any Guarantor Subsidiary upon liquidation, bankruptcy, reorganization or otherwise may, as is the case with other unsecured creditors of the Company, be subject to prior claims of creditors of that Guarantor Subsidiary. The Company must rely upon dividends and other payments from its subsidiaries to generate the funds necessary to meet its obligations, including the payment of principal of and interest on the New Notes (and any of the Old Notes). The Indenture contains covenants that restrict the ability of the Company's Restricted Subsidiaries (as defined) to enter into agreements limiting distributions and transfers, including dividends. However, the ability of the Company's subsidiaries to pay dividends and make other payments may be restricted by, among other things, applicable state corporate laws and regulations or by terms of agreements to which they may become party. See "Description of Notes." DEPENDENCE ON KEY PERSONNEL Three of the Company's senior executives, including the chief executive officer, did not remain with the Company after the Closing. The Company retained James K. Hildebrand to serve as Chairman and Chief Executive Officer following the Merger, and the Company's current management assumed primary responsibility for the other duties conducted by the departing senior executives. The ability of the Company to maintain its competitive position will depend to a significant degree upon its ability to continue to attract and retain highly qualified managerial and manufacturing personnel. There can be no assurance that the Company will be able to continue to recruit and retain such personnel. In particular, the Company is dependent on certain key management personnel, and there can be no assurance that the loss of key personnel would not have a material adverse effect on the Company's results of operations. See "Management." CHANGE OF CONTROL Upon the occurrence of a Change of Control, unless the Company redeems the Notes, each holder of the New Notes (and of any outstanding Old Notes) will have the right to require the Company to repurchase all or any portion of such holder's Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. The occurrence of a Change of Control would constitute a default under the Senior Bank Facilities. In addition, the Senior Bank Facilities will prohibit the purchase of the New Notes (and of any outstanding Old Notes) by the Company in the event of a Change of Control, unless and until such time as all indebtedness under the Senior Bank Facilities is repaid in full. The Company's failure to purchase the New Notes (and any outstanding Old Notes) would result in a default under the Indenture. The inability to repay the indebtedness under the Senior Bank Facilities, if accelerated, would also constitute an event of default under the Indenture. In the event of a Change of Control, there can be no assurance that the Company would have sufficient assets to satisfy all of its obligations under the Senior Bank Facilities and the New Notes (and any outstanding Old Notes). See "Description of Senior Bank Facilities" and "Description of Notes -- Change of Control." CONCENTRATION OF CUSTOMERS In 1997, sales to one of the Company's customers, Rockwell International, accounted for 16.1% of the Company's total net sales, and the Company's top three customers accounted for approximately 34.8% of the Company's net sales. A significant reduction of purchases by one or more of the 16 20 Company's key industrial customers could have a material adverse effect on the Company's business, financial condition or results of operations. See "Business -- Products, Customers and Markets." DEPENDENCE ON INDUSTRY/CYCLICALITY The Company has historically experienced moderate cyclicality in the heavy municipal market. Sales of municipal castings are influenced by, among other things, public spending. The Company's industrial sales are largely dependent on orders from OEMs of medium- and heavy-duty trucks and truck components and their first-tier suppliers and orders for farm equipment. The truck market has historically been subject to fluctuations due to general economic conditions and, in particular, the industrial sector of the economy. From 1993 to 1995, the truck market experienced significant growth, while in 1996 the medium- and heavy-duty truck market declined substantially from 1995 levels. In 1997, the medium- and heavy-duty truck market increased over 1996 levels but remained below 1995 levels. There can be no assurance that the truck market will not decline. The farm equipment market has also experienced cyclicality. A downturn in these markets could reduce demand for, and prices of, the Company's products. A significant downturn in either of these markets could have a material adverse effect on the Company's business, financial condition or results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." COMPETITION The markets for the Company's products are highly competitive. Competition is based not only on price, but also on quality of product, range of capability, level of service and reliability of delivery. The Company competes with numerous independent and captive domestic iron foundries, as well as with a number of foreign iron foundries, including certain foundries located in India. The Company also competes with several large domestic foundries and manufacturers whose casting products are made with materials other than ductile and gray iron, such as steel or aluminum. Industry consolidation over the past decade has resulted in a significant reduction in the number of smaller foundries and a rise in the share of production by larger foundries, some of which have significantly greater financial resources than the Company. There can be no assurance that the Company will be able to maintain or improve its competitive position in the markets in which it competes. See "Business -- Competition." FLUCTUATIONS IN PRICE AND SUPPLY OF RAW MATERIALS The Company is dependent upon outside suppliers for all of its raw material needs and, therefore, is subject to price increases and delays in receiving supplies of such materials. Changes in the supply of or demand for raw materials could affect delivery times and prices. Although historically the Company has been able to increase prices in response to increased raw material costs, no assurance can be given that the Company will continue to have available necessary raw materials at reasonable prices or that any increases in raw material costs would not have a material adverse effect on the Company's business, financial condition, or results of operations. See "Business -- Raw Materials." CONTROLLING SHAREHOLDERS The Investor Group beneficially owns approximately 90% of the Common Stock of the Company and, together with the Management Investors, collectively, has the ability to elect the entire Board of Directors and generally to control the affairs and policies of the Company. Circumstances may occur 17 21 in which the interests of the Investor Group, as shareholders of the Company, could be in conflict with the interests of the holders of the New Notes (and of any outstanding Old Notes). In addition, the Investor Group may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve disproportionate risks to the holders of the New Notes (and of any outstanding Old Notes). See "Ownership of Securities" and "Certain Relationships and Related Transactions" and "Business -- Business Strategy." ENVIRONMENTAL MATTERS The Company's facilities are subject to numerous 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. The Company does not currently anticipate any material adverse effect on its operations or financial condition as a result of its efforts to comply with, or its liabilities under, such requirements. Risk of environmental liability is inherent in the manufacturing of casting products, however, and there can be no assurance that material environmental costs will not arise in the future. In particular, the Company might incur capital and other costs to comply with increasingly stringent air emission control laws and enforcement policies. See "Business -- Environmental Matters." FRAUDULENT CONVEYANCE The incurrence by the Company of indebtedness such as the Old Notes (and the New Notes exchanged therefor) to finance the Transactions may be subject to review under relevant state and federal fraudulent conveyance and similar laws if a bankruptcy or reorganization case or a lawsuit is commenced by or on behalf of creditors of the Company. Under these laws, if a court were to find that, after giving effect to the sale of the Old Notes and the exchange of the New Notes therefor and the application of the net proceeds therefrom, either (a) the Company incurred such indebtedness with the intent of hindering, delaying or defrauding then-existing or future creditors or (b) the Company received less than a reasonably equivalent value or fair consideration for incurring such indebtedness and at the time of the incurrence of such indebtedness the Company (i) was insolvent or was rendered insolvent by reason of such transactions; (ii) was engaged in a business or transaction for which the assets remaining with the Company constituted unreasonably small capital; or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay as they matured, such court may subordinate such indebtedness to presently existing and future indebtedness of the Company, avoid the issuance of such indebtedness and direct the repayment of any amounts paid thereunder to the creditors of the Company or take other action detrimental to the holders of such indebtedness. The measure of insolvency for purposes of determining whether a transfer is avoidable as a fraudulent transfer varies depending upon the law of the jurisdiction which is being applied. Generally, however, a debtor would be considered insolvent if the sum of all its liabilities, including contingent liabilities, was greater than the value of all its assets at a fair valuation, or if the present fair saleable value of the debtor's assets was less than the amount required to repay its probable liabilities on its debts, including contingent liabilities, as they become absolute and matured. There can be no assurance as to what standard a court would apply in order to determine solvency. To the extent that proceeds from the sale of the Old Notes were used to finance the Transactions, a court may find that the Company did not receive fair consideration or reasonably equivalent value for the incurrence of the indebtedness represented thereby. In addition, if a court were to find that any of the components of the Transactions constituted a fraudulent transfer, to the extent that proceeds from the sale of the Old Notes were used to finance such Transactions, a court may find that the Company did not receive fair consideration or reasonably equivalent value for the incurrence of the indebtedness represented by the Old Notes. 18 22 The Company believes that it received equivalent value at the time the indebtedness under the Old Notes was incurred. In addition, the Company does not, after giving effect to the consummation of the Transactions: (i) believe that it was insolvent or rendered insolvent; (ii) believe that it was engaged in a business or transaction for which its remaining assets constitute unreasonably small capital; or (iii) intended to incur, or believe that it incurred, debts beyond its ability to pay as they mature. These beliefs are based on the Company's analysis of internal cash flow projections and estimated values of assets and liabilities of the Company and the Guarantor Subsidiaries at the time of the offering of the Old Notes. There can be no assurance, however, that a court passing on the issues would make the same determination. In addition, the Subsidiary Guaranties may be subject to review under relevant federal and state fraudulent conveyance and similar statutes in a bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of any of the Guarantor Subsidiaries. In such a case, the analysis set forth above would generally apply, except that the Subsidiary Guaranties could also be subject to the claim that, since the Subsidiary Guaranties were incurred for the benefit of the Company (and only indirectly for the benefit of the Guarantor Subsidiaries), the obligations of the Guarantor Subsidiaries thereunder were incurred for less than reasonably equivalent value or fair consideration. A court could void a Guarantor Subsidiary's obligation under the Subsidiary Guaranties, subordinate the Subsidiary Guaranties to other indebtedness of a Guarantor Subsidiary or take other action detrimental to the holders of the Old Notes (and the New Notes exchanged therefor). ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER The New Notes are new securities for which there currently is no market. Although the Initial Purchasers have informed the Company that they currently intend to make a market in the New Notes, they are not obligated to do so and any such market making may be discontinued at any time without notice in the sole discretion of the Initial Purchasers. Accordingly, there can be no assurance as to the development or liquidity of any market for the New Notes. The Old Notes are eligible for trading by qualified buyers in the PORTAL market. The Company does not intend to apply for listing of the Notes or, if issued, the Exchange Notes, on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. The liquidity of, and trading market for, the New Notes also may be adversely affected by general declines in the market for similar securities. Such declines may adversely affect such liquidity and trading markets independently of the financial performance of, and prospects for, the Company. FORWARD-LOOKING STATEMENTS This Prospectus contains certain forward-looking statements concerning the Company's operations, economic performance and financial condition, including, in particular, the likelihood of the Company's success in developing and expanding its business. These statements are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the Company, and reflect future business decisions which are subject to change. The foregoing description of risk factors specifies the principal contingencies and uncertainties to which the Company believes it is subject. Some of these assumptions inevitably will not materialize, and unanticipated events will occur which will affect the Company's results. USE OF PROCEEDS There will be no proceeds to the Company from the exchange of Notes pursuant to the Exchange Offer. 19 23 CAPITALIZATION The following table sets forth as of March 31, 1997 (i) the consolidated historical capitalization of the Company, and (ii) the unaudited consolidated pro forma capitalization of the Company after giving effect to the Transactions, assuming the Transactions were consummated on such date. This table should be read in conjunction with the "Selected Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Consolidated Financial Information" and the consolidated financial statements and related notes included elsewhere in this Prospectus.
MARCH 31, 1997 --------------------- ACTUAL PRO FORMA ------- --------- (DOLLARS IN THOUSANDS) Cash and cash equivalents..................................... $22,403 $ --(1)(2) ======= ======== Debt: Revolving Credit Facility(2)(3)............................. $ -- $ 886 Tranche A Term Loan......................................... -- 20,000 Tranche B Term Loan......................................... -- 25,000 Senior Subordinated Notes due 2007.......................... -- 150,000 Other....................................................... 134 134 ------- -------- Total debt.......................................... 134 196,020 Stockholders' equity: Common stock................................................ 444 100 Additional paid-in capital.................................. -- 44,900 Retained earnings........................................... 71,335 -- Notes receivable from owners to finance stock purchase...... (2,922) -- ------- -------- Total stockholders' equity.......................... 68,857 45,000 ------- -------- Total capitalization................................ $68,991 $ 241,020 ======= ========
- --------------- (1) Pro Forma cash and cash equivalents include actual cash and cash equivalents at March 31, 1997, plus $2.9 million in repayments of notes receivable from certain stockholders of the Company prior to the Merger, less $25.3 million to be paid as part of the Merger Price. (2) Based on the Company's results of operations since March 31, 1997, the Company estimates the closing net worth adjustment will be approximately $12.6 million resulting in a total Merger Price of approximately $261.8 million, cash on hand of approximately $11.5 million, substantially all of which will be applied to fund the Merger Price, and approximately $1.0 million will be drawn under the Revolving Credit Facility in order to provide the remainder of the necessary financing. (3) Total borrowings of up to $30.0 million under the Revolving Credit Facility are available, subject to borrowing base limitations, for working capital and general corporate purposes, including up to $15.0 million for letters of credit. At March 31, 1997, on a pro forma basis after giving effect to the Offering, the other Transactions, and the application of the proceeds therefrom, as well as borrowing base limitations and $0.6 million of outstanding letters of credit, the Company estimates that it would have had the ability to borrow approximately $24.8 million under the Revolving Credit Facility. See "Description of Senior Bank Facilities." 20 24 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA The following table sets forth the selected historical consolidated financial and other data of the Company for the five years ended March 31, 1997 and certain pro forma consolidated financial and other data for the year ended March 31, 1997. The selected historical consolidated financial and other data, with the exception of tons produced, employees, employee hours per ton and scrap rate, for the five years ended March 31, 1997 are derived from the audited consolidated financial statements of the Company. The historical consolidated financial statements of the Company as of March 31, 1995, 1996 and 1997 and for each of the four years in the period ended March 31, 1997, have been audited by Ernst & Young LLP, independent auditors. The historical consolidated financial statements of the Company as of March 31, 1993 and 1994 and for the year ended March 31, 1993 have been audited by other auditors. The pro forma consolidated financial and other data, with the exception of tons produced, employees, employee hours per ton and scrap rate, as of and for the year ended March 31, 1997, were derived from the "Unaudited Pro Forma Consolidated Financial Information" included elsewhere herein. The pro forma financial data does not purport to represent what the Company's financial position or results of operations would actually have been had the Transactions in fact occurred on the assumed dates or to project the Company's financial position or results of operations for any future date or period. The information contained in the following table should also be read in conjunction with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Consolidated Financial Information," and the Company's historical consolidated financial statements and related notes included elsewhere in this Prospectus. 21 25 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
FISCAL YEAR ENDED MARCH 31, --------------------------------------------------------------- PRO FORMA 1993 1994 1995 1996 1997 1997 -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Net sales(1)......................................... $133,422 $131,982 $160,621 $166,951 $165,426 $165,426 Cost of sales........................................ 108,279 106,531 120,981 121,631 116,736 116,679 -------- -------- -------- -------- -------- -------- Gross profit......................................... 25,143 25,451 39,640 45,320 48,690 48,747 Selling, general and administrative expenses......... 12,865 13,614 16,673 16,983 17,547 19,029 Restructuring charge................................. 6,172 -- -- -- -- -- -------- -------- -------- -------- -------- -------- Operating income..................................... 6,106 11,837 22,967 28,337 31,143 29,718 Interest expense (income), net....................... 2,118 1,043 397 (481) (1,162) 20,365 -------- -------- -------- -------- -------- -------- Income before income taxes and cumulative effect of accounting changes................................. 3,988 10,794 22,570 28,818 32,305 9,353 Provision for income taxes........................... 1,544 4,213 8,866 11,676 12,467 4,804 -------- -------- -------- -------- -------- -------- Income before cumulative effect of accounting changes............................................ 2,444 6,581 13,704 17,142 19,838 4,549 Cumulative effect of accounting changes: Income taxes....................................... 5,200 -- -- -- -- -- Postretirement benefits other than pensions........ (2,564) -- -- -- -- -- -------- -------- -------- -------- -------- -------- Net income........................................... $ 5,080 $ 6,581 $ 13,704 $ 17,142 $ 19,838 $ 4,549 ======== ======== ======== ======== ======== ======== OTHER DATA: EBITDA(2)............................................ $ 13,399 $ 18,577 $ 29,809 $ 35,113 $ 38,024 $ 41,539 Depreciation and amortization........................ 7,293 6,740 6,842 6,776 6,881 12,979 Capital expenditures................................. 3,967 4,583 3,665 7,275 4,546 4,546 Cash interest expense(3)............................. 2,128 1,049 624 84 39 20,408 Ratio of earnings to fixed charges(4)................ 2.7x 9.5x 25.9x 70.3x 81.4x 1.4x Tons produced........................................ 137,260 136,754 171,727 168,400 155,134 155,134 Employees............................................ 1,169 931 952 922 910 910 Employee hours per ton(5)............................ 13.3 10.7 8.7 8.6 9.0 9.0 Scrap rate(6)........................................ 3.3% 2.9% 2.2% 2.0% 2.0% 2.0% BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents............................ $ 79 $ 118 $ 238 $ 10,126 $ 22,403 $ -- Working capital(7)................................... 13,425 14,596 15,174 18,094 21,438 29,032 Total assets......................................... 87,388 74,327 73,813 82,957 93,869 308,955 Total debt........................................... 21,409 13,325 887 241 134 196,020 Total stockholders' equity........................... 36,862 37,929 43,198 54,790 68,857 45,000
See accompanying Notes to Selected Consolidated Financial and Other Data. 22 26 NOTES TO SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (1) Net sales for the years ended March 31, 1993 and 1994 include sales of products manufactured in Plant 1, which was closed in 1994 as part of the Company's strategy to increase its focus on higher volume, complex parts for its industrial customers. The majority of the parts produced in Plant 1 were then discontinued. Plant 1 provided sales of $30.9 million and $4.4 million for the fiscal years ended March 31, 1993 and 1994, respectively. (2) EBITDA represents operating income plus depreciation and amortization. The Company has included information concerning EBITDA because management believes that EBITDA is generally accepted as providing useful information regarding a company's ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows or other income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. (3) Cash interest expense is defined as interest expense less amortization of debt issuance costs. (4) For purposes of the computation, the ratio of earnings to fixed charges has been calculated by dividing (i) income before income taxes and cumulative effect of accounting changes plus fixed charges by (ii) fixed charges. Fixed charges are equal to interest expense plus the portion of the rent expense estimated to represent interest. (5) Employee hours per ton represents the number of hours worked by hourly employees during this period (excluding supervisory employee hours) divided by the number of tons produced. (6) The scrap rate is the percentage of castings that are determined to be unusable prior to delivery to customers. (7) Working capital represents total current assets (excluding cash and cash equivalents) less total current liabilities (excluding the revolving credit facility and the current portion of long-term debt). 23 27 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma consolidated financial information (the "Unaudited Pro Forma Financial Information") has been derived by the application of pro forma adjustments, which give effect to the Transactions, to the Company's historical consolidated financial statements included elsewhere in this Prospectus. The unaudited pro forma consolidated balance sheet gives effect to the Transactions as if such Transactions had occurred on March 31, 1997. The unaudited pro forma consolidated statement of income for the year ended March 31, 1997 gives effect to the Transactions as if such Transactions were consummated on April 1, 1996. The Unaudited Pro Forma Financial Information is for comparative purposes only and does not purport to represent what the Company's financial position or results of operations would actually have been had the Transactions in fact occurred on the assumed dates or to project the Company's financial position or results of operations for any future date or future period. The Unaudited Pro Forma Financial Information should be read in conjunction with the Company's historical consolidated financial statements and related notes included elsewhere in this Prospectus. The pro forma adjustments, as described in the accompanying Notes to the Unaudited Pro Forma Consolidated Balance Sheet and Statement of Income, are based on available information and certain assumptions that management believes are reasonable. The acquisition of the Company is accounted for under the purchase method of accounting. Assuming the Merger was consummated on March 31, 1997, the Merger Price would have been $258.3 million, which would include (i) a net worth adjustment of $9.1 million at the Closing based on a March 31, 1997 closing, and (ii) an $11.3 million payment to certain former stockholders of the Company upon consummation of the Merger. The Merger Price reflects the use of approximately $25.3 million of cash on the Company's balance sheet and borrowings under the Revolving Credit Facility of $0.9 million. In addition, there will be a repayment of $2.9 million in notes receivable from certain stockholders of the Company prior to the Merger, which reduces the net effect on cash to $22.4 million. The Merger Price has been allocated to the tangible and identifiable intangible assets and to the liabilities based on preliminary estimates of their fair values. The allocation of the Merger Price is subject to revision when additional information concerning certain asset valuations is obtained. The Merger Price is subject to a closing date net worth adjustment. 24 28 NEENAH CORPORATION UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 1997
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- (DOLLARS IN THOUSANDS) ASSETS Current assets: $ 2,922(a) Cash and cash equivalents........................... $ 22,403 (25,325)(b) $ -- Accounts receivable................................. 21,423 21,423 Inventories......................................... 13,956 7,995(c) 21,951 Deferred income taxes and other..................... 2,726 (401)(c) 2,325 ------- ------- ------- 60,508 (14,809) 45,699 Property, plant and equipment......................... 31,379 69,821(c) 101,200 925(c) Other assets.......................................... 1,982 7,925(d) 10,832 Identifiable intangible assets........................ -- 29,245(c) 29,245 Goodwill.............................................. -- 121,979(c) 121,979 ------- ------- ------- Total assets................................ $ 93,869 $ 215,086 $ 308,955 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving credit facility........................... $ -- $ 886(b) $ 886 Accounts payable.................................... 8,497 8,497 Income taxes payable................................ 573 573 Other current liabilities........................... 7,597 7,597 Current portion of long-term debt................... 134 5,000(e) 5,134 ------- ------- ------- 16,801 5,886 22,687 Long-term debt........................................ -- 190,000(e) 190,000 Post-retirement benefit obligations................... 5,667 (243)(c) 5,424 Deferred income taxes................................. 2,544 43,300(c) 45,844 ------- ------- ------- Total liabilities........................... 25,012 238,943 263,955 2,922(a) (71,779)(c) Stockholders' equity.................................. 68,857 45,000(f) 45,000 ------- ------- ------- Total liabilities and stockholders' equity.................................... $ 93,869 $ 215,086 $ 308,955 ======= ======= =======
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet. 25 29 NEENAH CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS) (a) Adjustment to reflect repayment of $2,922 notes receivable from owners (reported as a reduction from stockholders' equity in the historical balance sheet) scheduled to occur prior to the closing of the Transactions. (b) Adjustment to reflect the net effect on cash and borrowings under the Revolving Credit Facility of the Transactions, as follows: Proceeds from Senior Bank Facilities and Senior Subordinated Notes............................................................... $ 195,000 Proceeds from Equity Contribution................................... 45,000 Purchase price: Merger Consideration................................ $(236,840) Closing date net worth adjustment................... (9,103) Former Stockholder Payment.......................... (11,336) --------- (257,279) Acquisition costs................................... (1,007) Financing costs..................................................... (7,925) --------- $ (26,211) =========
(c) Adjustment to reflect the push-down of the $258,286 Merger Price (which includes the acquisition costs) to the assets and liabilities of the Company, allocated as follows: Book value of Company as of March 31, 1997 ($68,857 + $2,922(1)).................................. $ 71,779 Fair value adjustments(2): Write-up inventories(3)................................ 7,995 Eliminate other current assets repaid at closing....... (401) Write-up property, plant and equipment(4).............. 69,821 Write-up net pension asset............................. 925 Record identifiable intangible assets(5)............... 29,245 Reduce post-retirement benefit obligations............. 243 Record deferred income taxes(6)........................ (43,300) Residual -- goodwill(7)................................ 121,979 --------- $258,286 =========
-------------------- (1) Add back notes receivable from owners (to be repaid prior to the Closing), which is shown as a reduction from stockholders' equity in the historical balance sheet. (2) For all other recorded assets and liabilities of the Company, the historical book values were estimated to approximate their fair values at the balance sheet date. (3) Net effect of changing inventory costing method from last in, first out to fair value. (4) The fair value of property, plant and equipment was based on outside appraisals completed in connection with the Transactions. The write-up has been allocated to the fixed asset categories as shown below. The remaining economic useful lives used in depreciating the new basis of the depreciable fixed assets are also indicated:
REMAINING ECONOMIC ALLOCATED EXCESS USEFUL LIFE ------------------ --------------------- Land....................................... $ 53 N/A Buildings and improvements................. 1,995 10 to 35 years Machinery and equipment.................... 45,373 7 to 20 years Municipal patterns......................... 22,400 15 years -------- $ 69,821 ===============
26 30 (5) The fair value of identifiable intangible assets was based on an outside valuation. The estimated useful lives of the identifiable intangible assets are 10 to 40 years. (6) Deferred income taxes were calculated at 40% of all fair value adjustments except for goodwill since there is no step-up in basis of assets or liabilities for income tax purposes resulting from the Transactions. (7) An amortization period of 40 years will be used for goodwill because the period expected to be benefited exceeds 40 years. (d) Adjustment to record the estimated financing costs of $7,925. The amount is being amortized using the interest method over the term of the related debt. (e) Adjustment to record the debt used to finance the acquisition of the Company: Senior Bank Facilities Tranche A Term Loan........................... $20,000 Tranche B Term Loan........................... 25,000 ------ $ 45,000 Senior Subordinated Notes due 2007....................... 150,000 -------- $195,000 ========
(f) Adjustment to record the $45,000 Equity Contribution to the Company by Holdings. 27 31 NEENAH CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME YEAR ENDED MARCH 31, 1997
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- (DOLLARS IN THOUSANDS) Net sales........................................ $ 165,426 $ 165,426 Cost of sales.................................... (116,736) $ 57(a) (116,679) --------- -------- --------- Gross profit..................................... 48,690 57 48,747 22(a) (5,019)(b) Selling, general and administrative expenses..... (17,547) 3,515(c) (19,029) --------- -------- --------- Operating income................................. 31,143 (1,425) 29,718 Interest income (expense), net................... 1,162 (21,527)(d) (20,365) --------- -------- --------- Income before income taxes....................... 32,305 (22,952) 9,353 Provision for income taxes....................... (12,467) 7,663(e) (4,804) --------- -------- --------- Net income....................................... $ 19,838 $ (15,289) $ 4,549 ========= ======== =========
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of Income. 28 32 NEENAH CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN THOUSANDS) (a) Adjustment to reflect depreciation expense based on the new basis and remaining economic useful lives of the Company's property, plant and equipment, as follows:
YEAR ENDED MARCH 31, 1997 ----------------------- COST OF SALES SG&A ------------- ----- Historical depreciation (accelerated and straight line methods).................................................. $(6,723) $(158) New basis depreciation (straight line method)............... 6,666 136 ------- ----- $ (57) $ (22) ======= =====
(b) Adjustment to record in selling, general and administrative expenses, the amortization of the identifiable intangible assets and residual goodwill, calculated as follows:
YEAR ENDED MARCH 31, 1997 -------------- Intangible assets................................................... $1,970 Goodwill............................................................ 3,049 ------ $5,019 ======
(c) Adjustment to reduce selling, general and administrative expenses for the compensation expense (salary, bonuses, and benefits) relating to the four executives who will not continue with the Company after the Transactions. Compensation expense relating to replacement executives, including additional compensation to current employees who will assume new responsibilities, is included based on planned employment arrangements. (d) Adjustment to record interest expense and amortization of deferred financing costs on the debt incurred to finance the Transactions, calculated as follows:
YEAR ENDED MARCH 31, 1997 -------------- Tranche A Term Loan ($20,000 @ 8.25%)............................. $ 1,526 Tranche B Term Loan ($25,000 @ 8.75%)............................. 2,155 Senior Subordinated Notes due 2007 ($150,000 @ 11.125%)........... 16,688 ------- 20,369 Amortization of deferred financing costs.......................... 1,158 ------- $ 21,527 =======
The interest expense amounts are based on quarterly principal payments of $1,000 and $250 for the Tranche A and Tranche B Term Loans, respectively. The effect on interest expense pertaining to the variable rate Term Loans of an adjustment of a 1/8th of a percent variance in interest rates would be $53 for the fiscal year ended March 31, 1997. (e) Adjustment to record the tax effect on the above adjustments using the marginal effective income tax rate of 38.5%. All adjustments were tax-effected except for goodwill amortization. 29 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations covers periods before consummation of the Transactions. The following information should be read in conjunction with "Selected Consolidated Financial and Other Data," "Unaudited Pro Forma Consolidated Financial Information," and the consolidated financial statements and the notes thereto included elsewhere in this Prospectus. GENERAL Historically, the Company's net sales have been derived primarily from sales of heavy municipal and industrial iron castings, which represented 43% and 53%, respectively, of the Company's net sales for the year ended March 31, 1997. In addition, the Company sells sand control systems and other related products, which represented 4% of net sales for the year ended March 31, 1997. Sales to the heavy municipal market have produced, and continue to produce, significantly higher gross profit margins than sales to the industrial market. Since 1985, the Company has invested approximately $100 million in its facilities, with approximately $73 million invested in a major plant modernization program from 1985 to 1990. This plant modernization program was a critical part of a long-term strategy to produce higher value-added castings for its existing industrial customers and to penetrate other selected segments of that market, while preserving its position as the leader in the heavy municipal market. This modernization program entailed the closing of the Company's oldest foundry, Plant 1, and the updating of the Company's other two foundries, Plants 2 and 3. Plant 1 was closed due to its age and the significant investment required to keep it competitive with more modern mold technology. Plants 2 and 3 were updated with four new molding lines to enable the Company both to produce higher volume, complex castings for selected industrial segments, and to improve the Company's cost position in the heavy municipal market. Following the completion of the modernization program, the Company has steadily decreased its production of lower margin products such as axle covers and brake drums and increased the production of more complex, higher value-added parts such as transmission housings and axle housings. In 1996, the Company began to introduce what it calls "lightweighted" castings to the municipal market. These lightweighted castings have been reengineered in order to reduce both their weight and the amount of raw materials necessary for their manufacture, while maintaining the high quality performance characteristics of the heavier version of the casting. This improvement in the design and manufacture of municipal castings has resulted in lower material costs and improved margins for this product line. The impact of lightweighted parts on operating results has generally been lower tons produced, equal or higher unit volumes, higher prices per ton, lower raw material costs and improved margins. From 1992 to 1997, the Company's net sales increased from $116.5 million to $165.4 million, representing a compound annual growth rate of 7.3%, and operating income increased from $6.2 million to $31.1 million, representing a compound annual growth rate of 38.1%. The Company's net sales during this period have been driven primarily by the Company's increased market penetration in selected products in the medium- and heavy-duty and farm equipment markets, by increased market demand in the medium- and heavy-duty truck market and, to a lesser extent, increased heavy municipal market sales. The Company's increase in operating income during this period was largely the result of improvements in industrial products and, to a lesser extent, municipal products. Operating income attributable to industrial castings increased primarily due to higher production volume, an improved product mix, improved pricing and increased efficiency in operating its manufacturing equipment, while operating income attributable to municipal castings increased primarily due to improved pricing and the effects of the lightweighted casting program. In addition, the Company's operating income increased due to increased operating leverage. 30 34 RESULTS OF OPERATIONS The following table sets forth for the periods shown certain statement of income data expressed as a percentage of net sales:
FISCAL YEAR ENDED MARCH 31, ------------------------- 1995 1996 1997 ----- ----- ----- Net sales: Municipal sales........................................ 43.9% 41.6% 43.1% Industrial sales....................................... 53.2 55.2 53.4 Hartley Controls sales................................. 2.9 3.2 3.5 ----- ----- ----- Total net sales.......................................... 100.0 100.0 100.0 Cost of sales............................................ 75.3 72.9 70.6 ----- ----- ----- Gross profit........................................... 24.7 27.1 29.4 Selling, general and administrative...................... 10.4 10.1 10.6 ----- ----- ----- Operating income....................................... 14.3% 17.0% 18.8% ===== ===== =====
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1997 TO FISCAL YEAR ENDED MARCH 31, 1996 Net Sales. Net sales were $165.4 million for the year ended March 31, 1997, a decrease of $1.6 million, or 0.9%, from $167.0 million for the year ended March 31, 1996. Net sales of industrial castings decreased $3.9 million, or 4.2%, to $88.3 million. The decrease in industrial casting sales was primarily the result of a decision by the Company to discontinue its production of certain lower margin brake components, which resulted in a 9,600 ton decrease in tons produced compared to the year earlier period, and, to a lesser extent, reduced demand for casting products in the medium- and heavy-duty truck market. Net sales of municipal castings increased $1.9 million, or 2.7%, to $71.3 million, primarily due to increased pricing. Hartley Controls net sales grew $0.4 million, or 7.4%, to $5.8 million, principally due to increased volume of equipment sales. Gross Profit. Gross profit was $48.7 million for the year ended March 31, 1997, an increase of $3.4 million, or 7.5%, from $45.3 million for the year ended March 31, 1996. Gross profit as a percentage of net sales increased to 29.4% for the year ended March 31, 1997, from 27.1% for the year ended March 31, 1996. The increase in gross profit as a percentage of net sales was due mainly to improved product mix in the industrial product line and greater overall plant efficiency. Gross profit percentage also improved due to the continued effect of the lightweighted municipal casting program. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $17.5 million for the year ended March 31, 1997, an increase of $0.5 million, or 2.9%, from $17.0 million for the year ended March 31, 1996. As a percentage of net sales, selling, general and administrative expenses increased to 10.6% for the year ended March 31, 1997, from 10.1% for the year ended March 31, 1996. Approximately $0.2 million of the increase in selling, general and administrative expenses was due to a non-recurring charitable contribution and approximately $0.9 million of the increase was due to increased compensation and benefits to officers of the Company who resigned at Closing. Excluding the effects of estimated nonrecurring officer compensation and benefits and the charitable contribution, selling, general and administrative expenses, as a percentage of net sales, decreased slightly to 8.3% for the year ended March 31, 1997, from 8.4% for the year ended March 31, 1996. Operating Income. Operating income increased to $31.1 million for the year ended March 31, 1997, an increase of $2.8 million or 9.9% from $28.3 million for the year ended March 31, 1996. As a percentage of net sales, operating income increased to 18.8% for the year ended March 31, 1997, from 17.0% for the year ended March 31, 1996. The improvement in operating income was achieved primarily for the reasons discussed above. 31 35 COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1996 TO FISCAL YEAR ENDED MARCH 31, 1995 Net sales. Net sales were $167.0 million for the year ended March 31, 1996, an increase of $6.4 million, or 4.0%, from $160.6 million for the year ended March 31, 1995. Net sales of industrial castings grew $6.6 million, or 7.7%, to $92.2 million. The increase in industrial sales was primarily due to improved pricing while sales volume remained stable. The improved pricing for industrial castings was mainly the result of a better industrial product mix as the Company increased its sales of more complex, value-added industrial castings. Net sales of municipal castings decreased $1.0 million, or 1.4%, to $69.4 million, due to a decrease in unit volume, which was partially offset by improved pricing. The decrease in municipal castings volume was principally due to artificially high sales in fiscal 1995 resulting from weather conditions. Fiscal 1995 net sales were affected by poor winter weather in January to March 1994 which resulted in the postponement of certain sales from fiscal 1994 to fiscal 1995, and mild weather from January to March 1995 which resulted in the acceleration of sales from fiscal 1996 to fiscal 1995. Total production volume in tons decreased more significantly than unit volume for municipal sales because of the effect of the lightweighted casting program. See "-- General." Hartley Controls net sales grew $0.8 million, or 17.4%, to $5.4 million, principally due to increased volume of equipment sales. Gross Profit. Gross profit was $45.3 million for the year ended March 31, 1996, an increase of $5.7 million, or 14.4%, from $39.6 million for the year ended March 31, 1995. Gross profit as a percentage of net sales increased to 27.1% for the year ended March 31, 1996, from 24.7% for the year ended March 31, 1995. The continued improvement in gross profit, as a percentage of net sales, was due to the combined effect of margin improvements in both the industrial and municipal product lines. Industrial castings gross profit percentage improved due to the shift to a more profitable product mix and improved efficiency in plant operations. Municipal castings gross profit percentage improved largely due to the effect of implementing the lightweighted casting program and an increase in selling prices. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $17.0 million for the year ended March 31, 1996, an increase of $0.3 million, or 1.8%, from $16.7 million for the year ended March 31, 1995. As a percentage of net sales, selling, general and administrative expenses decreased slightly to 10.1% for the year ended March 31, 1996, from 10.4% for the year ended March 31, 1995. Approximately $0.1 million of the increase in selling, general and administrative expense was due to increased compensation and benefits to officers of the Company who resigned at Closing. Excluding the effects of estimated nonrecurring executive compensation and benefits, selling, general and administrative expenses, as a percentage of net sales, decreased to 8.4% from 8.6% for the year ended March 31, 1995, primarily due to the spreading of fixed expenses over a greater volume of sales. Operating Income. Operating income increased to $28.3 million for the year ended March 31, 1996, an increase of $5.3 million, or 23.0%, from $23.0 million for the year ended March 31, 1995. As a percentage of net sales, operating income increased to 17.0% for the year ended March 31, 1996, from 14.3% for the year ended March 31, 1995. The improvement in operating income was achieved primarily for the reasons discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity needs will arise primarily from debt service on indebtedness incurred in connection with the Transactions, working capital needs and the funding of capital expenditures. At March 31, 1997, on a pro forma basis after giving effect to the Transactions, the Company's consolidated indebtedness would have been approximately $196.0 million (excluding $0.6 million of outstanding letters of credit), consisting of $150.0 million of the Notes, $45.0 million in Term Loans, $0.1 million in capital lease obligations and $0.9 million drawn under the Revolving Credit Facility. The degree to which the Company is leveraged could have a significant effect on its results of operations. 32 36 Principal and interest payments under the Senior Bank Facilities and the Notes will represent significant liquidity requirements for the Company. Under the terms of the Senior Bank Facilities, the Company will be required to make principal payments totaling approximately $5.0 million in 1998, $5.0 million in 1999, $5.0 million in 2000, $5.0 million in 2001, $5.0 million in 2002, $10.0 million in 2003 and $10.0 million in 2004. Loans under the Senior Bank Facilities will bear interest at floating rates based upon the interest rate option selected by the Company. Borrowings under the Revolving Credit Facility will be subject to a borrowing base. For a description of the Senior Bank Facilities, see "Description of Senior Bank Facilities." For the fiscal years ended March 31, 1995, 1996 and 1997, the Company's capital expenditures were $3.7 million, $7.3 million and $4.5 million, respectively. The $3.6 million increase in capital expenditures for the fiscal year ended March 31, 1996 from the comparable period for 1995 was primarily the result of the expansion of the cooling capabilities of two of the Company's production lines. Of the $4.5 million of capital expenditures in 1997, an estimated $4.0 million was attributable to maintenance of capital equipment. The Company currently plans to make capital expenditures of approximately $6.0 million in the fiscal year ended March 31, 1998, exclusive of any acquisitions. While a component of the Company's strategy is to make selective acquisitions in the foundry industry, it currently has no agreements relating to any acquisitions. The Company's principal source of cash to fund its liquidity needs will be net cash from operating activities and borrowings under the Revolving Credit Facility. Net cash from operating activities for the year ended March 31, 1997 was $23.5 million, an increase of $1.2 million from $22.3 million for the year ended March 31, 1996, primarily as a result of an increase in net income. Net cash from operating activities for the year ended March 31, 1996 of $22.3 million represented a decrease of $1.3 million from $23.6 million in the comparable period of 1995, primarily as a result of a net increase in working capital (excluding cash and cash equivalents) during 1996 partially offset by greater net income in 1996. At March 31, 1997, on a pro forma basis after giving effect to the Offering, the other Transactions and the application of the proceeds therefrom, as well as borrowing base limitations and $0.6 million of outstanding letters of credit, the Company estimates that it would have had the ability to borrow approximately $24.8 million under the Revolving Credit Facility. Amounts under the Revolving Credit Facility may be used for working capital and general corporate purposes, subject to certain limitations under the Senior Bank Facilities. The Company believes that cash generated from operations, together with the amounts available under the Revolving Credit Facility, will be adequate to meet its debt service requirements, anticipated capital expenditures and working capital needs for the foreseeable future, although no assurance can be given in this regard. The Company also believes that such resources, together with the potential future use of debt or equity financing, will allow the Company to pursue its strategic goal of making selective acquisitions. The Company's future operating performance and ability to service or refinance the Notes and to extend or refinance the Senior Bank Facilities will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. RAW MATERIALS Although the prices of all raw materials used by the Company vary, the fluctuations in the price of steel scrap are the most significant to the Company. The Company has arrangements with most of its industrial customers which require the Company 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, which periods vary by customer but are generally no longer than six months. Castings are generally sold to the heavy municipal market on a bid basis and, after a bid is won, the price for the municipal casting subject to the bid generally cannot be adjusted for raw material price increases. However, in most cases the Company has been successful in obtaining higher municipal casting unit prices in subsequent bids to compensate for rises in scrap prices in prior periods. Rapidly 33 37 fluctuating scrap prices may have a temporary adverse or positive effect on the Company's results of operations. INFLATION The Company does not believe that inflation has had a material impact on its financial position or results of operations during the three years ended March 31, 1997. CYCLICALITY AND SEASONALITY The Company has historically experienced moderate cyclicality in the heavy municipal market. Sales of municipal products are influenced by, among other things, public spending. In the industrial market, the Company has experienced cyclicality in sales resulting from fluctuations in the medium-and heavy-duty truck market and the farm equipment market, which are subject to general economic trends. The Company experiences seasonality in its municipal business where sales tend to be higher during the construction season, which occurs during the warmer months, generally the first and second quarters of the Company's fiscal year. Seasonal weather can also impact the Company's net sales from year to year, as warmer weather conditions in the months of January through March of any given year can allow shipments during that time which would normally occur in the subsequent fiscal year. The Company maintains level production throughout the year in anticipation of such seasonality and does not experience production volume fluctuations as a result. The Company builds inventory in anticipation of the construction season with such inventories reaching a peak near the end of its fiscal year in March. The Company has not historically experienced seasonality in industrial casting sales. 34 38 EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), the Company will accept for exchange Old Notes which are properly tendered on or prior to the Expiration Date and not withdrawn as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City time, on ; provided, however, that if the Company has extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which the Exchange Offer is extended. As of the date of this Prospectus, $150.0 million aggregate principal amount of the Old Notes are outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about , to all holders of Old Notes known to the Company. The Company's obligation to accept Old Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth under "-- Certain Conditions to the Exchange Offer" below. The Company expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for any exchange of any Old Notes, by giving notice of such extension to the holders thereof. During any such extension, all Old Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by the Company. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Old Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified below under "-- Certain Conditions to the Exchange Offer." The Company will give notice of any extension, amendment, non-acceptance or termination to the holders of the Old Notes as promptly as practicable, such notice in the case of any extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. PROCEDURES FOR TENDERING OLD NOTES The tender to the Company of Old Notes by a holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a holder who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to United States Trust Company of New York (the "Exchange Agent") at one of the addresses set forth below under "Exchange Agent" on or prior to the Expiration Date. In addition, either (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date, or the holder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE 35 39 ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes surrendered for exchange pursuant thereto are tendered (i) by registered holder of the Old Notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined below). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm that is a member or participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program or by an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible Institutions"). If Old Notes are registered in the name of a person other than a signer of the Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed by or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by, the registered holder with the signature thereon guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Old Notes tendered for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Old Notes not properly tendered or to not accept any particular Old Notes which acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes for exchange must be cured within such reasonable period of time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal or any Old Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to do so must be submitted. By tendering, each broker-dealer holder will represent to the Company that, among other things, the New Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the holder and any beneficial holder, that neither the holder nor any such beneficial holder has an arrangement or understanding with any person to participate in the distribution of such New Notes and that neither the holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company. If the holder is not a broker-dealer, the holder must represent that it is not engaged in nor does it intend to engage in a distribution of the New Notes. ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES For each Old Note accepted for exchange, the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. For purposes of the Exchange 36 40 Offer, the Company shall be deemed to have accepted properly tendered Old Notes for exchange when, as and if the Company has given oral and written notice thereof to the Exchange Agent. In all cases, issuance of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's accountant the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such non-exchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration of the Exchange Offer. BOOK-ENTRY TRANSFER Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof with any required signature guarantees and any other required documents must, in any case, be transmitted to and received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. GUARANTEED DELIVERY PROCEDURES If a registered holder of the Old Notes desires to tender such Old Notes and the Old Notes are not immediately available, or time will not permit such holder's Old Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile and transmission, mail or hand delivery), setting forth the name and address of the holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Notes, in proper form for transfer or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation"), as the case may be, and any other documents required by the letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time on the business day prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under 37 41 "Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes), and (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial number of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book entry transfer described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "-- Procedures for Tendering Old Notes" above at any time on or prior to the Expiration Date. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, the Company shall not be required to accept for exchange, or to issue New Notes in exchange for, any Old Notes and may terminate or amend the Exchange Offer if at any time before the Expiration Date, the Company determines that the Exchange Offer violates applicable law, any applicable interpretation of the staff of the Commission or any order of any governmental agency or court of competent jurisdiction. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its reasonable discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, the Company will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for any such Old Notes, if prior to the Expiration Date any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "TIA"). In any such event, the Company is required to use every reasonable effort to obtain the withdrawal of any stop order at the earliest possible time. EXCHANGE AGENT United States Trust Company of New York has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at the address set forth below. Questions and requests for assistance, requests for additional copies of 38 42 this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: United States Trust Company of New York 114 West 47th Street New York, NY 10036 Via Facsimile: (212) 852-1626 Confirm by Telephone: (212) 852-1614 For Information: (212) 858-2103 DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FEES AND EXPENSES The Company will not make any payments to brokers, dealers or other soliciting acceptances of the Exchange Offer. The principal solicitation is being made by mail; however, additional solicitations may be made in person or by telephone by officers and employees of the Company. The expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs among others. ACCOUNTING TREATMENT The New Notes will be recorded at the same carrying value as the Old Notes, which is the principal amount as reflected in the Company's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized. The expenses of the Exchange Offer will be capitalized for accounting purposes. TRANSFER TAXES Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register New Notes in the name of, or request that Old Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of, the Securities Act and applicable state securities law. Old Notes not exchanged pursuant to the Exchange Offer will continue to accrue interest at 11 1/8% per annum and will otherwise remain outstanding in accordance with their terms. Holders of Old Notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law in connection with the Exchange Offer. In general, the Old Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register the Old Notes under the Securities Act. However, (i) if the Initial Purchasers so request with respect to Old Notes not eligible to be exchanged for New Notes in the Exchange Offer and held by them following consummation of the Exchange Offer or (ii) if any holder of Old Notes is not eligible to participate in the Exchange Offer, or, in the case of any holder of Old Notes that participates in the Exchange 39 43 Offer, does not receive freely tradable New Notes in exchange for Old Notes, the Company is obligated to file a Registration Statement on the appropriate form under the Securities Act relating to the Old Notes held by such persons. Based on certain interpretive letters issued by the staff of the Commission to third parties in unrelated transactions, it is the Company's view that New Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by holders thereof (other than (i) any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or (ii) any broker-dealer that purchases Notes form the Company to resell pursuant to Rule 144A or any other available exemption) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no intention, or any arrangement or understanding with any person, to participate in the distribution of such New Notes. If any holder has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. A broker-dealer who holds Old Notes that were acquired for its own account as a result of market-making or other trading activities may be deemed to be an "underwriter" within the meaning of the Securities Act and must, therefore, deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of New Notes. Each such broker-dealer that acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge in the Letter of Transmittal that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, if applicable, the New Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdiction or an exemption from registration or qualification is available and is complied with. The Company has agreed, pursuant to the Registration Rights Agreement and subject to certain specified limitations therein, to register or qualify the new Notes for offer or sale under the securities or blue sky laws of such jurisdictions as any holder of the Notes reasonably requests in writing. 40 44 BUSINESS OVERVIEW The Company, founded in 1872, is one of the largest manufacturers of a wide range of high quality ductile and gray iron castings for the heavy municipal market and selected segments of the industrial market. The Company believes it is the largest manufacturer of heavy municipal iron castings in the United States with approximately a 19% market share in calendar year 1996. The Company's broad range of heavy municipal iron castings includes manhole covers and frames, storm sewer frames and grates, heavy duty airport castings, specialized trench drain castings, specialty flood control castings and ornamental tree grates. These municipal castings are sold throughout the United States to state and local government entities, utility companies, precast concrete manhole structure producers and contractors for both new construction and infrastructure replacement. The municipal market generated approximately 43% of the Company's 1997 net sales. The Company believes it is also a leading manufacturer of a wide range of complex industrial castings, including castings for medium- and heavy-duty truck drive line components, a broad range of castings for the farm equipment industry and specific components for compressors used in heating, ventilation and air conditioning systems ("HVAC"). The industrial market generated approximately 53% of the Company's 1997 net sales. In addition, the Company engineers, manufactures and sells customized sand control systems and related products, which are an essential part of the casting process, to other iron foundries. Sales of these sand control systems and related products represented approximately 4% of the Company's 1997 net sales. The Company currently operates two modern foundries with an annual aggregate rated capacity of approximately 187,000 tons at a single site in Neenah, Wisconsin. Since 1985, the Company has invested approximately $100 million in its production facilities, with approximately $73 million invested in a major plant modernization program from 1985 to 1990. This plant modernization program was a critical part of a long-term strategy to produce higher volume, value-added castings for its existing industrial customers and to penetrate other selected segments of the industrial market, while preserving its position as the leader in the heavy municipal market. This modernization program entailed the closing of the Company's oldest foundry, Plant 1, and the updating of the Company's other two foundries, Plants 2 and 3, which enabled the Company both to produce higher volume, complex castings for selected industrial segments and to improve the Company's cost position in the heavy municipal market. Following the completion of the modernization program, the Company has steadily decreased its production of lower margin products such as axle covers and brake drums and increased the production of higher margin, more complex parts such as transmission and axle housings. As a result of this strategy, the Company's ongoing improvements in its manufacturing process and increased demand for medium- and heavy-duty truck components, net sales and EBITDA (as defined) have increased substantially. From 1992 to 1997, net sales have grown from $116.5 million to $165.4 million, representing a compound annual growth rate of 7.3%, and EBITDA has grown from $13.4 million to $38.0 million during the same period, representing a compound annual growth rate of 23.2%. INDUSTRY The United States casting industry includes products made from gray, malleable and ductile iron, aluminum, steel and various other metals, each with different underlying structural and performance properties such as strength, durability and weight. Gray iron, the oldest and most widely used cast iron, is readily cast into intricate shapes that are easily machined and wear resistant. Malleable iron, the least used form of iron, is stronger than gray iron and is more costly than either gray or ductile iron. Ductile iron is also readily cast into intricate shapes, and due to the addition of alloys during the casting process, has greater strength and ductility than gray iron. As a result, ductile iron is used as a higher-strength substitute for gray iron and a lower-cost substitute 41 45 for malleable iron and, in certain applications, steel. The Company manufactures both gray and ductile iron which it sells into two broad end markets, the municipal and industrial markets. The municipal market consists of the heavy municipal market and the water works market. The heavy municipal market is composed of "standard" castings (consisting primarily of storm and sanitary sewer castings including manhole covers and frames and storm sewer frames and grates), and "specialty" castings (consisting primarily of heavy duty airport castings, trench drain castings, flood control castings, special manhole and inlet castings and ornamental tree grates). The water works market consists of certain pipe fittings, valves and fire hydrants. The Company competes in the heavy municipal market and does not participate in the water works market. The industrial market includes segments such as car/light truck, medium- and heavy-duty truck, farm equipment and HVAC. Of these, the Company primarily provides parts to the medium- and heavy-duty truck, farm equipment and, to a lesser extent, HVAC segments. Since 1986, the industrial market has steadily increased its demand for ductile iron due to its superior performance properties such as strength, ductility and resistance to stress and mechanical shock. The heavy municipal market utilizes gray iron for the overwhelming majority of the parts it requires because gray iron continues to be the most cost-effective material for most municipal applications. The United States iron foundry industry is highly fragmented despite significant consolidation over the past decade. In 1986, there were approximately 880 foundries engaged in the casting of gray, ductile and malleable irons, with an aggregate capacity of approximately 15 million tons according to Stratecasts, Inc. a foundry industry research and consulting organization. By 1996, the number of iron foundries had decreased to approximately 730, with an aggregate capacity of approximately 13 million tons, with further consolidation expected to take place. Many smaller foundries have closed due to the increasing cost of complying with environmental and other governmental regulations and their inability to satisfy the increasing demand for higher quality, more complex castings. Due to capacity achieved through consolidation and technological advancements, the output per remaining foundry has risen. In the heavy municipal market, a significant share of the market is served by a few large foundries, including the Company. Foreign competition, particularly from India, which had a strong presence in the heavy municipal market in the past, has receded over the last 18 months as a result of both antidumping and countervailing duty litigation and increasingly stringent emission controls in such countries. Such foreign competition, which continues to be a factor in the heavy municipal market, is primarily present in the western and eastern coastal states due in part to the costs associated with transportation. The industrial market has experienced substantial change over the last 20 years due to two major initiatives by industrial original equipment manufacturers and their first tier suppliers. The first, outsourcing, has meant the closing of automotive and other captive foundries as OEMs and their first tier suppliers focus on core businesses and take advantage of specialized skills and lower manufacturing and labor costs of independent foundries. Second, OEMs and their first tier suppliers are reducing the number of suppliers with whom they work in an effort to eliminate duplicative overhead at multiple suppliers, take advantage of economies of scale inherent in volume production and confine suppliers to those with the resources necessary to satisfy stringent quality and dependability criteria. COMPETITIVE ADVANTAGES The Company believes it benefits from the following competitive advantages, which have enabled it to increase sales and operating profitability and to maintain its position as one of the leaders in the iron casting industry. Leading Market Position. The Company believes it is the largest manufacturer of heavy municipal iron castings in the United States with approximately a 19% market share in calendar year 1996. Furthermore, the Company, which has produced municipal castings for over 70 years has, according to its estimates, over a 50% market share in nine of the top ten states in which the 42 46 Company sells heavy municipal castings. Sales in those states represented approximately 69% of the Company's municipal sales in 1997. The Company believes it is also one of the largest manufacturers of iron castings for selected segments of the industrial market, including the medium-and heavy-duty truck and farm equipment segments. The Company is the sole sourced supplier for over 85% of the industrial products it produces and has multi-year arrangements with certain of its largest customers. The Company believes it can continue to capitalize on its strong market position to generate additional revenues and realize economies of scale, thereby increasing margins and earnings. Low Cost Structure. As a result of its size, significant investment in equipment and technology and focus on improving efficiency, the Company believes it possesses a highly competitive cost structure. Since 1985, the Company has invested approximately $100 million in its production facilities, with approximately $73 million invested in plant modernization and new equipment from 1985 to 1990. These investments, combined with the Company's ongoing improvements to its manufacturing process, have substantially increased efficiency and manufacturing productivity. From 1992 to 1997, the Company reduced its scrap rate from 3.5% to 2.0%, which the Company believes is one of the lowest scrap rates in the industry. During the same period, the Company reduced its employee hours per ton by approximately 40% from 14.8 to 9.0, while improving product quality levels and producing higher margin, more complex parts. Broad Product Offering. The Company carries a broad range of products, offering more than 4,400 patterns that can produce over 20,000 part combinations for the heavy municipal market, and more than 350 patterns for the industrial market. The Company believes its municipal catalog offers the largest castings selection of any foundry serving the heavy municipal market. This extensive product offering, which includes hundreds of one-of-a-kind specialty items, enables the Company to compete throughout the United States and provide a substantial number of the many types of municipal castings required for individual projects. Heavy municipal castings are manufactured from Company-owned patterns which have been appraised by independent appraisers to be in excess of $22 million. Additionally, the Company's extensive and growing offering of complex industrial castings enables it to more effectively service its customers' increasing needs for highly engineered cast parts and often positions the Company as the sole source of supply to original equipment manufacturers ("OEMs") and their first tier suppliers. The Company's broad industrial product offering and its recognized casting engineering expertise have become increasingly important as large industrial customers seek to reduce the number of suppliers with whom they conduct business. Strong, Diverse Customer Relationships. The Company continually focuses on establishing and maintaining strong relationships with its customers. In the heavy municipal market, the Company currently sells to over 17,000 active customers in all 50 states, with the majority of its sales concentrated in the midwestern states. The Company believes it has the largest sales and marketing effort of any foundry serving the heavy municipal market, including 47 Company employees and 26 commissioned representatives. The Company believes the size of its marketing effort, the breadth of its product offering and the level of its technical support provide it with a significant competitive advantage and will allow it to further strengthen its leading position in the heavy municipal market. With respect to the industrial market, the Company has established strong relationships with leading manufacturers of medium- and heavy-duty truck components, farm equipment and HVAC systems. The Company is the sole sourced provider for over 85% of the products it currently supplies to its industrial customer base and has multi-year arrangements with certain of its largest customers. Furthermore, the average industrial casting typically takes between 12 and 18 months to go from the design phase to full production and has an average life cycle of approximately 8 to 10 years. This lengthy development process, in which the Company actively participates, provides the Company with an inventory of products that cannot be quickly replicated by its competitors. Historically, the foundry that has originally manufactured an industrial part has continued to manufacture that part throughout its product life cycle. The Company's participation in both the heavy municipal and 43 47 industrial markets helps to diversify the Company's business and to reduce the Company's reliance on individual customers or end-use markets. High Quality Products and Customer Service. The Company believes it enjoys a reputation for providing a high level of customer service and is recognized for its ability to consistently manufacture high-quality, complex products. The Company believes its manufacturing capabilities and process controls allow it to manufacture high quality castings which are dimensionally and metallurgically consistent. In addition to providing high quality products, the Company emphasizes customer service by providing tooling and engineering development support to its customers, consistent on-time delivery utilizing its own fleet of trucks for delivery of many of its municipal products and a small portion of the Company's industrial products and follow-up through its sales and marketing team. The Company believes its ability to provide such product quality and responsive service has fostered customer loyalty and long-term relationships. Experienced Management Team with Significant Equity Stake. The top seven members of the Company's senior operating management have an average of approximately 12 years with the Company and 23 years in the iron foundry industry. Certain members of the Company's management (the "Management Investors") beneficially own, on a fully diluted basis, approximately 10% of the common stock of the Company. BUSINESS STRATEGY The Company's strategy for achieving continued growth in sales and profitability includes: (i) increasing the sale of higher margin products, (ii) selectively entering new markets, (iii) improving operating performance and (iv) making selective acquisitions. Increasing the Sale of Higher Margin Products. The Company continually strives to improve the margins on the parts it produces. In the heavy municipal market, the Company has historically maintained strong margins by periodically implementing price increases and introducing new, higher value-added products. For example, the Company is currently leading the market in the sale of lightweighted municipal castings, which are less costly to handle and require less raw material to produce. The Company believes incremental margin improvements will be realized from the Company's increased production of these lightweighted products. In the industrial market, the Company increased its focus on manufacturing complex, highly engineered castings in the early 1990s following substantial capital investment in the late 1980s. Since 1991, the Company has steadily increased the volume, array and complexity of the parts it produces for its industrial customers. The Company intends to continue to pursue opportunities to produce more complex, higher value-added castings, thereby continuing to improve product margins. Selectively Entering New Markets. The Company intends to selectively expand its presence in both the heavy municipal and industrial markets. In the heavy municipal market, the Company is considering expanding its product offering in high volume markets such as New York and Nevada where the Company already has sales representatives in place and for which the Company has already invested in certain of the toolings necessary to meet potential product demand. In addition, the Company is exploring further opportunities in New Jersey, New Hampshire and Massachusetts. The Company's strategy in its chosen industrial segments is to continue to increase its penetration of existing customers and to develop similar relationships with other selected industrial companies which would value the Company's technical ability and high level of product quality and customer service. The Company also intends to explore opportunities in austempering (heat-treating ductile iron) and machining and assembling sub-components for specific industrial customers. Improving Operating Performance. The Company operates two modern foundries, and believes it possesses a highly competitive cost structure. The Company intends to continue to seek ways to capitalize on and extend its technological expertise and operating efficiencies, thereby reducing its operating costs. In contrast to the major investments made from 1985 to 1990, which significantly improved both manufacturing capacity and efficiency, the Company's near term capital 44 48 expenditures will be focused primarily on incrementally improving efficiency and reducing costs through projects such as: (i) sand system optimization, (ii) material handling improvements and (iii) energy utilization improvements. Making Selective Acquisitions. The United States iron foundry industry is highly fragmented despite significant consolidation over the past decade. In 1986, there were approximately 880 foundries engaged in the casting of iron, with an aggregate capacity of approximately 15 million tons according to Stratecasts, Inc., a foundry industry research and consulting organization. By 1996, the number of iron foundries decreased to approximately 730, with an aggregate capacity of approximately 13 million tons. Management believes the consolidation that has occurred will continue, particularly in the industrial market, as technical, environmental and quality standards continue to increase. The Company intends to pursue selective acquisition opportunities that complement its existing product offering or enable the Company to expand its presence in selected geographic areas of the heavy municipal market. The Company believes such acquisitions will provide opportunities for incremental revenue and cash flow by leveraging the Company's current expertise in manufacturing, sales and marketing, and product and process engineering. PRODUCTS, CUSTOMERS AND MARKETS The Company provides a variety of products to both the heavy municipal and industrial markets. The following table sets forth certain information regarding the end-user markets served by the Company, the products produced by the Company, representative customers in each end-user market and the percentage of net sales attributable to each of the Company's markets for the years ended March 31, 1996 and 1997.
PERCENTAGE OF NET SALES(1) ------------------------------- FISCAL YEAR FISCAL YEAR REPRESENTATIVE ENDED ENDED MARKET END PRODUCT CUSTOMERS MARCH 31, 1996 MARCH 31, 1997 - ------------------ ------------------------ ---------------- -------------- -------------- Heavy Municipal Standard castings State and local 42.9% %44.5 including storm and government sanitary sewer castings, entities, including manhole covers utility and frames, storm sewer companies, frames and grates; precast concrete Specialty castings structure including heavy duty producers and airport castings, contractors(2) specialized trench drain castings, specialty flood control castings and ornamental tree grates Industrial Medium- and % %(3) Heavy-Duty Differential carriers Rockwell 42.3 34.3 Truck and cases, brackets, International cages, calipers, caps, Eaton Corp. carriers, hubs, Dana Corp. knuckles, transmission housings, yokes Farm Equipment Various gear housings, John Deere 10.7% %16.0 planet carriers, axle New Holland housings, planting and harvesting equipment parts, counterweights Other Industrial Compressor components, Aisin 4.1% % 5.2 various housing and gear The Trane cases Company
45 49 - --------------- (1) Net sales include sales of Neenah Foundry only. (2) No municipal customer represented more than 1.2% of Neenah Foundry's net sales for the fiscal years ended March 31, 1996 or 1997. (3) Commencing in the second quarter of calendar 1996, the Company decided to discontinue the production of certain lower margin brake components as part of its strategy to increase its focus on higher volume, complex parts for its industrial customers. These brake components accounted for 8.3% of medium- and heavy-duty truck net sales in fiscal 1996 and 1.0% in fiscal 1997. Heavy Municipal. Based on industry reported data, the Company believes it is the largest manufacturer of heavy municipal iron castings in the United States with an estimated 19% market share in calendar year 1996. The Company's broad heavy municipal product line consists of two general categories of castings, "standard" and "specialty" castings. Standard castings principally consist of storm and sanitary sewer castings which are consistent with pre-existing dimension and strength specifications established by local authorities. Standard castings are generally high volume items that are routinely used in new construction and infrastructure replacement. Specialty castings are generally lower volume, higher margin products which include heavy-duty airport castings, trench drain castings, flood control castings, special manhole and inlet castings and ornamental tree grates. These specialty items are frequently selected and/or specified from the Company's municipal product catalog and its tree grate catalog, which together encompass over 4,400 standard and specialty patterns. For many of these specialty products, the Company believes it is 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 such a casting. The Company's municipal castings are sold to state and local government entities, utility companies, pre-cast concrete manhole structure producers and contractors for both new construction and infrastructure replacement. The Company's 17,000 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. Relative to customers in the industrial market, municipal market customers are less technically demanding and rely on published product specifications to ensure product performance. A key aspect of winning orders in the heavy municipal market is the specification process in which a local authority or design engineer sets specific criteria for the casting or castings to be used in a particular project. Those criteria then become part of the formal plans and specifications that will govern the acceptability of castings for a particular project. The Company seeks to be an active participant in the specification process. Its sales staff makes frequent calls on design engineers as part of a continuous effort to stay abreast of current specifications and upcoming projects. In these sales calls, the Company seeks to create opportunities for the selection of specifications which utilize an existing Company pattern. Although in many cases the design engineer who sets the specification does not make the purchase decision, when the Company's specialty product is specified it becomes more difficult for another manufacturer to provide an alternate part which is considered acceptable. The Company's professional sales staff and product engineering department are highly regarded by design engineers and are frequently consulted during the specification drafting process. The Company believes its reputation for its product engineering support, consistent quality and reliable service have made the Company's municipal and tree grate catalogs two of the most frequently used specification design tools in the municipal casting industry. Over the past two years, the Company has begun to introduce what it calls "lightweighted" parts to the heavy municipal market. These lightweighted parts have been reengineered in order to reduce both their weight and the amount of raw materials necessary for their manufacture, while maintaining the high quality performance characteristics of the heavier version of the casting. This improvement in the design and manufacture of municipal castings has resulted in lower material costs and improved margins for this product line. The Company is able to manufacture lightweighted castings because its manufacturing processes enable it to refine castings walls down to very narrow 46 50 tolerances, many of which are currently not achievable by the Company's competitors. While only a portion of the municipal castings the Company sells are candidates for lightweighting, the Company expects to continue to increase the number of lightweighted castings which it offers for sale over the next several years. Industrial. The Company believes it is a leading manufacturer of a wide range of complex industrial castings, including castings for medium- and heavy-duty truck drive line components and farm equipment as well as castings for specific components for compressors used in HVAC systems. The Company's industrial castings have increased in complexity since the early 1990's and are generally produced in higher volumes than municipal castings. Complexity in the industrial market is determined by the intricacy of a casting's shape, the thinness of its walls and the amount of processing by a customer required before a part is suitable for use by it. 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 which require less preparation before entering the production process. The Company's industrial castings are primarily sold to a limited number of customers with whom the Company has established a close working relationship. The Company has sold to certain industrial customers for over 20 years and currently has multi-year arrangements with certain of those customers. These customers make purchasing decisions based on, among other things, technical ability, price, service, quality assurance systems, facility capabilities and reputation. However, as in the municipal market, the Company's assistance in product engineering plays an important role in winning the award of industrial castings. The average industrial casting typically takes between 12 and 18 months to go from the design phase to full production and has an average product life cycle of approximately 8 to 10 years. The patterns for industrial castings, unlike the patterns for municipal castings, are owned by the Company's customers rather than the Company, however, such industrial patterns are not readily transferrable to other foundries without, in most cases, significant additional investment. Although foundries, including the Company, do not design industrial castings, a close working relationship between a 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 reputation damage due to a delayed launch. Involvement by a foundry early in the design process generally improves the likelihood that the customer will design a casting within the manufacturing capabilities of such foundry and also improves the likelihood that such foundry will be awarded the casting for full production. The Company is the sole sourced supplier of over 85% of the industrial castings it currently produces. Historically, the Company has retained approximately 90% of the castings it has been awarded throughout the product life cycle, which is typical for the industry. The Company believes industrial customers will continue to seek out foundries with a strong reputation for performance who are capable of providing a cost-effective combination of manufacturing technology and quality. The Company's strategy is to further its relationships with existing customers by participating in the design and production of more complex industrial castings, while seeking out selected new customers who would value the Company's performance reputation, technical ability and high level of quality and service. In addition to increasing its sales to existing customers and seeking out new customers, the Company intends to explore opportunities in austempering and machining and assembling sub-components for specific industrial customers. Austempering is the process of heat treating a ductile iron casting to increase its strength, thereby increasing the casting's ability to replace steel in additional applications. Machining and sub-assembling are value-added processes often performed by the OEM or third parties. Austempering, machining and sub-assembly are both processes which generally provide higher margins and increase a customer's reliance on the manufacturer. 47 51 SALES AND MARKETING Heavy Municipal. Over its 70 years of heavy municipal market participation, the Company has emphasized sales and marketing and believes it has built a strong reputation for customer service. The Company believes it is one of the leaders in United States heavy municipal casting production and has strong name recognition. The Company has the largest sales and marketing effort of any foundry serving the heavy municipal market, including 47 Company employees and 26 commissioned representatives. The dedicated sales force works out of regional sales offices to market the Company's municipal castings to contractors and state and local governmental entities throughout the United States. The Company operates nine regional distribution and sales centers and has two other sales offices in Oklahoma City, Oklahoma and Norwood, Pennsylvania. The Company believes this regional approach enhances its knowledge of local specifications and its position in the heavy municipal market. Industrial. The Company employs a dedicated industrial casting sales force of six people, five based in Neenah, Wisconsin and one based in Mansfield, Ohio. These six people consist of three account coordinators, who support the ongoing customer relationships and organize the scheduling and delivery of shipments, and three major account managers who work with customers' engineers and procurement representatives, Company engineers, manufacturing management and quality assurance representatives throughout all stages of the production process to ensure that the final product consistently meets or exceeds customer specifications. This team approach between sales, manufacturing, marketing, engineering and quality assurance is an integral part of the Company's marketing strategy. MANUFACTURING PROCESS The Company operates two modern foundries with an annual rated capacity of approximately 187,000 tons at a single location in Neenah, Wisconsin. The Company's foundries manufacture gray and ductile iron and cast it into intricate shapes according to customer metallurgical and dimensional specifications. Since 1985, the Company has invested approximately $100 million in its production facilities, with approximately $73 million invested from 1985 to 1990 in plant modernization and new equipment. The Company also continually invests in the improvement of process controls and product performance and believes that these investments and its significant experience in the industry have made it one of the most efficient manufacturers of industrial and heavy municipal casting products. During 1997, the Company had a combined scrap rate of 2.0%, which it believes was one of the lowest in the industry. The casting process involves using metal, wood or urethane patterns to make an impression of a casting product in a mold made primarily of sand. Cores, also made primarily of sand, are used to make the internal cavities and openings in a casting product. Once the casting impression is made in the mold, the cores are set into the mold and the mold is closed. Molten metal is then poured into the mold, fills the mold cavity and takes on the shape of the desired casting product. Once the iron has solidified and cooled, the mold is shaken from the casting and the sand is recycled. The selection of the appropriate casting method, pattern, core making equipment and sand and other raw materials depends on the final product and its complexity, specifications, and function as well as intended production volumes. Because the casting process involves many critical variables, such as choice of raw materials, design and production of tooling, iron chemistry and metallurgy, and core and molding sand properties, it is important to monitor the process parameters closely to ensure dimensional precision and metallurgical consistency. See "-- Quality Assurance." The Company continually seeks to find ways to expand the capabilities of existing technology to improve manufacturing processes. An example of this expansion is the Company's integration of Disamatic molding machines into its operations. Disamatic molding machines are considered to be among the most efficient sand molding machines because of their ability to produce high quality molds at high production rates. Disamatic molding machines are used by most of the Company's 48 52 direct competitors. Although the Company was not the first foundry to acquire Disamatic molding machines, it has significantly enhanced the equipment's range of production by combining it with core-setting capabilities which exceed those of most foundries. To further improve upon the productivity of the Disamatic molding machines, the Company has recently increased the length of two of its cooling lines, making each line among the longest lines in the world for comparable Disamatic equipment. This extension allows the Company to run its machines at higher production rates while providing sufficient inmold cooling time prior to mold shakeout to facilitate the production of high quality castings. As a result of these and other similar efforts, the Company has been able to increase productivity as measured in the number of molds per hour. Additionally, from 1992 to 1997, the Company reduced employee hours per ton from 14.8 to 9.0. The Company also achieves 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 to produce a different casting product. The reduced time permits it to profitably produce castings in medium volume quantities on high volume, cost-effective equipment such as the Disamatic molding machines. Additionally, extensive effort in real time process controls permits the Company to produce a consistent, dimensionally accurate casting product which requires less time and effort in the final processing stages of production. This accuracy contributes significantly to the Company's manufacturing efficiency. Due to the Company's efforts to improve manufacturing productivity, as well as increased operating leverage, improved pricing and a shift to higher value-added industrial products, from fiscal 1992 to 1997 the Company's operating margins have increased from 5.4% to 18.8%. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." HARTLEY CONTROLS Hartley Controls, a wholly owned subsidiary of the Company, engineers, manufactures and sells customized sand control systems, which are an essential part of the casting process, to other iron foundries. The sand molding media used in all high production iron foundries is a critical element in determining the mold quality. Exacting and consistent control of this sand with respect to moisture and chemical additives is an essential element for process control, and relates directly to casting quality, scrap rate and the ability to produce complex molds for highly engineered castings. Hartley Controls is a major United States supplier of sand control systems, with over 300 installations since 1986. Hartley Controls has made investments in process technology and has several patented technologies related to sand systems, including the "Automatic Moisture Controllers," the "Even-Flo Bin," the "Automatic Compactibility Tester," the "Automatic Bond Determinator," the "Green Sand Reconditioner" and the "Sandman." Sales of these sand systems and other products represented approximately 4% of the Company's net sales for 1997. In addition, Hartley Controls has recently expanded overseas and after only three years has become a significant supplier of sand control systems in the United Kingdom. Hartley Controls is the only manufacturer to supply control systems in the United Kingdom for all brands of foundry sand mixers. Hartley Controls also currently exports sand control systems to India, with further expansion planned through a joint venture scheduled for the second quarter of calendar 1997. Hartley Controls provides the Company access to the newest technology in sand control as it becomes available. QUALITY ASSURANCE Constant testing and monitoring of the manufacturing process is important to maintain product quality. The Company has adopted sophisticated quality assurance techniques and policies for its manufacturing operations. During and after the casting process, the Company performs numerous tests, including tensile, proof-load, radiography, ultrasonic, magnetic particle and chemical analysis. The Company utilizes statistical process controls to measure and control significant process variables and casting dimensions. The results of this testing are documented in metallurgical 49 53 certifications which are provided with each shipment to most industrial customers. The Company strives to maintain systems that provide for continuous improvement of operations and personnel, emphasize defect prevention and reduce variation and waste in all areas. MANUFACTURING FACILITIES, EQUIPMENT AND PROPERTIES The Company's headquarters and two foundries are located in Neenah, Wisconsin. The first manufacturing foundry, Plant 2, produces gray and ductile iron castings and is equipped with one BMD air impulse molding line, two Hydro slinger cope and drag molding units, and one 2070 Type B Disamatic molding machine. The annual rated capacity for Plant 2 is 116,000 gst (good salable tons). The second manufacturing foundry, Plant 3, produces ductile iron castings and is equipped with one 2013 Mark IV Disamatic molding machine and one 2070 Type B Disamatic molding machine. In July, 1995, the Company completed a program in Plant 3 to gain efficiencies in material handling, labor utilization and molding line productivity. The annual rated capacity for Plant 3 is approximately 71,000 gst. Industrial and municipal castings are produced in both plants. Rated capacity is based on an assumed product mix and, due to the Company's current industrial product mix, which includes numerous complex castings, practical capacity is currently approximately 5% to 6% less than rated capacity. The Company owns seven and leases six distribution and sales centers. In early 1994, the Company closed Plant 1, its oldest and lowest capacity plant, which was primarily producing large castings for HVAC Systems. The Company closed Plant 1 because of its decision to discontinue the low volume, highly complex castings produced by Plant 1 and the significant capital expenditures that would have been necessary to modernize its equipment and facilities. DISTRIBUTION The Company sells a substantial amount of its municipal castings through its network of two warehouses, nine distribution and sales centers and two other sales offices. Industrial castings are shipped direct to customers from the Company. For many municipal and a small portion of its industrial customers, castings are delivered by Neenah Transport, a wholly owned subsidiary of the Company, which operates a fleet of 29 tractors and 101 trailers that deliver products throughout the Midwest. For sales outside of the Midwest, increased transportation costs impact the ability of the Company to compete on a cost basis. Neenah Transport also backhauls raw materials for use by the Company on return trips. Neenah Transport is staffed with professional drivers who are trained in service standards and product knowledge as representatives of the Company. To the Company's knowledge, none of the Company's major heavy municipal competitors have a captive transportation subsidiary. The Company believes Neenah Transport's service and drivers provide another differentiating factor in favor of the Company. RAW MATERIALS The primary raw materials used by the Company to manufacture iron castings are steel scrap, pig iron, metallurgical coke and silica sand. While there are multiple suppliers for each of these commodities, the Company has single source arrangements with its suppliers of each of these major raw materials, with the exception of pig iron. Due to long standing relationships with each of its suppliers, the Company believes that it will continue to be able to secure raw materials from its suppliers at competitive prices. The primary energy sources for the Company's operations, electricity and natural gas, are purchased through utilities. Although the prices of all raw materials used by the Company vary, the fluctuations in the price of steel scrap are the most significant to the Company. The Company has arrangements with most of its industrial customers which require the Company 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, which periods vary by customer but are generally no longer than six months. Castings are 50 54 generally sold to the heavy municipal market on a bid basis and, after a bid is won, the price for the municipal casting subject to the bid generally cannot be adjusted for raw material price increases. However, in most cases the Company has been successful in obtaining higher municipal casting unit prices in subsequent bids to compensate for rises in scrap prices in prior periods. Rapidly fluctuating scrap prices may have a temporary adverse or positive effect on the Company's results of operations. See "Risk Factors -- Raw Materials." COMPETITION The markets for the Company's products are highly competitive. Competition is based not only on price, but also on quality of product, range of capability, level of service and reliability of delivery. The Company competes with numerous independent and captive foundries, as well as with a number of foreign iron foundries, including certain foundries located in India. The Company also competes with several large domestic manufacturers whose products are made with materials other than ductile and gray iron, such as steel or aluminum. The industry consolidation that has occurred over the past 20 years has resulted in a significant reduction in the number of smaller foundries and a rise in the share of production by larger foundries, some of which have significantly greater financial resources than the Company. Competition from India has had a strong presence in the heavy municipal market and continues to be a factor, primarily in the western and eastern coastal states, due in part to costs associated with transportation. Such competition has receded over the past 18 months, primarily as a result of increased enforcement of emission controls. As a result, Indian import volume has decreased and the price of Indian casting products has risen. Additionally, foreign companies have been, and continue to be, subject to antidumping and countervailing duty enforcement litigation which the Company believes has had a negative effect on foreign companies' ability to compete in the United States markets. There can be no assurance that these factors will continue to mitigate the impact of foreign competition, or that the Company will be able to maintain or improve its competitive position in the markets in which it competes. BACKLOG The Company's industrial business generally involves supplying all or a portion of a customer's annual requirements for a particular casting. Industrial customers generally order castings on a monthly basis. Orders for the heavy municipal market are generally received for specific casting products and cover a much larger range of castings. The Company's backlog at any given time consists only of firm industrial and municipal orders. The Company's backlog was 26,750 tons at March 31, 1997 as compared to 25,500 tons at March 31, 1996. The increase in backlog of approximately 5% was primarily the result of strengthening in the medium- and heavy-duty truck market. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." EMPLOYEES As of March 31, 1997, the Company had 910 full time employees, of whom 710 were hourly employees and 200 were salaried employees. Of the 200 salaried employees, 91 are in manufacturing and engineering, 61 are in sales and marketing, 44 are in management and administration and four are in transportation. The Local 121B of the Glass, Molders, Pottery, Plastics and Allied Workers International Union AFL-CIO is the major bargaining agent for and representative of 678 of the Company's hourly employees. The collective bargaining agreement with Local 121B was reached on January 1, 1996 and expires on December 31, 1998. The Independent Patternmakers Union of Neenah, Wisconsin is the major bargaining agent for and representative of 32 of the Company's hourly employees. The collective bargaining agreement with the Independent Patternmakers Union was reached on January 1, 1995 and expires on December 31, 1997. The Company believes that it has a good relationship with its employees. 51 55 LITIGATION The Company is involved in routine litigation incidental to its business. Such litigation is not, in the opinion of management, likely to have a material adverse effect on the financial condition or results of operation of the Company. ENVIRONMENTAL MATTERS The Company's 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 and the Occupational Health and Safety Act. The Company believes that its operations have been and are currently in substantial compliance with applicable environmental laws, and that it has no liabilities arising under such environmental laws, except as would not be expected to have a material adverse effect on the Company's operations, financial condition or competitive position. However, some risk of environmental liability and other costs is inherent in the nature of the iron foundry business. The Company 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 or clean-up of structures prior to demolition. Under the Federal Clean Air Act Amendments of 1990 ("CAA"), the Environmental Protection Agency must establish maximum achievable control technology ("MACT") standards for hazardous air pollutants emitted from iron foundry operations by the year 2000. In addition, Wisconsin law imposes requirements on emissions of air toxins from iron foundries and other industries. Many of the regulations that will implement the CAA and Wisconsin law have not yet been promulgated. Although it is not possible to estimate the costs of complying with the regulations until they are issued, iron foundries, including the Company, can be expected to incur significant costs over time to comply with these federal and state regulations. 52 56 MANAGEMENT The following table identifies members of the Board of Directors, key executive officers and certain other key employees of the Company.
NAME AGE POSITION - ----------------------------------- --- ------------------------------------------------- James K. Hildebrand................ 60 Chairman of the Board and Chief Executive Officer William M. Barrett................. 50 Vice President and General Manager Gary W. LaChey..................... 51 Vice President -- Finance, Treasurer and Secretary Charles M. Kurtti.................. 60 Vice President -- Manufacturing and Engineering John Z. Rader...................... 48 Vice President -- Human Resources William J. Martin.................. 49 Vice President and General Manager -- Hartley Controls Corporation Timothy J. Koller.................. 47 General Sales Manager -- Municipal Castings Frank C. Headington................ 47 Director -- Product Reliability David F. Thomas.................... 47 Director John D. Weber...................... 33 Director Brenton F. Halsey.................. 69 Director
Mr. Hildebrand is Chairman of the Board and Chief Executive Officer of the Company. Mr. Hildebrand has been President and Chief Executive Officer of Advanced Cast Products, Inc. since 1988, and will continue in that position. Previously, he served as President of the Cast Products Group of Amcast Industrial Corp. Mr. Hildebrand is also employed by ACP Holding Company which, upon the consummation of the Merger, became the beneficial owner of all the common equity of both the Company and Advanced Cast Products, Inc. See "Certain Relationships and Related Transactions." Mr. Hildebrand devotes substantial time to, and be partially compensated by, Advanced Cast Products, Inc. Mr. Barrett is Vice President and General Manager of the Company. Mr. Barrett joined the Company in 1992 serving as General Sales Manager -- Industrial Castings. From 1985 to 1992, Mr. Barrett was the Vice President -- Sales for Harvard Industries Cast Products Group. Mr. LaChey is Vice President -- Finance, Treasurer and Secretary of the Company. Mr. LaChey joined the Company in 1971, serving in a variety of positions of increasing responsibility in the finance department. Mr. LaChey is currently Vice President -- Administration of the Company. Mr. Kurtti is Vice President -- Manufacturing and Engineering, of the Company, a position he has held since 1991. Mr. Kurtti joined the Company in 1976 as a salesman. Mr. Kurtti has served as Director of Marketing, Director of Purchasing -- Engineering and Director -- Manufacturing and Engineering. Mr. Rader is Vice President -- Human Resources, a position he has held since 1990. Mr. Rader joined the Company in 1987, serving as Director -- Personnel until 1989 and as Director -- Human Resources until 1990. Mr. Martin is Vice President and General Manager -- Hartley Controls Corporation, a wholly owned subsidiary of the Company, a position he has held since 1996. Previously, Mr. Martin was Territory Sales Manager at Disamatic, Inc., a molding machine manufacturer, from 1986 to 1996. Mr. Koller is General Sales Manager -- Municipal Castings for the Company. Mr. Koller joined the Company in 1978, serving in a variety of positions of increasing responsibility in the sales and marketing departments. Mr. Headington is Director -- Product Reliability, a position he has held since 1991. Mr. Headington joined the Company in 1989 as Manager -- Technical Services, a position he held until 1991. 53 57 Mr. Thomas is a director of the Company. Mr. Thomas has been a Managing Director of Citicorp Venture Capital, Ltd. for more than the past five years. Mr. Thomas is a director of Lifestyles Furnishings International Ltd., Galey & Lord, Inc., Anvil Knitwear, Inc. and a number of private companies. Mr. Weber is a director of the Company. Since 1994, Mr. Weber has been a Vice President at Citicorp Venture Capital, Ltd. Previously, Mr. Weber worked at Putnam Investments from 1992 through 1994. Mr. Weber is a director of Anvil Knitwear, Inc. and a number of private companies. Mr. Halsey is a director of the Company. Mr. Halsey was the founding Chief Executive Officer and Chairman of the James River Corporation from 1969 to 1990. He continued as Chairman until 1992 when he became Chairman Emeritus. COMPENSATION OF DIRECTORS Directors of the Company who are officers or employees of the Company or its affiliates are presently not expected to receive compensation for their services as directors. No determination has yet been made with respect to compensation for directors of the Company who are not officers or employees of the Company or any of its affiliates. Directors of the Company will be entitled to reimbursement of their reasonable out-of-pocket expenses in connection with their travel to and attendance at meetings of the board of directors or committees thereof. COMPENSATION OF EXECUTIVE OFFICERS The compensation of executive officers of the Company will be determined by the Board of Directors of the Company. None of the historical benefit or compensation plans of the Company are described herein because each will be terminated with respect to the named officers and replaced as a group by a single compensation plan in connection with the Merger (with the exception of a 401(k) plan and a retirement plan for Mr. Kurtti). The following table sets forth information concerning compensation received by the five most highly compensated officers of the Company for services rendered in 1997. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION ------------------------------ -------------------- OTHER ANNUAL OPTIONS/ LTIP ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) SARS(#) PAYOUTS COMPENSATION - ------------------------------ -------- ---------- --------------- ------- ------- ------------ Edmund W. Aylward, Jr.(2)..... $600,000 $1,157,793 $31,992 -- -- -- Chairman, President and Chief Executive Officer Andrew A. Aylward(2).......... 378,000 627,894 25,720 -- -- -- Vice President Thomas R. Franklin(2)......... 209,750 164,840 49,424 -- -- -- Senior Vice President and Chief Financial Officer James P. Keating, Jr.(2)...... 204,000 99,096 32,780 -- -- -- Senior Vice President Gary W. LaChey................ 138,000 40,000 26,122 -- -- -- Vice President
54 58 - --------------- (1) The named officers have participated in the Company's profit sharing, Company 401(k) contributions, and excess benefit programs. The aggregate payments made by the Company pursuant to such programs are listed as Other Annual Compensation. (2) Messrs. E.W. Aylward and A.A. Aylward resigned from their current positions in connection with the consummation of the Transactions. Mr. Keating's employment listed above will terminate on June 30, 1997, after which he will be available to serve as a consultant to the Company. Mr. Franklin retired as an officer of the Company on February 28, 1997. EMPLOYMENT AGREEMENTS The Company has entered into an employment agreement with James P. Keating, Jr. that terminates on June 30, 1997. The Company has also entered into a consulting agreement with Mr. Keating that provides that Mr. Keating will be available to serve as a consultant to the Company from July 1, 1997 to June 30, 1999. MANAGEMENT INCENTIVE PLAN The Company intends to provide performance-based compensation awards to executive officers and key employees for achievement during each year as part of a bonus plan. Such compensation awards may be a function of individual performance and consolidated corporate results. The qualitative and quantitative criteria will be determined from time to time by the Board of Directors of the Company. MANAGEMENT EQUITY PARTICIPATION In connection with the Merger, in order to provide financial incentives for certain of the Company's employees, (a) the Management Investors will have the opportunity to acquire units representing membership interests in ACP Products, L.L.C., which will represent, in the aggregate, approximately a ten percent beneficial interest in the Company (the "Purchased Interests") and (b) the Management Investors and certain other employees of the Company are expected to be granted, over a five year period, options (the "Options") to purchase additional Purchased Interests representing, in the aggregate, approximately a two percent beneficial interest in the Company. The Options are expected to be granted periodically and to vest and become exercisable upon (i) certain threshold dates and/or (ii) the satisfaction of certain financial performance tests. Upon the termination of employment with the Company, an employee's Purchased Interests will be subject to certain repurchase provisions exercisable by ACP Products, L.L.C. or its designees. The Purchased Interests obtainable upon exercise of the Options are expected to be subject to rights and restrictions similar to those of the Purchased Interests purchased at Closing. The exercise price of the Options will be established by ACP Products, L.L.C. in consultation with the Board of Directors of the Company or a compensation committee thereof. 55 59 OWNERSHIP OF SECURITIES The Company's authorized capital stock consists of 11,000 shares of common stock, par value $100 per share (the "Common Stock"), 1,000 shares of which are issued and outstanding and owned by Holdings and are pledged to the Lenders under the Senior Bank Facilities. Holdings is a wholly-owned subsidiary of ACP Holdings which in turn is wholly-owned by ACP Products, L.L.C. Set forth below is certain information regarding the beneficial ownership of Common Stock by each person known by the Company to beneficially own 5.0% or more of the outstanding shares of Common Stock, each director and named executive officer and all directors and named executive officers as a group. Except as indicated below, the address for each of the persons listed below is c/o Neenah Corporation, 2121 Brooks Avenue, Box 729, Neenah, Wisconsin 54927.
COMMON NAME AND ADDRESS OF BENEFICIAL OWNER STOCK -------------------------------------------------------------- ---------- ACP Products, L.L.C.(1)....................................... 100.00% 399 Park Avenue New York, New York James K. Hildebrand(2)........................................ 0.00% William M. Barrett(2)......................................... 1.30% Gary W. LaChey(2)............................................. 1.30% Charles W. Kurtti(2).......................................... 1.30% John Z. Radar(2).............................................. 1.30% David F. Thomas(3)............................................ 100.00% John D. Weber(3).............................................. 0.00% Brenton F. Halsey............................................. 0.00% Directors and named executive officers as a group............. 87.18%
- --------------- (1) ACP Products, L.L.C. is an affiliate of Citicorp Venture Capital, Ltd. (2) Such person has made an investment in ACP Products, L.L.C. Such person disclaims beneficial ownership of the Company's Common Stock. See "Management -- Management Equity Participation." (3) Consists of shares held by ACP Products, L.L.C., which may be deemed to be beneficially owned by Mr. Thomas. Mr. Thomas disclaims beneficial ownership of shares held by ACP Products, L.L.C. 56 60 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS RELATIONSHIP WITH ACP HOLDING COMPANY ACP Products, L.L.C. holds all of the issued and outstanding shares of capital stock of ACP Holding Company ("ACP Holdings"). ACP Holdings is the parent company of Holdings, and thus indirectly owns 100% of the Common Stock of the Company. James K. Hildebrand, who serves as the Chairman of the Board and Chief Executive Officer of the Company, currently serves as President and Chief Executive Officer of ACP Holdings and its principal operating subsidiary, Advanced Cast Products, Inc. ("Advanced Cast"). After the Closing, Mr. Hildebrand will devote substantial time to, and be partially compensated by, Advanced Cast, in addition to his role with the Company. Advanced Cast also produces iron castings for sale to the industrial medium- and heavy-duty truck market, but it has not competed with the Company in the past in any significant way and the Company does not anticipate that it will so compete with Advanced Cast in the future. SHAREHOLDER RELATIONSHIPS In connection with the Merger, the Management Investors and certain institutional investors, including Citicorp Venture Capital, Ltd., became parties to the Second Amended and Restated Limited Liability Agreement of ACP Products, L.L.C., as amended (the "L.L.C. Agreement"). The L.L.C. Agreement contains certain provisions with respect to the beneficial equity interests and corporate governance of the Company. The L.L.C. Agreement provides that the Investor Group and the Management Investors, as the only members of ACP Products, L.L.C. holding beneficial interests in the Company, have the right to direct all actions taken in respect of Holdings and the Company, including, without limitation, appointing members of the Board of Directors of the Company and of Holdings. REGISTRATION RIGHTS AGREEMENT The Company entered into a registration rights agreement (the "Registration Rights Agreement") with the Investor Group and the Management Investors. Pursuant to the terms of the Registration Rights Agreement, certain holders of the Company's Common Stock have the right to require the Company, at the Company's sole cost and expense and subject to certain limitations, to register under the Securities Act or list on any recognized stock exchange all or part of the Common Stock beneficially owned by such holders (the "Registrable Securities"). All such holders will be entitled to participate in all registrations by the Company or other holders, subject to certain limitations. In connection with all such registrations, the Company agreed to indemnify all beneficial owners of Registrable Securities against certain liabilities, including liabilities under the Securities Act and other applicable state or foreign securities laws. Registrations pursuant to the Registration Rights Agreement will be made, if applicable, on the appropriate registration form and may be underwritten registrations. DESCRIPTION OF SENIOR BANK FACILITIES The Company entered into a credit agreement (the "Credit Agreement") with The Chase Manhattan Bank, as administrative agent and collateral agent (the "Agent") and the lenders named therein (the "Lenders") that provide term loans of $45.0 million and a revolving credit facility of $30.0 million. Chase Securities Inc. acted as advisor and arranger in connection with the Senior Bank Facilities (the "Arranger"). The following is a summary description of the principal terms of the Credit Agreement, which will be available upon request from the Company. Structure. Loans under the Credit Agreement consist of (i) a term loan (the "Tranche A Term Loan") in the amount of $20.0 million; (ii) a second term loan (the "Tranche B Term Loan," and together with the Tranche A Term Loan, the "Term Loans") in the amount of $25.0 million and (iii) a 57 61 revolving credit facility (the "Revolving Credit Facility," and together with the Term Loans, the "Senior Bank Facilities") in the amount of $30.0 million subject to a borrowing base formula (of which $15.0 million will be available for letters of credit). The Company used the Term Loans to provide a portion of the funding necessary to consummate the Transactions, with the Revolving Credit Facility being used for general corporate purposes in the ordinary course of the Company's business. Security, Guaranty. The obligations of the Company under the Senior Bank Facilities will be unconditionally and irrevocably guaranteed, jointly and severally, by Holdings and by each existing and subsequently acquired or organized subsidiary of the Company. In addition, the Senior Bank Facilities and the guarantees thereunder are secured by substantially all of the assets of the Company and the guarantors (collectively, the "Collateral"), including but not limited to (i) a first priority pledge of all the capital stock of the Company and of each existing and subsequently acquired or organized subsidiary of the Company and (ii) perfected first priority security interests in, and mortgages on, substantially all tangible and intangible assets of the Company and the guarantors (including but not limited to accounts receivable, documents, inventory, equipment, intellectual property, general intangibles, real property, cash and cash accounts and proceeds of the foregoing) in each case subject to certain limited exceptions. Availability. The availability of the Senior Bank Facilities are subject to various conditions precedent typical of bank loans including, among other things, the absence of any material adverse change on the part of the Company. The full amount of the Term Loans must be drawn in a single drawing at the Closing of the Transactions and amounts repaid or prepaid under the Term Loans may not be reborrowed. Amounts under the Revolving Credit Facility are available on a revolving basis, subject to a borrowing base comprised of percentages of the Company's eligible accounts receivable and eligible inventory. As of March 31, 1997, on a pro forma basis after giving effect to the Offering, the other Transactions, and the application of the proceeds therefrom as well as such borrowing base limitations and $0.6 million of outstanding letters of credit, the Company estimates it would have had the ability to borrow approximately $24.8 million under the Revolving Credit Facility. Amortization, Interest. The Tranche A Term Loan is repayable in quarterly principal payments over five years totalling $4.0 million per year and will bear interest at a rate per annum equal (at the Company's option) to: (i) an adjusted London inter-bank offered rate ("Adjusted LIBOR") plus 2.5% or (ii) an Alternate Base Rate (equal to the highest of the Agent's prime rate, a certificate of deposit rate plus 1% and the Federal Funds effective rate plus 1/2 of 1%) plus 1.5%, in each case subject to certain reductions based on the Company's financial performance. The Tranche B Term Loan is repayable in quarterly principal payments over seven years, totalling $1.0 million per year for the first five years and $10.0 million per year for the last two years, and will bear interest at a rate per annum equal (at the Company's option) to: (i) Adjusted LIBOR plus 3.0% or (ii) the Alternate Base Rate plus 2.0%. The Revolving Credit Facility will be a five year facility and will bear interest at a rate per annum equal (at the Company's option) to: (i) Adjusted LIBOR plus 2.5% or (ii) the Alternate Base Rate plus 1.5%, in each case subject to certain reductions based on the Company's financial performance. Amounts under the Senior Bank Facilities not paid when due bear interest at a default rate equal to 2.0% above the otherwise applicable rate. Prepayments. The Senior Bank Facilities permit the Company to prepay loans and to permanently reduce revolving credit commitments, in whole or in part, at any time. In addition, the Company is required to make mandatory prepayments of Term Loans, subject to certain exceptions, in amounts equal to (i) 50% of consolidated excess cash flow of Holdings, the Company and its subsidiaries; and (ii) 100% of the net cash proceeds of certain dispositions of assets or issuances of debt or equity of the Company or any of its subsidiaries. Mandatory and optional prepayments of the Term Loans will be allocated pro rata between the Tranche A Term Loan and the Tranche B Term Loan and applied pro rata against the remaining scheduled amortization payments of such Term Loans, except that, so long as the Tranche A Term Loan is outstanding, the Lenders 58 62 participating in the Tranche B Term Loan will have the right to refuse mandatory prepayments, in which case such prepayments will be applied to the Tranche A Term Loan. Any prepayment of Adjusted LIBOR loans other than at the end of an interest period will be subject to reimbursement of breakage costs. Fees. The Company is required to pay the lenders, on a quarterly basis, a commitment fee equal to 1/2 of 1% per annum on the undrawn portion of the commitments, subject to reductions based upon the Company's financial performance. The Company is also required to pay (i) a per annum letter of credit fee equal to the applicable margin from time to time for Adjusted LIBOR loans under the Revolving Credit Facility on the aggregate face amount of outstanding letters of credit under the Revolving Credit Facility, (ii) a fronting bank fee for the letter of credit issuing bank, (iii) annual administration fees, and (iv) agent, arrangement and other similar fees. Covenants. The Senior Bank Facilities contain a number of covenants that, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other indebtedness or amend other debt instruments, pay dividends, create liens on assets, enter into sale and leaseback transactions, make investments, loans or advances, make acquisitions, engage in mergers or consolidations, change the business conducted by the Company or its subsidiaries, make capital expenditures, or engage in certain transactions with affiliates and otherwise restrict certain corporate activities. In addition, under the Senior Bank Facilities, the Company is required to comply with specified financial ratios and tests, including minimum interest coverage ratios, maximum leverage ratios and minimum net worth tests. The Senior Bank Facilities also contain provisions that prohibit any modification of the Indenture in any manner adverse to the Lenders and that will limit the Company's ability to refinance or otherwise prepay the Notes without the consent of such Lenders. Events of Default. The Senior Bank Facilities contain customary events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults and cross-acceleration to certain other indebtedness, certain events of bankruptcy and insolvency, ERISA events, judgment defaults, actual or asserted invalidity of any security interest and change of control. DESCRIPTION OF NOTES GENERAL The form and terms of the New Notes are the same as the form and terms of the Old Notes except that (i) the New Notes will have been registered under the Securities Act and thus will not bear restrictive legends restricting their transfer pursuant to the Securities Act and (ii) holders of New Notes will not be entitled to certain rights of holders of the Old Notes under the Registration Rights Agreement which will terminate upon the consummation of the Exchange Offer. The Old Notes have been, and the New Notes are to be, issued under an Indenture, dated as of (the "Indenture"), among the Company, the Guarantor Subsidiaries and United States Trust Company of New York, as Trustee (the "Trustee"). The following summary of certain provisions of the Indenture and the Notes does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture, including the definitions of certain terms therein and those terms made a part thereof by the Trust Indenture Act of 1939, as amended ("TIA"). Capitalized terms used herein and not otherwise defined have the meanings set forth in the section "-- Certain Definitions" below. Principal of, premium, if any, and interest on the Notes will be payable, and the Notes may be exchanged or transferred, at the office or agency of the Company in the Borough of Manhattan, the City of New York (which initially shall be the corporate trust office of the Trustee at 114 West 47th 59 63 Street, New York, N.Y. 10036, Attn: Gerard Ganey), except that, at the option of the Company, payment of interest may be made by check mailed to the registered holders of the Notes at their registered addresses. The Notes may be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge will be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. TERMS OF THE NOTES The Notes are unsecured senior subordinated obligations of the Company, limited to $150.0 million aggregate principal amount, and will mature on May 1, 2007. Each Note will bear interest at a rate per annum shown on the front cover of this Prospectus from the Issue Date or from the most recent date to which interest has been paid or provided for, payable semiannually to Holders of record at the close of business on the April 15 or October 15 immediately preceding the interest payment date on May 1 and November 1 of each year, commencing November 1, 1997. OPTIONAL REDEMPTION Except as set forth below, the Notes are not redeemable at the option of the Company prior to May 1, 2002. On and after such date, the Notes will be redeemable, at the Company's option, in whole or in part, at any time upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption), if redeemed during the 12-month period commencing on May 1 of the years set forth below:
REDEMPTION YEAR PRICE ----------------------------------------------------------------- ---------- 2002............................................................. 105.5625% 2003............................................................. 103.7083% 2004............................................................. 101.8542% 2005 and thereafter.............................................. 100.0000%
In addition, at any time and from time to time on or prior to May 1, 2000, the Company may redeem in the aggregate up to 40% of the original aggregate principal amount of the Notes with the cash proceeds to it of one or more Public Equity Offerings following which there is a Public Market, at a redemption price (expressed as a percentage of principal amount thereof) of 111.125% plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption); provided, however, that at least 60% of the original aggregate principal amount of the Notes must remain outstanding after each such redemption. The Notes will be subject to redemption at the option of the Company, prior to May 1, 2002, at any time within 180 days after a Change of Control on not less than 30 nor more than 60 days' prior notice to each Holder of Notes to be redeemed, in amounts of $1,000 or an integral multiple thereof, at a redemption price equal to the sum of (i) the principal amount thereof plus (ii) accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date that is on or prior to the date of redemption) plus (iii) the Applicable Premium. Each Holder of Notes will also have certain rights to require the Company to purchase such Notes upon the occurrence of a Change of Control. See "-- Change of Control" below. 60 64 SELECTION In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Note of $1,000 in original principal amount or less will be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. RANKING The indebtedness evidenced by the Notes is unsecured Senior Subordinated Indebtedness of the Company. The payment of the principal of, premium (if any) and interest on the Notes is subordinate in right of payment, as set forth in the Indenture, to all existing and future Senior Indebtedness of the Company, ranks pari passu in right of payment with all existing and future Senior Subordinated Indebtedness of the Company and is senior in right of payment to all existing and future Subordinated Obligations of the Company. The Notes will also be effectively subordinated to any Secured Indebtedness of the Company to the extent of the value of the assets securing such indebtedness. However, payment from the money or the proceeds of U.S. Government Obligations held in any defeasance trust described under "Defeasance" below is not subordinated to any Senior Indebtedness or subject to the restrictions described herein. The indebtedness evidenced by a Subsidiary Guaranty is unsecured Senior Subordinated Indebtedness of the Guarantor Subsidiary issuing such Subsidiary Guaranty. The payment of a Subsidiary Guaranty is subordinate in right of payment, as set forth in the Indenture, to all existing and future Senior indebtedness of such Guarantor Subsidiary, ranks pari passu in right of payment with the existing and future Senior Subordinated Indebtedness of such Guarantor Subsidiary and will be senior in right of payment to all existing and future Subordinated Obligations of such Guarantor Subsidiary. Each Subsidiary Guaranty is also effectively subordinated to any Secured Indebtedness of the Guarantor Subsidiary to the extent of the value of the assets securing such indebtedness. As of March 31, 1997, after giving pro forma effect to the Transactions, the Offering and the application of the proceeds therefrom, the Company would have had outstanding $46.0 million of Senior Indebtedness, excluding $0.6 million of outstanding letters of credit, no Senior Subordinated Indebtedness other than the Indebtedness represented by the Notes, and no Indebtedness that is subordinate and junior in right of repayment to the Indebtedness represented by the Notes. As of March 31, 1997, and after giving effect to the Transactions, the Offering and the application of the proceeds therefrom, as well as borrowing base limitations and $0.6 million of outstanding letters of credit, the Company estimates it would have had the ability to borrow approximately $24.8 million under the Revolving Credit Facility. Although the Indenture contains limitations on the amount of additional Indebtedness that the Company and its Guarantor Subsidiaries may incur, under certain circumstances the amount of such Indebtedness could be substantial and, in any case, such Indebtedness may be Senior Indebtedness of the Company or a Guarantor Subsidiary, as the case may be. See "Certain Covenants -- Limitation on Indebtedness" below. "Senior Indebtedness" of the Company means all principal of, premium (if any), accrued interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and other amounts owing with respect to all Indebtedness of the Company, and including all Bank Indebtedness, whether outstanding on the Issue Date or thereafter incurred, unless in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is expressly provided that such obligations are not superior in right of payment to the Notes; provided, however, that Senior 61 65 Indebtedness shall not include (1) any obligation of the Company to any Subsidiary, (2) any liability for federal, foreign, state, local or other taxes owed or owing by the Company, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness or obligation of the Company which is subordinate or junior in any respect (other than as a result of the Indebtedness being unsecured) to any other Indebtedness or obligation of the Company, including any Senior Subordinated Indebtedness and any Subordinated Obligations, (5) any obligations with respect to any Capital Stock or (6) any Indebtedness Incurred in violation of the Indenture. "Senior Indebtedness" of any Guarantor Subsidiary has a correlative meaning. Only Indebtedness of the Company or a Guarantor Subsidiary that is Senior Indebtedness will rank senior to the Notes and the relevant Subsidiary Guaranty in accordance with the provisions of the Indenture. The Notes and each Subsidiary Guaranty in all respects ranks pari passu with all other Senior Subordinated Indebtedness of the Company and the relevant Guarantor Subsidiary, respectively. The Company and each Guarantor Subsidiary has agreed in the Indenture that it will not incur, directly or indirectly, any Indebtedness which is subordinate or junior in ranking in any respect to Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness, or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness of the Company or a Guarantor Subsidiary is not deemed to be subordinated or junior to Secured Indebtedness, as the case may be, merely because it is unsecured. The Company may not pay principal of, or premium (if any) or interest on, the Notes or make any deposit pursuant to the provisions described under "-- Defeasance" below, and may not otherwise purchase, redeem or otherwise retire any Notes other than from funds held in a defeasance trust pursuant to the provisions described under "-- Defeasance" below (collectively, "pay the Notes"), if (i) any Senior Indebtedness of the Company is not paid when due or (ii) any other default on Senior Indebtedness of the Company occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Senior Indebtedness has been paid in full. However, the Company may pay the Notes without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of the holders of the Senior Indebtedness with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the second preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Notes for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of such default from the Representative of the holders of the Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (ii) because the default giving rise to such Blockage Notice is no longer continuing or (iii) because such Designated Senior Indebtedness has been repaid in full). Notwithstanding the provisions described in the immediately preceding sentence, unless the holders of such Designated Senior Indebtedness have, or the Representative of such holders has, accelerated the maturity of such Designated Senior Indebtedness, the Company may resume payments on the Notes after the end of such Payment Blockage Period, including any missed payments. Not more than one Blockage Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period. However, if any Blockage Notice within such 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness other than the Bank Indebtedness, the Representative of the Bank Indebtedness may give another Blockage Notice within such period. In no event, however, may the total number of days during which any 62 66 Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360 consecutive day period. Upon any payment or distribution of the assets of the Company upon a total or partial liquidation or dissolution or reorganization of or similar proceeding relating to the Company or its property, the holders of Senior Indebtedness of the Company will be entitled to receive payment in full of the Senior Indebtedness of the Company before the Noteholders are entitled to receive any payment and until the Senior Indebtedness of the Company is paid in full, any payment or distribution to which Noteholders would be entitled but for the subordination provisions of the Indenture will be made to holders of the Senior Indebtedness of the Company as their respective interests may appear. If a payment or distribution is made to Noteholders that due to the subordination provisions should not have been made to them, such Noteholders are required to hold such payment or distribution in trust for the holders of Senior Indebtedness and pay it over to them as their respective interests may appear. If payment of the Notes is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of the Designated Senior Indebtedness or the Representative of such holders of the acceleration. The Company may not pay the Notes until five Business Days after such holders or the Representative of the holders of the Designated Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the Notes only if the subordination provisions of the Indenture otherwise permit payment at that time. The terms of the subordination provisions described above with respect to the Company's obligations under the Notes apply equally to a Guarantor Subsidiary and the obligations of such Guarantor Subsidiary under its Subsidiary Guaranty. By reason of such subordination provisions contained in the Indenture, in the event of insolvency, creditors of the Company or a Guarantor Subsidiary who are holders of Senior Indebtedness of the Company or a Guarantor Subsidiary, as the case may be, may recover more, ratably, than the Noteholders, and creditors of the Company who are not holders of Senior Indebtedness of the Company or of Senior Subordinated Indebtedness (including the Notes) may recover less, ratably, than holders of Senior Indebtedness of the Company. SUBSIDIARY GUARANTIES Each of Neenah Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc. (the "Initial Guarantors," and together with all future issuers of Subsidiary Guaranties, the "Guarantor Subsidiaries") jointly and severally as primary obligors and not merely as sureties, irrevocably Guarantee on an unsecured senior subordinated basis the performance and punctual payment when due, whether at Stated Maturity, by acceleration or otherwise, of all obligations of the Company under the Indenture and the Notes, whether for payment of principal of or interest on the Notes, expenses, indemnification or otherwise (all such obligations guaranteed by the Guarantor Subsidiaries being herein called the "Guaranteed Obligations"). The Guarantor Subsidiaries have agreed to pay, in addition to the amount stated above, any and all expenses (including reasonable counsel fees and expenses) incurred by the Trustee or the Holders in enforcing any rights under the Subsidiary Guaranties. Each Subsidiary Guaranty is limited in amount to an amount not to exceed the maximum amount that can be Guaranteed by the applicable Guarantor Subsidiary without rendering such Subsidiary Guaranty voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. On or after the Issue Date, the Company will cause each Restricted Subsidiary which Incurs Indebtedness to execute and deliver to the Trustee a supplemental indenture pursuant to which such Restricted Subsidiary will Guarantee payment of the Notes. See "Certain Covenants -- Future Guarantor Subsidiaries" below. Each Subsidiary Guaranty is a continuing guarantee and shall (a) remain in full force and effect until payment in full of all the Guaranteed Obligations, (b) be binding upon each Guarantor 63 67 Subsidiary and (c) enure to the benefit of and be enforceable by the Trustee, the Holders and their successors, transferees and assigns. A Subsidiary Guaranty will be released upon the sale of the capital stock, or all or substantially all of the assets, of the applicable Guarantor Subsidiary if such sale is made in compliance with the Indenture. Each of the Company's Guarantor Subsidiaries also Guarantee Indebtedness of the Company Incurred under the terms of the Senior Bank Facilities. Because the operations of the Company are conducted through its Subsidiaries, and the Guaranties issued by the Guarantor Subsidiaries are secured by pledges of substantially all the assets of the Guarantor Subsidiaries, the Notes effectively subordinated to creditors of the Company under the Senior Bank Facilities. See "Risk Factors -- Holding Company Structure." CHANGE OF CONTROL Upon the occurrence of any of the following events (each a "Change of Control"), each Holder will have the right to require the Company to repurchase all or any part of such Holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), pursuant to the offer described below and the other procedures set forth in the Indenture; provided, however, that notwithstanding the occurrence of a Change of Control, the Company shall not be obligated to purchase the Notes pursuant to this covenant in the event that it has exercised its rights to redeem all of the Notes as described under "-- Optional Redemption": (a) prior to the earlier to occur of the first public offering of Voting Stock of ACP Holdings, Holdings or the Company, the Permitted Holders cease to be entitled (by "beneficial ownership" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of Voting Stock, contract or otherwise) to elect or cause the election of directors of the Company having a majority of the total voting power of the Board of Directors of the Company, whether as a result of issuance of securities of the Company, any merger, consolidation, liquidation or dissolution of the Company, any direct or indirect transfer of securities by any Permitted Holder or otherwise (for purposes of this clause (a), the Permitted Holders shall be deemed to beneficially own any Voting Stock of a corporation (the "specified corporation") held by any other corporation (the "parent corporation") so long as one or more of the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent corporation); (b) after the first public offering of Voting Stock of ACP Holdings, Holdings or the Company, any person or group (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more of the Permitted Holders, is or becomes the beneficial owner (as defined in clause (a) above), directly or indirectly, of Voting Stock that represents more than 40% of the aggregate ordinary voting power of all classes of the Voting Stock of ACP Holdings, Holdings or the Company voting together as a single class, and either (x) the Permitted Holders beneficially own (as defined in clause (a) above), directly or indirectly, in the aggregate Voting Stock that represents a lesser percentage of the aggregate ordinary voting power of all classes of the Voting Stock of ACP Holdings, Holdings, or the Company as the case may be, voting together as a single class, than such other person or group and are not entitled (by voting power, contract or otherwise) to elect directors of ACP Holdings, Holdings or the Company having a majority of the total voting power of the board of directors of ACP Holdings, Holdings or the Company, as the case may be, or (y) such other person or group is entitled to elect directors of ACP Holdings, Holdings or the Company having a majority of the total voting power of the board of directors of ACP Holdings, Holdings or the Company; 64 68 (c) after the first public offering of Voting Stock of ACP Holdings, Holdings or the Company, during any period of not greater than two consecutive years beginning after the Issue Date, individuals who at the beginning of such period constituted the board of directors of ACP Holdings, Holdings or the Company, as the case may be (together with any new directors whose election by such board of directors, or whose nomination for election by shareholders was approved by the Permitted Holders or by such board of directors, in each case by a vote of a majority of the directors of ACP Holdings, Holdings or the Company, as the case may be, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved), cease for any reason to have a majority of the total voting power of the board of directors of ACP Holdings, Holdings or the Company, as the case may be; or (d) any sale, lease, or other transfer (in one transaction or in a series of related transactions) is made by the Company or its Restricted Subsidiaries of all or substantially all of the consolidated assets of the Company and its Restricted Subsidiaries to any Person. Within 30 days following any Change of Control, the Company shall mail a notice to each Holder with a copy to the Trustee stating, among other things: (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase all or any portion of such Holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts and financial information regarding such Change of Control; (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by the Company, consistent with this covenant, that a Holder must follow in order to have its Notes or any portion thereof purchased. The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations described above by virtue thereof. The Change of Control purchase feature is a result of negotiations between the Company and the Initial Purchasers. Management has no present intention to engage in a transaction involving a Change of Control, although it is possible that the Company or Holdings would decide to do so in the future. Subject to the limitations discussed below, the Company could, in the future, enter into certain transactions, including acquisitions or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect the Company's capital structure or credit ratings. The occurrence of a Change of Control would constitute a default under the Senior Bank Facilities. Future Senior Indebtedness of the Company may contain prohibitions of certain events which would constitute a Change of Control or require such Senior Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the Holders of their right to require the Company to repurchase the Notes could cause a default under such Senior Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company's ability to pay cash to the Holders upon a repurchase may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any repurchases required in connection with a Change of Control. The Company's failure to purchase the Notes in connection with a Change of Control would result in a default under the Indenture. 65 69 CERTAIN COVENANTS The Indenture will contain covenants including, among others, the following: Limitation on Indebtedness. (a) The Company will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness (other than pursuant to the following paragraph (b)) unless on the date of such Incurrence the Consolidated Coverage Ratio exceeds 2.00 to 1. (b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness consisting of the Term Loans in an aggregate principal amount outstanding of up to $45.0 million less (A) the amount of any scheduled principal payments thereon and (B) the aggregate amount of all repayments of principal actually made thereunder since the Issue Date with Net Available Cash from Asset Dispositions pursuant to clause (a)(iii)(A) of the covenant described under "-- Limitation on Sales of Assets and Subsidiary Stock"); (ii) Indebtedness consisting of revolving credit, working capital or letters of credit financing in an aggregate principal amount at any time outstanding not in excess of the greater of $35.0 million and the Borrowing Base in effect from time to time (in each case less the aggregate amount of all repayments of principal actually made thereunder since the Issue Date with Net Available Cash from Asset Dispositions pursuant to clause (a)(iii)(A) of the covenant described under "-- Limitation on Sales of Assets and Subsidiary Stock"); (iii) Indebtedness of the Company owing to and held by any Wholly Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Company or any Wholly Owned Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of any such Indebtedness (except to the Company or a Wholly Owned Subsidiary) will be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (iv) Indebtedness of the Company represented by the Notes; (v) any Indebtedness of the Company and its Restricted Subsidiaries (other than the Indebtedness described in clauses (i), (ii) or (iii) above) outstanding on the Issue Date; (vi) Indebtedness of the Company and its Restricted Subsidiaries (A) in respect of judgment, appeal, surety, performance and other like bonds, bankers' acceptances and letters of credit provided by the Company and its Restricted Subsidiaries in the ordinary course of their business and which do not secure other Indebtedness and (B) under Commodity Agreements, Currency Agreements and Interest Rate Agreements that are designed to protect the Company and its Restricted Subsidiaries against fluctuations in commodity prices (for raw materials used by them), interest rates or currency exchange rates and not for the purposes of speculation; (vii) Indebtedness represented by Guarantees by the Company of Indebtedness of a Restricted Subsidiary, or in respect of letters of credit provided by the Company to support such Indebtedness, or Guarantees by a Restricted Subsidiary of Indebtedness of the Company or a Restricted Subsidiary, or in respect of letters of credit provided by a Restricted Subsidiary to support such Indebtedness; provided, however, that only Indebtedness that is Incurred in compliance with this covenant may be guaranteed pursuant to this clause (vii); (viii) Purchase Money Indebtedness, industrial revenue bonds or similar Indebtedness and Capitalized Lease Obligations of the Company and its Restricted Subsidiaries in an aggregate principal amount at any time outstanding not in excess of 10% of Total Assets; (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 66 70 acquisition or disposition of any business, assets or Subsidiary of the Company permitted under the Indenture; (x) Indebtedness of the Company and its Restricted Subsidiaries, to the extent the proceeds thereof are immediately used after the Incurrence thereof to purchase Notes tendered in an offer to purchase made as a result of a Change of Control; (xi) Indebtedness of the Company or a Restricted Subsidiary owed to (including obligations in respect of letters of credit for the benefit of) any Person in connection with liability insurance provided by such Person to the Company or such Restricted Subsidiary, pursuant to reimbursement or indemnification obligations to such Person, in each case Incurred in the ordinary course of business; (xii) Indebtedness of the Company consisting of guarantees of up to an aggregate principal amount of $2.0 million of borrowings by Management Investors in connection with purchases of Voting Stock of Holdings on or after the Issue Date and in accordance with "-- Certain Covenants -- Limitation on Restricted Payments;" (xiii) Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount at any time outstanding not in excess of $15.0 million which Indebtedness may be incurred pursuant to clause (ii) above; and (xiv) any Refinancing Indebtedness incurred in respect of any Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (i), (ii), (v), (viii), (x) or (xiv) of this paragraph (b). (c) Notwithstanding the foregoing, the Company may not Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of the Company unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness of the Company. In addition, the Company may not Incur any Secured Indebtedness which is not Senior Indebtedness of the Company unless contemporaneously therewith effective provision is made to secure the Notes equally and ratably with (or on a senior basis to, in the case of Indebtedness subordinated in right of payment to the Notes) such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. A Guarantor Subsidiary may not Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of the Guarantor Subsidiary unless such Indebtedness is Senior Subordinated Indebtedness of such Guarantor Subsidiary or is expressly subordinated in right of payment to Senior Subordinated Indebtedness of such Guarantor Subsidiary. In addition, a Guarantor Subsidiary may not incur any Secured Indebtedness which is not Senior Indebtedness of such Guarantor Subsidiary unless contemporaneously therewith effective provision is made to secure the Subsidiary Guaranty equally and ratably with (or on a senior basis to, in the case of Indebtedness subordinated in right of payment to such Subsidiary Guaranty) such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. Limitation on Restricted Payments. (a) The Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to: (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) except dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and except dividends or distributions payable to the Company or another Restricted Subsidiary (and, if such Restricted Subsidiary has shareholders other than the Company or other Restricted Subsidiaries, to its other shareholders on a pro rata basis or on a basis that results in the receipt by the Company or a Restricted Subsidiary of dividends or distributions of equal or greater value); 67 71 (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company or any Restricted Subsidiary held by Persons other than the Company or another Restricted Subsidiary; (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement, Investment or payment being herein referred to as a "Restricted Payment") if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default will have occurred and be continuing (or would result therefrom); (2) the Company could not Incur at least $1.00 of additional Indebtedness under paragraph (a) of the covenant described under "-- Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments (the amount so expended, if other than in cash, to be determined in good faith by the Board of Directors, whose determination will be conclusive and evidenced by a resolution of the Board of Directors) declared or made subsequent to the Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the Issue Date to the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Restricted Payment (or, in case such Consolidated Net Income will be a deficit, minus 100% of such deficit); (B) 100% of the aggregate net proceeds received by the Company (including the fair market value (as determined in good faith by the Board of Directors, whose determination will be conclusive and evidenced by a resolution of the Board of Directors) of property received by the Company; provided, however, that such property is related, ancillary or complementary to any business of the Company and the Restricted Subsidiaries conducted on the Issue Date) as a capital contribution or from the issue or sale of Capital Stock (other than Disqualified Stock) of the Company or Holdings subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of the Company or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries to the extent the purchase by such plan or trust is financed by Indebtedness of such plan or trust and for which the Company or a Subsidiary is liable, directly or indirectly, as a guarantor or otherwise (including by the making of cash contributions to such plan or trust which are used to pay interest or principal on such Indebtedness)); (C) the amount by which Indebtedness of the Company or its Restricted Subsidiaries is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary) of any Indebtedness of the Company or its Restricted Subsidiaries issued subsequent to the Issue Date and convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash or other property (other than such Capital Stock) distributed by the Company or any Restricted Subsidiary upon such conversion or exchange) (including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares or scrip); (D) the aggregate Net Cash Proceeds received subsequent to the Issue Date by the Company or Holdings (other than from any Restricted Subsidiary) upon the exercise of any options or warrants to purchase Capital Stock (other than Disqualified Stock) of the Company or Holdings; and 68 72 (E) the amount equal to the net reduction in Investments in Unrestricted Subsidiaries resulting from (i) payments of dividends, repayments of the principal of loans, return of capital or advances or other transfers of assets to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investment") or the receipt of proceeds from the sale or other disposition of any portion of any Investment in an Unrestricted Subsidiary not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was included in the calculation of the amount of Restricted Payments. (b) The provisions of the foregoing paragraph (a) will not prohibit: (i) any purchase, redemption, retirement or other acquisition of Capital Stock or Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries to the extent the purchase by such plan or trust is financed by Indebtedness of such plan or trust and for which the Company or a Subsidiary is liable, directly or indirectly, as a guarantor or otherwise (including by the making of cash contributions to such plan or trust which are used to pay interest or principal on such Indebtedness)); provided, however, that (A) such purchase, redemption, retirement or other acquisition will be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale to the extent so used will be excluded from clause (iv)(B) of paragraph (a) above; (ii) any purchase, defeasance, retirement, redemption or other acquisition of (A) Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to paragraph (b) of the covenant described under "-- Limitation on Indebtedness" or (B) Subordinated Obligations of a Restricted Subsidiary made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of any Restricted Subsidiary or the Company which is permitted to be Incurred pursuant to paragraph (b) of the covenant described under "-- Limitation of Indebtedness"; provided, however, that such purchase, defeasance, retirement, redemption or other acquisition will be excluded in the calculation of the amount of Restricted Payments; (iii) any purchase, redemption, retirement or other acquisition of Disqualified Stock made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock; provided, however, that such purchase, redemption, retirement or other acquisition will be excluded in the calculation of the amount of Restricted Payments; (iv) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted by the covenant described under "-- Limitation on Sales of Assets and Subsidiary Stock"; provided, however, that such purchase or redemption will be excluded in the calculation of the amount of Restricted Payments; (v) upon the occurrence of a Change of Control and within 60 days after the completion of the offer to repurchase the Notes pursuant to the covenant described under "-- Change of Control" above (including the purchase of all Notes tendered), any purchase, defeasance, retirement, redemption or other acquisition of Subordinated Obligations required pursuant to the terms thereof as a result of such Change of Control; provided, however, that such purchase, defeasance, retirement, redemption or other acquisition will be included in the calculation of the amount of Restricted Payments; 69 73 (vi) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; provided, however, that such dividend will be included in the calculation of the amount of Restricted Payments; (vii) the repurchase, for cash or notes, of shares of, or options or warrants to purchase shares of, or payments to Holdings to enable Holdings to repurchase shares of, or options or warrants to purchase shares of, Capital Stock of Holdings, the Company or any of the Subsidiaries of the Company from present or former Management Investors in an amount not in excess of $2.0 million in any one year and $5.0 million in the aggregate; provided, however, that the amount of such repurchase will be included in the calculation of the amount of Restricted Payments; (viii) payments in lieu of fractional shares in amount not in excess of $250,000 in the aggregate; (ix) payments by the Company to Holdings to pay Federal, state and local taxes to the extent such taxes are attributable to the Company and its Restricted Subsidiaries; provided, however, that such payments will be excluded from the calculation of the amount of Restricted Payments; (x) loans, advances, dividends or distributions by the Company to Holdings to pay dividends on the common stock of Holdings following a Public Equity Offering of such stock; but only to the extent that such loans, advances, dividends or distributions do not exceed 6% per annum of the net proceeds received by the Company in such Public Equity Offering; provided, however, that the amount of such loans, advances, dividends or distributions will be included in the amount of Restricted Payments; or (xi) in each case to the extent such payments by Holdings are attributable to the Company and its Restricted Subsidiaries, payments by the Company to Holdings not to exceed an amount necessary to permit Holdings to (A) make payments in respect to its indemnification obligations owing to directors, officers or other Persons under 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 Holdings in connection with any offering of common stock of Holdings; provided, however, that all such payments will be included in the calculation of the amount of Restricted Payments. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness owed to the Company, (ii) make any loans or advances to the Company or (iii) transfer any of its property or assets to the Company, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date; (2) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness entered into prior to the date on which such Restricted Subsidiary was acquired or designated as a Restricted Subsidiary by the Company (other than as consideration in, in contemplation of, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was otherwise acquired by the Company); (3) any encumbrance or restriction pursuant to (x) an agreement constituting Refinancing Indebtedness of Indebtedness Incurred pursuant to an agreement referred to in clause (1) or 70 74 (2) of this covenant or this clause (3) or contained in any amendment to an agreement referred to in clause (1) or (2) of this covenant or this clause (3) or (y) Indebtedness Incurred pursuant to clause (i) or (ii) of paragraph (b) of the covenant described above under "-- Limitation on Indebtedness;" provided, however, that the encumbrances and restrictions contained in (A) any such refinancing agreement or amendment referred to in clause (x) above are, collectively, no more restrictive in any material respect than the encumbrances and restrictions contained in such agreements (as determined in good faith by the Company) and (B) any instrument relating to any Indebtedness referred to in clause (y) above, are, collectively, no more restrictive in any material respect than the encumbrances and restrictions contained in the Senior Bank Facilities as in effect on the Issue Date (as determined in good faith by the Company); (4) in the case of clause (iii) above, any encumbrance or restriction contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary which are not prohibited by the covenant described under "-- Limitation on Liens" to the extent such encumbrances or restrictions restrict the transfer of the property or assets subject to such security agreements or mortgages; (5) any encumbrance or restriction existing under or by reason of applicable law; (6) customary non-assignment provisions of any licensing agreement or of any lease; (7) any encumbrance or restriction contained in contracts for sales of assets otherwise permitted by the Indenture; (8) with respect to a Restricted Subsidiary, any encumbrance or restriction imposed pursuant to an agreement that has been entered into for the sale of all or substantially all of the Capital Stock of such Restricted Subsidiary; and (9) Purchase Money Obligations for property acquired in the ordinary course of business that impose restrictions of the type referred to in clause (iii) of this covenant. Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless: (i) the Company or such Restricted Subsidiary receives consideration (including by way of relief from, or by any other Person assuming sole responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the fair market value, as may be determined (and shall be determined, to the extent an Asset Disposition (or a series of related Asset Dispositions) involves a fair market value greater than $1.0 million) in good faith by the Board of Directors, whose determination will be conclusive and evidenced by a resolution of the Board of Directors (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition; (ii) in the case of an Asset Disposition (or a series of related Asset Dispositions) having a fair market value of $1.0 million or more, at least 80% (or 100% in the case of lease payments) of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents; and (iii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) first, to the extent the Company or such Restricted Subsidiary elects (or is required by the terms of any Senior Indebtedness), to prepay, repay or purchase Senior Indebtedness of the Company or a Wholly Owned Subsidiary or, in the case of a sale by a Restricted Subsidiary which is not a Wholly Owned Subsidiary, to prepay, repay or purchase Senior Indebtedness of such Restricted Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 365 days after the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of Net Available Cash after 71 75 application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects, to reinvest (or enter into a binding contract to do so) in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary), within 365 days from the later of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an Offer (as defined below) to purchase Notes pursuant to and subject to the conditions set forth in section (b) of this covenant and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), to fund (to the extent consistent with any other applicable provision of the Indenture) any corporate purpose; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) above, the Company or such Restricted Subsidiary will retire such Indebtedness and will cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this covenant, the Company and its Restricted Subsidiaries will not be required to apply any Net Available Cash in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions in any year which are not applied in accordance with this covenant exceed $5.0 million in such year. For the purposes of clause (ii) of this covenant, the following are deemed to be cash: (w) the assumption of Indebtedness of the Company (other than Disqualified Stock of the Company) or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition, (x) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash, (y) Indebtedness of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Disposition, to the extent that the Company and each other Restricted Subsidiary is released from any Guarantee of such Indebtedness in connection with such Asset Disposition, and (z) consideration consisting of Indebtedness of the Company or any Restricted Subsidiary. (b) In the event of an Asset Disposition that requires the purchase of Notes pursuant to clause (a)(iii)(C) of this covenant, the Company will be required to purchase Notes tendered pursuant to an offer, commenced within 30 days following the expiration of the 365 day period referred to in clause (a)(iii)(B) of this covenant (or, if the Company so elects, at any time within such 365 day period), by the Company for the Notes (the "Offer") at a purchase price of 100% of their principal amount plus accrued and unpaid interest, if any, to the date of purchase in accordance with the procedures (including prorationing in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of Notes tendered pursuant to the Offer is less than the Net Available Cash allotted to the purchase of the Notes, the Company will apply the remaining Net Available Cash in accordance with clause (a)(iii)(D) of this covenant and upon completion of the purchase of the Notes tendered pursuant to the Offer, the remaining amount of Net Available Cash, if any, will be reset at zero. The Company will not be required to make an Offer for Notes pursuant to this covenant if the Net Available Cash available therefor (after application of the proceeds as provided in clauses (A) and (B) of section (a)(iii) of this covenant) is less than $5.0 million (which lesser amount will be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof. 72 76 Limitation on Transactions with Affiliates. (a) The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") on terms (i) that are less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate and (ii) that , in the event such Affiliate Transaction involves an aggregate amount in excess of $1.0 million, are not in writing and have not been approved by a majority of the members of the Board of Directors having no material direct or indirect financial interest in or with respect to such Affiliate Transaction. In addition, if such Affiliate Transaction involves an amount in excess of $5.0 million, a fairness opinion must be obtained from a nationally recognized appraisal or investment banking firm. (b) The provisions of the foregoing paragraph (a) will not prohibit (i) any Restricted Payment or Permitted Investment permitted to be made pursuant to the covenant described under "-- Limitation on Restricted Payments," (ii) fees, compensation or employee benefit arrangements paid to, and any indemnity provided for the benefit of, directors, officers or employees of the Company, Holdings or any Subsidiary of the Company in the ordinary course of business or any Indebtedness permitted to be Incurred pursuant to clause (xiii) of paragraph (b) of the covenant described under "-- Limitation on Indebtedness," or any payments in respect thereof, (iii) 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, (iv) transactions pursuant to agreements entered into or in effect on the Issue Date, including amendments thereto entered into after the Issue Date, provided that 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, (v) loans or advances to employees that are Affiliates of the Company in the ordinary course of business, but in any event not to exceed $2.0 million in the aggregate outstanding at any one time, (vi) any transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries (so long as the other stockholders of any participating Restricted Subsidiaries which are not Wholly Owned Subsidiaries are not themselves Affiliates of the Company) or (vii) payments with respect to Indebtedness Incurred pursuant to clause (ix) of paragraph (b) of the covenant described under "-- Limitation on Indebtedness." Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. The Company will not sell any shares of Capital Stock of a Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell any shares of its Capital Stock, except (i) to the Company or a Wholly Owned Subsidiary, (ii) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary, (iii) directors' qualifying shares or (iv) in a Public Equity Offering as a result of or after which a Public Market exists. The proceeds of any sale of such Capital Stock permitted by clause (ii) must be treated as Net Available Cash from an Asset Disposition and must be applied in accordance with the terms of the covenant described under "-- Limitation on Sales of Assets and Subsidiary Stock." Limitation on Liens. (a) The Company will not, and will not permit any Guarantor Subsidiary to, directly or indirectly, create or permit to exist any Lien (the "Initial Lien") on any of its property or assets (including Capital Stock), whether owned on the Issue Date or thereafter acquired, securing any Indebtedness other than Senior Indebtedness of the Company, in the case of the Company, or Senior Indebtedness of a Guarantor Subsidiary, in the case of a Guarantor Subsidiary, unless contemporaneously therewith effective provision is made to secure the Notes and, in respect of Liens on any Guarantor Subsidiary's property or assets, the Subsidiary Guaranty of such Guarantor Subsidiary equally and ratably with (or on a senior basis to, in the case of Indebtedness expressly subordinated in right of payment to the Notes and such Subsidiary Guaranty) such obligation for so long as such obligation is so secured. The preceding sentence will not require the 73 77 Company or any Restricted Subsidiary to equally and ratably secure the Notes if the Initial Lien consists of Permitted Liens. (b) Any Lien created for the benefit of the Holders of the Notes pursuant to the foregoing paragraph (a) shall provide by its terms that such Lien shall be automatically and unconditionally released and discharged upon the release and discharge of the Initial Lien. SEC Reports. Notwithstanding that the Company may not be required to be or remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the Commission (after the date the Exchange Offer or Shelf Registration Statement described under "-- Exchange and Registration Rights Agreement" below becomes effective), and provide (both prior to and after such effective date) the Trustee and Noteholders and prospective Noteholders (upon request) with the annual reports and the information, documents and other reports which are specified in Sections 13 and 15(d) of the Exchange Act. The Company also will comply with the other provisions of TIA Sec. 314(a). Future Guarantor Subsidiaries. The Company will cause (a) each Restricted Subsidiary that is a Domestic Subsidiary which Incurs Indebtedness and (b) each Restricted Subsidiary that is not a Domestic Subsidiary and that after the Issue Date enters into a Guarantee of any of the obligations of the Company, Holdings or any of the Company's Subsidiaries pursuant to the Senior Bank Facilities to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiary will Guarantee payment of the Notes; provided, however, that such Subsidiary shall not be required to execute and deliver a supplemental indenture pursuant to this section in the event that such Subsidiary is a party to the Indenture or the Supplemental Indenture at the time of such Incurrence of Indebtedness. Each Subsidiary Guaranty will be limited to an amount not to exceed the maximum amount that can be Guaranteed by that Subsidiary without rendering the Subsidiary Guaranty, as it relates to such Subsidiary, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Limitation on Lines of Business. The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than (i) a Related Business and (ii) the making of Permitted Investments and the operations of any business that is part of a Permitted Investment. Holdings will not engage in any business other than managing its investment in the Company. Limitation on Sale/Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless (i) the Company or such Restricted Subsidiary would be entitled to Incur Indebtedness in an amount equal to the Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to the covenant described under "-- Limitation on Indebtedness" and (ii) the net cash proceeds received by the Company or any Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at least equal to the fair market value (in the case of Sale/Leaseback Transactions involving amounts in excess of $1.0 million, as determined by the Board of Directors, whose determination will be conclusive and evidenced by a resolution of the Board of Directors) of such property and (iii) the transfer of such property is permitted by, and the Company applies the proceeds of such transaction in compliance with, the covenant described under "-- Limitation on Sale of Assets and Subsidiary Stock." MERGER AND CONSOLIDATION The Company will not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") will be a corporation, limited liability company, limited partnership or business trust organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) will expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and the Indenture; 74 78 (ii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default will have occurred and be continuing; (iii) except in the case of a merger the sole purpose of which is to change the Company's jurisdiction of incorporation, immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness under paragraph (a) of the covenant described under "-- Limitation on Indebtedness"; (iv) immediately after giving effect to such transaction, the Successor Company will have Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of the Company immediately prior to such transaction and (v) the Company will have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture. Notwithstanding the foregoing clauses (ii), (iii) and (iv), any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company. The Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, but the predecessor Company in the case of a conveyance, transfer or lease of all or substantially all its assets will not be released from the obligation to pay the principal of and interest on the Notes. DEFAULTS An Event of Default is defined in the Indenture as: (i) a default in any payment of interest on any Note when due (whether or not such payment is prohibited by the provisions described under "Ranking" above), continued for 30 days; (ii) a default in the payment of principal of any Note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise (whether or not such payment is prohibited by the provisions described under "Ranking" above); (iii) the failure by the Company to comply with its obligations under the covenant described under "Merger and Consolidation" above; (iv) the failure by the Company to comply for 30 days after notice with any of its obligations under the covenants described under "Change of Control" or "Certain Covenants" above (in each case, other than a failure to purchase Notes); (v) the failure by the Company or any Guarantor Subsidiary to comply for 60 days after notice with its other agreements contained in the Notes or the Indenture; (vi) the failure by the Company or any Significant Subsidiary to pay any Indebtedness within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders thereof because of a default, if the total amount of such Indebtedness unpaid or accelerated exceeds $5.0 million or its foreign currency equivalent (the "cross acceleration provision"); (vii) certain events of bankruptcy, insolvency or reorganization of the Company or a Restricted Subsidiary (the "bankruptcy provisions"); (viii) the rendering of any judgment or decree in excess of $5.0 million or its foreign currency equivalent (net of amounts paid within 30 days of any such judgment or decree under any insurance, indemnity, bond, surety or similar instrument) against the Company or a Restricted Subsidiary by a court or other adjudicatory authority of competent jurisdiction for which the Company or the Restricted Subsidiary, as applicable, is not fully insured by a third 75 79 Person and (A) an enforcement proceeding is commenced with respect to such judgment or decree or (B) such judgment or decree remains outstanding the later of (i) the day which is the sixtieth day after the judgment is rendered and (ii) the day on which any right to appeal expires (the "judgment default provision"); or (ix) any Subsidiary Guaranty ceases to be in full force and effect (except as contemplated by the terms thereof) or any Guarantor Subsidiary denies or disaffirms its obligations under the Indenture or any Subsidiary Guaranty and such Default continues for 10 days. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. However, a default under clauses (iv) or (v) will not constitute an Event of Default until the Trustee or the Holders of 25% in principal amount of the outstanding Notes notify the Company of the default and the Company does not cure such default within the time specified in clauses (iv) and (v) hereof after receipt of such notice. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the outstanding Notes by notice to the Company may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest will be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and interest on all the Notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such Holder has previously given the Trustee notice that an Event of Default is continuing, (ii) Holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy, (iii) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each Holder notice of the Default within the earlier of 90 days after it occurs or 30 days after it is known to a Trust Officer or written notice of it is received by the Trustee. Except in the case of a Default in the payment of principal of, premium (if any) or interest on any Note, the Trustee may withhold notice if and so long as a committee of its Trust Officers in good faith 76 80 determines that withholding notice is in the interests of the Noteholders. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Company also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof. AMENDMENTS AND WAIVERS Subject to certain exceptions, the Indenture may be amended with the consent of the Holders of a majority in principal amount of the Notes then outstanding and any past default and its consequences or compliance with any provisions may be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding. However, without the consent of each Holder of an outstanding Note affected, no amendment may (i) reduce the amount of Notes whose Holders must consent to an amendment or waiver, (ii) reduce the rate of or extend the time for payment of interest on any Note, (iii) reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce the premium payable upon the redemption of any Note or change the time at which any Note may be redeemed as described under "Optional Redemption" above, (v) make any Note payable in money other than that stated in the Note, (vi) impair the right of any Holder to receive payment of principal of and interest on such Holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's Notes, (vii) make any change in the amendment provisions which require each Holder's consent or in the waiver provisions or (viii) make any change in any Subsidiary Guaranty that would adversely affect the Noteholders. Without the consent of any Holder, the Company and Trustee may amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to provide for the assumption by a successor corporation of the obligations of the Company under the Indenture, to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to add further Guaranties with respect to the Notes, to release Guarantor Subsidiaries when permitted by the Indenture, to secure the Notes, to add to the covenants of the Company for the benefit of the Noteholders or to surrender any right or power conferred upon the Company, to make any change that does not adversely affect the rights of any Holder or to comply with any requirement of the Commission in connection with the qualification of the Indenture under the TIA. The consent of the Noteholders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the Indenture becomes effective, the Company is required to mail to Noteholders a notice briefly describing such amendment. However, the failure to give such notice to all Noteholders, or any defect therein, will not impair or affect the validity of the amendment. TRANSFER AND EXCHANGE A Noteholder may transfer or exchange Notes in accordance with the Indenture. Upon any transfer or exchange, the registrar and the Trustee may require a Noteholder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Noteholder to pay any taxes required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption or to transfer or exchange any Note for a period of 15 days prior to a selection of Notes to be redeemed. The Notes will be issued in registered form and the registered holder of a Note will be treated as the owner of such Note for all purposes. 77 81 DEFEASANCE The Company at any time may terminate all its obligations under the Notes and the Indenture ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. The Company at any time may terminate its obligations under the covenants described under "Certain Covenants," the operation of the cross acceleration provision, the bankruptcy default provisions with respect to Subsidiaries and the judgment default provision described under "Defaults" above and the limitations contained in clauses (iii) and (iv) under "Merger and Consolidation" above ("covenant defeasance"). If the Company exercises its legal defeasance option or its covenant defeasance option, each Guarantor Subsidiary will be released from all of its obligations with respect to its Subsidiary Guaranty. The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (iv), (vi), (vii) (with respect to Restricted Subsidiaries only), (viii) (with respect to Significant Subsidiaries only), (ix) or (x) under "Defaults" above or because of the failure of the Company to comply with clause (iii) or (iv) under "Merger and Consolidation" above. Defeasance options with respect to the Notes may be exercised to any redemption date or the applicable maturity date. In order to exercise either defeasance option, the Company must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations for the payment of principal, premium (if any) and interest on the Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law). CONCERNING THE TRUSTEE United States Trust Company of New York is to be the Trustee under the Indenture and has been appointed by the Company as Registrar and Paying Agent with regard to the Notes. GOVERNING LAW The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. CERTAIN DEFINITIONS "ACP Holdings" means ACP Holding Company, a Delaware corporation. "ACP Products, L.L.C." means ACP Products, L.L.C., a Delaware limited liability company. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock), including improvements to existing assets, to be used by the Company or a Restricted Subsidiary in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a 78 82 Restricted Subsidiary; provided, however, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Related Business. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the provisions described under "-- Certain Covenants -- Limitation on Transactions with Affiliates" only, "Affiliate" shall also mean any beneficial owner of shares representing 5% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Applicable Premium" means, with respect to a Note, the greater of (i) 1.0% of the then outstanding principal amount of such Note and (ii) the excess of (A) the present value of all remaining required interest and principal payments due on such Note, computed using a discount rate equal to the Treasury Rate plus 75 basis points, over (B) the then outstanding principal amount of such Note. "Asset Disposition" means any sale, lease, transfer or other disposition of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property or assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than (i) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Restricted Subsidiary; (ii) a disposition of inventory, in the ordinary course of business consistent with past practices of the Company and its Subsidiaries; (iii) dispositions with a fair market value of less than $500,000 in the aggregate in any fiscal year; (iv) a disposition of properties and assets that is governed by the provisions under the first paragraph of "-- Merger and Consolidation" above; and (v) for purposes of the provisions described under "-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, a disposition subject to the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments." "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate assumed in making calculations in accordance with FAS 13) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or scheduled redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Bank Indebtedness" means any and all amounts payable under or in respect of the Senior Bank Facilities or any refinancing or replacements thereof including principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not a claim for post-filing interest is allowed in such proceeding), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. 79 83 "Borrowing Base" means, as of the date of determination, an amount equal to the sum, without duplication, of (i) 80% of the net book value of the Company's accounts receivable at such date and (ii) 50% of the net book value of the Company's inventories at such date. Net book value shall be determined in accordance with GAAP and shall be that reflected on the most recent available balance sheet (it being understood that the accounts receivable and inventories of an acquired business may be included if such acquisition has been completed on or prior to the date of determination). "Business Day" means a day other than a Saturday, Sunday or other day on which banking institutions in New York State are authorized or required by law to close. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP. The amount of Indebtedness represented by a Capitalized Lease Obligation shall be the capitalized amount of such obligation determined in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last scheduled payment of rent or any other amount due under the relevant lease. "Citicorp" means Citicorp, a Delaware corporation. "Code" means the Internal Revenue Code of 1986, as amended. "Commodity Agreement" means one or more of the following agreements entered into by a Person and one or more financial institutions: commodity future contracts, forward contracts, options or other similar arrangements or agreements designed to protect against fluctuations in the price of, or the shortage of supply of, commodities from time to time. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (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 (determined, for the four fiscal quarters ending prior to the Issue Date, or any thereof, on a pro forma basis to give effect to the Neenah Merger as if it had occurred at the beginning of such period) to (ii) Consolidated Interest Expense for such four fiscal quarters (determined, for the four fiscal quarters ending prior to the Issue Date, or any thereof, on a pro forma basis to give effect to the Neenah Merger as if it had occurred at the beginning of such period); provided, however, that: (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness and the application of the proceeds thereof as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period (except that in the case of Indebtedness to finance seasonal fluctuations in working capital needs Incurred under a revolving credit or similar arrangement, the amount thereof shall be deemed to be the average daily balance of such Indebtedness during such four quarter period); (2) if since the beginning of such period the Company or any Restricted Subsidiary shall have disposed of any assets constituting all or substantially all of the assets of an operating unit of a business (a "Disposal"), (x) the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Disposal for 80 84 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 hereunder, which constitutes all or substantially all of the assets of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect 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 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, for any period, the total consolidated interest expense of the Company and its Restricted Subsidiaries for such period, plus, to the extent Incurred by the Company and its Restricted Subsidiaries in such period but not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations and Attributable Debt, (ii) amortization of debt discount, (iii) capitalized interest, (iv) noncash interest expense, (v) commissions, discounts and other fees and charges with respect to letters of credit and bankers' acceptance financing, (vi) net costs associated with Interest Rate Agreements, (vii) the 81 85 interest portion of any deferred payment obligation for goods or services, (viii) interest actually paid by the Company or any Restricted Subsidiary on any Indebtedness of any other Person that is Guaranteed by the Company or any Restricted Subsidiary, (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company or a Wholly Owned Subsidiary) in connection with Indebtedness Incurred by such plan or trust and (x) the earned discount or yield with respect to the sale of receivables (without duplication of amounts included in Consolidated Net Income); but in no event shall include (i) amortization of debt issuance costs, (ii) Preferred Stock dividends in respect of all Preferred Stock of Subsidiaries of the Company and Disqualified Stock of the Company held by Persons other than the Company or a Wholly Owned Subsidiary, or (iii) interest Incurred in connection with Investments in discontinued operations. "Consolidated Net Income" means, for any period, the consolidated net income (loss) of the Company and its Subsidiaries for such period; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the limitations contained in clause (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period shall be included in determining such Consolidated Net Income, (ii) for purposes of subclause (a)(3)(A) of the covenant described under "Limitation on Restricted Payments" only, any net income (loss) of any person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition, (iii) any net income (loss) of any Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the limitations contained in (iv) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend (subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income, (iv) any gain (or loss) realized upon the sale or other disposition of any asset of the Company or its Consolidated Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any Capital Stock of any Person, (v) any extraordinary gain or loss, and (vi) the cumulative effect of a change in accounting principles after the Issue Date. Notwithstanding the foregoing, for the purpose of the covenant described under "Certain Covenants -- Limitation on Restricted Payments" only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof. Notwithstanding anything to the contrary in the covenant described under "Certain Covenants -- Limitations on Restricted Payments," all amounts paid to Holdings pursuant to clause (b)(xi)(B) of such covenant shall be deducted in computing Consolidated Net Income. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and the Restricted Subsidiaries, determined on a Consolidated basis, as of the end of the most recent fiscal quarter of the Company ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid-in capital or capital surplus relating to such 82 86 Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Consolidated Non-Cash Charges" of any Person means, for any period, the aggregate depreciation, amortization and other non-cash charges of such Person and its Consolidated Subsidiaries for such period, on a Consolidated basis, as determined in accordance with GAAP (excluding any such other non-cash charge which consists of an accrual or reserve for cash charges for any future period). "Consolidation" means the consolidation of the accounts of each of the Restricted Subsidiaries with those of the Company in accordance with GAAP consistently applied; provided, however, that "Consolidation" will not include consolidation of the accounts of any Unrestricted Subsidiary, but the interest of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will be accounted for as an investment. The term "Consolidated" has a correlative meaning. "Currency Agreement" means with respect to any Person any foreign exchange contract, currency swap agreement or other similar agreement or arrangement as to which such Person is a party or a beneficiary. "CVC" means Citicorp Venture Capital, Ltd., a New York corporation. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii) any other Senior Indebtedness of the Company which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend at least $25.0 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to ninety-one days after the Stated Maturity of the Notes. Disqualified Stock shall not include any Capital Stock that is not otherwise Disqualified Stock if by its terms the holders have the right to require the issuer to repurchase such stock upon a Change of Control (or upon events substantially similar to a Change of Control). "Domestic Subsidiary" means a Subsidiary that is incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "EBITDA" for any period means the Consolidated Net Income for such period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest Expense and (iii) Consolidated Non-Cash Charges, in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Subsidiary of the Company shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income (loss) of such Subsidiary was included in calculating Consolidated Net Income. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, in statements and pronouncements of the Financial Accounting Standards Board or in such other statements by 83 87 such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person through an agreement enforceable by or for the benefit of the holder of such Indebtedness and any such obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantor Subsidiary" means any Person that has issued a Subsidiary Guaranty. Upon consummation of the Neenah Merger and execution and delivery of the Supplemental Indenture, the term "Guarantor Subsidiary" shall include each of the Initial Guarantors. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Commodity Agreement, Interest Rate Agreement or Currency Agreement. "Holder" or "Noteholder" means the Person in whose name a Note is registered on the Registrar's books. "Holdings" means NFC Castings, Inc., a Delaware corporation, any Person succeeding to its ownership, and successors thereto. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such person at the time it becomes a Restricted Subsidiary; provided further, however, that in the case of a discount security, the accretion of original issue discount on such security shall not be considered an Incurrence of Indebtedness if (but only if) at the time of issuance of such security, the Company elects to treat the whole face amount of such security as Incurred at such time (and such Incurrence is then permitted in accordance with the terms of the Indenture). "Indebtedness" means, with respect to any Person on any date of determination (without duplication), (i) the principal of indebtedness of such Person for borrowed money; (ii) the principal of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto) other than letters of credit or similar instruments supporting Trade Payables entered into in the ordinary course of business of such Person to the extent that such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed not later than the third business day following such drawing; (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except Trade Payables), which purchase price is due more than twelve months after the date of placing such property in service or taking delivery and title thereto or the completion of such services; (v) all Capitalized Lease Obligations and all Attributable Debt of such Person; (vi) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of the Company, any Preferred Stock (but excluding, in each case, any accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of Indebtedness of such Person shall 84 88 be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons; (viii) all Indebtedness of other Persons to the extent Guaranteed by such Person; and (ix) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "Initial Guarantors" means Neenah Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc., each a Wisconsin corporation. "Interest Rate Agreement" means, with respect to any Person, any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance or loan (other than advances or loans to customers or suppliers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the Person making such loan or advance) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary" and the covenant described under "-- Certain Covenants -- Limitation on Restricted Payments," only (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Issue Date" means the date on which the Notes were originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Management Investors" means the officers and employees of ACP Holdings, ACP Products, L.L.C., Holdings, the Company or a Subsidiary of the Company who acquire Voting Stock of ACP Holdings, ACP Products, L.L.C., Holdings or the Company on or after the Issue Date. "Moody's" means Moody's Investors Service, Inc. and its successors. "NC Merger" means NC Merger Company, a Wisconsin corporation. "Neenah Merger" means the merger of NC Merger Company with and into the Company under the terms of the Agreement and Plan of Reorganization (as amended) by and among Holdings, the Company and NC Merger Company and dated November 20, 1996. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or from an escrow account or otherwise, in each case only as and when received, but excluding any other consideration received in the form of assumption by the acquiring person of Indebtedness or other obligations relating to the properties or assets that are the subject of such 85 89 Asset Disposition or received in any other non-cash form) therefrom, in each case net of (i) all legal, title and recording expenses, commissions and other expenses (including fees and expenses of counsel and investment bankers) incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such asset disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) appropriate amounts to be provided by the party or parties making such Asset Disposition as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Disposition. "Net Cash Proceeds" with respect to any issuance or sale of Capital Stock, means the proceeds of such issuance or sale in the form of cash, including payments in respect of deferred payment obligations when received in form of, or stock or other assets when disposed for, cash, net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, filing and registration fees, trustee's fees, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Officer" means the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer, the President, any Vice President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Permitted Holders" means (i) CVC and its Affiliates and Permitted Transferees and (ii) the Management Investors and their Permitted Transferees. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) the Company, (ii) a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (iii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (iv) Temporary Cash Investments; (v) receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (vi) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vii) loans or advances to employees made in the ordinary course of business and not exceeding $1.0 million in the aggregate outstanding at any one time; (viii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (ix) securities received as consideration in sales of assets made in compliance with the covenant described under "-- Limitation on Sales of Assets and Subsidiary Stock"; (x) other Investments, of any type, provided that the amount of such Investments made after the Issue Date in reliance on this clause (x) and outstanding at any time does not exceed 7.5% of Total Assets; or (xi) Guarantees relating to 86 90 Indebtedness which is permitted to be Incurred under the covenant described under "-- Limitation on Indebtedness." "Permitted Liens" means with respect to any Person: (a) Liens to secure Indebtedness permitted under the provisions described under clause (b)(i) or (ii) under "Certain Covenants -- Limitation on Indebtedness"; (b) pledges or deposits made or other Liens granted by (1) such Person under workmen's compensation laws, unemployment insurance laws or similar legislation, (2) in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or (3) to secure public or statutory obligations of such Person or deposits of cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (c) Liens imposed by law, such as carriers', warehousemen's, mechanics', employees' and other like Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings or other Liens arising out of judgments, awards, decrees or orders of any court or other governmental authority against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review; (d) Liens for property taxes not yet due or payable or subject to penalties for non-payment or which are being contested in good faith and by appropriate proceedings; (e) Liens in favor of issuers of surety, performance, judgment, appeal and other like bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; (f) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning provisions, carveouts, conditional waivers or other restrictions as to the use of real properties or minor irregularities of title (and with respect to leasehold interests, mortgages, obligations, Liens and other encumbrances incurred, created, assumed or permitted to exist and arising by, through or under a landlord or owner of the leased property, with or without consent of the lessee) or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially impair the use of such properties in the operation of the business of such Person; (g) Liens existing or provided for under written arrangements existing on the Issue Date; (h) Liens securing Indebtedness or other obligations of a Subsidiary of such Person owing to such Person or a wholly owned Subsidiary of such Person; (i) Liens securing Hedging Obligations so long as the related Indebtedness is, and is permitted to be under the Indenture, secured by a Lien on the same property securing such Hedging Obligations; (j) Liens to secure any refinancing, refunding, replacement, renewal, repayment or extension (or successive refinancings, refundings, replacements, renewals, repayments or extensions) as a whole, or in part, of any Indebtedness secured by any Lien referred to in clause (g), (i), (l), (m) or (n); provided, however, that (x) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on such property) and (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (g), (i), (l), (m) and (n) at the time the original Lien became a Permitted Lien and (B) an amount necessary to pay any fees and expenses, 87 91 including premiums, related to such refinancing, refunding, replacement, renewal, repayment or extension; (k)(i) mortgages, liens, security interests, restrictions or encumbrances that have been placed by any developer, landlord or other third party on property over which the Company or any Restricted Subsidiary or the Company has easement rights or on any real property leased by the Company and subordination or similar agreements relating thereto and (ii) any condemnation or eminent domain proceedings affecting any real property; (l) Liens on property, assets or shares of stock of a Person at the time such Person becomes a Subsidiary; provided, however, such Liens are not created, Incurred or assumed by such Person in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided further, however, that such Liens may not extend to any other property owned by the Company or any Restricted Subsidiary; (m) Liens on property or assets at the time the Company or a Restricted Subsidiary acquired the property or assets, including any acquisition by means of a merger or consolidation with or into the Company or a Restricted Subsidiary; provided, however, that such Liens are not created in connection with, or in contemplation of, such acquisition; provided further, however, that the Liens may not extend to any other property owned by the Company or any Restricted Subsidiary; and (n) any Lien on stock or other securities of an Unrestricted Subsidiary that secures Indebtedness of such Unrestricted Subsidiary. "Permitted Transferee" means (a) with respect to CVC (i) Citicorp, any direct or indirect wholly owned subsidiary of Citicorp, and any officer, director or employee of CVC, Citicorp or any wholly owned subsidiary of Citicorp, (ii) any spouse or lineal descendant (including by adoption and stepchildren) of the officers, directors and employees to in clause (a)(i) above or (iii) any trust, corporation or partnership 100% in interest of the beneficiaries, stockholders or partners of which consists of one or more of the persons described in clause (a)(i) or (ii) above and (b) with respect to any officer or employee of ACP Products, L.L.C., ACP Holdings, Holdings, the Company or a Subsidiary of the Company (i) any spouse or lineal descendant (including by adoption and stepchildren) of such officer or employee and (ii) any trust, corporation or partnership 100% in interest of the beneficiaries, stockholders or partners of which consists of such officer or employee, any of the persons described in clause (b)(i) above or any combination thereof. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Public Equity Offering" means an underwritten public offering of common stock of ACP Holdings, the Company or Holdings (or, for purposes of the covenant described under "-- Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries," any Restricted Subsidiary) pursuant to an effective registration statement (other than a registration statement on Form S-4, S-8 or any successor or similar forms) under the Securities Act (whether alone or in conjunction with any secondary public offering); provided, however, that if any such offering is an offering of the common stock of ACP Holdings, only the net proceeds thereof that are contributed to the Company shall be taken into consideration for the purposes of this definition. "Public Market" means any time after (x) a Public Equity Offering has been consummated and (y) at least 15% of the total issued and outstanding common stock of ACP Holdings, the Company 88 92 or Holdings (or, for purposes of the covenant described under "-- Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries," any Restricted Subsidiary) has been distributed by means of an effective registration statement under the Securities Act. "Purchase Money Indebtedness" means Indebtedness (i) consisting of the deferred purchase price of an asset or assets (including Capital Stock and the assets of an ongoing business) including additions and improvements, any conditional sale obligation, any obligation under any title retention agreement or any other purchase money obligation, or (ii) incurred to finance the acquisition by the Company or a Restricted Subsidiary of an asset or assets (including Capital Stock and the assets of a Related Business) including additions and improvements; provided in the case of clause (i) that the Average Life of such Indebtedness is less than the anticipated useful life of assets having an aggregate fair market value representing more than 50% of the aggregate fair market value of all assets so acquired and that in the case of clauses (i) and (ii) such Indebtedness is incurred within 180 days after the acquisition by the Company or Restricted Subsidiary of such asset or assets, or is in existence with respect to any asset or other property at the time such asset or property is acquired. "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances" and "refinanced" shall have a correlative meaning) any Indebtedness existing on the Issue Date or Incurred in compliance with the Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary (to the extent permitted in the Indenture) and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of that or another Restricted Subsidiary of the Company), including Indebtedness that refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced, (iii) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or, if issued with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or, if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced plus the amount of any premium reasonably determined by the Company or such Restricted Subsidiary, as applicable, as necessary at the time of such refinancing to accomplish such refinancing or required pursuant to the terms thereof, plus the amount of expenses of the Company or such Restricted Subsidiary, as applicable, Incurred in connection with such refinancing and (iv) if the Indebtedness being refinanced is subordinated in right of payment to the Notes, such Refinancing Indebtedness is subordinated in right of payment to the Notes to the extent of the Indebtedness being refinanced provided further, however, that Refinancing Indebtedness shall not include Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. "Related Business" means any business of the Company and the Restricted Subsidiaries as conducted on the Issue Date and any business related, ancillary or complementary thereto. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill, Inc. and its successors. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired by the Company or a Restricted Subsidiary whereby the Company or such Restricted Subsidiary transfers such property to a Person and the Company or such Restricted Subsidiary leases it from such Person, other than leases between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries. 89 93 "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Secured Indebtedness" of any Guarantor Subsidiary has a correlative meaning. "Senior Bank Facilities" means the credit agreement dated as of the Issue Date, as amended, waived or otherwise modified from time to time, among Holdings, the Company, the lenders party thereto from time to time and The Chase Manhattan Bank, a New York banking corporation, as agent (except to the extent that any such amendment, waiver or other modification thereto would be prohibited by the terms of the Indenture). "Senior Subordinated Indebtedness" means the Notes and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Notes and is not subordinated by its terms to any Indebtedness or other obligation of the Company which is not Senior Indebtedness. "Senior Subordinated Indebtedness" of any Guarantor Subsidiary has a correlative meaning. "Significant Subsidiary" means any Restricted Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of clause (w)(1) or (2) of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the purchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinate in right of payment to the Notes pursuant to a written agreement. "Subordinated Obligation" of any Guarantor Subsidiary shall have a correlative meaning. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, trustees or members of any other governing body thereof is at the time owned or controlled, directly or indirectly, by (i) such Person or (ii) one or more Subsidiaries of such Person. "Subsidiary Guaranty" means any Guarantee of the Notes which may from time to time be executed and delivered pursuant to the terms of the Indenture. Each such Subsidiary Guaranty shall be in the form prescribed in the Indenture. "Temporary Cash Investments" means any of the following: (i) any investment in direct obligations (x) of the United States of America or any agency thereof or obligations Guaranteed by the United States of America or any agency thereof or (y) of any foreign country recognized by the United States of America rated at least "A" by S&P or "A-1" by Moody's, (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 365 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital and surplus in excess of $250.0 million (or the foreign currency equivalent thereof) and whose long-term debt is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act), (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) investments in commercial paper, maturing not more than 365 days after the date of acquisition, issued by a corporation (other than an Affiliate of 90 94 the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P, (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's, (vi) any money market deposit accounts issued or offered by a domestic commercial bank or a commercial bank organized and located in a country recognized by the United States of America, in each case, having capital and surplus in excess of $250.0 million (or the foreign currency equivalent thereof), or investments in money market funds complying with the risk limiting conditions of Rule 2a-7 (or any successor rule) of the Commission under the Investment Company Act of 1940, as amended, and (vii) similar investments approved by the Board of Directors in the ordinary course of business. "Term Loans" means the Tranche A Term Loans and the Tranche B Term Loans made pursuant to the Senior Bank Facilities. "Total Assets" means, at any date of determination, the total consolidated assets of the Company and its Restricted Subsidiaries, as set forth on the Company's then most recent consolidated balance sheet. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person arising in the ordinary course of business in connection with the acquisition of goods or services. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled by, and published in, the most recent Federal Reserve Statistical Release H.15(519) which has become publicly available at least two Business Days prior to the date fixed for redemption of the Notes following a Change of Control (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the then remaining Average Life to Stated Maturity of the Notes; provided, however, that if the Average Life to Stated Maturity of the Notes is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the Average Life to Stated Maturity of the Notes is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Trustee" means the party named as such in the Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any other Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total Consolidated assets of $1,000 or less or (B) if such Subsidiary has Consolidated assets greater than $1,000, then such designation would be permitted under the covenant entitled "Limitation on Restricted Payments." The Board of Directors may designate any 91 95 Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant described under "Limitation on Indebtedness" and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares and, to the extent required by local ownership laws in foreign countries, shares owned by foreign shareholders) is owned by the Company or another Wholly Owned Subsidiary (including shares held of record by a nominee for the benefit of the Company or another Wholly Owned Subsidiary). 92 96 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS In the opinion of Kirkland & Ellis, counsel to the Company, the following are the material United States federal income tax consequences of the Exchange Offer to a holder of Old Notes that is an individual citizen or resident of the United States or a United States corporation that purchased the Old Notes pursuant to their original issue (a "U.S. Holder"). The following discussion is based on the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), existing and proposed Treasury regulations, and judicial and administrative determinations, all of which are subject to change at any time, possibly on a retroactive basis. The following relates only to the Old Notes, and the New Notes received therefor, that are held as "capital assets" within the meaning of Section 1221 of the Code by U.S. Holders. It does not discuss state, local or foreign tax consequences, nor does it discuss tax consequences to categories of holders that are subject to special rules, such as foreign persons, tax-exempt organizations, insurance companies, banks and dealers in stocks and securities. Tax consequences may vary depending on the particular status of an investor. No rulings will be sought from the Internal Revenue Service with respect to the federal income tax consequences of the Exchange Offer. PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND DISPOSING OF THE NOTES, AS WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS. DEBT CHARACTERIZATION AND INTEREST INCOME The Company and each Holder will agree to treat the Notes as indebtedness for federal income tax purposes, and the following discussion assumes that such treatment is correct. If the Notes were not respected as debt, they likely would be treated as equity ownership interests in the Company. In such event, the Company would not be entitled to claim a deduction for interest payable on the Notes. As a result, the Company's after-tax cash flow and, consequently, its ability to make payments with respect to the Notes could be reduced. A Holder will recognize ordinary income when it receives or accrues interest on the Notes in accordance with such Holder's method of tax accounting. A Holder may be entitled to treat interest income on the Notes as "investment income" for purposes of computing certain limitations concerning the deductibility of investment interest expense. The Notes are not expected to be issued with "original issue discount" within the meaning of Section 1273 of the Code ("OID"). A Holder who purchases a Note after the initial distribution thereof at a discount that exceeds a statutorily defined de minimis amount will be subject to the "market discount" rules of the Code, and a Holder who purchases a Note at a premium will be subject to the bond premium amortization rules of the Code. DISPOSITION OF NOTES If a Holder sells a Note between interest payment dates, the Holder will recognize gain or loss equal to the difference between the amount realized on the sale and the Holder's adjusted tax basis in the Note. A Holder's adjusted tax basis in a Note will be equal to the Holder's cost for the Note, (i) increased by any interest that has accrued on the Note since the last interest payment date, as well as any OID, market discount and gain previously included by such Holder in income with respect to the Note, and (ii) decreased by any bond premium previously amortized and any principal payments previously received by such Holder with respect to such Note. Subject to the market discount rules, any such gain or loss will be capital gain or loss, long- or short-term depending upon whether the Holder has held the Note for more than one year. Subject to certain limited exceptions, capital losses cannot be used to offset ordinary income. 93 97 A cash basis holder that sells a Note between interest payment dates will be required to treat an amount equal to accrued but unpaid interest through the date of sale as ordinary interest income, and to add such amount to its basis in the Note. TAX CONSEQUENCES TO FOREIGN HOLDERS For purposes of this discussion, a "Foreign Holder" is any corporation, individual, partnership, estate or trust that is, as to the United States, a foreign corporation, a non-resident alien individual, a foreign partnership, or a non-resident fiduciary or foreign estate or trust. A Foreign Holder generally will not be subject to United States federal withholding tax on interest paid on the Notes so long as the Foreign Holder (i) is not actually or constructively a "10 percent shareholder" of the Company or a "controlled foreign corporation" with respect to which the Company is a "related person" within the meaning of the Code, and (ii) provides an appropriate statement, signed under penalties of perjury, certifying that the beneficial owner of the Note is a foreign person and providing that foreign person's name and address. If the information provided in this statement changes, the foreign person must so inform the Company within 30 days of such change. The statement generally must be provided in the year a payment occurs or in either of the two preceding years. If the foregoing conditions are not satisfied, then interest paid on the Notes will be subject to United States withholding tax at a rate of 30 percent, unless such rate is reduced or eliminated pursuant to an applicable tax treaty. Any capital gain a Foreign Holder realizes on the sale, redemption, retirement or other taxable disposition of a Note will be exempt from United States federal income and withholding tax, provided that (i) the gain is not effectively connected with the Foreign Holder's conduct of a trade or business in the United States, and (ii) in the case of a Foreign Holder that is an individual, the Foreign Holder is not present in the United States for 183 days or more in the taxable year. If the interest, gain or other income a Foreign Holder recognizes on a Note is effectively connected with the Foreign Holder's conduct of a trade or business in the United States, the Foreign Holder (although exempt from the withholding tax previously discussed if an appropriate statement is furnished) generally will be subject to United States federal income tax on the interest, gain or other income at regular federal income tax rates. In addition, if the Foreign Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30 percent of its "effectively connected earnings and profits," as adjusted for certain items, unless it qualifies for a lower rate under an applicable tax treaty. INFORMATION REPORTING AND BACKUP WITHHOLDING The Company will be required to report annually to the IRS, and to each Holder of record, the amount of interest paid on the Notes (and the amount of interest withheld for federal income taxes, if any) for each calender year, except as to exempt Holders (generally, corporations, tax-exempt organizations, qualified pension and profit-sharing trusts, individual retirement accounts, or nonresident aliens who provide certification as to their status). Each Holder (other than Holders who are not subject to the reporting requirements) will be required to provide to the Company, under penalties of perjury, a certificate containing the Holder's name, address, correct federal taxpayer identification number and a statement that the Holder is not subject to backup withholding. Should a nonexempt Holder fail to provide the required certificate, the Company will be required to withhold 31% of the interest otherwise payable to the Holder and to remit the withheld amount to the IRS as a credit against the Holder's federal income tax liability. 94 98 PLAN OF DISTRIBUTION Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. Each of the Company and the Guarantor Subsidiaries has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer to use in connection with any such resale. In addition, until , 1997 (90 days after the date of this Prospectus), all dealers effecting transactions in the New Notes may be required to deliver a prospectus. Neither the Company nor the Guarantor Subsidiaries will receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company and each of the Guarantor Subsidiaries has jointly and severally agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the holders of the Old Notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the Old Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the Notes offered hereunder will be passed upon for the Company and the Guarantor Subsidiaries by Kirkland & Ellis, New York, New York. Cravath, Swaine & Moore, New York, New York has acted as counsel for the Initial Purchasers. EXPERTS The consolidated financial statements of the Company at March 31, 1996 and 1997, and for each of the three years in the period ended March 31, 1997, appearing in this Prospectus and in the Registration Statement, and the financial statement schedule included in the Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein and in the Registration Statement, and are included herein in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 95 99 CHANGE IN INDEPENDENT AUDITORS The Company's consolidated financial statements at March 31, 1995, 1996 and 1997 and for the years ended March 31, 1994, 1995, 1996 and 1997 were audited by Ernst & Young LLP. The consolidated financial statements at March 31, 1993 and 1994 and for the year ended March 31, 1993 were audited by Schenck & Associates SC. During the two most recent years preceding the change in independent auditors, there were no disagreements with Schenck & Associates SC on any matter of accounting principles or practices, financial statement disclosures or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Schenck & Associates SC would have caused them to make reference thereto in their report on the consolidated financial statements for such years. 96 100 NEENAH CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Ernst & Young LLP, Independent Auditors..................................... F-2 Consolidated Balance Sheets as of March 31, 1996 and 1997............................. F-3 Consolidated Statements of Income for the years ended March 31, 1995, 1996 and 1997... F-4 Consolidated Statements of Changes in Stockholders Equity for the years ended March 31, 1995, 1996 and 1997............................................................. F-5 Consolidated Statements of Cash Flows for the years ended March 31, 1995, 1996 and 1997................................................................................ F-6 Notes to Consolidated Financial Statements............................................ F-7
F-1 101 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors Neenah Corporation We have audited the accompanying consolidated balance sheets of Neenah Corporation (the Company) as of March 31, 1996 and 1997, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended March 31, 1997. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 1996 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Milwaukee, Wisconsin April 29, 1997 F-2 102 NEENAH CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, --------------------- 1996 1997 -------- -------- ASSETS Current assets: Cash and cash equivalents.......................................... $ 10,126 $ 22,403 Accounts receivable, less allowance for doubtful accounts of $386 at March 31, 1996 and 1997...................................... 20,831 21,423 Inventories........................................................ 13,324 13,956 Other current assets............................................... -- 401 Deferred income taxes.............................................. 2,253 2,325 -------- -------- Total current assets....................................... 46,534 60,508 Property, plant and equipment: Land............................................................... 847 847 Buildings and improvements......................................... 14,972 15,063 Machinery and equipment............................................ 97,749 101,655 -------- -------- 113,568 117,565 Less accumulated depreciation...................................... 79,840 86,186 -------- -------- 33,728 31,379 Other assets....................................................... 2,695 1,982 -------- -------- $ 82,957 $ 93,869 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................................... $ 8,124 $ 8,497 Dividends payable.................................................. 2,220 -- Income taxes payable............................................... 517 573 Accrued wages and employee benefits................................ 5,516 5,545 Other accrued liabilities.......................................... 1,937 2,052 Current portion of long-term debt.................................. 107 134 -------- -------- Total current liabilities.................................. 18,421 16,801 Long-term debt....................................................... 134 -- Pension obligations.................................................. 1,737 -- Postretirement benefit obligations................................... 5,300 5,667 Deferred income taxes................................................ 2,575 2,544 -------- -------- Total liabilities.......................................... 28,167 25,012 Commitments and contingencies (Note 5) Stockholders' equity: Preferred stock, par value $100 per share: Authorized 3,000 shares; no shares issued and outstanding....... -- -- Common stock, par value $100 per share: Class A (voting): Authorized 1,000 shares; issued and outstanding, 620 shares... 62 62 Class B (nonvoting): Authorized 10,000 shares; issued and outstanding, 3,820 shares....................................................... 382 382 Retained earnings.................................................. 57,268 71,335 Notes receivable from owners to finance stock purchase............. (2,922) (2,922) -------- -------- Total stockholders' equity................................. 54,790 68,857 -------- -------- $ 82,957 $ 93,869 ======== ========
See accompanying notes. F-3 103 NEENAH CORPORATION CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
YEAR ENDED MARCH 31, ---------------------------------- 1995 1996 1997 -------- -------- -------- Net sales............................................... $160,621 $166,951 $165,426 Cost of sales........................................... 120,981 121,631 116,736 -------- -------- -------- Gross profit............................................ 39,640 45,320 48,690 Selling, general and administrative expenses............ 16,673 16,983 17,547 -------- -------- -------- Operating income........................................ 22,967 28,337 31,143 Net interest income (expense)........................... (397) 481 1,162 -------- -------- -------- Income before income taxes.............................. 22,570 28,818 32,305 Provision for income taxes.............................. 8,866 11,676 12,467 -------- -------- -------- Net income.............................................. $ 13,704 $ 17,142 $ 19,838 ======== ======== ========
See accompanying notes. F-4 104 NEENAH CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
COMMON STOCK --------------------------------- NOTES RECEIVABLE PREFERRED STOCK CLASS A CLASS B FROM OWNERS --------------- --------------- --------------- RETAINED TO FINANCE STOCK SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT EARNINGS PURCHASE TOTAL ------ ------ ------ ------ ------ ------ -------- ---------------- ------- Balance at April 1, 1994........ 1,468 $ 147 719 $ 72 4,920 $ 492 $40,140 $ (2,922) $37,929 Redemption and retirement of stock........ (1,468) (147) (99) (10) (1,100) (110) (5,932) -- (6,199) Dividends declared: Preferred -- $4.50 per share...... -- -- -- -- -- -- (5) -- (5) Common -- $475 per share...... -- -- -- -- -- -- (2,231) -- (2,231) Net income..... -- -- -- -- -- -- 13,704 -- 13,704 ---- --- --- ------ ---- ------- ------- ------- ------- Balance at March 31, 1995....... -- -- 620 62 3,820 382 45,676 (2,922) 43,198 Common dividends declared -- $1,250 per share........ -- -- -- -- -- -- (5,550) -- (5,550) Net income..... -- -- -- -- -- -- 17,142 -- 17,142 ---- --- --- ------ ---- ------- ------- ------- ------- Balance at March 31, 1996....... -- -- 620 62 3,820 382 57,268 (2,922) 54,790 Common dividends declared -- $1,300 per share........ -- -- -- -- -- -- (5,771) -- (5,771) Net income..... -- -- -- -- -- -- 19,838 -- 19,838 ---- --- --- ------ ---- ------- ------- ------- ------- Balance at March 31, 1997....... -- $ -- 620 $ 62 3,820 $ 382 $71,335 $ (2,922) $68,857 ==== === === ====== ==== ======= ======= ======= =======
See accompanying notes. F-5 105 NEENAH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED MARCH 31, ---------------------------------- 1995 1996 1997 -------- -------- -------- OPERATING ACTIVITIES Net income.............................................. $ 13,704 $ 17,142 $ 19,838 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation....................................... 6,842 6,776 6,881 Deferred income taxes.............................. 2,862 1,863 (103) Other.............................................. (274) 48 (103) Changes in operating assets and liabilities: Accounts receivable.............................. (3,384) 439 (592) Inventories...................................... (142) (603) (632) Other current assets............................. 186 27 (401) Accounts payable................................. 684 (2,653) 373 Income taxes payable............................. 526 (585) 56 Accrued liabilities.............................. 1,388 (1,261) 144 Pension obligations.............................. 900 859 (2,349) Postretirement benefit obligations............... 289 221 367 -------- -------- -------- Net cash provided by operating activities..... 23,581 22,273 23,479 INVESTING ACTIVITIES Purchase of property, plant and equipment............. (3,665) (7,275) (4,546) Proceeds from life insurance policy................... -- -- 1,439 Other................................................. 253 (24) 3 -------- -------- -------- Net cash used in investing activities......... (3,412) (7,299) (3,104) FINANCING ACTIVITIES Dividends paid........................................ (1,411) (4,440) (7,991) Redemption of stock................................... (6,199) -- -- Proceeds from long-term debt.......................... 70,529 16,370 -- Payments on long-term debt............................ (82,968) (17,016) (107) -------- -------- -------- Net cash used in financing activities......... (20,049) (5,086) (8,098) -------- -------- -------- Increase in cash and cash equivalents................... 120 9,888 12,277 Cash and cash equivalents at beginning of year.......... 118 238 10,126 -------- -------- -------- Cash and cash equivalents at end of year................ $ 238 $ 10,126 $ 22,403 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid for: Interest........................................... $ 624 $ 84 $ 39 Income taxes....................................... 5,478 10,398 12,515
See accompanying notes. F-6 106 NEENAH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 1995, 1996 AND 1997 (IN THOUSANDS) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Neenah Corporation (the Company) operates in one business segment for financial reporting purposes: the manufacture of gray and ductile iron castings. The Company's principal operating subsidiary, Neenah Foundry Company (Foundry), manufactures castings sold directly to industrial customers throughout the United States, and to heavy municipal customers throughout the United States and several foreign countries either directly or through representatives. Industrial castings are custom-engineered and are produced for customers in several industries, with a concentration in the medium and heavy-duty truck components, farm equipment, and heating, ventilation, and air-conditioning industries. Heavy municipal castings include manhole covers and frames, storm sewer frames and grates, trench drain systems, tree grates and specialty castings for a variety of applications. Industrial castings are generally sold to large, well-established companies, with two customers accounting for 18% and 15% of net sales in fiscal 1995, 17% and 9% of net sales in fiscal 1996, and 16% and 10% of net sales in fiscal 1997. Combined receivables from these two customers totaled $4,974 and $6,651 at March 31, 1996 and 1997, respectively. Municipal castings are sold to a large number of customers. The Company's accounts receivable generally are unsecured. The Company's other operating subsidiaries include Neenah Transport, Inc. (Transport) and Hartley Controls Corporation (Hartley). 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 Foundry. Hartley designs and manufactures customized sand control systems for the foundry industry, which are sold and serviced throughout the United States and several foreign countries. Hartley and Transport each account for less than 10% of the Company's net sales, net income and total assets. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Foundry, Transport and Hartley. All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents, consisting principally of investments in commercial paper, totaled $11,598 and $23,028 at March 31, 1996 and 1997, respectively. The cost of these debt securities, which are considered as "available for sale" for financial reporting purposes, approximates fair value at both March 31, 1996 and 1997. There were no realized gains or losses recognized on these securities during any of the three years in the period ended March 31, 1997. F-7 107 NEENAH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) method for substantially all inventories except for supplies, for which cost is determined on the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Expenditures for additions and improvements are capitalized while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are expensed as incurred. Depreciation for financial reporting purposes is provided over the estimated useful lives of the respective assets, using accelerated and straight-line methods. Depreciation expense includes amortization of machinery and equipment recorded under capitalized leases. REVENUE RECOGNITION Revenue from the sale of castings and sand control systems is recognized upon shipment to the customer. ADVERTISING COSTS Advertising costs are expensed as incurred, and amounted to $467, $527 and $524 for the years ended March 31, 1995, 1996 and 1997, 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 Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at March 31, 1996 and 1997 does not differ materially from the carrying value of such instruments recorded in the accompanying consolidated balance sheets, as follows:
MARCH 31, ------------------- 1996 1997 ------- ------- Cash and cash equivalents...................................... $10,126 $22,403 Accounts receivable............................................ 20,831 21,423 Accounts payable............................................... (8,124) (8,497) Long-term debt................................................. (241) (134)
NEW ACCOUNTING STANDARDS The Company adopted FASB Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Assets to Be Disposed Of," and SFAS No. 123, "Accounting for Stock-Based Compensation," on April 1, 1996 and SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," on January 1, 1997. The adoption of these standards did not have any effect on the Company's F-8 108 NEENAH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) consolidated financial statements. The Company is required to adopt AICPA Statement of Position 96-1, "Environmental Remediation Liabilities," on April 1, 1997. The pending adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements. 2. INVENTORIES Inventories consist of the following:
MARCH 31, ------------------- 1996 1997 ------- ------- Raw materials.................................................. $ 2,214 $ 2,017 Work in process and finished goods............................. 13,957 14,324 Supplies....................................................... 4,886 4,860 ------- ------- Inventories at FIFO cost....................................... 21,057 21,201 Excess of FIFO cost over LIFO cost............................. (7,733) (7,245) ------- ------- $13,324 $13,956 ======= =======
3. LONG-TERM DEBT Long-term debt consists of the following:
MARCH 31, ------------- 1996 1997 ---- ---- Capital lease obligations............................................ $241 $134 Less current portion................................................. 107 134 ---- ---- $134 $ -- ==== ====
The Company has a revolving credit agreement (the Agreement) with a bank that provides for borrowings up to $25,000 through July 31, 1998. Interest is payable monthly on outstanding borrowings at the bank's Reference Rate (8.25% at March 31, 1997). The Agreement contains an option that allows the Company to designate a portion (minimum of $2,000) of the borrowings to bear a fixed rate of interest for a specified period of time. Borrowings under the Agreement are unsecured and a quarterly fee is charged by the bank on the unused portion of the facility. The capital lease obligations consist of leases for a propane system and semi-tractors and trailers. Included in machinery and equipment is $567 and $397 and included in accumulated depreciation is $272 and $179 at March 31, 1996 and 1997, respectively, related to these capital leases. 4. NOTES RECEIVABLE FROM OWNERS The notes receivable from owners of $2,922 are due April 1, 1999, with interest adjusted annually to the Company's borrowing rate plus .1%. The proceeds of the notes receivable were used to purchase 1,461 shares of Company Class B common stock from other shareholders, and are secured by such common stock. These notes are scheduled to be repaid by the owners prior to the consummation of the plan of reorganization described in Note 9. F-9 109 NEENAH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. COMMITMENTS AND CONTINGENCIES The Company leases warehouse space, machinery and equipment, office equipment and vehicles under operating leases. Rent expense under these operating leases for the years ended March 31, 1995, 1996 and 1997 amounted to $850, $996 and $1,088, respectively. Minimum rental payments due under these operating leases for subsequent fiscal years are as follows: 1998........................................................................ $ 736 1999........................................................................ 586 2000........................................................................ 287 2001........................................................................ 115 ------ $1,724 ======
The Company is involved in a number of product liability claims, none of which, in the opinion of management, is expected to have a material adverse effect on the consolidated financial statements. The Company is partially self-insured for workers compensation claims. An accrued liability is recorded for claims incurred but not yet paid or reported, with such accrual based on current and historical claim information. The accrual may ultimately be settled for an amount greater or lesser than the recorded amount. Adjustments of the accrual are recorded in the period in which they are determined. As of March 31, 1997, the Company had outstanding letters of credit in the aggregate amount of $595, which secure certain workers compensation and other obligations. 6. INCOME TAXES The provision for income taxes consists of the following:
YEAR ENDED MARCH 31, ------------------------------ 1995 1996 1997 ------ ------- ------- Current: Federal............................................ $5,556 $ 9,147 $11,554 State.............................................. 448 666 1,016 ------ ------- ------- 6,004 9,813 12,570 Deferred............................................. 2,862 1,863 (103) ------ ------- ------- $8,866 $11,676 $12,467 ====== ======= =======
The difference between the provision for income taxes and income taxes computed using the statutory U.S. federal income tax rate of 35% is as follows:
YEAR ENDED MARCH 31, ------------------------------ 1995 1996 1997 ------ ------- ------- Provision at statutory rate.......................... $7,900 $10,086 $11,307 State income taxes, net of federal tax benefit....... 801 1,126 1,318 Other................................................ 165 464 (158) ------ ------- ------- Provision for income taxes........................... $8,866 $11,676 $12,467 ====== ======= =======
F-10 110 NEENAH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the Company's deferred income tax assets and liabilities are as follows:
MARCH 31, ------------------- 1996 1997 ------- ------- Deferred income tax liabilities: Tax depreciation in excess of book depreciation.............. $(5,621) $(5,156) Employee benefit plans....................................... (602) (441) Other........................................................ (437) (127) ------- ------- (6,660) (5,724) Deferred income tax assets: Inventories.................................................. 560 560 Employee benefit plans....................................... 3,316 3,128 Accrued vacation............................................. 825 855 Other accrued liabilities.................................... 672 790 State tax credit carryforwards............................... 676 -- Other........................................................ 289 172 ------- ------- 6,338 5,505 ------- ------- Net deferred income tax liability.............................. $ (322) $ (219) ======= ======= Included in the consolidated balance sheets as: Current deferred income tax asset............................ $ 2,253 $ 2,325 Noncurrent deferred income tax liability..................... (2,575) (2,544) ------- ------- $ (322) $ (219) ======= =======
The Company has not recorded a valuation allowance with respect to any deferred tax assets at March 31, 1996 or 1997. 7. EMPLOYEE BENEFIT PLANS DEFINED BENEFIT PENSION PLANS The Company sponsors two defined benefit pension plans covering substantially all hourly employees and previously sponsored a defined benefit supplemental executive retirement plan (SERP) which covered certain salaried employees. During the year ended March 31, 1997, the Company purchased nonparticipating annuity contracts to settle the vested benefit obligations under the SERP. Retirement benefits for the pension plans are based on years of credited service and defined benefit rates while retirement benefits for the SERP were based on compensation levels. The Company funds the pension plans based on an actuarially determined cost method allowable under Internal Revenue Service regulations. The SERP was unfunded. F-11 111 NEENAH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table reconciles the funded status of the plans, as of December 31, 1995 and 1996 (the Company uses a measurement date as of December 31), to the amounts included in the consolidated balance sheets at March 31, 1996 and 1997:
1996 1997 ------------------------- ------------------------- UNDERFUNDED OVERFUNDED UNDERFUNDED OVERFUNDED PLANS PLAN PLAN PLAN ----------- ---------- ----------- ---------- Accumulated benefit obligations............ $(3,944) $(19,805) $(845) $(20,150) Effect of assumed increases in compensation on SERP.................................. (2,593) -- -- -- ------- -------- ----- -------- Projected benefit obligations.............. (6,537) (19,805) (845) (20,150) Plan assets at fair value (consisting principally of pooled investment funds and an investment contract with an insurance company)....................... 697 21,110 735 22,169 ------- -------- ----- -------- Projected benefit obligations less than (in excess of) plan assets................... (5,840) 1,305 (110) 2,019 Unrecognized net loss (gain)............... 2,055 (1,940) (8) (2,966) Unrecognized prior service cost............ 259 4,833 160 4,452 Unrecognized net transition obligation (asset).................................. 782 (2,695) (21) (2,411) Adjustment to recognize additional minimum liability................................ (503) -- (131) -- ------- -------- ----- -------- Prepaid (accrued) pension obligation, at December 31, 1995 and December 31, 1996, respectively............................. (3,247) 1,503 (110) 1,094 Contributions between January 1 and March 31, 1996 and 1997, respectively.......... 7 -- -- -- ------- -------- ----- -------- Prepaid (accrued) pension obligations...... $(3,240) 1,503 $(110) $ 1,094 ======= ======== ===== ======== Net pension asset (obligation) included in the consolidated balance sheets.......... $(1,737) $ 984 ======= =====
Components of net periodic pension cost are as follows:
YEAR ENDED MARCH 31, ------------------------------- 1995 1996 1997 ------- ------- ------- Service cost -- benefits earned during the year..... $ 822 $ 880 $ 820 Interest cost on projected benefit obligations...... 1,437 1,545 1,742 Actual return on plan assets........................ (1,412) (1,450) (1,531) Net amortization and deferral....................... 217 203 220 ------- ------- ------- $ 1,064 $ 1,178 $ 1,251 ======= ======= =======
As a result of the settlement of the SERP, the Company recognized a curtailment gain of $1,317 and a settlement loss of $878 during the year ended March 31, 1997. The discount rate used in estimating the projected benefit obligations and in determining the interest component of pension expense for the following year for all plans was 7.5% for all years. The annual rate of compensation increase assumed for the SERP in estimating the projected benefit obligations was 6.5% for all years. The assumed long-term rate of return on plan assets used in determining pension expense was 7.5% for all years. F-12 112 NEENAH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PROFIT-SHARING AND SAVINGS RETIREMENT PLAN The Company has a Profit-Sharing and Savings Retirement Plan which covers eligible salaried employees of Foundry and Transport and all eligible employees of Hartley. The plan allows participants to make 401(k) contributions in an amount from 1% to 5% of their compensation. The Company matches 50% of the participants contributions. The Company may make additional voluntary contributions to the plan as determined annually by the Board of Directors. Total Company contributions amounted to $859, $891 and $915 for the years ended March 31, 1995, 1996 and 1997, respectively. POSTRETIREMENT BENEFITS The Company sponsors defined benefit postretirement health care plans which cover eligible salaried employees and their dependents of Foundry and Hartley. Benefits are provided from the date of retirement for the duration of the employee's life up to a maximum of $1 million per individual. Retirees' contributions to the plans are based on years of service and age at retirement. The Company funds benefits as incurred. The following table reconciles the funded status of the postretirement benefit plans to the amounts included in the consolidated balance sheets at March 31:
1996 1997 ------ ------ Accumulated postretirement benefit obligations: Retirees....................................................... $2,047 $1,830 Fully eligible active participants............................. 654 810 Other active participants...................................... 2,534 2,784 ------ ------ 5,235 5,424 Plan assets...................................................... -- -- ------ ------ 5,235 5,424 Unrecognized net gain............................................ 65 243 ------ ------ Accrued postretirement benefit obligations....................... $5,300 $5,667 ====== ======
Components of net periodic postretirement benefit cost are as follows:
YEAR ENDED MARCH 31, ---------------------- 1995 1996 1997 ---- ---- ---- Service cost................................................ $164 $176 $193 Interest cost on accumulated postretirement benefit obligations............................................... 340 361 370 Net amortization and deferral............................... (4) (4) (5) ---- ---- ---- $500 $533 $558 ==== ==== ====
The weighted-average discount rate used in determining the accumulated postretirement benefit obligations for both plans was 7.5% for all years, and the healthcare cost trend rate was projected to have annual increases of 8.5%. The healthcare cost trend rate assumption has a significant effect on the amounts reported. Increasing the healthcare cost trend rate by one percentage point would increase the accumulated postretirement benefit obligations as of March 31, 1997 by $1,014 and would increase postretirement benefit expense for the year ended March 31, 1997 by $131. F-13 113 NEENAH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. STOCKHOLDERS' EQUITY The Company has a Restrictive Stock Transfer Agreement with certain of its stockholders which permits the transfer of its stock held by such stockholders to permitted transferees, as defined. In the event a stockholder wishes to sell stock to a third party who is not a permitted transferee, the stock must first be offered for sale to the Company. If the Company accepts the offer of sale, the purchase price is based on a formula, as defined. The purchase price will be financed by a promissory note payable in ten equal annual installments with interest at the prime rate less 1%. The Restrictive Stock Transfer Agreement will be terminated concurrently with the consummation of the plan of reorganization described in Note 9. 9. SUBSEQUENT EVENT The Company has entered into an Agreement and Plan of Reorganization with NC Merger Company and NFC Castings, Inc. pursuant to which the Company will be acquired by NFC Castings, Inc. using (i) $45,000 of cash equity contributed by NFC Castings, Inc., (ii) $45,000 of term loans borrowed under Senior Bank Facilities, (iii) proceeds from the issuance of $150,000 of Senior Subordinated Notes in a Rule 144A private placement and (iv) Company cash. The consideration for the acquisition is subject to a closing date net worth adjustment. 10. UNAUDITED QUARTERLY RESULTS
YEAR ENDED MARCH 31, 1996 ------------------------------------------------------ QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 --------- --------- --------- --------- Net sales............................ $ 46,277 $ 44,454 $ 39,015 $ 37,205 Gross profit......................... 12,976 12,243 10,199 9,902 Net income........................... 5,325 5,024 3,839 2,954
YEAR ENDED MARCH 31, 1997 ------------------------------------------------------ QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 --------- --------- --------- --------- Net sales............................ $ 44,309 $ 45,430 $ 37,815 $ 37,872 Gross profit......................... 13,140 13,613 10,825 11,112 Net income........................... 5,178 5,558 4,635 4,467
F-14 114 ANNEX A TO OFFERING MEMORANDUM TRANSFEREE LETTER OF REPRESENTATION THE COMPANY United States Trust Company of New York 114 West 47th Street New York, N.Y. 10036 Ladies and Gentlemen: This certificate is delivered to request a transfer of $ principal amount of the 11 1/8% Senior Subordinated Notes due 2007 (the "Notes") of Neenah Corporation (the "Company"). Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows: Name: ------------------------------------------------------------------ Address: ----------------------------------------------------------------- Taxpayer ID Number:----------------------------------------------------- The undersigned represents and warrants to you that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the "Securities Act")) purchasing for our own account or for the account of such an institutional "accredited investor" at least $250,000 principal amount of the Notes, and we are acquiring the Notes not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of our investment in the Notes and invest in or purchase securities similar to the Notes in the normal course of our business. We and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 2. We understand that the Notes have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date which is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Notes (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) in a transaction complying with the requirements of Rule 144A under the Securities Act, to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of such an institutional "accredited investor," in each case in a minimum principal amount of Notes of $250,000 or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Notes is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in A-1 115 the form of this letter to the Company and the Trustee, which shall provide, among other things, that the transferee is an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company and the Trustee reserve the right prior to the offer, sale or other transfer prior to the Resale Restriction Termination Date of the Notes pursuant to clause (d), (e) or (f) above to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to the Company and the Trustee. TRANSFEREE: -------------------------- BY: ---------------------------------- A-2 116 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. - ------------------------------------------------------ TABLE OF CONTENTS Available Information................ 2 Prospectus Summary................... 3 Risk Factors......................... 14 Use of Proceeds...................... 19 Capitalization....................... 20 Selected Consolidated Financial and Other Data......................... 21 Unaudited Pro Forma Consolidated Financial Information.............. 24 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 30 Exchange Offer....................... 35 Business............................. 41 Management........................... 53 Ownership of Securities.............. 56 Certain Relationships and Related Transactions....................... 57 Description of Senior Bank Facilities......................... 57 Description of Notes................. 59 Certain United States Federal Income Tax Considerations................. 93 Plan of Distribution................. 95 Legal Matters........................ 95 Experts.............................. 95 Change in Independent Auditors....... 95 Index to Consolidated Financial Statements......................... F-1 Annex A--Form of Transferee Letter of Representation..................... A-1
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. LOGO -------------------- PROSPECTUS -------------------- OFFER TO EXCHANGE ITS 11 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007 FOR 11 1/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2007 , 1997 117 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION+. SEC Registration Fee...................................................... $51,724 Blue Sky Fees and Expenses................................................ * Printing Expenses......................................................... * Accounting Fees and Expenses.............................................. * Legal Fees and Expenses................................................... * Trustee's Fees and Expenses............................................... * Miscellaneous............................................................. * -------- Total........................................................... $ -- ========
- --------------- + Estimated * To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Sections 180.0850 to 180.0859 of the Wisconsin Statutes require a corporation to indemnify any director or officer who is a party to any threatened, pending or completed civil, criminal, administrative or investigative action, suit, arbitration or other proceeding, whether formal or informal, which involves foreign, federal, state or local law and which is brought by or in the right of the corporation or by any other person. A corporation's obligation to indemnify any such person includes the obligation to pay any judgment, settlement, penalty, assessment, forfeiture or fine, including any excise tax assessed with respect to an employee benefit plan, and all reasonable expenses including fees, costs, charges, disbursements, attorney's and other expenses except in those cases in which liability was incurred as a result of the breach or failure to perform a duty which the director or officer owes to the corporation and the breach or failure to perform constitutes: (i) a willful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director or officer has a material conflict of interest; (ii) a violation of criminal law, unless the person has reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful; (iii) a transaction from which the person derived an improper personal profit; or (iv) willful misconduct. Unless otherwise provided in a corporation's articles of incorporation or by-laws or by written agreement, an officer or director seeking indemnification is entitled to indemnification if approved in any of the following manners: (i) by majority vote of a disinterested quorum of the board of directors, or if such quorum of disinterested directors cannot be obtained, by a majority vote of a committee or two or more disinterested directors; (ii) by independent legal counsel; (iii) by a panel of three arbitrators; (iv) by affirmative vote of shareholders; (v) by a court; or (vi) with respect to any additional right to indemnification granted by any other method permitted in Section 180.0859 of the Wisconsin Statutes. Reasonable expenses incurred by a director or officer who is a party to a proceeding may be reimbursed by a corporation at such time as the director or officer furnishes to the corporation written affirmation of his good faith belief that he has not breached or failed to perform his duties and a written undertaking to repay any amounts advanced if it is determined that indemnification by the corporation is not required. The indemnification provisions of Sections 180.0850 to 180.0859 are not exclusive. A corporation may expand an officer's or director's right to indemnification (i) in its articles of incorporation or II-1 118 by-laws; (ii) by written agreement, (iii) by resolution of its board of directors; or (iv) by resolution of a majority of all of the corporation's voting shares then issued and outstanding. As permitted by Section 180.0859, the Registrant has adopted indemnification provisions in its By-Laws which closely track the statutory indemnification provisions with certain exceptions. In particular, Article VIII of the Registrant's By-Laws provides that payment or reimbursement of expenses, subject to certain limitations, will be mandatory rather than permissive. The Registrant maintains and has in effect insurance policies covering all of their respective directors and officers against certain liabilities for actions taken in such capacities, including liabilities under the Securities Act of 1933. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits. See Exhibit Index (b) Financial Statement Schedules. ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (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; (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 the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and (4) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (5) The registrant undertakes that every prospectus: (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and 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 II-2 119 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. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 20 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (6) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (7) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus 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. (8) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (9) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 120 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on June 6, 1997. NEENAH CORPORATION By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE CAPACITY DATE - ------------------------------------- ------------------------------------- --------------- /s/ JAMES K. HILDEBRAND Chairman of the Board and Chief June 6, 1997 - ------------------------------------- Executive Officer James K. Hildebrand /s/ WILLIAM M. BARRETT Vice President and General Manager June 6, 1997 - ------------------------------------- William M. Barrett /s/ GARY W. LACHEY Director and Vice President -- June 6, 1997 - ------------------------------------- Finance, Treasurer and Secretary Gary W. LaChey /s/ CHARLES M. KURTTI Vice President -- Manufacturing and June 6, 1997 - ------------------------------------- Engineering Charles M. Kurtti /s/ DAVID F. THOMAS Director June 6, 1997 - ------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director June 6, 1997 - ------------------------------------- John D. Weber /s/ BRENTON F. HALSEY Director June 6, 1997 - ------------------------------------- Brenton F. Halsey
II-4 121 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on June 6, 1997. NEENAH FOUNDRY COMPANY By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and President POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE - ------------------------------------- ------------------------------------- ------------- /s/ JAMES K. HILDEBRAND Chairman and President June 6, 1997 - ------------------------------------- James K. Hildebrand /s/ WILLIAM M. BARRETT Vice President and General Manager June 6, 1997 - ------------------------------------- William M. Barrett /s/ GARY W. LACHEY Director and Vice President -- June 6, 1997 - ------------------------------------- Finance, Treasurer and Secretary Gary W. LaChey /s/ CHARLES M. KURTTI Vice President -- Manufacturing and June 6, 1997 - ------------------------------------- Engineering Charles M. Kurtti /s/ DAVID F. THOMAS Director June 6, 1997 - ------------------------------------- David F. Thomas /s/ JOHN D. WEBER Director June 6, 1997 - ------------------------------------- John D. Weber /s/ BRENTON F. HALSEY Director June 6, 1997 - ------------------------------------- Brenton F. Halsey
II-5 122 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neeneh, State of Wisconsin, on June 6, 1997. Hartley Controls Corporation By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and President POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE - ------------------------------------- ---------------------------------------- ------------- /s/ JAMES K. HILDEBRAND Chairman and President June 6, 1997 - ------------------------------------- James K. Hildebrand /s/ WILLIAM J. MARTIN Vice President and General Manager June 6, 1997 - ------------------------------------- William J. Martin /s/ GARY W. LACHEY Director and Vice President -- Finance, June 6, 1997 - ------------------------------------- Treasurer and Secretary Gary W. LaChey /s/ JOHN Z. RADER Vice President -- Human Resources June 6, 1997 - ------------------------------------- John Z. Rader /s/ JOHN D. WEBER Director and Vice President and June 6, 1997 - ------------------------------------- Assistant Secretary John D. Weber /s/ DAVID F. THOMAS Director June 6, 1997 - ------------------------------------- David F. Thomas /s/ BRENTON F. HALSEY Director June 6, 1997 - ------------------------------------- Brenton F. Halsey
II-6 123 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Neenah, State of Wisconsin, on June 6, 1997. NEENAH TRANSPORT, INC. By: /s/ JAMES K. HILDEBRAND ------------------------------------ Name: James K. Hildebrand Title: Chairman and President POWER OF ATTORNEY The undersigned hereby severally constitute and appoint Gary W. LaChey for the undersigned in any and all capacities, with the power of substitution, to sign any amendment to this Registration Statement, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE - ------------------------------------------ ----------------------------------- ------------- /s/ JAMES K. HILDEBRAND Chairman and President June 6, 1997 - ------------------------------------------ James K. Hildebrand /s/ GARY W. LACHEY Director and Vice President -- June 6, 1997 - ------------------------------------------ Finance, Treasurer and Secretary Gary W. LaChey /s/ JOHN Z. RADER Vice President -- Human Resources June 6, 1997 - ------------------------------------------ John Z. Rader /s/ JOHN D. WEBER Director and Vice President and June 6, 1997 - ------------------------------------------ Assistant Secretary John D. Weber /s/ DAVID F. THOMAS Director June 6, 1997 - ------------------------------------------ David F. Thomas /s/ BRENTON F. HALSEY Director June 6, 1997 - ------------------------------------------ Brenton F. Halsey
II-7 124 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We have audited the consolidated financial statements of Neenah Corporation as of March 31, 1996 and 1997, and for each of the three years in the period ended March 31, 1997, and have issued our report thereon dated April 29, 1997 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedule listed in Item 15(b) of this Registration Statement. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Milwaukee, Wisconsin April 29, 1997 125 SCHEDULE II NEENAH CORPORATION VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS --------------------------------------- BALANCE AT CHARGED TO CHARGED TO BEGINNING OF COSTS AND OTHER BALANCE AT END DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS(1) OF YEAR - -------------------------------- ------------ ---------- ---------- ------------- -------------- (IN THOUSANDS) Year ended March 31, 1995: Deduction from asset accounts Allowance for doubtful accounts................. $386 $214 $ -- $ 214 $386 ==== ==== ==== ==== ==== Year ended March 31, 1996: Deduction from asset accounts Allowance for doubtful accounts................. $386 $234 $ -- $ 234 $386 ==== ==== ==== ==== ==== Year ended March 31, 1997: Deduction from asset accounts Allowance for doubtful accounts................. $386 $175 $ -- $ 175 $386 ==== ==== ==== ==== ====
- --------------- (1) Represents uncollectible accounts written off, net of recoveries of $22, $19 and $22, respectively. 126 EXHIBIT INDEX
EXHIBITS - -------- 2.1 Agreement and Plan of Reorganization, dated November 20, 1996, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation. 3.1 Restated Article of Incorporation of Neenah Corporation. 3.2 By-laws of Neenah Corporation. 3.3 Articles of Incorporation of Neenah Foundry Company. 3.4 By-laws of Neenah Foundry Company.+ 3.5 Restated Articles of Incorporation of Hartley Controls Corporation. 3.6 By-laws of Hartley Controls Corporation.+ 3.7 Restated Articles of Incorporation of Neenah Transport, Inc. 3.8 By-laws of Neenah Transport, Inc.+ 4.1 Indenture dated as of April 30, 1997 among NC Merger Company and United States Trust Company of New York.+ 4.2 Purchase Agreement dated as of April 23, 1997 among NC Merger Company, Chase Securities Inc. and Morgan Stanley & Co. Incorporated.+ 4.3 Exchange and Registration Rights Agreement dated as of April 30, 1994 among Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc.+ 4.4 First Supplemental Indenture, dated as of April 30, 1997 among Neenah Corporation, Neenah Foundry Company, Neenah Transport, Inc. and Hartley Controls Corporation and United States Trust Company of New York.+ 4.5 Letter Agreement, dated as of April 30, 1997 among Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc. and Chase Securities Inc. and Morgan Stanley & Co. Incorporated.+ 4.6 [intentionally omitted] 5.1 Opinion of Kirkland & Ellis.+ 9.1 [intentionally omitted] 10.1 Master Lease Agreement between Neenah Foundry Company and Bank One Leasing Corporation dated December 14, 1992.+ 10.2 Agreement between Neenah Foundry Company and Rockwell International Corporation effective April 1, 1995.+ 10.3 Letter Agreement between Neenah Foundry Company and Eaton Corporation dated April 4, 1996.+ 10.4 [Intentionally omitted]. 10.5 1996-1998 Collective Bargaining Agreement between Neenah Foundry Company and Local 121B Glass, Molders, Pottery, Plastics and Allied Workers International Union AFL-CIO-CLC.+ 10.6 1995-1997 Collective Bargaining Agreement between Neenah Foundry Company and The Independent Patternmakers Union of Neenah, Wisconsin.+ 10.7 Credit Agreement, dated as of April 30, 1997 among Chase Manhattan Bank, N.A., NFC Castings, Inc. and NC Merger Company.+ 10.8 Employment Agreement dated September 9, 1994 between the Neenah Corporation and the subsidiaries and James P. Keating, Jr., as amended.
127
EXHIBITS - -------- 10.9 Consulting Agreement dated September 9, 1994 between the Neenah Foundry Company and the Guarantors and James P. Keating, Jr. 10.10 Natural Gas Service Contract dated March 1, 1997 between Neenah Foundry and Wisconsin Electric-Gas Operations.+ 12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of the Registrant.+ 23.1 Consent of Ernst & Young LLP. 23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1) 24.1 Powers of Attorney (included in signature page). 25.1 Statement of Eligibility of Trustee on Form T-1.+ 27.1 Financial Data Schedule.+ 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Tender Instructions.+
- --------------- + To be filed by amendment EX-2.1 2 AGREEMENT AND PLAN OF REORGANIZATION 1 Exhibit 2.1 AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG NFC CASTINGS, INC., NC MERGER COMPANY AND NEENAH CORPORATION NOVEMBER 20, 1996 2 AGREEMENT AND PLAN OF REORGANIZATION TABLE OF CONTENTS ARTICLE I DEFINITIONS................................................................ 1 1.1. Defined Terms............................................ 1 ARTICLE II THE MERGER................................................................. 9 2.1. The Merger............................................... 9 2.2. The Closing.............................................. 10 2.3. Actions at Closing....................................... 10 2.4. Effect of Merger......................................... 10 2.5. Procedure for Payment.................................... 11 2.6. Post-Closing Adjustment.................................. 12 ARTICLE III REPRESENTATIONS AND WARRANTIES OF COMPANY.................................. 14 3.1. Organization and Authority............................... 15 3.2. Authority; Validity...................................... 16 3.3. No Violation............................................. 16 3.4. Third Party Consents..................................... 17 3.5. Financial Statements..................................... 17 3.6. Tax Matters.............................................. 17 3.7. Absence of Certain Changes............................... 19 3.8. Assets................................................... 21 3.9. Bank Accounts............................................ 24 3.10. Litigation............................................... 24 3.11. Compliance With Laws..................................... 24 3.12. Insurance................................................ 25 3.13. Material Contracts and Commitments....................... 25 3.14. Labor Matters............................................ 26 3.15. Employee Benefit Plans................................... 27 3.16. Environmental Matters.................................... 28 3.17. Proprietary Rights....................................... 29 3.18. Accounts Receivable...................................... 30 3.19. Product Warranty......................................... 30 3.20. Sufficiency of Assets.................................... 30 3.21. Accuracy of Representations.............................. 30 3.22. Opinion of Financial Advisor............................. 30 3.23. Transactions with Affiliates............................. 30 3.24. Funded Debt.............................................. 31 3.25. Closing Date............................................. 31 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO......................... 31 4.1. Organization............................................. 31 4.2. No Violation............................................. 31 4.3. Authority................................................ 31 4.4. Third Party Consents..................................... 32
i 3 4.5. Investment/Operational Intent............................. 32 4.6. Closing Date.............................................. 33 ARTICLE V COVENANTS.................................................................. 33 5.1. Access to Information and Records........................ 33 5.2. Conduct of Business Pending the Closing.................. 33 5.3. HSR Act Filings........................................... 35 5.4. Consents................................................. 36 5.5. Publicity................................................ 36 5.6. Merger Payment Statements................................ 36 5.7. Disclosure Schedule...................................... 36 5.8. Company Shareholders Approval............................ 37 5.9. Newco Shareholder Approval............................... 37 5.10. Indemnification of Directors and Officers................ 37 5.11. Company Representative................................... 38 5.12. Third Party Proposals.................................... 38 5.13. Non-Competition; Non-Interference; Non- Solicitation................................................... 38 ARTICLE VI CONDITIONS PRECEDENT TO PARENT'S AND NEWCO'S OBLIGATIONS................... 40 6.1. Representations and Warranties True on the Closing Date........................................................... 40 6.2. Compliance With Agreement................................ 40 6.3. Absence of Litigation.................................... 40 6.4. Consents and Approvals................................... 40 6.5. HSR Act Waiting Period................................... 41 6.6. No Material Adverse Effect............................... 41 6.7. Shareholders Approval.................................... 41 6.8. Articles of Merger....................................... 41 6.9. Documents to be Delivered by Company..................... 41 6.10. Merger Payment Statements................................ 42 6.11. Amendment of Restated Articles........................... 42 6.12. Termination of Restrictive Stock Transfer Agreement...................................................... 42 6.13. Note Repayment and Release of Stock Pledge............... 42 6.14. Real Property............................................ 43 6.15. Financing................................................ 43 6.16. Due Diligence............................................ 43 6.17. Minimum Cash on Hand..................................... 43 ARTICLE VII CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS.............................. 43 7.1. Representations and Warranties True on the Closing Date........................................................... 44 7.2. Compliance With Agreement................................ 44 7.3. Absence of Litigation.................................... 44 7.4. HSR Act Waiting Period................................... 44 7.5. Documents to be Delivered by Parent and Newco............ 44 7.6. Articles of Merger....................................... 45 7.7. Shareholders Approval.................................... 45
ii 4 7.8. Merger Price............................................. 45 7.9. Reliance Letter.......................................... 45 ARTICLE VIII SURVIVAL; INDEMNIFICATION.................................................. 45 8.1. Survival; Remedies for Breach............................ 45 8.2. Indemnification on Behalf of Company Shareholders; Escrow of Funds................................................ 47 8.3. Indemnification by Parent................................ 50 8.4. Procedures for Indemnification........................... 50 8.5. Procedures for Third-Party Claims........................ 51 ARTICLE IX TERMINATION OF AGREEMENT................................................... 52 9.1. Causes................................................... 52 9.2. Effect of Termination..................................... 53 9.3. Right to Proceed......................................... 53 ARTICLE X DISPUTE RESOLUTION......................................................... 53 10.1. Dispute.................................................. 53 10.2. Process.................................................. 54 10.3. Negotiations............................................. 54 10.4. Mediation................................................ 54 10.5. Submission to Adjudication............................... 55 10.6. General.................................................. 55 ARTICLE XI MISCELLANEOUS.............................................................. 56 11.1. Further Assurance........................................ 56 11.2. Assignment............................................... 56 11.3. Law Governing Agreement.................................. 56 11.4. Amendment and Modification............................... 57 11.5. Notice................................................... 57 11.6. Expenses................................................. 58 11.7. Entire Agreement; Binding Effect......................... 58 11.8. Counterparts............................................. 59 11.9. Headings................................................. 59 11.10. Construction............................................ 59 11.11. Specific Performance.................................... 59 11.12. Waiver of Jury Trial.................................... 59 11.13. No Strict Construction.................................. 59 11.14. Time of the Essence; Computation of Time................ 59
iii 5 Schedules Disclosure Schedule Schedule 9.1(c)(iv) Termination Events Exhibits -------- Exhibit A Articles of Merger Exhibit B Merger Agreement Exhibit C Escrow Agreement Exhibit D Merger Payment Statement Exhibit E Opinion of Company's Counsel Exhibit F Opinion of Parent's and Newco's Counsel Exhibit G Paying Agent Agreement
iv 6 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION is made as of November 20, 1996, by and among NFC CASTINGS, INC., a Delaware corporation ("Parent"), NC MERGER COMPANY, a Wisconsin corporation ("Newco") and NEENAH CORPORATION, a Wisconsin corporation (the "Company"). The Company and Newco sometimes are referred to collectively herein as the "Constituent Corporations". RECITALS A. The Company and the Subsidiaries are engaged in the businesses of (i) manufacturing and selling gray iron and ductile iron castings to the transportation and construction industries; (ii) manufacturing and selling customized machinery and control systems for the foundry industry and (iii) operating a common and contract carrier (collectively, the "Business"). B. Newco is a wholly owned subsidiary of Parent. C. Parent desires to acquire the Company. D. This Agreement contemplates a transaction in which Parent will acquire the Company for cash in an aggregate amount equal to the Merger Price, plus the Positive Closing Date Adjustment Amount or minus the Negative Closing Date Adjustment Amount, as the case may be, through a reverse subsidiary merger of Newco with and into the Company, whereby all of the outstanding shares of capital stock of the Company will be converted into the right to receive cash on the terms and conditions specified herein. NOW, THEREFORE, in consideration of the Recitals and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound hereby, do hereby agree as follows: ARTICLE I DEFINITIONS 1.1. Defined Terms. As used in this Agreement, the terms below shall have the following meanings. Any of such terms, unless the context otherwise requires, may be used in the singular or plural, depending on the reference. "Accounting Principles" shall mean the following: (i) each accounting term used herein shall have the meaning that is applied thereto in accordance with generally accepted accounting -1- 7 principles unless a different meaning is set forth herein for such term, and each account included in the Closing Date Balance Sheet shall be calculated in accordance with generally accepted accounting principles and shall be consistent with the books and records of the Company, provided that all known arithmetic errors shall be corrected in the calculation of each account set forth above, regardless of materiality; (ii) with respect to the calculation of the levels of the accounts set forth above, no change in accounting principles shall be made from those utilized in preparing the Financial Statements, including, without limitation, with respect to the nature or classification of accounts, closing proceedings, levels of reserves or levels of accruals other than as a result of objective changes in the underlying business; and (iii) for purposes of the preceding clauses, "changes in accounting principles" includes all changes in accounting principles, policies, practices, procedures or methodologies with respect to financial statements, their classification or their display, as well as all changes in practices, methods, conventions or assumptions utilized in making accounting estimates. "Acquisition Proposal" shall have the meaning specified in Section 5.12 of this Agreement. "Adjusted Final Closing Date Net Worth" shall mean the amount determined by adding (i) the Final Closing Date Net Worth plus (ii) the Base Date Vehicle Value plus (iii) the Base Date Cash Surrender Value. "Agreement" shall mean this Agreement and Plan of Reorganization, together with the exhibits and schedules attached hereto, as the same may be amended from time to time in accordance with the terms hereof. "Arbitrating Accountant" shall have the meaning specified in Section 2.6(b) of this Agreement. "Articles of Merger" shall mean the Articles of Merger in the form attached hereto as Exhibit A. "Base Date Cash Surrender Value" shall mean the aggregate cash surrender value as of the date of the Most Recent Balance Sheet of the life insurance policies owned by the Company and/or Subsidiaries on the lives of E.W. Aylward, Andrew A. Aylward, Richard J. Aylward and Thomas R. Franklin and listed in Section 3.12 of the Disclosure Schedule. (For illustrative purposes only, the cash surrender value of these policies as of March 31, 1996 was $594,800.) "Base Date Vehicle Value" shall mean the aggregate net book value as of the date of the Most Recent Balance Sheet of the four vehicles listed as items 1, 2, 3 and 4 on the list of -2- 8 "Excluded Assets" set forth in Section 3.8(e) of the Disclosure Schedule (or, in the case of a vehicle so listed that was acquired as a replacement after the date of the Most Recent Balance Sheet, the predecessor of such vehicle), as determined from the books and records of the Company and/or the Subsidiaries. "Base Net Worth" shall mean the amount of $62,675,790.00, which is the consolidated net worth (total stockholders' equity) of the Company and the Subsidiaries shown on the Most Recent Balance Sheet. "Business" shall have the meaning specified in the Recitals of this Agreement. "Buying Group" shall mean, collectively, Parent and Newco and their respective permitted successors and permitted assigns. "CERCLA" shall mean the federal Comprehensive Environmental Response, Compensation, and Liability Act. "Class A Common Stock" shall mean the 1,000 authorized shares of the Company's Class A Common Stock, $100 par value. "Class B Common Stock" shall mean the 10,000 authorized shares of the Company's Class B Common Stock, $100 par value. "Closing" shall mean the conference to be held at 10:00 A.M. Central Time, on the Closing Date at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York, 10019, counsel for Parent's Lenders, or such other time and place as the parties may mutually agree to in writing, at which the transactions contemplated by this Agreement shall be consummated. "Closing Date" shall have the meaning specified in Section 2.2 of this Agreement. "Closing Date Balance Sheet" shall have the meaning specified in Section 2.6(a) of this Agreement. "Closing Date Net Worth" shall have the meaning specified in Section 2.6(a) of this Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Company" shall mean Neenah Corporation, a Wisconsin corporation. "Company Capital Stock" shall mean, collectively, the Class A Common Stock, the Class B Common Stock and the Preferred Stock. -3- 9 "Company Common Stock" shall mean, collectively, the Class A Common Stock and the Class B Common Stock. "Company Employees" shall mean any persons employed by Company or any Subsidiary. "Company Representative" shall mean the person appointed to that position as provided in Section 5.11 of this Agreement. "Company Shareholder" shall mean any Person who holds any Company Capital Stock. "Constituent Corporations" shall have the meaning specified in the preamble of this Agreement. "Covered Activities" shall have the meaning specified in Section 5.13(a) of this Agreement. "Covered Individuals" shall mean E.W. Aylward and Andrew A. Aylward. "CPR" shall have the meaning specified in Section 10.4 of this Agreement. "Cut-off Date" shall have the meaning specified in Section 8.1(a) of this Agreement. "De Minimis Claim" shall mean any individual claim for indemnification if the amount of the Loss attributable to such claim does not exceed $10,000.00. "Disclosure Schedule" shall mean the Disclosure Schedule, dated the date of this Agreement, delivered by the Company to the Parent and Newco contemporaneously with the execution and delivery of this Agreement and as the same may be updated from time to time after the date of this Agreement and prior to the Closing Date in accordance with the terms of this Agreement. "Dispute" shall have the meaning specified in Section 10.1 of this Agreement. "Dissenting Share" shall mean a share of Company Capital Stock that any Company Shareholder who has exercised his or its dissenters' rights under the Wisconsin Business Corporation Law holds of record. "Effective Time" shall mean the time and date when the Company and Newco file the Articles of Merger with the Wisconsin Department of Financial Institutions. "Employee Benefit Plan" shall have the meaning specified in Section 3.15(a) of this Agreement. -4- 10 "Environmental Laws" shall mean all Laws relating to pollution or protection of the environment, including, without limitation, Laws relating to emissions, discharges, treatment, disposal, handling, generation, storage, Release or threatened Release of Hazardous Substances into the environment, including, without limitation, the Clean Water Act, the Clean Air Act, RCRA, the Toxic Substances Control Act and CERCLA, all as in force and effect as of the Closing. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" shall mean Bank One, Milwaukee, N.A. "Escrow Agreement" shall mean the Escrow Agreement in the form of Exhibit C attached to this Agreement. "Escrow Deposit" shall have the meaning specified in Section 2.5(a) of this Agreement. "Excluded Assets" shall have the meaning specified in Section 3.8(e) of this Agreement. "Final Closing Date Balance Sheet" shall have the meaning specified in Section 2.6(b) of this Agreement. "Final Closing Date Net Worth" shall have the meaning specified in Section 2.6(b) of this Agreement. "Financial Statements" shall mean the consolidated financial statements of the Company and its Subsidiaries consisting of (i) the consolidated balance sheets of the Company as of March 31, 1996, 1995 and 1994, and the related consolidated statements of income, retained earnings and cash flows for the years then ended, together with the auditor's report thereon, and (ii) an unaudited consolidated balance sheet of the Company and its Subsidiaries as of September 30, 1996 and the related unaudited statements of income for the interim period then ended and the corresponding period of the preceding year. "Funded Debt", of the Company or any Subsidiary, shall mean, without duplication: all obligations under indebtedness for borrowed money (including, without limitation, principal, interest, overdrafts, penalties, premiums, fees, expenses, indemnities and breakage costs), all obligations under capital leases, notes payable, guaranties and drafts accepted representing extensions of credit. "Hazardous Substance" shall mean any substance that is a "hazardous substance" under CERCLA, any substance that is a "hazardous waste" under RCRA, or any pesticide, pollutant, -5- 11 contaminant, toxic chemical, petroleum product or byproduct, asbestos or polychlorinated biphenyl. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Indemnified Party" shall mean any Party seeking indemnification under Article VIII of this Agreement. "Indemnifying Party" shall mean the Party from whom the indemnification is sought under Article VIII of this Agreement. "Knowledge of Company" or "Company's Knowledge" shall mean the actual knowledge of the individuals listed below: E.W. Aylward Charles M. Kurtii Andrew A. Aylward William J. Martin Thomas R. Franklin John Z. Rader Gary W. LaChey James P. Keating, Jr.
"Law" shall mean any federal, state, local or other governmental law, rule or regulation of any kind, and the rules and regulations promulgated thereunder. "Leased Real Property" shall mean, collectively, all of the parcels of real estate leased by the Company or any Subsidiary pursuant to the Leases. "Leases" shall mean the real estate lease, sublease and other occupancy agreements to which the Company or any Subsidiary is a party listed in Section 3.8(f) of the Disclosure Schedule. "Losses" shall mean damages, liabilities, deficiencies, claims, actions, charges, demands, judgments, interest, losses, or costs or expenses of whatever kind (including, without limitation, reasonable attorneys' fees but exclusive of loss of profits or consequential damages). "Material Adverse Effect" shall mean a material adverse effect on the Business, assets, condition (financial or otherwise), results of operations or prospects of the Company and its Subsidiaries taken as a whole. "Material Contracts" shall have the meaning specified in Section 3.13 of this Agreement. "Merger" shall mean the merger of Newco with and into the Company described in Article II of this Agreement. "Merger Agreement" shall mean the Merger Agreement in the form attached hereto as Exhibit B. -6- 12 "Merger Payee" shall mean a Company Shareholder who has not exercised dissenters' rights under the Wisconsin Business Corporation Law with respect to the Merger. "Merger Payment Statement" shall mean a Merger Payment Statement in the form of Exhibit D attached to this Agreement "Merger Price" shall mean the sum of $240,000,000.00, to be delivered by Newco pursuant to Article II of this Agreement, subject to later adjustment as provided in Section 2.6(e) of this Agreement. "Merger Price Per Share" shall mean the quotient determined by dividing the Merger Price of $240,000,000 to be delivered by Newco at Closing by the total number of shares of the Company Common Stock issued and outstanding immediately prior to the Effective Time. (For illustration purposes only, based on the total issued and outstanding shares of Company Common Stock set forth in Section 3.1(c) of this Agreement, the Merger Price Per Share would equal $54,060.14.) "Most Recent Balance Sheet" shall mean the unaudited consolidated balance sheet of the Company and its Subsidiaries as of September 30, 1996. "Negative Closing Date Adjustment Amount" shall have the meaning specified in Section 2.6(e) of this Agreement. "Newco" shall mean NC Merger Company, a Wisconsin corporation. "Newco Capital Stock" shall mean the 1,000 authorized shares of Newco's Common Stock, without par value. "Non-Competition Period" shall have the meaning specified in Section 5.13(a) of this Agreement. "Ordinary Course" shall mean the ordinary course of business of the Company and its Subsidiaries, consistent with their custom and practice as in effect as of September 30, 1996 and the date of this Agreement. "Parent" shall mean NFC Castings, Inc., a Delaware corporation. "Parent's Lenders" shall mean The Chase Manhattan Bank and Chase Securities Inc., or such other lenders providing the financing to Parent necessary to effect the Merger and provide Newco with funds sufficient to deliver the Merger Price and provide for the ongoing working capital needs of the Company during the term of the senior bank financing. -7- 13 "Parties" shall mean, collectively, the Company, Parent and Newco. "Paying Agent" shall mean Bank One, Milwaukee, N.A. "Paying Agent Agreement" shall mean the Paying Agent Agreement in the form of Exhibit G attached to this Agreement. "Person" shall mean a natural person, corporation, limited liability company, trust, partnership, government entity, agency or branch or department thereof, or any other legal entity. "Positive Closing Date Adjustment Amount" shall have the meaning specified in Section 2.6(e) of this Agreement. "Preferred Stock" shall mean the 3,000 authorized shares of Preferred Stock of the Company, $100 par value. "Proprietary Rights" shall mean all of the following items owned, used or held for use by the Company or any Subsidiary: (i) all patents, patent applications, inventions, trade names and corporate names, trademarks, service marks, trademark registrations, service mark registrations, trade mark applications, service mark applications, registered copyrights, copyright applications, together with all goodwill associated therewith; and (ii) trade secrets and confidential information. "Pro Rata Percentage" shall mean, as to each Company Shareholder, the ownership percentage set forth opposite such Person's name under the heading "Pro Rata Ownership Percentage" in the applicable portion of Section 3.1(c) of the Disclosure Schedule. "Pro Rata Portion" of an obligation or benefit shall mean, as to any Company Shareholder, the product of (i) the total amount of the obligation or benefit, times (ii) the Pro Rata Percentage of such Company Shareholder. "RCRA" shall mean the federal Resource Conservation and Recovery Act. "Real Property" shall mean all real property owned in whole or in part by the Company or any Subsidiary. "Release" shall have the meaning set forth in CERCLA. "Replacement" shall have the meaning specified in Section 10.6(g) of this Agreement. "Request" shall have the meaning specified in Section 10.4 of this Agreement. -8- 14 "Subsidiaries" shall mean Neenah Foundry Company, a Wisconsin corporation, Neenah Transport, Inc., a Wisconsin corporation, and Hartley Controls Corporation, a Wisconsin corporation, all of which are wholly owned by the Company. "Surviving Corporation" shall mean the Company as the survivor of the Merger. "Taxes" shall mean any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Returns" shall mean any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Third Party Acquisition" shall have the meaning specified in Section 5.12 of this Agreement. "Third-Party Claim" shall mean a legal proceeding, action, claim or demand instituted by any third person or governmental entity. "Title Company" shall have the meaning specified in Section 6.14(a) of this Agreement. ARTICLE II THE MERGER 2.1. The Merger. This Agreement provides for the merger of Newco with and into the Company, whereby it is contemplated that each outstanding share of the Newco Capital Stock will be converted into one share of the Class A Common Stock, and each outstanding share of the Company Capital Stock will be converted into cash as provided in this Agreement. On and subject to the terms and conditions of this Agreement, as of the Effective Time, Newco will be merged with and into the Company, which shall continue to be governed by the Laws of the State of Wisconsin, and the separate existence of Newco shall thereupon cease. The Merger shall be pursuant to the provisions of, and shall be with the effect provided in, the Wisconsin Business Corporation Law. -9- 15 2.2. The Closing. The Closing shall take place on the third business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the Parties will take at the Closing itself) but in no event later than January 31, 1997, or such other time and date as the Parties may mutually determine (the "Closing Date"). 2.3. Actions at Closing. At the Closing, (i) the Company will deliver to Parent and Newco the various certificates, instruments and documents referred to in Article VI of this Agreement, (ii) Parent and Newco will deliver to the Company the various certificates, instruments and documents referred to in Article VII of this Agreement, (iii) the Merger Agreement and the Articles of Merger shall be executed and acknowledged by each of Newco and the Company and filed with the Wisconsin Department of Financial Institutions, and (iv) Parent will cause Newco to deliver the Merger Price to the Paying Agent by wire transfer of immediately available funds to an account designated by the Paying Agent in writing not less than three days prior to the Closing Date. 2.4. Effect of Merger. (a) General. The Merger shall become effective at the Effective Time. The Merger shall have the effect set forth in the Wisconsin Business Corporation Law. At the Effective Time, the identity, existence, rights, privileges, powers, franchises, properties and assets of the Company shall continue unaffected and unimpaired by the Merger. The separate corporate existence of Newco shall cease and the Surviving Corporation shall become the owner, without transfer, of all rights and property of the Constituent Corporations (except the Excluded Assets), and the Surviving Corporation shall be subject to all of the debts and liabilities of the Constituent Corporations as if the Surviving Corporation had itself incurred them. The Surviving Corporation may, at any time after the Effective Time, take any action (including executing and delivering any document) in the name and on behalf of either the Company or Newco in order to carry out and effectuate the transactions contemplated by this Agreement. (b) Articles of Incorporation; Bylaws. The Restated Articles of Incorporation as amended as contemplated by Section 6.11 of this Agreement and the Bylaws of the Company as in effect immediately prior to the Effective Time shall be the Restated Articles of Incorporation and the Bylaws of the Surviving Corporation until amended in accordance with their respective terms and as provided by applicable law. (c) Directors and Officers. The directors and officers of Newco shall become the directors and officers of the Surviving Corporation at and as of the Effective Time (retaining their respective positions and terms of office). -10- 16 (d) Conversion of Company Capital Stock. At and as of the Effective Time, subject to Section 2.5 of this Agreement and subject to later adjustment as provided in Section 2.6(e) of this Agreement, (i) each outstanding share of Company Capital Stock that is Class A Common Stock (other than a Dissenting Share or shares held by Newco or Parent) shall be converted into the right to receive an amount in cash equal to the Merger Price Per Share, (ii) each outstanding share of Company Capital Stock that is Class B Common Stock (other than a Dissenting Share or shares held by Newco or Parent) shall be converted into the right to receive an amount in cash equal to the Merger Price Per Share, and (iii) each Dissenting Share, if any, shall be converted into the right to receive payment from the Surviving Corporation with respect thereto in accordance with the provisions of the Wisconsin Business Corporation Law. As provided in Section 2.5 of this Agreement, the amount to be received by each Merger Payee immediately after the Effective Time shall be reduced by that Merger Payee's Pro Rata Portion of the Escrow Deposit and by that Merger Payee's Pro Rata Portion of brokerage fees and expenses and professional fees and expenses incurred on behalf of the Company Shareholders, as indicated on the Merger Payment Statement for that Merger Payee. (e) Conversion of Newco Capital Stock. At and as of the Effective Time, each share of Newco Capital Stock shall be converted into one share of Class A Common Stock of the Surviving Corporation. 2.5. Procedure for Payment. (a) Immediately after the Effective Time, the Paying Agent shall deposit or shall cause to be deposited with the Escrow Agent by wire transfer of immediately available funds, $12,000,000.00 of the Merger Price (the "Escrow Deposit"), to be held by the Escrow Agent in accordance with Section 8.2 of this Agreement and in accordance with the Escrow Agreement. (b) Immediately after the Effective Time, the Paying Agent shall pay or cause to be paid (i) to each Merger Payee for whom the Paying Agent has received a Merger Payment Statement duly signed by that Merger Payee, an amount equal to the "Net Merger Payment" shown on that Merger Payment Statement less such Merger Payee's proportionate share of professional fees and expenses as set forth in a schedule to be delivered by Company Representative to the Paying Agent, and (ii) such professional fees and expenses as directed by Company Representative in such schedule. Each such payment to a Merger Payee shall be by wire transfer of immediately available funds or otherwise as instructed on the Merger Payment Statement by the Merger Payee receiving payment. (c) Parent may cause the Paying Agent to pay over to the Surviving Corporation any portion of the Merger Price (including any earnings thereon) remaining unpaid by the Paying Agent in -11- 17 accordance with paragraphs (a) and (b) above (through no fault of the Paying Agent) 180 days after the Effective Time, and thereafter all former Company Shareholders shall be entitled to look to the Surviving Corporation as general creditors thereof with respect to the cash payable upon surrender of their certificates. (d) Parent shall cause the Surviving Corporation to pay all charges and expenses of the Paying Agent. (e) After the Effective Time, no Person who was a Company Shareholder immediately prior to the Effective Time shall transfer any shares of Company Capital Stock other than to the Surviving Corporation as contemplated by Section 2.5(c) of this Agreement. 2.6. Post-Closing Adjustment. (a) As promptly as practicable after the Closing Date (but in no event later than 60 days after the Closing Date), the Company Representative will cause the accounting firm of Schenck & Associates SC to prepare and deliver concurrently to Parent and the Company Representative an audited consolidated balance sheet of the Company and its Subsidiaries (the "Closing Date Balance Sheet"), setting forth the consolidated net worth of the Company and the Subsidiaries immediately prior to the Effective Time on the Closing Date (the "Closing Date Net Worth"). The Closing Date Balance Sheet shall be prepared in accordance with generally accepted accounting principles (including the Accounting Principles) on a basis consistent with the Company's past practices and with the preparation of the Most Recent Balance Sheet, subject, however, to the following requirements, which requirements shall be adhered to irrespective of whether such requirements are in accordance with generally accepted accounting principles (including the Accounting Principles): (i) no reserves for product warranty claims or product liability claims shall be established with respect to the Company or any Subsidiary or the products sold by them, and the Closing Date Balance Sheet and the Final Closing Date Balance Sheet shall contain no such reserves; and (ii) the amount of the reserve for worker's compensation claims contained in the Closing Date Balance Sheet and the Final Closing Date Balance Sheet shall not exceed the amount of the reserve for worker's compensation claims contained in the Most Recent Balance Sheet. One-half (1/2) of the fees and expenses of Schenck & Associates SC will be paid or accrued by the Company prior to Closing, and the balance shall be paid by the Parent or the Company after Closing -12- 18 and not accrued by the Company at or prior to Closing. The lesser of $50,000.00 or one-half (1/2) of the total fees and expenses charged by the title insurance company and the surveying company or companies to obtain the title insurance and surveys described in Section 6.14 of this Agreement will be paid or accrued by the Company prior to Closing, and the balance shall be paid by the Parent or the Company after Closing and not accrued by the Company at or prior to Closing. (b) If either Parent or the Company Representative claims that the Closing Date Balance Sheet has not been prepared in accordance with the requirements of Section 2.6(a), it will deliver to the other party a detailed statement describing the basis for any such claim within 15 days after receiving the Closing Date Balance Sheet. Parent and the Company Representative will use reasonable efforts to resolve any such claims themselves. If they do not obtain a final resolution within 90 days after the Closing Date, however, Parent and the Company Representative will select another accounting firm from among the "Big Six" accounting firms mutually acceptable to them to resolve any remaining such claims. If Parent and the Company Representative are unable to agree on the choice of an accounting firm, they will select a nationally-recognized accounting firm by lot (after excluding any such firm affiliated with Parent or the Company Shareholders) (the "Arbitrating Accountant"). Upon submission to the Arbitrating Accountant for resolution, Parent shall indicate in writing its position on each disputed matter and the Company Representative shall do likewise. The Arbitrating Accountant shall choose one of the two positions on each disputed matter no later than 120 days after the Closing Date and such position will be conclusive and binding upon Parent and the Company Representative with respect to that disputed matter if delivered in writing. The proposed Closing Date Balance Sheet will be revised as appropriate to reflect the resolution of any such claims pursuant to this Section 2.6(b). The term "Final Closing Date Balance Sheet" means the Closing Date Balance Sheet, together with any revisions thereto pursuant to this Section 2.6(b), and the term "Final Closing Date Net Worth" means the consolidated net worth of the Company and the Subsidiaries immediately prior to the Effective Time on the Closing Date as set forth on the Final Closing Date Balance Sheet. The Surviving Corporation and the Company Representative (on behalf of the Company Shareholders) each shall be responsible for and shall pay one-half (1/2) of the fees and expenses of the Arbitrating Accountant. (c) The Company Representative will make the work papers and back-up materials used in preparing the Closing Date Balance Sheet, and any books, records and financial staff of the Company Shareholders, and representatives of Schenck & Associates SC, available to Parent and its accountants and other representatives and to the Arbitrating Accountant resolving any claim concerning the Closing Date Balance Sheet at reasonable times and upon -13- 19 reasonable notice at any time during (a) the preparation of the Closing Date Balance Sheet, (b) the review by Parent and the Company Representative of the Closing Date Balance Sheet, and (c) the resolution by Parent and the Company Representative of any objections thereto. (d) Parent will make the work papers and back-up materials used in (or necessary for) the Closing Date Balance Sheet, and any books, records and financial staff of Parent and the Company and their accountants and other representatives, available to the Company Representative and its accountants and other representatives and to the Arbitrating Accountant resolving any claim concerning the Closing Date Balance Sheet at reasonable times and upon reasonable notice at any time during (a) the preparation of the Closing Date Balance Sheet, (b) the review by Parent and the Company Representative of the Closing Date Balance Sheet, and (c) the resolution by Parent and the Company Representative of any objections thereto. (e) The Merger Price will be adjusted if the Adjusted Final Closing Date Net Worth is greater or less than the Base Net Worth. If the Adjusted Final Closing Date Net Worth is greater than the Base Net Worth, then the Merger Price will be increased on a dollar-for-dollar basis by the amount of such excess (the "Positive Closing Date Adjustment Amount"). In such event, each Merger Payee's Pro Rata Portion of the Positive Closing Date Adjustment Amount will be paid by Parent to the Company Representative on behalf of such Merger Payee, by wire transfer of immediately available funds to an account or accounts designated by the Company Representative in writing, no later than three business days after the completion of the Final Closing Date Balance Sheet, and the Company Representative shall distribute that amount to such Merger Payee. If the Adjusted Final Closing Date Net Worth is less than the Base Net Worth, then the Merger Price will be decreased on a dollar-for-dollar basis by the amount of such deficiency (the "Negative Closing Date Adjustment Amount"). In such event, the Company Representative will cause each of the Merger Payees to pay its Pro Rata Portion of the Negative Closing Date Adjustment Amount to Parent by wire transfer of immediately available funds to an account or accounts designated by Parent in writing, no later than three business days after the completion of the Final Closing Date Balance Sheet. ARTICLE III REPRESENTATIONS AND WARRANTIES OF COMPANY All representations and warranties of the Company are made subject to the exceptions which are set forth in the Disclosure Schedule and in any other schedules attached to this Agreement, as supplemented from time to time by the Company hereafter and prior to the Closing Date in accordance with the terms hereof to the -14- 20 extent specifically referenced therein. Except as specifically set forth in this Agreement, the Company makes no representations or warranties to Parent or Newco of any kind whatsoever, express or implied. Subject to the foregoing, the Company hereby represents and warrants to Parent and Newco as follows: 3.1. Organization and Authority. (a) Company is a corporation duly organized, validly existing and is of active status under the Laws of the State of Wisconsin. Except as set forth in Section 3.1(a) of the Disclosure Schedule, Company is duly qualified to conduct business as a foreign corporation in each jurisdiction wherein the character of the properties owned or leased by it, or the nature of its business, makes such licensing or qualification necessary except where the failure to do so would not have a Material Adverse Effect. Any states in which Company is licensed or qualified to do business are listed in Section 3.1(a) of the Disclosure Schedule. (b) Company has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as and where such is now being conducted. (c) The authorized capital stock of the Company consists of the Class A Common Stock, of which 619.5 shares are issued and outstanding, the Class B Common Stock, of which 3,820 shares are issued and outstanding and the Preferred Stock, none of which shares are issued and outstanding. Section 3.1(c) of the Disclosure Schedule sets forth the names and number of shares of the Company Capital Stock owned by each of the Company Shareholders. All of the outstanding shares of the Company Capital Stock have been duly authorized and validly issued, are fully paid and nonassessable, except as set forth in Section 180.0622(2)(b) of the Wisconsin Statutes, as judicially interpreted, and are owned by the Company Shareholders free and clear of all liens, claims, encumbrances and restrictions whatsoever except as set forth in Section 3.1(c) of the Disclosure Schedule. No shares of Company Capital Stock or other ownership interest in the Company are reserved for issuance or are held as treasury shares, and, except for this Agreement, there are no outstanding options, convertible securities, warrants, rights, subscriptions, claims of any character, agreements or understandings relating to the Company Capital Stock pursuant to which the Company is or may become obligated to issue or redeem or exchange any shares of Company Capital Stock. (d) Section 3.1(d) of the Disclosure Schedule sets forth the jurisdiction of incorporation, capitalization and ownership of each of the Subsidiaries. Each of the Subsidiaries is a corporation duly organized, validly existing and of active status under the Laws of the State of Wisconsin. Except as set forth in Section 3.1(d) of the Disclosure Schedule, each of the Subsidiaries -15- 21 has all respective corporate power and authority to carry on its respective business as presently conducted and each Subsidiary is duly qualified to conduct business as a foreign corporation in each jurisdiction wherein the character of the properties owned or leased by it, or the nature of its business, makes such licensing or qualification necessary except where the failure to do so would not have a Material Adverse Effect. Except for the Subsidiaries, Neenah Enterprises, Inc., an inactive Wisconsin corporation, and Neenah Foundry Export, Inc., an inactive Wisconsin corporation, and except as set forth in Section 3.1(d) of the Disclosure Schedule the Company does not own, directly or indirectly, any capital stock or other equity securities of any other corporation or have any direct or indirect equity or other ownership interest in any entity or business. (e) The officers and directors of the Company and each of the Subsidiaries are set forth in Section 3.1(e) of the Disclosure Schedule. (f) True and complete copies of the Restated Articles of Incorporation and Bylaws of the Company and each of the Subsidiaries have been delivered to Parent. The minute books of the Company and the Subsidiaries which have been provided to Parent for examination contain complete and accurate records of all material corporate action taken by the boards of directors and stockholders of the Company and the Subsidiaries. 3.2. Authority; Validity. The execution and delivery of this Agreement and the other documents and instruments to be executed and delivered by Company pursuant hereto and the consummation by Company of the transactions contemplated hereby and thereby have been duly authorized by the board of directors of the Company. Except for obtaining requisite stockholder approval, no corporate act or proceeding on the part of Company is necessary to authorize this Agreement or the other documents and instruments to be executed and delivered by Company pursuant hereto or the consummation by Company of the transactions contemplated hereby and thereby. This Agreement constitutes, and when executed and delivered, the other documents and instruments to be executed and delivered by Company pursuant hereto will constitute, valid and binding agreements of Company, enforceable against Company in accordance with their respective terms, except as such may be limited by bankruptcy, insolvency, reorganization or other Laws affecting creditors' rights generally, and by general equitable principles. 3.3. No Violation. Except as set forth in Section 3.3 of the Disclosure Schedule, the execution and delivery of this Agreement and the consummation by Company of the transactions contemplated hereby will not cause a breach or violation of or default under any provision of (a) the articles of incorporation or bylaws of the Company or any of the Subsidiaries; (b) any Material Contract to -16- 22 which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or its assets may be bound; or (c) any statute, law, rule, regulation, judgment, decree, order, injunction or other decision of any court, arbitrator or governmental authority to which the Company or any Subsidiary may be subject. 3.4. Third Party Consents. Except for the filing of appropriate notices under the HSR Act and for the third party consents listed in Section 3.4 of the Disclosure Schedule, no approval, authorization, notice, consent or other action by or filing with any Person is required for the Company's execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. 3.5. Financial Statements. Section 3.5 of the Disclosure Schedule contains complete and accurate copies of the Financial Statements. Except as set forth in Section 3.5 of the Disclosure Schedule, all of such Financial Statements (a) have been prepared in accordance with the books and records regularly maintained by the Company, (b) fairly present the assets, liabilities, financial condition and results of operations of the Company and the Subsidiaries and (c) were prepared in accordance with generally accepted accounting principles consistently applied throughout all periods, subject, in the case of the interim statements, to normal year-end and audit adjustments and any other adjustments described in such statements and subject to the absence of footnotes thereto. 3.6. Tax Matters. (a) Except as set forth in Section 3.6(a) of the Disclosure Schedule, the Company and the Subsidiaries have filed all Tax Returns required to be filed. The Company and the Subsidiaries have paid all Taxes that are due (whether or not shown on such returns) and have made adequate provisions on their books and records for all Taxes payable by the Company and the Subsidiaries that have accrued but are not yet due. (b) None of the Company and the Subsidiaries (i) has been a member of an affiliated group (within the meaning of Section 1504(a) of the Code or any similar group defined under a similar provision of applicable state, local or foreign Law) filing a consolidated, combined or unitary income Tax Return, except for a group the common parent of which is the Company or (ii) has any liability for the Taxes of any Person (other than the Company and the Subsidiaries) under Treas. Reg. section 1.1502-6 (or any similar provision of state, local or foreign Law) as a transferee or successor, by contract or otherwise. (c) Except as set forth in Section 3.6(c) of the Disclosure Schedule, none of the Company and the Subsidiaries is a party to any Tax allocation or Tax sharing agreement. -17- 23 (d) The federal and state income Tax Returns of Company have been audited by the Internal Revenue Service and appropriate state taxing authorities for the periods and to the extent set forth in Section 3.6(d) of the Disclosure Schedule, and except as set forth in Section 3.6(d) of the Disclosure Schedule Company has not received from the Internal Revenue Service or from the tax authorities of any state, county, local or other jurisdiction any notice of underpayment of Taxes or other deficiency which has not been paid nor any objection to any return or report filed by Company. There are outstanding no agreements or waivers extending the statutory period of limitations applicable to any Tax Return. (e) All Tax Returns filed by the Company and the Subsidiaries were correct and complete in all material respects. (f) Except as set forth in Section 3.6(f) of the Disclosure Schedule, no dispute or claim concerning any Tax liability of any of the Company and the Subsidiaries has been proposed, asserted or assessed (and is currently pending). (g) None of the Company or the Subsidiaries will be required as a result of (i) a change in accounting method for a Tax period beginning on or before the Closing, to include any adjustment under Code section 481(c) of the Code (or any similar provision of state, local or foreign Law) in taxable income for any Tax period beginning on or after the Closing Date or (ii) any "closing agreement" as described in Code section 7121 (or any similar provision of state, local or foreign Law), to include any item of income in or exclude any item of deduction from any Tax period beginning on or after the Closing. (h) There are no liens on any of the assets of any of the Company and the Subsidiaries that arose in connection with any failure (or alleged failure) to pay any Tax. (i) Each of the Company and the Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with any amount paid or owing to any employee, independent contractor, creditor, stockholder or other third party. (j) None of the Company and the Subsidiaries has filed a consent under Code section 341(f) concerning collapsible corporations. (k) None of the Company and the Subsidiaries has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code section 280G. (l) None of the Company Shareholders is a foreign person subject to withholding under Code section 1445. -18- 24 (m) Except as set forth in Section 3.6(m) of the Disclosure Schedule, the unpaid Taxes of the Company and the Subsidiaries (i) did not, as of September 30, 1996, exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth in the Most Recent Balance Sheet and (ii) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company and the Subsidiaries in filing their Tax Returns. (n) Except as set forth in Section 3.6(n) of the Disclosure Schedule, none of the property owned or used by any of the Company and the Subsidiaries is subject to a tax benefit transfer lease executed in accordance with section 168(f)(8) of the Internal Revenue Code of 1954, as amended by the Economic Recovery Tax Act of 1981. (o) None of the property owned by any of the Company and the Subsidiaries is "tax-exempt use property" within the meaning of Code section 168(h). (p) Section 3.6(p) of the Disclosure Schedule lists all federal, state, local and foreign income Tax Returns filed with respect to any of the Company and the Subsidiaries for taxable periods ending on or after March 31, 1992, indicates those Tax Returns that have been audited and indicates those Tax Returns that currently are the subject of an audit or examination. (q) The Company has made available to Parent correct and complete copies of all federal income Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by any of the Company and the Subsidiaries since March 31, 1992. (r) Each of the Company and the Subsidiaries has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code section 6662. 3.7. Absence of Certain Changes. Since the date of the Most Recent Balance Sheet and except as disclosed in Section 3.7 of the Disclosure Schedule, the Company and the Subsidiaries have been operated in the Ordinary Course. Without limiting the generality of the foregoing, since the date of the Most Recent Balance Sheet and except as disclosed in Section 3.7 of the Disclosure Schedule, neither the Company nor any of its Subsidiaries has: (ia) experienced any change in its business, condition (financial or otherwise) or results of operations that would constitute, or insofar as reasonably can be foreseen, result in a Material Adverse Effect; -19- 25 (ib) declared, set aside, or paid any dividend or made any distribution in respect of the capital stock of the Company or any Subsidiary or redeemed, purchased or otherwise acquired any such stock; (i) experienced any adverse change in any relationship with its suppliers, customers, distributors, brokers, lessors or others, other than changes in the Ordinary Course; (ii) sold, leased, transferred, or assigned any of assets, tangible or intangible (including, without limitation, the Proprietary Rights) other than for consideration in the Ordinary Course; (iii) entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases or licenses) involving receipt or expenditure of more than $100,000 individually or modified the terms of any such existing contract or agreement, other than in the Ordinary Course; (iv) engaged in any activity which has resulted in any acceleration or delay of the collection of its accounts or notes receivables or any delay in the payment of its accounts payables, in each case other than in the Ordinary Course; (v) (nor has any other party) accelerated, terminated, modified or canceled any permit or agreement, contract, lease or license involving receipt or expenditure of more than $100,000 individually to which it is a party or by which it is bound, other than in the Ordinary Course; (vi) suffered any damage, destruction or loss, whether or not covered by insurance, affecting any material property or assets owned or used by it; (vii) adopted, modified, amended or terminated any bonus, profit-sharing, incentive, severance, or other similar plan (including any Employee Benefit Plan), contract, or commitment for the benefit of any of its directors, officers, or employees, or otherwise made any change in the employment terms (including any increase in the base compensation) for any of its officers and employees whose annual base compensation is in excess of $50,000, other than in the Ordinary Course; (viii) made any capital expenditure or any other investment (or series of related investments) in excess of $100,000 other than in the Ordinary Course; (ix) issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness involving receipt or expenditure of more than $50,000 individually, other than in the Ordinary Course; -20- 26 (x) canceled, compromised, waived, or released any right or claim (or series of related rights and claims) involving receipt or expenditure of more than $50,000 outside the Ordinary Course; (xi) made or authorized any change in its articles of incorporation or bylaws except as contemplated by Section 6.11 of this Agreement; (xii) issued, sold, or otherwise disposed of any of its capital stock, or granted, modified or amended any options, warrants, stock appreciation rights, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock or participate in any change in the value thereof; (xiii) made or been subject to change in its accounting practices, procedures or methods or in its cash management practices; (xiv) entered into or become party to any agreement, arrangement or transaction with any of its respective directors, officers, employees, stockholders or their relatives (other than in the Ordinary Course and other than as contemplated by Sections 6.12 and 6.13 of this Agreement), including, without limitation, any (i) loan or advance of funds, or made any other payments, to any of its directors, officers, employees or stockholders, or (ii) creation or discharge of any intercompany account, other than in the Ordinary Course; (xv) granted any license or sublicense of any rights under, allowed to lapse, disposed of, or otherwise experienced any adverse changes with respect to the Proprietary Rights, other than in the ordinary course of business consistent with past custom and practice; (xvi) experienced any material changes in the amount or scope of coverage of insurance now carried by them; or (xvii) committed to do any of the foregoing. 3.8. Assets. (a) Company and each Subsidiary have good and marketable title to all of its respective assets and properties free and clear of all mortgages, liens, claims, encumbrances and restrictions except (i) those listed in Section 3.8(a) of the Disclosure Schedule, and (ii) in the case of real property, liens for taxes not yet due or which are being contested in good faith by appropriate proceedings (and which have been sufficiently accrued or reserved against in the Most Recent Balance Sheet), municipal and zoning ordinances and easements for public utilities, none of which interfere with the use of the property as currently utilized. -21- 27 (b) Except as set forth in Section 3.8(b) of the Disclosure Schedule, all of the property and assets currently being used in the operation of the Company and the Subsidiaries are in all material respects in good operating condition and repair, subject to normal wear and tear, and are free from material structural or mechanical defects or deficiencies. (c) The inventories of the Company reflected on the Most Recent Balance Sheet valued in accordance with lower of cost (determined on a LIFO or FIFO basis as described in the notes to the Financial Statements) or market are usable and merchantable, on an aggregate basis, in the ordinary course of business such that no additional reserves are required under generally accepted accounting principles. (d) Section 3.8(d) of the Disclosure Schedule contains a complete and accurate list of all the Real Property including a legal description thereof. All of the Real Property has rights of access to public roads. Except as set forth in Section 3.8(d) of the Disclosure Schedule, there is not (i) any claim of adverse possession or prescriptive rights involving any of the Real Property, (ii) any structure located on any Real Property which encroaches on or over the boundaries of neighboring or adjacent properties or (iii) any structure of any other party which encroaches on or over the boundaries of any of such Real Property. Except as set forth in Section 3.8(d) of the Disclosure Schedule, none of the Real Property is located in a flood plain, flood hazard area, wetland or lakeshore erosion area within the meaning of any Law. No public improvements have been commenced and to Company's Knowledge none are planned which in either case may result in special assessments against or otherwise materially adversely affect any Real Property. The Company does not have any notice or Knowledge of any (i) planned or proposed increase in assessed valuations of any Real Property, (ii) order requiring repair, alteration, or correction of any existing condition affecting any Real Property or the systems or improvements thereat, or (iii) any structural, mechanical, or other defects of material significance affecting any Real Property or the systems or improvements thereat (including, but not limited to, inadequacy for normal use of mechanical systems or disposal or water systems at or serving the Real Property). (e) Section 3.8(e) of the Disclosure Schedule contains (i) a list of certain assets currently owned by the Company or the Subsidiaries that will be transferred to one or more of the Company Shareholders or executives of the Company at or prior to the Closing without additional consideration and (ii) a list of certain assets currently being used by the Company that are owned and will be retained by one or more of the Company Shareholders (collectively, the "Excluded Assets"). -22- 28 (f) Section 3.8(f) of the Disclosure Schedule contains a complete and accurate list of all real estate lease, sublease and other occupancy agreements, including all amendments, extensions and other modifications thereto, to which the Company or any Subsidiary is a party. The Company or its applicable Subsidiary has a good and valid leasehold interest in and to all of the Leased Real Property. Each Lease is in full force and effect and is enforceable in accordance with its terms, except as such may be limited by bankruptcy, insolvency, reorganization or other Laws affecting creditors' rights generally, and by general equitable principles. There exists no default by the Company or any Subsidiary or condition which, with the giving of notice, the passage of time or both, could become a default by the Company or any Subsidiary under any Lease. To the Knowledge of the Company, no party to a Lease other than the Company or any Subsidiary is in default thereunder nor does any condition exist which, with the giving of notice, the passage of time or both, could become a default by any party to a Lease other than the Company or any Subsidiary. The Company has previously made available to Parent true and complete copies of all the Leases. Except as described in Section 3.8(f) of the Disclosure Schedule, no consent, waiver, approval or authorization is required from the landlord under any Lease as a result of the execution of this Agreement or the consummation of the transactions contemplated hereby. (g) The Real Property and the Leased Real Property constitute all of the real property owned, leased, occupied or otherwise utilized in connection with the business of the Company and its Subsidiaries. Except as set forth in Section 3.8(g) of the Disclosure Schedule, other than the Company and the Subsidiaries, there are no parties in possession or parties having any current or future right to occupy any of the Real Property. Except as set forth in Section 3.8(g) of the Disclosure Schedule, the Real Property is in good condition and repair and is sufficient and appropriate for the conduct of the Company's business. Except as set forth in Section 3.8(g) of the Disclosure Schedule, the Real Property and all plants, buildings and improvements located thereon conform in all material respects to all applicable building, zoning and other Laws. Except as set forth in Section 3.8(g) of the Disclosure Schedule, all permits, licenses and other approvals necessary to the current occupancy and use of the Real Property have been obtained, are in full force and effect and have not been violated. Except as set forth in Section 3.8(g) of the Disclosure Schedule, there exists no violation of any covenant, condition, restriction, easement, agreement or order affecting any portion of the Real Property. There is no pending or, to the Knowledge of the Company, any threatened condemnation proceeding affecting any portion of the Real Property. No Lease requires rental payments by the Company or any Subsidiary in excess of $45,000 per year. In the event it became necessary for the Company or any Subsidiary to obtain a functionally equivalent replacement parcel of real property for any parcel of Leased Real Property in the same -23- 29 geographic area, such replacement could be obtained within thirty (30) days of the date of the event requiring such replacement (without regard to whether the Lease covering the parcel of Leased Real Property being replaced had expired or been terminated). 3.9. Bank Accounts. Section 3.9 of the Disclosure Schedule sets forth the names and locations of all banks, trust companies, savings and loan associations and other financial institutions at which the Company or any Subsidiary maintains a safe deposit box, lock box or checking, savings, custodial or other account of any nature, and the type and number of each such account, and the name of the Company's primary contact person at such institution. 3.10. Litigation. Except as set forth in Section 3.10 of the Disclosure Schedule, there is no action, suit, arbitration, proceeding, investigation, claim or inquiry, whether civil, criminal or administrative, pending or, to the Company's Knowledge, threatened against the Company or any Subsidiary which, insofar as reasonably can be foreseen, would have or result in a Material Adverse Effect. 3.11. Compliance With Laws. (a) Compliance. Except as set forth in Section 3.11(a) of the Disclosure Schedule, the Company and the Subsidiaries are in compliance with all applicable Laws (except where non-compliance, insofar as reasonably can be foreseen, would not have or result in a Material Adverse Effect), including, without limitation, those applicable to occupational safety and health, trade practices, competition and pricing, product warranties, zoning, building and sanitation, retirement and product advertising. Except as set forth in Section 3.11(a) of the Disclosure Schedule, Company has not received notice of any violation or alleged violation of, any Laws. (b) Licenses and Permits. The Company and the Subsidiaries have all governmental licenses, permits, approvals, authorizations and consents and all certifications required for the conduct of the Business (as presently conducted) and operation of the facilities used in the Business (other than licenses, permits, approvals, authorizations, consents or certifications which if not obtained, insofar as reasonably can be foreseen, would not have a Material Adverse Effect). All such licenses, permits, approvals, authorizations, consents and certifications are described in Section 3.11(b) of the Disclosure Schedule and are in full force and effect. Except as set forth in Section 3.11(b) of the Disclosure Schedule, the Company (including its operations, properties and assets) are and have been in material compliance with all such permits, licenses, approvals, authorizations, consents and certifications. -24- 30 3.12. Insurance. Section 3.12 of the Disclosure Schedule contains a complete list and description of all insurance policies owned or maintained by the Company and the Subsidiaries. Such insurance policies are in full force and effect and Company and the Subsidiaries have not received any notice of any cancellation of such insurance. All premiums with respect to such policies covering all periods up to and including the Effective Time will have been paid. Such policies will not be materially affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement. All of such policies have been issued by insurance companies actively engaged in the insurance business. Except as set forth in Section 3.12 of the Disclosure Schedule, all known claims, if any, made against the Company or any of the Subsidiaries that are covered by insurance have been disclosed to and accepted by the appropriate insurance companies and are being defended by such appropriate insurance companies and no such claims have been denied coverage during the last three years. 3.13. Material Contracts and Commitments. (a) Section 3.13(a) of the Disclosure Schedule sets forth a complete list of each executory contract and lease to which the Company or a Subsidiary is a party (the "Material Contracts") which constitutes: (i) a lease of real or personal property involving consideration or other expenditure or revenue in excess of $100,000 in the aggregate or involving performance over a period of more than 12 months; (ii) an agreement involving payment or receipt or other obligations of more than $100,000 in the aggregate; (iii) a labor union contract; (iv) a loan agreement, promissory note, letter of credit, or other evidence of indebtedness as a signatory, guarantor or otherwise; (v) an agreement not to compete in any business or geographic area; (vi) an agreement involving payment or other obligations of more than $25,000 in the aggregate and that is not cancelable on less than twelve month's notice; or (vii) a material agreement with a shareholder, officer, director or employee of the Company or any Subsidiary. (b) Company has made available to Parent true, correct and complete copies of the Material Contracts. -25- 31 (c) Except as disclosed in Section 3.13(c) of the Disclosure Schedule, neither the Company nor any Subsidiary, nor to the Company's Knowledge, any other party, is in material breach or material violation of, or default under, any provision of any Material Contract, and to the Company's Knowledge there exist no facts that, with notice or lapse of time, or both, would constitute a default (or give rise to a termination right) on the part of any party in the performance of any obligation to be performed under any of the Material Contracts. (d) None of the other parties to any Material Contract has given written notice to the Company or a Subsidiary that it intends to terminate or materially alter the provisions of such Material Contract either as a result of transactions contemplated by this Agreement or otherwise, and neither the Company nor any Subsidiary has given notice to any other party to any such Material Contract that it intends to terminate or materially alter the provisions of any such Material Contract. (e) Except as set forth in Section 3.13(e) of the Disclosure Schedule, neither the Company nor any Subsidiary is a party to any contract, agreement or understanding which contains a "change in control," "potential change in control" or similar provision which could be triggered by the transactions contemplated by this Agreement. 3.14. Labor Matters. Except as set forth in Section 3.14 of the Disclosure Schedule, the Company and the Subsidiaries are not a party to any written labor agreement with respect to their respective employees with any labor union. Except as set forth in Section 3.14 of the Disclosure Schedule, in the last five years, the Company and the Subsidiaries have not experienced any labor disputes or any work stoppage due to labor disagreements in connection with the Business. Except to the extent set forth in Section 3.14 of the Disclosure Schedule, (a) Company is in compliance in all material respects with all applicable Laws respecting employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practice; (b) there is no unfair labor practice charge or complaint against Company pending before the National Labor Relations Board or any similar state agency; and (c) there are no administrative charges or court complaints against Company concerning alleged employment discrimination or other employment related matters pending or threatened before the U.S. Equal Employment Opportunity Commission or any other government entity. To the Company's Knowledge, no union organization campaign is in progress with respect to any of the Company's or any Subsidiary's employees who are not presently members of a union. Except as set forth in Section 3.14 of the Disclosure Schedule, since April 1, 1992, neither the Company nor any Subsidiary has engaged in any plant closing or employee layoff activities that would violate, or require notification pursuant to, the Worker Adjustment Retraining -26- 32 and Notification Act of 1988, as amended, or any similar state or local plant closing or mass layoff statute, rule or regulation. 3.15. Employee Benefit Plans. (a) Section 3.15(a) of the Disclosure Schedule sets forth all pension, medical, dental, life, accident insurance, employee welfare, disability, group insurance, and other similar fringe or employee benefit plans, programs and arrangements, and any severance or employment agreements or plans, sick leave plans, programs, arrangements and policies, including, without limitation, all "employee benefit plans" (as defined in Section 3(3) of ERISA), which are provided to, for the benefit of, or relate to, any current or former Company Employees. The items described in the foregoing sentence are hereinafter sometimes referred to collectively as "Employee Benefit Plans," and each individually as an "Employee Benefit Plan." True and correct copies of all the Employee Benefit Plans, including all amendments thereto, have heretofore been made available to Parent. Each of the Employee Benefit Plans is identified in Section 3.15(a) of the Disclosure Schedule, to the extent applicable, as one or more of the following: an "employee pension benefit plan" (as defined in Section 3(2) of ERISA), an "employee welfare benefit plan" (as defined in Section 3(1) of ERISA), and/or as a plan intended to be qualified under Section 401 of the Code. Except as set forth in Section 3.15(a) of the Disclosure Schedule, no Employee Benefit Plan is a "multiemployer plan" (as defined in Section 4001 of ERISA) or a defined benefit plan as defined in Section 414 of the Code, and neither the Company nor any Subsidiary has ever contributed or been obligated to contribute to any multiemployer plan or defined benefit plan. (b) There have been no "prohibited transactions" within the meaning of Section 406 or 407 of ERISA or Section 4975 of the Code for which a statutory or administrative exemption does not exist with respect to any Employee Benefit Plan. No event or omission has occurred in connection with which the Company or any Subsidiary or any of their respective assets or any Employee Benefit Plan, directly or indirectly, could be subject to any liability under ERISA, the Code or any other Law applicable to any Employee Benefit Plan, or under any agreement, instrument or Law pursuant to or under which Company or any Subsidiary has agreed to indemnify or is required to indemnify any person against liability incurred under any such Law. (c) With respect to each Employee Benefit Plan, (i) all payments due from Company or any Subsidiary to date have been made and all amounts properly accrued to date as liabilities of Company and any Subsidiary which have not been paid have been properly recorded on the books of Company or any Subsidiary and are reflected in the Financial Statements; (ii) Company and each Subsidiary has complied with, and each such Employee Benefit Plan -27- 33 complies in form and has been administered in accordance with all applicable Laws and regulations, including but not limited to ERISA and the Code, except where failure to do so, insofar as reasonably can be foreseen, would not result in a Material Adverse Effect; (iii) each such Employee Benefit Plan which is intended to qualify under Section 401 of the Code has received a favorable determination letter from the Internal Revenue Service with respect to such qualification, its related trust has been determined to be exempt from taxation under Section 501(a) of the Code, and nothing has occurred since the date of such letter that has or is likely to adversely affect such qualification or exemption; (iv) there are no actions, suits or claims pending (other than routine claims for benefits) or threatened with respect to such Employee Benefit Plan or against the assets of such Employee Benefit Plan; and (v) no accumulated funding deficiency, as defined in ERISA or the Code, or reportable event, as defined in ERISA, has occurred. (d) Except as set forth in Section 3.15(d) of the Disclosure Schedule, no Employee Benefit Plan provides benefits, including, without limitation, death or medical benefits (whether or not insured) with respect to current or former Company Employees beyond their retirement or other termination of service other than (i) coverage mandated by applicable law, (ii) death or retirement benefits under any Employee Benefit Plan that is an employee pension benefit plan, (iii) deferred compensation benefits accrued as liabilities on the books of Company, (iv) disability benefits under any Employee Benefit Plan that is an employee welfare benefit plan and which have been fully provided for by insurance or otherwise or (v) benefits in the nature of severance pay. (e) Except as set forth in Section 3.15(e) of the Disclosure Schedule, the consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former Company Employee to severance pay, unemployment compensation or any other payment, except as expressly provided in this Agreement, (ii) accelerate the time of payment or vesting, or increase the amount of compensation due to any such employee or former employee or (iii) result in any prohibited transaction described in Section 406 of ERISA or Section 4975 of the Code for which an exemption is not available. 3.16. Environmental Matters. (a) The Company is in compliance with applicable Environmental Laws, except as set forth in Section 3.16(a) of the Disclosure Schedule. Without limiting the generality of the foregoing, the Company has obtained and is in compliance with, all permits, licenses and other authorizations that are required pursuant to Environmental Laws for the occupation of its facilities and the operation of its business; a list of all such permits, licenses and other authorizations is set forth in Section 3.16(a) of the Disclosure Schedule. -28- 34 (b) Except as set forth in Section 3.16(b) of the Disclosure Schedule, there is no litigation nor any demand, claim, hearing or notice of violation pending or to the best of the Company's Knowledge threatened against the Company relating in any way to the Environmental Laws. (c) Except as set forth in Section 3.16(c) of the Disclosure Schedule, there has been no release, spill or discharge of Hazardous Substance on, in, under or from the Real Property in an amount or condition which would require investigative or remedial action under Environmental Laws. (d) The Company has not received notice from any governmental agency of any claim that it is or may be liable for the Release of a Hazardous Substance under CERCLA or any similar state law in relation to any site or facility. 3.17. Proprietary Rights. Section 3.17 of the Disclosure Schedule lists all patents, patent applications, trade names, trademarks, service marks, trademarks registrations, service mark registrations, trade mark applications, service mark applications, registered copyrights, and copyright applications included among the Proprietary Rights. There is no pending claim against the Company or any Subsidiary alleging that the Company or any Subsidiary infringes on or misappropriates the intellectual property rights of others. Except as set forth in Section 3.17 of the Disclosure Schedule, the Company and the Subsidiaries own and possess all right, title and interest in, free and clear of all Liens or have a valid, enforceable and effective written license to use, all Proprietary Rights. Section 3.17 of the Disclosure Schedule also lists all computer software (other than mass-marketed software having a license fee of less than $1,000.00) owned or used by the Company or any Subsidiary and all written licenses or other agreements to or from third parties regarding any of the Proprietary Rights. Except as set forth in Section 3.17 of the Disclosure Schedule there is not pending, or to the Company's Knowledge threatened, against the Company or any Subsidiary any claim by any third party contesting the validity, enforceability, use or ownership of any Proprietary Right, and, to the Knowledge of the Company, there are no grounds for any such claim. The Company and Subsidiaries have not infringed, misappropriated or otherwise conflicted with any proprietary rights of any Person, nor to the Company's Knowledge, as far as reasonably can be foreseen, will any such infringement, misappropriation or conflict occur as a result of continued operation of the business of the Company and the Subsidiaries as currently conducted (including, without limitation, the "modernized casting designs" program of the Company and the Subsidiaries involving the reduction of weight of certain of the products of the Company and the Subsidiaries). All Proprietary Rights owned or used by the Company and the Subsidiaries prior to the Closing Date will be owned or available for use on identical terms and conditions immediately after the Closing Date. -29- 35 3.18. Accounts Receivable. All accounts and notes receivable of the Company and the Subsidiaries reflected on the Most Recent Balance Sheet (other than those described in Section 6.13 of this Agreement), and all accounts and notes receivable arising subsequent to the date of the Most Recent Balance Sheet, in each case, have arisen in the ordinary course of business, consistent with past custom and practice, and will be collected in accordance with their terms at their recorded amounts, subject only to the reserves for doubtful accounts set forth on the Most Recent Balance Sheet which have been established in accordance with past custom and practice and are substantially adequate in light of the previous collectibility experience with respect to accounts receivables generated by the Company and the Subsidiaries. 3.19. Product Warranty. All of the products manufactured, sold, leased, and delivered by the Company and the Subsidiaries have conformed in all material respects with all applicable contractual commitments and all express and implied warranties, and none of the Company and the Subsidiaries has any material liability (whether known or unknown, absolute, accrued, contingent or otherwise, or whether due or to become due) for replacement or repair thereof or other damages in connection therewith. 3.20. Sufficiency of Assets. The assets currently owned by the Company or any Subsidiary, or leased by the Company or any Subsidiary pursuant to any lease agreement entered into in the ordinary course of business or otherwise disclosed to Parent, constitute all of the assets necessary to conduct the businesses of the Company and the Subsidiaries in accordance with past practices as of March 31, 1996 and as of the date hereof. 3.21. Accuracy of Representations. To the Company's Knowledge, no representation or warranty made by the Company in this Agreement contains or, as of the Closing Date, will contain, any untrue statement of a material fact or omits or, as of the Closing Date will omit, to state a material fact necessary to make the statements contained herein not misleading, subject in each case to any exception to such representations and warranties set forth in the Disclosure Schedule, as the same may be updated from time to time prior to and as of the Closing Date by delivery to Parent and Newco in accordance with the terms of this Agreement. 3.22. Opinion of Financial Advisor. As of the date of this Agreement, the Company has received the opinion of Brown, Gibbons, Lang & Company, L.P. to the effect that the consideration to be received in the Merger by the Company Shareholders is fair to such shareholders from a financial point of view, a signed copy of which opinion has been delivered to Parent. 3.23. Transactions with Affiliates. Except as set forth in Section 3.23 of the Disclosure Schedule and except in their capacities as officers, directors and/or employees of the Company -30- 36 and the Subsidiaries, none of the Company Shareholders nor their relatives is involved in any business arrangement or relationship with Company or the Subsidiaries (whether written or oral), and none of the Company Shareholders nor their relatives owns any property or right, tangible or intangible, which is used by the Company or the Subsidiaries. 3.24. Funded Debt. Except as set forth in Section 3.24 of the Disclosure Schedule, neither the Company or any Subsidiary has outstanding any Funded Debt. 3.25. Closing Date. All of the representations and warranties of the Company contained in this Article III are restated on and as of the Closing Date and shall be true and correct in all respects with the same effect as though made as of the Closing Date, subject in each case to any exception to such representations and warranties set forth in the Disclosure Schedule, as the same may be updated from time to time prior to and as of the Closing Date by delivery to Parent and Newco in accordance with the terms of this Agreement. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO Parent and Newco each represent and warrant to the Company and the Company Shareholders as follows: 4.1. Organization. Parent is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. Parent has all requisite corporate power to enter into this Agreement and the other documents and instruments to be executed and delivered by Parent and to carry out the transactions contemplated hereby and thereby. Newco is a corporation duly organized, validly existing and in good standing under the Laws of the State of Wisconsin. Newco has all requisite corporate power to enter into this Agreement and the other documents and instruments to be executed and delivered by Newco and to carry out the transactions contemplated hereby and thereby. 4.2. No Violation. The execution and delivery of this Agreement and the consummation by Parent and Newco of the transactions contemplated hereby will not cause a breach or violation of or default under any provision of (a) the articles of incorporation or bylaws of Parent or Newco; (b) any contract to which Parent or Newco is a party or by which Parent or Newco may be bound; or (c) any decree, order, injunction or other decision of any court, arbitrator or governmental authority to which Parent or Newco may be subject. 4.3. Authority; Validity. The execution and delivery of this Agreement and the other documents and instruments to be executed -31- 37 and delivered by Parent and Newco pursuant hereto and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the boards of directors of Parent and Newco. Except for obtaining any requisite stockholder approval, no other corporate act or proceeding on the part of Parent or Newco is necessary to authorize this Agreement or the other documents and instruments to be executed and delivered by Parent or Newco pursuant hereto or the consummation by Parent or Newco of the transactions contemplated hereby and thereby. This Agreement constitutes, and when executed and delivered, the other documents and instruments to be executed and delivered by Parent and Newco pursuant hereto will constitute, valid and binding agreements of Parent or Newco, enforceable against Parent and Newco in accordance with their respective terms. 4.4. Third Party Consents. Except for the filing of appropriate notices under the HSR Act, no approval, authorization, notice, consent or other action by or filing with any Person is required for Parent's or Newco's execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. 4.5. Investment/Operational Intent. (a) Parent and Newco each has sufficient knowledge and experience in financial and business matters to enable it to evaluate the merits and risks of the transactions contemplated by this Agreement. (b) Parent and Newco have been given access to information requested regarding the Company and the Subsidiaries, including the opportunity to ask questions of and receive answers from the officers of the Company and the Subsidiaries concerning the present and proposed activities of the Company and the Subsidiaries and to obtain the information which Parent or Newco deems necessary or advisable in order to evaluate the merits and risks of the transactions contemplated by this Agreement, and Parent and Newco have made their own independent investigation of the Company and the Subsidiaries and the merits and risks of the transactions contemplated by this Agreement. Notwithstanding the foregoing sentence, no such investigation shall limit the rights of Parent and Newco under Article VI hereof and, subject to Section 5.7 hereof and except to the extent the matters subject to such investigation have been disclosed in this Agreement or in the Disclosure Schedule, Article VIII hereof. (c) Parent is acquiring the Company for its own account, for investment/operational purposes, and not with a present view to resale or for distribution of all or any portion of the Company Capital Stock. -32- 38 4.6. Closing Date. All of the representations and warranties of Parent and Newco contained in this Article IV are restated on and as of the Closing Date and shall be true and correct in all respects with the same effect as though made as of the Closing Date. ARTICLE V COVENANTS From and after the date of this Agreement, the parties shall comply with the following covenants: 5.1. Access to Information and Records. The Company shall give Parent, Newco, their counsel, accountants and other representatives and the Parent's Lenders (i) reasonable access during normal business hours to all of the properties, books, records, contracts and documents of Company and the Subsidiaries for the purpose of such inspection, investigation and testing as Parent or Newco deems appropriate (and Company shall furnish or cause to be furnished to Parent, Newco and their representatives all information with respect to the business and affairs of Company and the Subsidiaries as Parent or Newco may reasonably request), provided, however, that neither Parent nor Newco, nor their counsel, accountants or other representatives, shall have any environmental test or assessment performed on or in connection with any of the Real Property or Leased Real Property prior to the Effective Time other than a routine "Phase I" assessment or report, without the prior written consent of the Company Representative; (ii) with the prior consent of the Company Representative in each instance, access to employees, agents and representatives for the purposes of such meetings and communications as Parent or Newco reasonably desires; and (iii) with the prior consent of Company Representative in each instance, access to vendors, customers and others having business dealings with Company. 5.2. Conduct of Business Pending the Closing. From the date hereof until the Closing, except as otherwise approved in writing by Parent (which approval shall not be unreasonably withheld), the Company shall comply with the following covenants: (a) No Material Changes. Company will carry on the Business diligently and in substantially the same manner as heretofore and will not make or institute any material changes in its methods of purchase, sale, management, accounting or operation. (b) Maintain Organization. Company will take such action as may be commercially reasonable to maintain, preserve, renew and keep in favor and effect the existence, rights and franchises of Company and the Subsidiaries and will use commercially reasonable efforts to preserve the business organization of Company and the Subsidiaries intact, to keep -33- 39 available to Company the present employees of the Company and the Subsidiaries, and to preserve for Company and the Subsidiaries its present relationships with suppliers and customers and others having business relationships with Company and the Subsidiaries. (c) No Corporate Changes. Company shall not amend its Restated Articles of Incorporation or Bylaws or make any changes in authorized or issued capital stock, except as contemplated by Section 6.11 of this Agreement. (d) Maintenance of Insurance. Company shall maintain all of the insurance in effect as of the date hereof. (e) Maintain Assets. The Company will maintain the Proprietary Rights so as not to affect adversely any registration or application for registration thereof or the validity or enforcement thereof, and maintain its other assets in customary repair, order and condition; and in the event of any casualty, loss or damage to any of such assets repair or replace such assets with assets of comparable quality and value in accordance with past custom and practice. (f) Perform Obligations. The Company will and will cause the Subsidiaries to perform in all material respects all of its obligations under all notes, bonds, mortgages, indentures, licenses, contracts, agreements or other instruments or obligations to which the Company or any Subsidiary is a party or by which any of them or any of their respective properties or assets may be bound and not enter into, assume or amend any such contract or commitment other than in the ordinary course of business in accordance with past custom and practice. (g) Taxes. The Company will pay all Taxes and estimated Taxes and prepare and file all Tax Returns and other Tax reports, filings and amendments thereto required to be filed by it, on a timely basis. (h) Notice of Breach. The Company will promptly inform Parent in writing of any material breach of or change in the representations and warranties contained in Article III hereof. (i) Representations and Warranties. Neither the Company nor any Subsidiary shall enter into any contract, agreement or commitment or take any other action (other than in the ordinary course of business) which, if entered into or taken prior to the date of this Agreement, would cause any representation or warranty of the Company to be untrue in any material respect or be required to be disclosed on the Disclosure Schedule (including, without limitation, with respect to Section 3.7 hereof). (j) Affiliate Transactions. Except as contemplated by Section 6.12 and 6.13 of this Agreement and except as set forth in -34- 40 Section 5.2(j) of the Disclosure Schedule, neither the Company nor any Subsidiary will enter into or become party to any agreement, arrangement or transaction with any of its respective directors, officers, employees, stockholders or their relatives except in the Ordinary Course, including, without limitation, any (i) loan or advance of funds, or make any other payments except in the Ordinary Course, to any of its directors, officers, employees or stockholders, (ii) creation or discharge of any intercompany account, other than in the Ordinary Course, or (iii) payment or declaration of any dividend, redemption or other distribution with respect to their respective capital stock. (k) No Indebtedness. Neither the Company nor any Subsidiary will incur any Funded Debt. (l) Capital Expenditures. Except as set forth in Section 5.2(l) of the Disclosure Schedule, neither the Company nor any Subsidiary will make any capital expenditure or any other investment (or series of related investments) in excess of $100,000, except in the Ordinary Course. (m) Employees. Except as set forth in Section 5.2(m) of the Disclosure Schedule, neither the Company nor any Subsidiary will adopt, modify, amend or terminate any bonus, profit-sharing, incentive, severance, or other similar plan (including any Employee Benefit Plan), contract, or commitment for the benefit of any of its directors, officers, or employees, or otherwise make any change in the employment terms (including any increase in the base compensation) for any of its officers and employees whose annual base compensation is in excess of $50,000, except in the Ordinary Course. (n) No Stock Issuances. Neither the Company nor any Subsidiary will issue, sell or otherwise dispose of any of its capital stock, or grant, modify or amend any options, warrants, stock appreciation rights, or other rights to purchase or obtain (including upon conversion, exchange or exercise) any of its capital stock. (o) Working Capital. The Company and the Subsidiaries will maintain a level of working capital in the Ordinary Course. (p) Material Adverse Effect. The Company will not take or omit to be taken any action, or permit its Subsidiaries to take or to omit to take any action, which would result in a Material Adverse Effect. 5.3. HSR Act Filings. Each Party shall, in cooperation with the other Parties, file or cause to be filed any reports or notifications that may be required to be filed by it under the HSR Act, with the Federal Trade Commission and the Antitrust Division of the Department of Justice, and shall furnish to the others all -35- 41 such information in its possession as may be necessary for the completion of the reports or notifications to be filed by the others. Prior to making any communication, written or oral, with the Federal Trade Commission, the Antitrust Division of the federal Department of Justice or any other governmental agency or authority or members of their respective staffs with respect to this Agreement or the transactions contemplated hereby, each Party shall consult with the other Parties with respect thereto. 5.4. Consents. The Company will use reasonable best efforts prior to Closing to obtain all governmental and third party consents necessary for the consummation by the Company of the transactions contemplated hereby. 5.5. Publicity. All general notices, releases, statements and communications to employees, suppliers, customers and the general public and the press relating to the transactions contemplated by or consummated pursuant to this Agreement shall be made only at such times and in such manner as may be mutually agreed upon by the Company Representative and the Parent; provided, however, that any party may make a public announcement of the proposed transaction, if, in the opinion of counsel, such announcement is required to comply with any Law or any rule or regulation of any securities exchange or securities quotation system and such party shall, to the extent practicable, consult with the other party with respect to such announcements and give reasonable prior written notice of its intent to issue such announcement. 5.6. Merger Payment Statements. Copies of Merger Payment Statements for each Company Shareholder shall be delivered by the Company to Parent prior to the mailing of the proxy statement or information statement used by Company in connection with its special shareholder's meeting relating to the Merger. The Company shall deliver the Merger Payment Statements to the Company Shareholders with the proxy statement or information statement, together with directions to all Company Shareholders to sign their Merger Payment Statement confirming their agreement to the amounts stated therein and return the Merger Payment Statement to the Company on or prior to five (5) business days prior to the Closing Date. 5.7. Disclosure Schedule. (a) Disclosure Schedule. Contemporaneously with the execution and delivery of this Agreement, the Company is delivering to Parent the Disclosure Schedule, which is accompanied by a certificate signed by the chief executive officer of the Company stating that the Disclosure Schedule is being delivered pursuant to this Agreement and is the Disclosure Schedule referred to in this Agreement. The Disclosure Schedule is deemed to constitute an integral part of this Agreement and to modify the representations, warranties, covenants or agreements of the Company contained in -36- 42 this Agreement to the extent specified therein by reference to corresponding sections of this Agreement. Subject to the next sentence, the inclusion of any item in the Disclosure Schedule shall constitute disclosure solely for purposes of the section hereof specifically referenced therein, but shall not be construed as an indication of the materiality or lack of materiality of such item. The Company shall use its best efforts to number all exceptions noted in the Disclosure Schedule to correspond to the applicable section of this Agreement to which such exception refers, but it is understood that the failure to do so shall not constitute a breach of any representation or warranty made in this Agreement so long as such exception is disclosed with reasonable specificity elsewhere in the Disclosure Schedule or elsewhere in this Agreement and the Company Representative can establish that Parent reasonably should have known that an exception noted in the Disclosure Schedule or elsewhere in this Agreement as corresponding to a particular section or sections of this Agreement also would correspond to another section or sections of this Agreement. (b) Updates. Subject to Section 6.1, prior to the Closing Date, the Company may update and supplement the Disclosure Schedule from time to time by written notice to Parent. If requested by Parent, the Company shall meet and discuss with Parent any change in the Disclosure Schedule made by the Company. 5.8. Company Shareholders Approval. The Company agrees, as soon as reasonably practicable after the date of this Agreement, to take all steps necessary to duly call, give notice of, convene and hold a special meeting of the Company Shareholders no later than thirty (30) calendar days after the date of this Agreement, as provided by Law and its bylaws, for the purpose of securing their approval of this Agreement and the Merger Agreement or otherwise to obtain such approval by written consent of the Company Shareholders dated no later than thirty (30) days after the date of this Agreement. The Board of Directors of the Company has recommended and will recommend that the Company Shareholders vote to adopt and approve the Merger. 5.9. Newco Shareholder Approval. Parent's execution of this Agreement evidences Parent's consent to and approval of the Merger as sole shareholder of Newco and, if separately required to further evidence such consent and approval, Parent agrees to cause the shares of Newco owned by it to be voted in favor of the Merger subject to the terms and conditions of this Agreement. 5.10. Indemnification of Directors and Officers. Until the fifth anniversary of the Closing Date, Parent shall not take, nor permit the Company or Newco to take, any action so as to amend the provisions of the Restated Articles of Incorporation or Bylaws of Company or any of the Subsidiaries with respect to the indemnification of directors and officers, if such amendment would adversely affect the rights of any person who shall have served as -37- 43 a director or officer of Company or any of the Subsidiaries prior to the Closing. This covenant of Parent may be enforced after the Closing Date by the Company Representative on behalf of any then current or former officer or director whose rights are adversely affected by any such amendment. 5.11. Company Representative. By approving this Agreement, the Company Shareholders hereby irrevocably make, constitute and appoint E.W. Aylward as their true and lawful attorney-in-fact to take all actions required under this Agreement on behalf of the Company Shareholders (including, without limitation, the resolution or dispute of any claims) in their name and stead and further ratify and approve all such actions as their own. In the event of the death, inability to act or declination to act of E.W. Aylward, then a successor Company Representative shall be selected by a majority vote of the Company Shareholders. 5.12. Third Party Proposals. From the date hereof until the earlier of the Effective Time or the termination of this Agreement by the Company in accordance with Article IX of this Agreement, neither the Company, any Subsidiary or any Company Shareholder shall initiate, solicit, negotiate, accept or encourage, directly or indirectly, inquiries or proposals (each, an "Acquisition Proposal") with respect to, or furnish any information relating to, or enter into any agreement with respect to, any acquisition or purchase of all or a substantial portion of the assets (other than inventory and equipment in the Ordinary Course) of, or the capital stock of, the Company or any Subsidiary or any business combination with the Company other than as contemplated by this Agreement (a "Third Party Acquisition"), or authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by it to take any such action. The Company shall notify Parent promptly if any Acquisition Proposal is received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated with, the Company, any Subsidiary or, to the Knowledge of the Company, any Company Shareholder, or any of their respective officers, directors, stockholders, employees, agents or representatives. The Company shall immediately cease and cause to be terminated any existing discussions or negotiations with any parties conducted prior to the date hereof with respect to any Acquisition Proposal. The Company represents that neither it nor any Subsidiary or their respective stockholders is party to or bound by any agreement with respect to an Acquisition Proposal other than under this Agreement. The Company shall cause its Subsidiaries, officers, directors, stockholders, agents and advisors to comply with the provisions of this Section 5.12. 5.13. Non-Competition; Non-Interference; Non-Solicitation. As a significant inducement to Parent to enter into and perform its obligations under this Agreement, on the Closing Date the Company -38- 44 shall cause the Covered Individuals to enter into restrictive covenant agreements with the Parent, dated the Closing Date and in form and substance reasonably satisfactory to Parent and such Covered Individuals, providing substantially as follows: (a) For a period of three (3) years after the Closing Date ("Non-Competition Period"), they shall not, directly or indirectly, own, operate, lease, manage, control, engage in, invest in, permit their names to be used by, act as consultants or advisors to, render services for (alone or in association with any person, firm, corporate or other business organization) or otherwise assist in any manner any person or entity that manufactures any products or provides any services that may be used as substitutes for or are otherwise in competition with any products or services in the business of the Company anywhere in the United States as it exists or is proposed as of the Closing Date or the date of this Agreement ("Covered Activities"). Nothing herein shall prohibit any Covered Individual from being a passive owner of not more than four percent (4%) of the outstanding stock of any class of securities of a publicly traded corporation engaged in Covered Activities, so long as such Covered Individual does not actively participate in the management of such corporation; (b) During the Non-Competition Period, they shall not, (i) induce or attempt to induce any employee of the Company or any of its Subsidiaries to leave its employ, or (ii) induce or attempt to induce any supplier, licensee, franchisee, customer or other business relation of the Company to cease doing business with it; (c) That (i) the covenants set forth in Sections 5.13(a) and (b) are reasonable in geographical and temporal scope and in all other respects, (ii) Parent would not have entered into this Agreement but for the covenants of the Covered Individuals contained therein, and (iii) the covenants contained therein have been made in order to induce Parent to enter into this Agreement; and (d) That if, at the time of enforcement of the covenants contained in Sections 5.13(a) and (b), a court shall hold that the duration, scope, or area restrictions stated therein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope, or area reasonable under such circumstances shall be substituted for the stated duration, scope or area. (e) That the Covered Individuals recognize and affirm that in the event of their breach of any of the foregoing restrictive covenants, money damages would be inadequate and the damaged party would have no adequate remedy at law. Accordingly, each Covered Individual agrees that Parent and Newco shall have the right, in addition to any other rights and remedies existing in its favor, to enforce its rights and the Covered Individuals' -39- 45 obligations therein not only by an action or actions for damages, but also by an action or actions for specific performance, injunction and/or other equitable relief in order to enforce or prevent any violations (whether anticipatory, continuing or future) of the provisions thereof (including, without limitation but without duplication, the extension of the Non-Competition Period by a period equal to (i) the length of the violation of any of the provisions thereof plus (ii) the length of any court proceedings necessary to stop such violation). In the event of a breach or violation of any of the provisions thereof, the running of the Non-Competition Period (but not of the Covered Individuals' obligations thereunder) shall be tolled during the continuance of any actual breach or violation. ARTICLE VI CONDITIONS PRECEDENT TO PARENT'S AND NEWCO'S OBLIGATIONS Each and every obligation of Parent and Newco to be performed on the Closing Date shall be subject to the satisfaction prior to or at the Closing of each of the following conditions: 6.1. Representations and Warranties True on the Closing Date. Each of the representations and warranties made by Company in this Agreement shall be true and correct in all material respects (i) when made and (ii) at and as of the Closing Date as though such representations and warranties were made or given on and as of the Closing Date; provided, however, that for purposes of this Section 6.1 only, any updates and supplements to the Disclosure Schedule delivered by the Company to Parent after the date of this Agreement and prior to the Closing shall not be taken into account, except in each of cases (i) and (ii) for any changes consented to in writing by Parent or Newco; and for purposes of this Section 6.1 only no effect shall be given to any materiality qualifier contained in any such representation or warranty. 6.2. Compliance With Agreement. The Company shall have in all material respects performed and complied with all of its agreements and obligations under this Agreement which are to be performed or complied with by it prior to or on the Closing Date. 6.3. Absence of Litigation. No action, suit, investigation or proceeding shall have been commenced or threatened by a governmental agency or third party against Parent, Newco, Company, Subsidiaries, or any of the affiliates, officers or directors of any of them, with respect to the transactions contemplated hereby, challenging the rights of the parties hereto to consummate such transactions or which reasonably could be expected to have a Material Adverse Effect. 6.4. Consents and Approvals. All material approvals, consents and waivers that are necessary for the Company to effect the -40- 46 transactions contemplated hereby shall have been received, and executed counterparts thereof shall have been delivered to Parent or Newco at or prior to the Closing. 6.5. HSR Act Waiting Period. All applicable waiting periods related to the HSR Act shall have expired. 6.6. No Material Adverse Effect. During the period from the date hereof to the Closing Date, no event which has had or could reasonably be expected to have a Material Adverse Effect shall have occurred. 6.7. Shareholders Approval. This Agreement, including specifically the Merger Agreement, the Merger and the transactions contemplated thereby shall have been approved by at least a majority of all the votes entitled to be cast with respect thereto by the holders of the outstanding Class A Common Stock and the holders of the outstanding Class B Common Stock, voting as separate voting groups; and dissenters' rights shall not have been asserted with respect to more than 1% of the number of issued and outstanding shares of Class A Common Stock and Class B Common Stock, taken together as a single class for this purpose. 6.8. Articles of Merger. The Articles of Merger shall have been filed with the Wisconsin Department of Financial Institutions. 6.9. Documents to be Delivered by Company. At the Closing, Company shall have delivered to Parent and Newco the following documents, in each case duly executed or otherwise in proper form: (a) Stock Certificate(s). Stock certificates representing all of the outstanding shares of the Class A Common Stock and Class B Common Stock, except for stock certificates held by a Company Shareholder who has asserted dissenters' rights. (b) Compliance Certificate. A certificate signed by the chief executive officer of the Company that each of the representations and warranties made by the Company in this Agreement is true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date (except for any changes permitted by the terms of this Agreement or consented to in writing by Parent), and that the Company has performed and complied in all material respects with all of its obligations under this Agreement which are to be performed or complied with on or prior to the Closing Date. (c) Opinion of Counsel. A written opinion of Quarles & Brady, counsel to Company, dated as of the Closing Date, addressed to Parent and Newco, substantially in the form of Exhibit E hereto. -41- 47 (d) Certified Resolutions. Certified copies of the resolutions of the Board of Directors and the shareholders of Company, authorizing and approving this Agreement and the consummation of the transactions contemplated by this Agreement. (e) Escrow Agreement and Paying Agent Agreement. The Escrow Agreement and Paying Agent Agreement. (f) Articles; Bylaws. A copy of the articles of incorporation of Company and each Subsidiary certified as of a recent date by the Wisconsin Department of Financial Institutions and a copy of the bylaws of Company and each Subsidiary certified by the secretary of Company and each Subsidiary, respectively. (g) Incumbency Certificate. Incumbency certificates relating to each person executing (as a corporate officer or otherwise on behalf of another person) any document executed and delivered to Parent or Newco pursuant to the terms hereof. (h) Non-Competition, Non-Interference, Non-Solicitation Agreement. Parent shall have received the non-competition, noninterference and non-solicitation agreement referred to in Section 5.13 of this Agreement executed by each Covered Individual. (i) Other Documents. All other documents, instruments or writings required to be delivered to Parent or Newco at or prior to the Closing pursuant to this Agreement and such other certificates of authority and documents as Parent or Newco may reasonably request. 6.10. Merger Payment Statements. Parent shall have received signed copies of Merger Payment Statements from all of the Company Shareholders except any Company Shareholder who has asserted dissenters' rights. 6.11. Amendment of Restated Articles. The Company shall have amended its Restated Articles of Incorporation to remove therefrom any restrictions on the transfer of Company Capital Stock. 6.12. Termination of Restrictive Stock Transfer Agreement. The Company and the Company Shareholders party thereto shall have terminated that certain Restrictive Stock Transfer Agreement dated July 14, 1995. 6.13. Note Repayment and Release of Stock Pledge. The three (3) promissory notes dated March 24, 1994 issued to the Company by E.W. Aylward, Andrew A. Aylward and Richard J. Aylward, respectively, each in the original principal amount of $974,000, shall have been repaid to the Company, and the shares of Class B Common Stock pledged to the Company to secure payment of such loans shall have been released by the Company from such pledges. -42- 48 6.14. Real Property. (a) A title insurance company selected by Parent (the "Title Company") shall be willing to insure at standard rates the Company's or the applicable Subsidiary's marketable title in and to the Real Property in fee simple and the mortgage lien on the Real Property of Parent's Lenders, free and clear of all liens, defects, claims, leases, rights of possession or other encumbrances (other than the matters disclosed in Section 3.8(d) of the Disclosure Schedule) including such endorsements and affirmative coverages as Parent and Parent's Lenders shall reasonably require including without limitation non-imputation endorsements. Company shall provide all such affidavits as the Title Company reasonably shall require in order to afford such coverages. (b) Parent shall have received a survey of each Real Property conforming to the Minimum Standard Detail Requirements jointly established and approved in 1992 by ALTA and ACSM certified to the Company, Parent's Lenders and the Title Company and showing no encroachments or encumbrances other than the matters disclosed in Section 3.8(d) of the Disclosure Schedule. (c) Parent shall have received from the Company and each Subsidiary that owns any of the Real Property an affidavit stating that such Person is not a "foreign person", as defined in Section 1445(f)(3) of the Code. 6.15. Financing. Parent shall have received the cash proceeds of financings from the Parent's Lenders in an amount necessary to consummate the Merger and the other transactions contemplated hereby and to pay all fees and expenses in connection therewith and to provide for the ongoing working capital needs of the Company for the term of the senior financing provided by Parent's Lenders, all on terms and conditions satisfactory to Parent. 6.16. Due Diligence. Parent shall have completed its due diligence review of the Company and the Subsidiaries, and Parent shall, in good faith, be satisfied with the results of such due diligence review. 6.17. Minimum Cash on Hand. The Company and its Subsidiaries on a consolidated basis shall have at least $18,000,000 cash and cash equivalents on hand at Closing (net of checks issued but not yet presented). ARTICLE VII CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS Each and every obligation of Company to be performed on the Closing Date shall be subject to the satisfaction prior to or at the Closing of the following conditions: -43- 49 7.1. Representations and Warranties True on the Closing Date. Each of the representations and warranties made by Parent and Newco in this Agreement shall be true and correct in all material respects when made and shall be true and correct in all material respects at and as of the Closing Date as though such representations and warranties were made or given on and as of the Closing Date. 7.2. Compliance With Agreement. Parent and Newco shall have in all material respects performed and complied with all of their agreements and obligations under this Agreement which are to be performed or complied with by them prior to or on the Closing Date. 7.3. Absence of Litigation. No litigation shall have been commenced or threatened against Parent, Newco, Company, Subsidiaries or any of the affiliates, officers or directors of any of them, with respect to the transactions contemplated hereby which would prevent the Closing. 7.4. HSR Act Waiting Period. All applicable waiting periods related to the HSR Act shall have expired. 7.5. Documents to be Delivered by Parent and Newco. At the Closing, Parent and Newco shall deliver to Company the following documents, in each case duly executed or otherwise in proper form: (a) Compliance Certificates. A certificate signed by the chief executive officer of Parent and a certificate signed by the chief executive officer of Newco that each of the representations and warranties made by Parent and Newco in this Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of the Closing Date (except for any changes permitted by the terms of this Agreement or consented to in writing by Company), and that Parent and Newco have each performed and complied with all of their obligations under this Agreement which are to be performed or complied with on or prior to the Closing Date. (b) Opinion of Counsel. A written opinion of Kirkland & Ellis, counsel to Parent and Newco, and, if determined necessary by Parent, of local counsel as to applicable laws other than federal, New York and Delaware laws, dated as of the Closing Date, addressed to Company and the Company Representative, in substantially the form of Exhibit F hereto. (c) Certified Resolutions. A certified copy of the resolutions of the boards of directors of Parent and Newco, and of the sole shareholder of Newco, authorizing and approving this Agreement and the consummation of the transactions contemplated by this Agreement. -44- 50 (d) Incumbency Certificates. Incumbency certificates relating to each person executing any document executed and delivered to Company by Parent or Newco pursuant to the terms hereof. (e) Escrow Agreement and Paying Agent Agreement. The Escrow Agreement and Paying Agent Agreement. (f) Other Documents. All other documents, instruments or writings required to be delivered to Company at or prior to the Closing pursuant to this Agreement and such other certificates of authority and documents as Company may reasonably request. 7.6. Articles of Merger. The Articles of Merger shall have been filed with the Wisconsin Department of Financial Institutions. 7.7. Shareholders Approval. This Agreement, including specifically the Merger Agreement, the Merger and the transactions contemplated thereby shall have been approved by at least a majority of all the votes entitled to be cast with respect thereto by the holders of the outstanding Class A Common Stock and the holders of the outstanding Class B Common Stock, voting as separate voting groups. 7.8. Merger Price. Parent or Newco shall have paid the Merger Price in accordance with the provisions of Article II of this Agreement and of the Merger Agreement. 7.9. Reliance Letter. The Company Representative shall have received a letter dated as of the Closing Date, addressed to the Board of Directors of the Company and the Company Shareholders and in form and substance reasonably satisfactory to the Company Representative, from the independent evaluation firm that is providing a solvency letter to Parent's Lenders as to the solvency of Parent and its subsidiaries on a consolidated basis after giving effect to the transactions contemplated by this Agreement and the related agreements between Parent and Parent's Lenders, stating that the Board of Directors of the Company and the Company Shareholders may rely on such solvency letter with the same effect as if such solvency letter had been issued to the Board of Directors of the Company and the Company Shareholders directly. ARTICLE VIII SURVIVAL; INDEMNIFICATION 8.1. Survival; Remedies for Breach. (a) Each and every representation, warranty, agreement and covenant made by Company, Parent or Newco in this Agreement or in any exhibits, schedules, instruments of transfer or other documents delivered pursuant thereto or in connection therewith -45- 51 shall be effective regardless of any investigation that may have been or may be made at any time by or on behalf of the party to whom such representation, warranty, agreement or covenant is made and shall survive the Closing, but except as otherwise provided in this subsection 8.1, shall terminate on the date that is eighteen (18) months after the Closing Date and thereafter be of no further force or effect (the date on which any covenant, agreement, representation or warranty terminates in accordance with this Article VIII being referred to herein as the "Cut-off Date" for such covenant, agreement, representation or warranty). (b) Any covenant, agreement, representation or warranty of the Company relating to Taxes or Tax Returns contained in Sections 3.6 or 5.2(g) of this Agreement shall extend for a period of thirty-six (36) months after the Closing Date. (c) Any covenant, agreement, representation or warranty of the Company relating to Environmental Laws or Hazardous Substances contained in Sections 3.11 or 3.16 of this Agreement shall extend for a period of forty-eight (48) months after the Closing Date. (d) Any covenant or agreement contained herein that by its terms is to be performed after the Closing Date shall survive for (i) a period of eighteen (18) months from the last date on which performance is due under such covenant or agreement, or (ii) in the absence of a specified due date for performance, a period of two (2) years after the Closing Date. (e) Any covenant, agreement, representation or warranty that would otherwise terminate at the Cut-off Date with respect thereto shall survive as to a claim for indemnification if the notice referred to in Section 8.2(b)(vi) or Section 8.3(b), as the case may be, of the breach, inaccuracy or nonperformance thereof shall have been given on or prior to the Cut-off Date with respect thereto to the party against whom indemnification may be sought. (f) The covenants and agreements contained in this Article VIII shall survive until such time as any claim for indemnification is finally settled in accordance with the terms hereof. (g) After the Closing, the indemnities set forth in this Article VIII shall be the exclusive remedies of the Company, Parent and Newco for the breach of any covenant, agreement, representation or warranty in this Agreement by the Company, Parent and Newco, as the case may be, and the parties shall not be entitled to a rescission of this Agreement or to any further indemnification rights or claims of any nature whatsoever in respect thereof, all of which the Parties waive; provided, however, that any Dispute related to the post-closing adjustment described in Section 2.6 of -46- 52 this Agreement shall be resolved pursuant to the procedures set forth in that Section 2.6. 8.2. Indemnification on Behalf of Company Shareholders; Escrow of Funds. (a) General. To induce Parent and Newco to enter into this Agreement and to consummate the Merger, the Company has agreed, and by approving this Agreement the Company Shareholders shall have agreed, that, subject to the provisions of this Section and the other Sections of this Article VIII, the Escrow Deposit shall be withheld and placed in escrow at Closing for the purpose of indemnifying the Buying Group and their respective directors, officers, employees and Shareholders and holding them harmless from and against, and as the Buying Group's sole source of indemnification for, any and all Losses incurred or sustained or suffered by, or imposed upon, Parent or Newco and their respective directors, officers, employees and Shareholders, with respect to or by reason of any failure, breach, default, inaccuracy or lack of performance on the part of the Company of any of its representations, warranties, agreements or covenants under this Agreement or contained in any certificate, document or instrument delivered by the Company hereunder. The Escrow Deposit shall be withheld and placed in escrow at the Closing with the Escrow Agent who shall hold and administer the Escrow Deposit in accordance with the terms of the Escrow Agreement. ALL INDEMNITY PAYMENTS TO THE BUYING GROUP UNDER THIS AGREEMENT SHALL BE PAID FROM AND LIMITED TO, AND SHALL IN NO CIRCUMSTANCES EXCEED, THE PRINCIPAL OF THE ESCROW DEPOSIT. SUCH INDEMNITY PAYMENTS FROM THE ESCROW DEPOSIT SHALL BE THE SOLE SOURCE OF PAYMENT FROM, AND THE SOLE REMEDY AGAINST, THE COMPANY AND THE COMPANY SHAREHOLDERS SHALL HAVE NO RESPONSIBILITY FOR AMOUNTS THAT MAY BECOME PAYABLE HEREUNDER, OR OTHERWISE, EXCEPT TO THE EXTENT OF THEIR PRO RATA PORTION OF THE PRINCIPAL OF THE ESCROW DEPOSIT. (b) Notwithstanding anything to the contrary in this Agreement, the Buying Group shall not be entitled to indemnification under Section 8.2(a): (i) with respect to a claim for indemnification hereunder related to the title of any real estate with respect to which there is a title insurance policy in effect, except to the extent that the Buying Group has first unsuccessfully attempted to recover upon such title insurance, provided that the Cut-off Date with respect to any such claim shall be tolled for any period during which the Company or any Subsidiary is in good faith trying to recover under such title insurance if the Company Representative has been given written notice of such claim by Parent prior to the applicable Cut-off Date in the manner required hereunder; and (ii) in connection with any claim for indemnification hereunder with respect to which the Company or any -47- 53 Subsidiary has an enforceable contractual right of indemnification or right of set-off against any third party, except to the extent that the Company or such Subsidiary has first unsuccessfully attempted to recover upon such contractual right of indemnification or set-off or unless the Company or such Subsidiary is enjoined by a court of competent jurisdiction or otherwise legally prevented from receiving the benefit of any such contractual right of indemnification or set-off, provided that the Cut-off Date with respect to any such claim shall be tolled for any period during which the Company or any Subsidiary is in good faith trying to recover from any such third party if the Company Representative has been given written notice of such claim by Parent prior to the applicable Cut-off Date in the manner required hereunder; and (iii) with respect to any Loss resulting from a breach of a representation, warranty, covenant or agreement that is disclosed in a written notice, setting forth in reasonable detail the specific facts and circumstances pertaining thereto, delivered by the Company to Parent after the date of this Agreement and not less than ten (10) days prior to the Closing if the Buying Group nevertheless elects to close (regardless of whether the Buying Group waives such breach in writing or otherwise); and (iv) in connection with any claim for indemnification based upon a claim, assessment or deficiency for any Tax which arises from adjustments having the effect only of shifting income, credits and/or deductions from one fiscal period to another to the extent of any offsetting reduction in Tax for another period; and (v) to the extent of the value of any net Tax benefit realized (by reason of a Tax deduction, basis reductions, shifting of income, credits and/or deductions or otherwise) by the Buying Group or the Company in connection with the Loss that forms the basis of the Buying Group's claim for indemnification hereunder net of any Tax due from the Buying Group with respect to the indemnification payment itself; and (vi) with respect to any claim for indemnification hereunder, unless Parent has given the Company Representative written notice of such claim, setting forth what Parent in good faith reasonably believes is sufficient detail as to the facts and circumstances pertaining thereto to inform the Company Representative of the nature of the claim, prior to the applicable Cut-off Date; and (vii) to the extent of any insurance proceeds actually received by the Buying Group in connection with the facts giving rise to such indemnification, net of any Tax due with respect to the receipt of such insurance proceeds and net of the present value of any future insurance premium increases directly -48- 54 attributable to the insurance claim filed by the Buying Group that gave rise to the insurance proceeds received; and (viii) for any De Minimis Claim, it also being understood and agreed by the parties to this Agreement that for purposes of clauses (ix), (x), (xi) and (xii) of this Section 8.2(b), the amount of the Buying Group's Losses shall not include the amount of any De Minimis Claim; and (ix) for the first $500,000.00 of Losses as to which the Buying Group otherwise may be entitled to indemnity hereunder (without giving effect to this clause (ix) or clauses (x), (xi) or (xii) of this Section 8.2(b)), all of such $500,000.00 of Losses being the responsibility of the Buying Group, it being understood and agreed, however, by the parties to this Agreement that the limitations on indemnification set forth in this clause (ix) and in clauses (x), (xi) and (xii) of this Section 8.2(b) shall not apply with respect to Losses of the Buying Group arising from (i) failure of the Company or the Company Representative to perform their respective obligations under Sections 2.3, 2.6, 5.2(j), 5.2(k), 5.2(m), 5.2(n) and 10.6(f) of this Agreement and this Article VIII or (ii) any breach by the Company of its representations and warranties contained in Sections 3.1(c), 3.2, 3.23, 3.24 and 11.6(a) of this Agreement; and (x) for two-thirds of each dollar of Losses of the second $500,000.00 of Losses (over and above the $500,000.00 of Losses specified in clause (ix) of this Section 8.2(b)) as to which the Buying Group otherwise may be entitled to indemnity hereunder (without giving effect to this clause (x) or clauses (ix), (xi) or (xii) of this Section 8.2(b)), all of such two-thirds of each dollar of Losses of the second $500,000.00 of Losses being the responsibility of the Buying Group; and (xi) for one-half of each dollar of Losses of the third $500,000.00 of Losses (over and above the $500,000.00 of Losses specified in clauses (ix) and (x) of this Section 8.2(b)) as to which the Buying Group otherwise may be entitled to indemnity hereunder (without giving effect to this clause (xi) or clauses (ix), (x) or (xii) of this Section 8.2(b)), all of such one-half of each dollar of Losses of the third $500,000.00 of Losses being the responsibility of the Buying Group; and (xii) for one-third of each dollar of Losses of the fourth $500,000.00 of Losses (over and above the $500,000.00 of Losses specified in clauses (ix), (x) and (xi) of this Section 8.2(b)) as to which the Buying Group otherwise may be entitled to indemnity hereunder (without giving effect to this clause (xii) or clauses (ix), (x) or (xi) of this Section 8.2(b)), all of such one-third of each dollar of Losses of the fourth $500,000.00 of Losses being the responsibility of the Buying Group; and -49- 55 (xiii) for any Losses in excess of the amount in the Escrow Deposit, all of such Losses in excess of the Escrow Deposit being the responsibility of the Buying Group. The following examples are for illustration purposes only with respect to clauses (ix), (x), (xi) and (xii) of this Section 8.2(b): Example A: in the event that Losses in aggregate total $750,000, Buying Group shall not be entitled to any indemnification with respect to the first $500,000 thereof, but shall be entitled to indemnification for one-third of every dollar of Losses in excess of $500,000 (i.e. 1/3 x $250,000 = $83,333.33); Example B: if Losses in aggregate total $1,250,000, Buying Group shall be entitled to one-third of every dollar of Losses in excess of $500,000 up to $1,000,000 and one-half of every dollar of Losses in excess of $1,000,000 (i.e. (1/3 x $500,000) + (1/2 x $250,000) = $291,666.67). 8.3. Indemnification by Parent. (a) Subject to the provisions of this Section and the other Sections of this Article VIII, Parent agrees to indemnify the Company and hold it harmless (and agrees to indemnify and hold harmless any persons adversely affected by Parent's failure to comply with Section 5.10 of this Agreement) from and against any and all Losses incurred or sustained by or imposed upon the Company (or such persons) with respect to or by reason of any failure, breach, default, inaccuracy or lack of performance on the part of Parent or Newco of any of their respective representations, warranties, agreements or covenants under this Agreement or contained in any certificate, document or instrument delivered by Parent or Newco hereunder. (b) Notwithstanding anything to the contrary in this Agreement, the Company (and such persons) shall not be entitled to indemnification under Section 8.3(a) with respect to any claim for indemnification hereunder unless the Company Representative has given Parent written notice of such claim, setting forth what the Company Representative in good faith reasonably believes is sufficient detail as to the facts and circumstances pertaining thereto to inform the Parent of the nature of the claim prior to the applicable Cut-off Date. 8.4. Procedures for Indemnification. (a) If an Indemnified Party shall claim to have suffered a Loss for which indemnification is available under Section 8.2 or 8.3, as the case may be (for purposes of this Section 8.4, regardless of whether such Indemnified Party is entitled to receive a payment in respect of such claim by virtue of paragraphs (b)(ix), (x), (xi) or (xii) of Section 8.2), the Indemnified Party shall notify the Indemnifying Party in writing of such claim within the time periods provided in paragraph (b)(vi) of Section 8.2 or -50- 56 paragraph (b) of Section 8.3, as the case may be. Such written notice shall describe what the Indemnified Party in good faith reasonably believes to be the nature of such claim, the facts and circumstances that give rise to such claim and the amount of such claim if reasonably ascertainable at the time such claim is made (or if not then reasonably ascertainable, the maximum amount of such claim reasonably estimated by the Indemnified Party). In the case of a claim by the Buying Group, a copy of such written notice shall also be provided by the Indemnified Party to the Escrow Agent. In the event that within forty-five (45) days after the receipt by the Indemnifying Party of such a written notice from the Indemnified Party, the Indemnified Party shall not have received from the Indemnifying Party a written objection to such claim, such claim shall be conclusively presumed and considered to have been assented to and approved by the Indemnifying Party. (b) If within the forty-five (45) day period described in paragraph (a) above the Indemnified Party (and, in the case of claim by the Buying Group, the Escrow Agent) shall have received from the Indemnifying Party a notice setting forth the Indemnifying Party's objections to such claim and the Indemnifying Party's reasons for such objection, then the Parties shall follow the procedures set forth in Article X below with respect to the resolution of such matter. 8.5. Procedures for Third-Party Claims. (a) Any Indemnified Party seeking indemnification pursuant to this Article VIII in respect of any Third-Party Claim shall give the Indemnifying Party from whom indemnification with respect to such claim is sought (i) prompt written notice (but in no event more than twenty (20) days after the Indemnified Party acquires knowledge thereof) of such Third-Party Claim and (ii) copies of all documents and information relating to any such Third-Party Claim within twenty (20) days of their being obtained by the Indemnified Party; provided, that the failure by the Indemnified Party to so notify or provide copies to the Indemnifying Party shall not relieve the Indemnifying Party from any liability to the Indemnified Party for any liability hereunder except to the extent that such failure shall have materially prejudiced the defense of such Third-Party Claim. (b) The Indemnifying Party shall have the right, at its option, and expense, to defend against, negotiate, settle or otherwise deal with any Third-Party Claim with respect to which it is the Indemnifying Party and to be represented by counsel of its own choice, and the Indemnified Party will not admit any liability with respect thereto or settle, compromise, pay or discharge the same without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld, so long as such claim is primarily for money damages and the Indemnifying Party is contesting or defending the same with reasonable diligence and in -51- 57 good faith; provided, that the Indemnified Party may participate in any proceeding with counsel of its choice and at its expense and shall be entitled to control any such proceeding as to which the counsel for the Indemnifying Party has an ethical conflict of interest in representing both the Indemnifying Party and the Indemnified Party which conflict the Indemnified Party is not willing to waive; provided further, that the Indemnifying Party may not enter into a settlement of any such Third-Party Claim without the consent of the Indemnified Party, which consent shall be not unreasonably withheld, unless such settlement requires no more than a monetary payment for which the Indemnified Party is fully indemnified by the Indemnifying Party or involves other matters not binding upon the Indemnified Party and as to which the Indemnified Party has been fully released; and provided further that, in the event the Indemnifying Party does not, within fifteen (15) days after it receives written notice of the Third-Party Claim from the Indemnified Party, agree in writing to accept the defense of, and assume all responsibility for, such Third-Party Claim as provided above in this Section 8.5(b), then the Indemnified Party shall have the right to defend against, negotiate, settle or otherwise deal with the Third-Party Claim in such manner as the Indemnified Party deems appropriate, in its sole discretion, and the Indemnified Party shall be entitled to indemnification therefor from the Indemnifying Party to the extent provided under this Article VIII. ARTICLE IX TERMINATION OF AGREEMENT 9.1. Causes. This Agreement and the transactions contemplated hereby may be terminated at any time prior to the completion of the Closing as follows, and in no other manner: (a) By mutual consent of the Parties; (b) By written notice from Parent to the Company if: (i) there have been material misrepresentations or breaches by the Company in the representations, warranties, agreements or covenants of the Company set forth herein which misrepresentations or breaches, individually or in the aggregate, would or would be reasonably likely to result in a Material Adverse Effect, and such misrepresentations or breaches have not been cured within a reasonable time after notice thereof to the Company from Parent; or (ii) any of the conditions provided for in Article VI of this Agreement have not been satisfied, or waived by Parent or Newco in writing, and the Closing has not occurred by January 31, 1997 or the date of such notice, whichever is later; or -52- 58 (iii) the Closing has not occurred by February 15, 1997, for reasons other than the failure of the Parent or Newco to perform their respective obligations hereunder; or (c) By written notice from the Company to Parent and Newco if: (i) there has been a material misrepresentation or breach by Parent or Newco in the respective representations, warranties, agreements or covenants of Parent and Newco set forth herein and such misrepresentation or breach has not been cured within a reasonable time after notice thereof to Parent and Newco from the Company; or (ii) any of the conditions provided for in Article VII of this Agreement have not been satisfied, or waived by the Company in writing, and the Closing has not occurred by January 31, 1997 or the date of such notice, whichever is later; or (iii) the Closing has not occurred by February 15, 1997, for reasons other than the failure of the Company to perform its obligations hereunder; or (iv) any of the events identified as "termination events" on Schedule 9.1(c)(iv) attached to this Agreement has not occurred, or been waived by the Company in writing, by the date indicated for such event. 9.2. Effect of Termination. In the event of a termination of this Agreement by Parent or the Company under subparagraphs 9.1(b)(i) or 9.1(c)(i), the terminating party shall have such rights and remedies in law or in equity as the law may provide. 9.3. Right to Proceed. If any of the conditions specified in Article VI hereof have not been satisfied, Parent and Newco, in lieu of any other rights that may be available to them, may waive their rights to have such conditions satisfied prior to Closing and may proceed with the transactions contemplated hereby, and if any of the conditions specified in Article VII hereof have not been satisfied prior to Closing, the Company, in lieu of any other rights that may be available to it, may waive its rights to have such conditions satisfied and may proceed with the transactions contemplated hereby. ARTICLE X DISPUTE RESOLUTION 10.1. Dispute. As used in this Agreement, "Dispute" shall mean any dispute or disagreement between Parent (for itself or on behalf of Newco) and Company or the Company Representative concerning the interpretation of this Agreement, the validity of -53- 59 this Agreement, any breach or alleged breach by any party under this Agreement or any other matter relating in any way to this Agreement. 10.2. Process. Other than with respect to claims or disputes arising in connection with a breach or asserted breach of Section 5.12 of this Agreement or the wrongful failure by the Company or Parent to consummate the Merger, if a Dispute arises, the parties to the Dispute shall follow the procedures specified in Sections 10.3, 10.4 and 10.5 of this Agreement; provided, however, that any Dispute related to the post-closing adjustment described in Section 2.6 of this Agreement shall be resolved pursuant to the procedures set forth in that Section 2.6. 10.3. Negotiations. The parties shall promptly attempt to resolve any Dispute by negotiations between the Parent and the Company Representative. Either the Parent or Company Representative may give the other party written notice of any Dispute not resolved in the normal course of business. The Parent and the Company Representative shall meet at a mutually acceptable time and place within ten (10) calendar days after delivery of such notice, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the Dispute. If the Dispute has not been resolved by these Persons within thirty (30) calendar days of the disputing party's notice, or if the parties fail to meet within such ten (10) calendar days, either the Parent or the Company Representative may initiate mediation as provided in Section 10.4 of this Agreement. If a negotiator intends to be accompanied at a meeting by legal counsel, the other negotiator shall be given at least three (3) business days' notice of such intention and may also be accompanied by legal counsel. 10.4. Mediation. If the Dispute is not resolved by negotiations pursuant to Section 10.3 of this Agreement, the Parent and the Company Representative shall attempt in good faith to resolve any such Dispute by mediation. Either the Parent or the Company Representative may initiate a mediation proceeding by a request in writing to the other party (the "Request"), and both parties will then be obligated to engage in a mediation. The proceeding will be conducted in accordance with the then current Center for Public Resources ("CPR") Model Procedure for Mediation of Business Disputes, with the following exceptions: (a) if the parties have not agreed within thirty (30) calendar days of the Request on the selection of a mediator willing to serve, CPR, upon the request of either the Parent or the Company Representative, shall appoint a member of the CPR Panels of Neutrals as the mediator; and (b) efforts to reach a settlement will continue until the conclusion of the proceedings, which shall be deemed to occur -54- 60 upon the earliest of the date that: (i) a written settlement is reached; or (ii) the mediator concludes and informs the parties in writing that further efforts would not be useful; or (iii) the Parent and the Company Representative agree in writing that an impasse has been reached; or (iv) is sixty (60) calendar days after the Request and none of the events specified in Sections 10.4(b)(i), (ii) or (iii) have occurred. No party may withdraw before the conclusion of the proceeding. 10.5. Submission to Adjudication. If a Dispute is not resolved by negotiation pursuant to Section 10.3 of this Agreement or by mediation pursuant to Section 10.4 of this Agreement within 100 calendar days after initiation of the negotiation process pursuant to Section 10.3 of this Agreement, such Dispute and any other claims arising out of or relating to this Agreement may be heard, adjudicated and determined in an action or proceeding filed in any state or federal court sitting in Milwaukee County, Wisconsin. 10.6. General. (a) Provisional Remedies. At any time during the procedures specified in Sections 10.3 and 10.4 of this Agreement, a party may seek a preliminary injunction or other provisional judicial relief if in its judgment such action is necessary to avoid irreparable damage or to preserve the status quo. Despite such action, the parties will continue to participate in good faith in the procedures specified in this Article X of this Agreement. (b) Tolling Statue of Limitations. All applicable statutes of limitation and defenses based upon the passage of time shall be tolled while the procedures specified in this Article X of this Agreement are pending. The parties will take such action, if any, as is required to effectuate such tolling. (c) Performance to Continue. Each party is required to continue to perform its obligations under this Agreement pending final resolution of any Dispute. (d) Extension of Deadlines. All deadlines specified in this Article X of this Agreement may be extended by mutual agreement between the Parent and the Company Representative. (e) Enforcement. The parties regard the obligations in this Article X of this Agreement to constitute an essential provision of this Agreement and one that is legally binding on them. In case of a violation of the obligations in this Article X of this Agreement by either the Parent or the Company Representative, the other party may bring an action to seek enforcement of such obligations in any court of Law having jurisdiction thereof. -55- 61 (f) Costs. The parties to the dispute shall pay: (i) their own costs, fees, and expenses incurred in connection with the application of the provisions of this Article X of this Agreement; and (ii) fifty percent (50%) of the fees and expenses of CPR and the mediator in connection with the application of the provisions of Section 10.4 of this Agreement; provided that, prior to the Closing, the Company Representative's costs, fees and expenses shall be paid by the Company, and after the Closing, the Company Representative's costs, fees and expenses shall be paid pro rata by the Company Shareholders. (g) Replacement. If CPR is no longer in business or is unable or refuses or declines to act or to continue to act under this Article X of this Agreement for any reason, then the functions specified in this Article X of this Agreement to be performed by CPR shall be performed by another Person engaged in a business equivalent to that conducted by CPR as is agreed to by the Parent and the Company Representative (the "Replacement"). If the Parent and the Company Representative cannot agree on the identity of the Replacement within ten (10) calendar days after a Request, the Replacement shall be selected by the Chief Judge of the United States District Court for the Eastern District of Wisconsin upon application by any party hereto. If a Replacement is selected by either means, this Article X shall be deemed appropriately amended to refer to such Replacement. ARTICLE XI MISCELLANEOUS 11.1. Further Assurance. From time to time, at a Party's request and without further consideration, the other Parties will execute and deliver to the requesting Party such documents and take such other action as the requesting Party may reasonably request in order to consummate more effectively the transactions contemplated hereby. 11.2. Assignment. The rights and obligations of a Party hereunder may not be assigned, transferred or encumbered without the prior written consent of the other parties. Notwithstanding the foregoing, Parent may, without such written consent assign, directly or indirectly, any or all of its rights and obligations hereunder to any of its corporate affiliates under common ownership with Parent, or for collateral purposes to any of Parent's Lenders or successor lenders providing refinancing of the financing provided by Parent's Lenders. 11.3. Law Governing Agreement. This Agreement shall be construed and interpreted according to the internal Laws of the State of Wisconsin, excluding any choice of law rules that may direct the application of the Laws of another jurisdiction. -56- 62 11.4. Amendment and Modification. Parent, Newco and Company may amend, modify and supplement this Agreement, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed on behalf of all of the Parties hereto or, in the case of a waiver, by the Party waiving compliance. 11.5. Notice. All notices, requests, demands and other communications hereunder shall be given in writing and shall be: (a) personally delivered; (b) sent by telecopier, facsimile transmission or other electronic means of transmitting written documents; or (c) sent to the parties at their respective addresses indicated herein by registered or certified U.S. mail, return receipt requested and postage prepaid, or by private overnight mail courier service. The respective addresses to be used for all such notices, demands or requests are as follows: (a) If to Parent or Newco, to: NFC Castings, Inc. c/o Citicorp Venture Capital, Ltd. 399 Park Avenue, 14th Floor, Zone 4 New York, New York 10043 Attention: David F. Thomas Facsimile: (212) 888-2940 (with a copy to) Kirkland & Ellis Citicorp Center 153 East 53rd Street New York NY 10022-4675 Attention: Kirk A. Radke Facsimile: (212) 446-4900 (b) If to Company: Neenah Corporation 2121 Brooks Avenue P.O. Box 729 Neenah, WI 54956 Attention: E.W. Aylward Facsimile: (414) 729-3633 (with a copy to) Quarles & Brady 411 East Wisconsin Avenue Milwaukee, WI 53202 Attention: Bruce C. Davidson Facsimile: (414) 271-3552 -57- 63 (c) If to Company Representative: E.W. Aylward 241 Lake Road Menasha, WI 54952 (with a copy to) Quarles & Brady 411 East Wisconsin Avenue Milwaukee, WI 53202 Attention: Bruce C. Davidson Facsimile: (414) 271-3552 If personally delivered, such communication shall be deemed delivered upon actual receipt; if electronically transmitted pursuant to this paragraph, such communication shall be deemed delivered the next business day after transmission (and sender shall bear the burden of proof of delivery); if sent by overnight courier pursuant to this paragraph, such communication shall be deemed delivered upon receipt; and if sent by U.S. mail pursuant to this paragraph, such communication shall be deemed delivered as of the date of delivery indicated on the receipt issued by the relevant postal service, or, if the addressee fails or refuses to accept delivery, as of the date of such failure or refusal. Delivery to the Company Representative shall constitute delivery to all Company Shareholders. Any Person may change its address for the purposes of this Agreement by giving notice thereof in accordance with this Section. 11.6. Expenses. Regardless of whether or not the transactions contemplated hereby are consummated: (a) Brokerage. Except as to Brown, Gibbons, Lang & Company, L.P., who shall be compensated by the Company Shareholders, Company, Newco and Parent each represent and warrant to each other that there is no broker involved or in any way connected with the transfer provided for herein on their behalf respectively and each agrees to hold the other harmless from and against all other claims for brokerage commissions or finder's fees in connection with the execution of this Agreement or the transactions provided for herein. (b) Other. Except as otherwise provided herein, each of the Parties shall bear its own expenses and the expenses of its counsel and other agents in connection with the transactions contemplated hereby. 11.7. Entire Agreement; Binding Effect. This Agreement embodies the entire agreement between the Parties hereto with respect to the transactions contemplated herein, and there have been and are no agreements, representations or warranties between -58- 64 the parties other than those set forth or provided for herein or executed contemporaneously or in connection herewith. This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective legal representatives, successors and permitted assigns. 11.8. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.9. Headings. The headings in this Agreement are inserted for convenience only and shall not constitute a part hereof. 11.10. Construction. Where any group or category of items or matters is defined collectively in the plural number, any item or matter within such definition may be referred to using such defined term in the singular number. 11.11. Specific Performance. Each of Company and Parent acknowledges that the rights of each party to consummate the transactions contemplated hereby are unique and recognizes and affirms that in the event of a breach of this Agreement by any party, money damages may be inadequate and the non-breaching party may have no adequate remedy at law. Accordingly, the parties agree that such non-breaching party shall have the right, in addition to any other rights and remedies existing in their favor at law or in equity, to enforce their rights and the other party's obligations hereunder not only by an action or actions for damages but also by an action or actions for specific performance, injunctive and/or other equitable relief (without posting of bond or other security). 11.12. Waiver of Jury Trial. Each of the parties hereto waives any right it may have to trial by jury in respect of any litigation based on, or arising out of, under or in connection with this Agreement or any course of conduct, course of dealing, verbal or written statement or action of any party hereto. 11.13. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person. 11.14. Time of the Essence; Computation of Time. Time is of the essence for each and every provision of this Agreement. Whenever the last day for the exercise of any privilege or the discharge of any duty hereunder shall fall upon any day which is not a business day, the party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding business day. -59- 65 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. NFC CASTINGS, INC. /s/ John Weber ----------------------------------- By: John Weber -------------------------------- Title: Vice President ---------------------------- NC MERGER COMPANY /s/ John Weber ----------------------------------- By: John Weber -------------------------------- Title: Vice President ---------------------------- NEENAH CORPORATION By: /s/ E. W. Aylward --------------------------------- Title: Chairman, President, & CEO ------------------------------ -60- 66 EXHIBIT A ARTICLES OF MERGER OF NC MERGER COMPANY INTO NEENAH CORPORATION The undersigned, NC MERGER COMPANY, a Wisconsin corporation, and NEENAH CORPORATION, a Wisconsin Corporation, each desire to give notice of corporate action effecting the merger of NC MERGER COMPANY into NEENAH CORPORATION, and acting by their respective officers and pursuant to Section 180.1105 of the Wisconsin Business Corporation Law, hereby certify, each with respect to the facts and acts relating to it, the following: 1. Plan of Merger. (a) The surviving corporation shall be NEENAH CORPORATION and it shall be governed by the laws of the State of Wisconsin. (b) The terms and conditions of the merger, the manner and basis of exchanging shares of each corporation into shares and cash, and other provisions relating to the merger are set forth in the Merger Agreement which is attached as Addendum A hereto and which is incorporated herein by reference. 2. Approval of Merger Agreement. The Merger Agreement has been adopted and approved by the respective boards of directors and approved by the respective shareholders of NC MERGER COMPANY and NEENAH CORPORATION in accordance with Section 180.1103 of the Wisconsin Business Corporation Law. 3. Effective Time. The merger shall be effective upon the filing of these Articles of Merger with the State of Wisconsin Department of Financial Institutions. 67 IN WITNESS WHEREOF, each of the parties hereto has caused these Articles of Merger to be executed on its behalf by its respective duly authorized officers, this _____ day of ____________, 1997. NC MERGER COMPANY By: ___________________________ _____________, President Attest: By: _____________________________ __________________, Secretary NEENAH CORPORATION By: ___________________________ E. W. Aylward, Chairman of the Board, President and Chief Executive Officer Attest: By: ___________________________ ___________________, Secretary This document was drafted by: Patrick J. Goebel Quarles & Brady 411 E. Wisconsin Avenue Milwaukee, WI 53202 -2- 68 EXHIBIT B MERGER AGREEMENT THIS MERGER AGREEMENT (this "Merger Agreement") is made as of _____________ __, 1997, by and between NC MERGER COMPANY, a Wisconsin corporation ("Newco"), and NEENAH CORPORATION, a Wisconsin corporation ("Company"). RECITALS A. Newco, the Company, and NFC Castings, Inc., a Delaware corporation ("Parent"), are parties to an Agreement and Plan of Reorganization, dated as of ____________, 1996 (the "Reorganization Agreement"), providing for, among other things, the merger of Newco with and into the Company (the "Merger"). B. The respective boards of directors of Newco and the Company have determined that the Merger is advisable and generally to the advantage and welfare of Newco and the Company and the respective shareholders of Newco and the Company, and, by resolutions duly adopted, have approved the Merger, the Reorganization Agreement, including this Merger Agreement, and the transactions contemplated thereby. C. The respective shareholders of Newco and the Company, by resolutions duly adopted, have approved the Merger, the Reorganization Agreement, including this Merger Agreement, and the transactions contemplated thereby. NOW THEREFORE, in consideration of the Recitals and of the mutual provisions, agreements and covenants herein contained, Newco and Neenah hereby agree as follows: 1. The Merger. At the Effective Time, Newco shall be merged with and into the Company which shall be the surviving corporation pursuant to the provisions of the Wisconsin Business Corporation Law (the "Surviving Corporation"). 2. Effective Time. Upon the filing of the Articles of Merger with the Wisconsin Department of Financial Institutions, the Merger shall be effective and the date and time of the filing of the Articles of Merger shall be the "Effective Time" as that term is used herein. 3. Effect of Merger. At the Effective Time, the corporate identity, existence, purposes, powers, franchises, rights and immunities of the Company shall continue in the Surviving Corporation unaffected and unimpaired by the Merger and the corporate identity, existence, purposes, powers, franchises, rights and immunities of Newco shall be merged into the Surviving 69 Corporation and the Surviving Corporation shall be fully vested therewith. The separate existence of Newco, except insofar as otherwise specifically provided by law, shall cease at the Effective Time whereupon Newco and the Surviving Corporation shall be and become one single corporation. 4. Directors and Officers. The officers and directors of Newco in office immediately prior to the Effective Time shall be the officers and directors of the Surviving Corporation and shall hold their respective positions from and after the Effective Time until their successors have been appointed or elected and qualified. 5. Articles of Incorporation; Bylaws. The Restated Articles of Incorporation and Bylaws of the Company in effect immediately prior to the Effective Time shall be the Restated Articles of Incorporation and Bylaws of the Surviving Corporation. After the Effective Time, the Restated Articles of Incorporation and Bylaws of the Surviving Corporation may be amended in accordance with their terms and as provided by applicable law. 6. Effect on Shares. The manner of exchanging shares of capital stock of the Company issued and outstanding immediately prior to the Effective Time for cash to be distributed to the holders of capital stock of the Company and converting shares of common stock of Newco issued and outstanding immediately prior to the Effective Time into shares of common stock of the Company shall be as follows: (a) As of the Effective Time, by virtue of the Merger and without any action of either Newco or the Company or any of the shareholders thereof, each outstanding share of Common Stock of Newco, without par value, shall be converted into one share of Class A Common Stock, $100 par value, of the Surviving Corporation. (b) As of the Effective Time, by virtue of the Merger and without any action of either Newco or the Company or any of the shareholders thereof: (i) each share of Class A Common Stock of the Company, $100 par value, issued and outstanding immediately prior to the Effective Time (other than shares as to which dissenter's rights are perfected under the Wisconsin Business Corporation Law and other than shares held by Newco or Parent) shall be converted into the right to receive an amount in cash equal to the Merger Price Per Share, subject to later adjustment as provided in Section 2.6(e) of the Reorganization Agreement; and (ii) each share of Class B Common Stock of the Company, $100 par value, issued and outstanding immediately prior to the Effective Time (other than shares as to which dissenter's rights are perfected under the Wisconsin Business Corporation Law -2- 70 and other than shares held by Newco or Parent) shall be converted into the right to receive an amount in cash equal to the Merger Price Per Share, subject to later adjustment as provided in Section 2.6(e) of the Reorganization Agreement. For purposes hereof, "Merger Price Per Share" shall mean the quotient determined by dividing the Merger Price of $240,000,000 by the total number of shares of Class A Common Stock and Class B Common Stock of the Company issued and outstanding immediately prior to the Effective Time. (c) There are no shares of the authorized Preferred Stock, $100 par value, of the Company issued and outstanding and there will be no shares of Preferred Stock of the Company issued and outstanding as of the Effective Time. 7. Abandonment. The Merger may be abandoned as provided in Article IX of the Reorganization Agreement at any time prior to the Effective Time in which case this Merger Agreement shall be void and of no further force and effect. 8. Miscellaneous. This Merger Agreement shall be governed by and construed in accordance with the internal laws of the State of Wisconsin. This Merger Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which counterparts together constitute a single instrument. IN WITNESS WHEREOF, this Merger Agreement has been executed by duly authorized officers of the parties hereto on the date first above written. NC MERGER COMPANY By:________________________________ Title:_____________________________ Attest:____________________________ Title:_____________________________ NEENAH CORPORATION By:________________________________ Title:_____________________________ Attest:____________________________ Title:_____________________________ -3- 71 This document was drafted by: Patrick J. Goebel Quarles & Brady 411 East Wisconsin Avenue Milwaukee, WI 53202-4497 -4- 72 EXHIBIT C ESCROW AGREEMENT THIS ESCROW AGREEMENT (the "Escrow Agreement") is made as of ______________, 1996, by and among NC Merger Company, a Wisconsin corporation ("Newco"), Neenah Corporation, a Wisconsin corporation (the "Company"), NFC Castings, Inc., a Delaware corporation ("Parent"), E. W. Aylward, on behalf of the Company Shareholders ("Company Representative") and Bank One, Milwaukee, N.A. (herein sometimes referred to as the "Escrow Agent"). RECITALS Parent, Newco and the Company have made, executed and delivered a certain Agreement and Plan of Reorganization among them dated as of _____________ ___, 1996 (the "Agreement"), a copy of which has been delivered to the Escrow Agent for reference purposes. (Any word, term or phrase which is defined in the Agreement and not otherwise defined herein shall, when used in this Escrow Agreement, have the same meaning which each respectively has when used in the Agreement.) The terms of the Agreement provide that on the Closing Date, among other things, Paying Agent shall deliver to the Escrow Agent the sum of $12,000,000.00, subject to the terms and provisions of this Escrow Agreement and the Agreement, representing a portion of the Merger Price. This Escrow Agreement is made, executed and delivered by the Company and Company Representative to provide the Escrow Fund (as hereinafter defined in this Escrow Agreement) from which the Company Shareholders may be paid or Parent or Newco may be repaid as provided in this Escrow Agreement and in Section 8.2 of the Agreement. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements contained herein and in the Agreement, the parties hereto agree as follows: 1. Appointment of the Escrow Agent. Parent, Newco, the Company and Company Representative hereby constitute and appoint the Escrow Agent as, and the Escrow Agent hereby agrees to assume and perform the duties of, the Escrow Agent under and pursuant to this Escrow Agreement. The Escrow Agent also acknowledges receipt of an executed copy of the Agreement. 2. Establishment of Escrow Fund. The parties acknowledge that Paying Agent has delivered to the Escrow Agent the amount of $12,000,000.00 as the Escrow Deposit to establish the Escrow Fund in accordance with Sections 2.5(a) and 8.2 of the Agreement. From and after the date hereof, the term "Escrow Fund" means the amount delivered to the Escrow Agent pursuant to this Section 2, less distributions therefrom in accordance with this Escrow Agreement, but shall not include interest or other income received from the investment or reinvestment thereof. 73 3. Disposition of Escrow Fund. Parent, Newco, the Company and Company Representative hereby instruct the Escrow Agent and the Escrow Agent hereby agrees to hold, invest and dispose of the Escrow Fund in accordance with and subject to the terms, conditions, limitations and restrictions contained in this Escrow Agreement. 4. Receipt, Segregation and Release of Income. The Escrow Agent shall receive and collect any and all interest and other income of a kindred nature arising with respect to the Escrow Fund, and shall set aside such interest and other income, and all interest and other income earned on such interest and other income, in a separate account maintained for the benefit of the Company Shareholders (the "Interest Account"). Any taxes payable with respect to interest and other income accruing on the Escrow Fund or the Interest Account shall be the responsibility of the Company Shareholders to whom such interest or other income is distributed hereunder. All amounts held in the Interest Account shall be the property of the Company Shareholders to the extent of their respective Pro Rata Portions thereof, and shall be distributed from time to time by the Escrow Agent to the Company Shareholders as directed by the Company Representative. No amount held in the Interest Account shall be subject to any claim by Newco, Parent or the Company. 5. Investment. (a) The Escrow Agent shall invest and reinvest all cash funds from time to time comprising part of the Escrow Fund in (i) bonds or other obligations of the government of the United States of America and not having maturities of greater than thirty (30) days; or (ii) demand or time deposits in, certificates of deposit of, or money market accounts/funds of a depository institution or trust company incorporated under the laws of the United States of America, any state thereof or the District of Columbia if the commercial paper, if any, and the long-term unsecured debt obligations (other than such obligations whose rating is based on the credit of a person or entity other than such institution or trust company) of such depository institution or trust company, at the time of the Escrow Agent's investment therein or contractual commitment providing for such investment, have credit ratings from Moody's and S&P of at least P-l and A-l+, respectively, in the case of the commercial paper, and a credit rating from Moody's and S&P of at least A3 and A-, respectively, in the case of long-term unsecured debt obligations, and not having maturities greater than thirty (30) days; or (iii) such other investments as Parent and Company Representative shall approve in writing. (b) All cash funds held from time to time in the Interest Account shall be invested by the Escrow Agent in accordance with the directions of the Company Representative or distributed in accordance with Section 4 of this Escrow Agreement. 6. Authority for Payments. The Escrow Fund has been established to provide an exclusive source of payment to Parent and Newco for recovery of claims for indemnification Parent and Newco -2- 74 may have as provided in Section 8.2 of the Agreement, with the balance payable to the Company Shareholders. Accordingly, the Escrow Agent shall disburse funds from the Escrow Fund only pursuant to or in accordance with the following procedure: (a) Parent may at any time and from time to time prior to the Cut-off Date give written notice to Company Representative and Escrow Agent in accordance with Section 8.4 of the Agreement that Parent is asserting one or more claims for indemnification (a "Notice of Claim"). (b) If the Escrow Agent and Parent shall not have received from Company Representative prior to the forty-fifth calendar day following the date of delivery of such Notice of Claim, a written notice from Company Representative of the type contemplated by clause (c) below, on such forty-fifth (45th) day or, if not a business day, on the next succeeding business day, the Escrow Agent shall withdraw from the Escrow Fund and pay to Parent by certified check or wire transfer of immediately available funds to an account designated by Parent an amount equal to the lesser of (i) the aggregate of the claims asserted in the Notice of Claim or (ii) the balance in the Escrow Fund on the date of payment. Any claim set forth in a Notice of Claim that is not specifically disputed in a written notice from Company Representative of the type contemplated by clause (c) below shall be paid by the Escrow Agent in accordance with the preceding sentences even though a notice of dispute might otherwise have been received by the Escrow Agent with respect to other claims set forth in Parent's Notice of Claim. (c) Company Representative may deliver to the Escrow Agent and Parent, prior to the forty-fifth calendar day following the date of delivery of the above Notice of Claim, a written notice to the effect that Company Representative disputes the fact or amount of any one or more of the claims asserted in Parent's Notice of Claim. If such notice of dispute from Company Representative is delivered to the Escrow Agent and Parent within such time period, then the Escrow Agent shall refrain from making any disbursement from the Escrow Fund of the amount or amounts specifically disputed in the notice of dispute from Company Representative unless pursuant to or in accordance with: (i) a written authorization signed by Company Representative and Parent to the effect that it incorporates the resolution of the matter by such parties, which authorization shall set forth the amount of the Escrow Fund to be distributed to Parent, or (ii) a certified copy of a final judgment of a court of competent jurisdiction, provided, however, that a certified copy of a final judgment shall serve as a valid determination only if the time for appeal has expired and no appeal has been perfected or all appeals have been exhausted or no right of appeal exists. Any distribution from the Escrow Fund to Parent in accordance with this paragraph (c) shall be paid by certified check or wire transfer of immediately available funds to an account designated by Parent. -3- 75 (d) On the date (the "Termination Date") that is forty-nine (49) months after the date first above written, any and all funds and property then held in the Escrow Fund in excess of that which the Escrow Agent is or may be required to pay in respect of claims asserted in any Notice of Claim prior to the Cut-off Date which have not theretofore been paid, shall be distributed to Company Representative on behalf of the Company Shareholders. Any funds then included in the Escrow Fund which are not distributed in accordance with the preceding sentence shall be retained by the Escrow Agent until such time as any and all such claims of Parent which have not been paid or otherwise resolved on or prior to the Termination Date shall have been paid or otherwise resolved in accordance with clause (c) above, at which time all of the remaining funds then held by the Escrow Agent in the Escrow Fund shall be distributed to Company Representative on behalf of the Company Shareholders. 7. Fees and Expenses. The Escrow Agent shall be entitled to a reasonable fee for its services under this Escrow Agreement in accordance with the fee schedule attached hereto as Schedule A and to reimbursement for all reasonable out-of-pocket costs, charges and expenses incurred by it in connection therewith. Company Representative shall be responsible for, and shall discharge, one-half (1/2) of such fee, costs, charges and expenses, and Parent shall be responsible for and shall discharge one-half (1/2) of such fee, costs, charges and expenses. 8. Limitations on Duties and Liabilities of the Escrow Agent. Unless otherwise expressly provided in this Escrow Agreement, the Escrow Agent shall: (a) not be held liable for any action taken or omitted under this Escrow Agreement so long as it shall have acted in good faith and without negligence; (b) have no responsibility to inquire into or determine the genuineness, authenticity, or sufficiency of any securities, checks, or other documents or instruments submitted to it in connection with its duties under and pursuant to this Escrow Agreement; (c) be entitled to deem (unless it has actual knowledge to the contrary) the signatories of any documents or instruments submitted to it pursuant to this Escrow Agreement as being those purported to be authorized to sign such documents or instruments on behalf of the parties to this Escrow Agreement and shall be entitled to rely (unless it has actual knowledge to the contrary) upon the genuineness of the signatures of such signatories without inquiry and without requiring substantiating evidence of any kind; and (d) have no responsibility or liability for any diminution which may result from any investments or reinvestments made in accordance with any provisions contained in this Escrow Agreement. -4- 76 9. Resignation and Removal of the Escrow Agent. (a) The Escrow Agent may resign as such thirty (30) days following the giving of prior written notice thereof to Company Representative and Parent. Similarly, the Escrow Agent may be removed and replaced following the giving of thirty (30) days' prior written notice to the Escrow Agent by Company Representative and Parent. Notwithstanding the foregoing, no such resignation or removal shall be effective until a successor Escrow Agent has acknowledged its appointment as such as provided in paragraph (c) below. In either event, upon the effective date of such resignation or removal, the Escrow Agent shall deliver the property comprising the Escrow Fund and the Interest Account to a successor Escrow Agent appointed by Company Representative and Parent as evidenced by a written notice executed by Company Representative and Parent and filed with the Escrow Agent. (b) If Company Representative and Parent are unable to agree upon a successor Escrow Agent, or shall have failed to appoint a successor Escrow Agent prior to the expiration of thirty (30) days following the date of the notice of such resignation or removal, the then acting Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor Escrow Agent, or other appropriate relief, and any such resulting appointment shall be binding upon all of the parties to this Escrow Agreement. (c) Upon acknowledgment by any successor Escrow Agent appointed in accordance with the foregoing provisions of this Section 9 of the receipt of the property then comprising the Escrow Fund and the Interest Account, the then acting Escrow Agent shall be fully released and relieved of all duties, responsibilities, and obligations under this Escrow Agreement. 10. Indemnification of the Escrow Agent. Company Representative and Parent or their respective successors and assigns, each agree to indemnify and save and hold harmless the Escrow Agent and its successors and assigns of, from and against all losses, costs and expenses which the Escrow Agent shall sustain or incur as a result of the Escrow Agent's involvement as a party thereto in any litigation commenced prior to the termination of this Escrow Agreement, arising from the performance by the Escrow Agent of its duties and responsibilities under and pursuant to this Escrow Agreement which is not attributable in any manner, or to any extent, to any action taken, or omitted, by the Escrow Agent in connection with this Escrow Agreement in respect of which the Escrow Agent shall have been adjudged to have been negligent, but in, and only in, the following manner and to, and only to, the following extent, and subject to the following limitations and restrictions: (a) Company Representative and its successors and assigns, shall indemnify and save and hold harmless the Escrow Agent to the extent, but only to the extent, of one-half (1/2) of any such losses, costs and expenses; and -5- 77 (b) Parent and its successors and assigns, shall indemnify and save and hold harmless the Escrow Agent to the extent, but only to the extent, of one-half (1/2) of any such losses, costs and expenses. 11. Termination of Escrow Fund. This Escrow Agreement (other than Sections 7 and 10) shall automatically terminate when all of the funds held by the Escrow Agent as part of the Escrow Fund at any time while this Escrow Agreement remains in effect shall have been distributed, or otherwise disposed of, by the Escrow Agent in accordance with the terms of this Escrow Agreement. At such time, any amounts remaining in the Interest Account shall be distributed to the Company Shareholders to the extent of their respective Pro Rata Portions thereof as directed by the Company Representative. 12. Notices. All notices, requests, demands and other communications hereunder shall be given in writing and shall be: (a) personally delivered; (b) sent by telecopier, facsimile transmission or other electronic means of transmitting written documents; or (c) sent to the parties at their respective addresses indicated herein by registered or certified U.S. mail, return receipt requested and postage prepaid, or by private overnight mail courier service. The respective addresses to be used for all such notices, demands or requests are as follows: TO COMPANY REPRESENTATIVE: E. W. Aylward 241 Lake Road Menasha, WI 54952 With a copy to: Quarles & Brady Attn: Bruce C. Davidson 411 East Wisconsin Avenue Milwaukee, WI 53202 TO PARENT, NEWCO OR THE COMPANY: NFC Castings, Inc. c/o Citicorp Venture Capital, Ltd. Attn: David F. Thomas 399 Park Avenue 14th Floor, Zone 4 New York, NY 10043 With copies to: Kirkland & Ellis Attn: Kirk A. Radke Citicorp Center 153 East 53rd Street New York, NY 10022-4675 and -6- 78 Citicorp Venture Capital, Ltd. Attn: David F. Thomas 399 Park Avenue 14th Floor, Zone 4 New York NY 10043 TO THE ESCROW AGENT: Bank One, Milwaukee, N.A. Attn:_____________________ __________________________ Milwaukee WI _____________ If personally delivered, such communication shall be deemed delivered upon actual receipt; if electronically transmitted pursuant to this paragraph, such communication shall be deemed delivered the next business day after transmission (and sender shall bear the burden of proof of delivery); if sent by overnight courier pursuant to this paragraph, such communication shall be deemed delivered upon receipt; and if sent by U.S. mail pursuant to this paragraph, such communication shall be deemed delivered as of the date of delivery indicated on the receipt issued by the relevant postal service, or, if the addressee fails or refuses to accept delivery, as of the date of such failure or refusal. Delivery to the Company Representative shall constitute delivery to all Company Shareholders. Any Person may change its address for the purposes of this Escrow Agreement by giving notice thereof in accordance with this Section. 13. Continuance of Agreement. This Escrow Agreement shall be binding upon the parties hereto and their respective successors and assigns. 14. Applicable Law. This Escrow Agreement shall be governed by and construed under and in accordance with the laws of the State of Wisconsin. 15. Counterparts. This Escrow Agreement may be executed in any number of counterparts, any one of which shall be considered an original but all of which together shall constitute one agreement. -7- 79 IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of the date and year first above written. NEWCO: NC MERGER COMPANY Attest: By:___________________________ ______________________ Its:__________________________ (Assistant) Secretary PARENT: NFC CASTINGS, INC. Attest: By:___________________________ _____________________________ Its:__________________________ (Assistant) Secretary THE COMPANY: NEENAH CORPORATION Attest: By:___________________________ _____________________________ Its:__________________________ (Assistant) Secretary COMPANY REPRESENTATIVE: ______________________________ E. W. Aylward ESCROW AGENT: BANK ONE, MILWAUKEE, N.A. Attest: By:___________________________ ______________________________ Its:__________________________ Title:________________________ -8- 80 EXHIBIT D MERGER PAYMENT STATEMENT Neenah Corporation Shareholder: Date _______________, 199_ Address: Number 1. Shares You Hold of Shares 1.1 Class A Common Stock 1.2 Class B Common Stock 1.3 Share Payment Class A Common Stock - $_____ (Merger Price Per Share) times total Class A shares (item 1.1) = $ 1.4 Share Payment Class B Common Stock - $_____ (Merger Price Per Share) times total Class B shares (item 1.2) = $ 1.5 Total Gross Share Payment (Class A & Class B) (items 1.3 & 1.4) = $ 2. Deductions for pro rata portion of brokerage fees and expenses = $ 3. Pro rata portion of $12,000,000.00 Escrow Deposit = $ 4. Net Merger Payment (item 1.5 less items 2 and 3), to be reduced by proportionate share of professional fees and expenses. = $ ======= 5. After reduction for proportionate share of professional fees and expenses, net payment to be made upon receipt of signed Merger Payment Statement and after Closing. 81 "Merger Price Per Share" means the quotient determined by dividing the Merger Price of $240,000,000 to be delivered by Newco at Closing by the total number of shares of Class A Common Stock and Class B Common Stock issued and outstanding immediately prior to the Effective Time. (For illustration purposes only, based on 619.5 and 3,820 issued and outstanding shares of Class A Common Stock and Class B Common Stock, respectively, the Merger Price Per Share would equal $54,060.14.) Please check, and complete where appropriate, one of the following: _____ Please mail my check _____ Please have my check to the following held for my pickup at address: the offices of the Paying Agent: ______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ________________, WI_________* _____ Please wire payment to me using the following wire transfer instructions: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ *If the shareholder elects to pick up his check at the offices of the Paying Agent set forth above, the shareholder understands that the Paying Agent will require appropriate identification from the shareholder prior to delivery of the check. Important Tax Information Under the federal income tax law, a Neenah Corporation shareholder who receives payment in connection with the Merger is required to provide the Paying Agent with such shareholder's correct taxpayer identification number by completing the IRS Form W-9 attached hereto certifying that the taxpayer identification number provided on the IRS Form W-9 is correct (or that such shareholder is awaiting a taxpayer identification number). If the Paying Agent is not provided with the correct taxpayer identification number, payments that are made to such shareholder pursuant to the Merger may be subject to backup withholding. - 2 - 82 If backup withholding applies, the Paying Agent is required to withhold 20% of any gross payments due to the Neenah Corporation shareholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. If backup withholding does not apply to you, the box in Part II of the W-9 Form must be checked. Agreed and accepted this ____ day of ____________, 199_. ______________________________ Signature of Neenah Corporation Shareholder** (IF MORE THAN ONE PERSON IS LISTED AS THE NEENAH CORPORATION SHAREHOLDER, EACH PERSON MUST SIGN HIS NAME EXACTLY AS IT APPEARS ON PAGE ONE OF THE MERGER PAYMENT STATEMENT IN ORDER FOR THE PAYING AGENT TO ACCEPT THE MERGER PAYMENT STATEMENT.) **If the Neenah Corporation shareholder is a partnership or corporation, the person signing on behalf of the shareholder must also print the name of the shareholder and the title of the person signing. If the Merger Payment Statement or the IRS Form W-9 are executed by attorneys, executors, administrators, trustees, guardians, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence, satisfactory to Neenah Corporation, which may include a signature guaranty guaranteed by a commercial bank, a trust company or by a member firm of any securities exchange of the National Association of Securities Dealers, Inc., of their authority so to act must be submitted to Neenah Corporation. - 3 - 83 EXHIBIT E ____________, 1997 NFC Castings, Inc. NC Merger Company c/o Citicorp Venture c/o Citicorp Venture Capital, Ltd. Capital, Ltd. 399 Park Avenue 399 Park Avenue 14th Floor, Zone 4 14th Floor, Zone 4 New York, NY 10043 New York, NY 10043 Gentlemen: We have acted as counsel to Neenah Corporation, a Wisconsin corporation (the "Company"), in connection with the negotiation, preparation, execution and delivery of an Agreement and Plan of Reorganization dated as of ____________, 1996 (the "Agreement") by and among the Company, NC Merger Company, a Wisconsin corporation ("Newco") and NFC Castings, Inc., a Delaware corporation ("Parent"). Pursuant to the Agreement, the Company has this day executed and delivered to Parent and Newco the following documents, all dated the date hereof: (a) the Articles of Merger; (b) the Merger Agreement; (c) the Escrow Agreement; and (d) the Paying Agent Agreement (the foregoing documents together with the Agreement are collectively referred to herein as the "Transaction Documents"). This opinion is delivered to you at the request of the Company pursuant to Section 6.9(c) of the Agreement. Any capitalized term used herein without definition shall have the meaning assigned to such term in the Agreement. Pursuant to the Agreement, Parent is this day acquiring all of the issued and outstanding shares of capital stock of the Company through the merger of Newco, a wholly owned subsidiary of Parent, with and into the Company. In rendering this opinion, we have examined or considered such of the following as we deemed relevant and necessary as a basis for the opinions hereinafter set forth: (a) corporate records, certificates, agreements, instruments and other documents (collectively referred to as the "Ancillary Documents"); (b) questions and matters of law; and (c) certificates or comparable documents of public officials and of officers and representatives of the Company. We have also made such inquiries of such officers and representatives of the Company as we have deemed relevant and necessary as a basis for the opinions hereinafter set forth. 84 NFC Castings, Inc. NC Merger Company _____________, 1996 Page 2 In giving the various opinions set forth below, we have, with respect to factual matters, relied on: (a) the representations and warranties of the Company contained in the Agreement; and (b) representations and warranties of officers and representatives of the Company contained in certificates delivered to us. We have assumed that: (a) all certificates or comparable documents of public officials examined by us are accurate; (b) each Ancillary Document submitted to us as an original is authentic and complete; (c) each Ancillary Document submitted to us as a certified or photostatic copy conforms to an authentic original; (d) each of the parties (other than the Company) to the Transaction Documents has duly and validly executed and delivered the Transaction Documents to which it is a signatory; (e) all signatures (other than the signatures of the Company) on Ancillary Documents reviewed by us are genuine; (f) each person executing any Transaction Documents (other than the Company) on behalf of such party is authorized to do so; (g) the obligations of each party (other than the Company) under the Transaction Documents are such party's legal, valid and binding obligations, enforceable and effective in accordance with the terms of the Transaction Documents; (h) the Transaction Documents accurately describe and contain the mutual understanding of the parties; (i) there are no oral or written statements or agreements that purport to modify, amend or vary any of the terms of the Transaction Documents; (j) all individuals executing and delivering the Transaction Documents have the legal capacity to so execute and deliver such document; and (k) Parent and Newco have the corporate power and authority to enter into the Transaction Documents. Based upon the foregoing and subject to the qualifications, assumptions and limitations set forth herein, it is our opinion that: 1. The Company is a corporation validly existing under the laws of the State of Wisconsin. As of January 1, 1991, Wisconsin no longer recognizes the concept of "good standing" for corporations. We have received a certificate of status from the Wisconsin Department of Financial Institutions for the Company which is conclusive evidence of its existence. Wis. Stat. Section 180.0128. 2. The Company has the requisite corporate power and authority to carry on its business as now being conducted and to own its assets and properties. 3. To our knowledge, the entire authorized capital stock of the Company consists of: (i) 1,000 shares of Class A Common Stock, 85 NFC Castings, Inc. NC Merger Company _____________, 1996 Page 3 with a par value of $100.00 per share, of which 619.5 shares are issued and outstanding; (ii) 10,000 shares of Class B Common Stock, with a par value of $100.00 per share, of which 3,820 shares are issued and outstanding and (iii) 3,000 shares of Preferred Stock, with a par value of $100.00 per share, of which no shares are issued and outstanding. 4. To our knowledge, there are no options, warrants, conversion rights, agreements or other rights to subscribe for or purchase the capital stock of the Company, other than the Agreement and as disclosed in the Disclosure Schedule. 5. The execution, delivery and performance by the Company of the Transaction Documents are within the corporate power and authority of the Company and have been duly authorized by all necessary corporate action by the Company. 6. The Transaction Documents have been duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, receivership, moratorium or similar laws generally affecting the rights of creditors, and subject to general equity principles. 7. To our knowledge, the execution, delivery and performance by the Company of the Transaction Documents do not result in a material breach of, or constitute a default under, or result in a violation of: (a) any applicable provision of laws or regulations of the State of Wisconsin or laws or regulations of the United States of America; or (b) any judgment, injunction, order or decree binding upon the Company; or (c) the Restated Articles of Incorporation, as amended and restated effective as of the date hereof, or Bylaws of the Company. 8. To our knowledge, except for consents that have been obtained, no consent, order, authorization or approval of any governmental authority is required in connection with the execution, delivery and performance of the Transaction Documents by or the consummation by the Company of the transactions contemplated thereby. 9. To our knowledge, no suit, action, investigation, inquiry or other proceeding by any person or governmental agency or body has been instituted and is pending against the Company which questions the validity or legality of the Agreement or any of the transactions contemplated thereby. 86 NFC Castings, Inc. NC Merger Company _____________, 1996 Page 4 Each of the opinions as to the enforceability of any agreement or instrument is: (a) subject to the limitations set forth in the General Qualifications stated in the Legal Opinion Accord of the ABA Section of Business Law (1991), which General Qualifications are attached hereto as Schedule 1; and (b) subject to the qualification that certain provisions of such documents may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of any such documents as a whole and each of such documents contains legally adequate provisions for the realization of the principal legal rights and benefits afforded by it. We are attorneys licensed to practice law in the State of Wisconsin. The opinions expressed herein are specifically limited to the present internal law of the State of Wisconsin and the federal law of the United States of America, are given as of the date of this letter, are intended to apply only to the facts and circumstances that exist as of the date hereof, and we assume no obligation or responsibility to update or supplement this opinion to reflect any facts or circumstances occurring after the date hereof that would alter the opinions contained herein. Whenever this opinion refers to matters within our "knowledge" or "known to us," such reference is limited to facts within our actual knowledge after inquiry of the attorneys in our firm who have given substantive legal attention to the representation of the Company, and after a review of our files related to the Company, and facts represented to us by officers and representatives of the Company. Each of the opinions set forth above is subject to the matters disclosed by the Company in the Agreement and the Disclosure Schedule. The opinions set forth above are delivered to you in connection with the transactions described in the Agreement. This opinion letter is rendered solely for your information and assistance in connection with the transactions described in the Agreement and may not be provided to, or used or relied upon by, any other person or for any other purpose without our prior written consent. Very truly yours, QUARLES & BRADY 87 EXHIBIT F ______________, 1997 E.W. Aylward Neenah Corporation 241 Lake Road Attention: E.W. Aylward Menasha, WI 54952 2121 Brooks Avenue P.O. Box 729 Neenah WI 54957 Gentlemen: We have acted as counsel to NC Merger Company, a Wisconsin corporation ("Newco") and NFC Castings, Inc., a Delaware corporation ("Parent"), in connection with the negotiation, preparation, execution and delivery of an Agreement and Plan or Reorganization dated as of _____________, 1996 (the "Agreement") by and among Newco, Parent and Neenah Corporation, a Wisconsin corporation (the "Company"). Pursuant to the Agreement, Parent and Newco have this day executed and delivered to the Company the following documents, all dated the date hereof: (a) the Articles of Merger; (b) the Merger Agreement; (c) the Escrow Agreement; and (d) the Paying Agent Agreement (the foregoing documents together with the Agreement are collectively referred to herein as the "Transaction Documents"). This opinion is delivered to you at the request of Parent pursuant to Section 7.5(b) of the Agreement. Any capitalized term used herein without definition shall have the meaning assigned to such term in the Agreement. Pursuant to the Agreement, Parent is this day acquiring all of the issued and outstanding shares of capital stock of the Company through the merger of Newco, a wholly owned subsidiary of Parent, with and into the Company. In rendering this opinion, we have examined or considered such of the following as we deemed relevant and necessary as a basis for the opinions hereinafter set forth: (a) corporate records, certificates, agreements, instruments and other documents (collectively referred to as the "Ancillary Documents"); (b) questions and matters of law; and (c) certificates or comparable documents of public officials and of officers and representatives of Parent and Newco. We have also made such inquiries of such officers and representatives of Parent and Newco as we have deemed 88 Neenah Corporation _________________, 1997 Page 2 relevant and necessary as a basis for the opinions hereinafter set forth. In giving the various opinions set forth below, we have, with respect to factual matters, relied on: (a) the representations and warranties of Parent and Newco contained in the Agreement; and (b) representations and warranties of officers and representatives of Parent and Newco contained in certificates delivered to us. We have assumed that: (a) all certificates or comparable documents of public officials examined by us are accurate; (b) each Ancillary Document submitted to us as an original is authentic and complete; (c) each Ancillary Document submitted to us as a certified or photostatic copy conforms to an authentic original; (d) each of the parties (other than Parent or Newco) to the Transaction Documents has duly and validly executed and delivered the Transaction Documents to which it is a signatory; (e) all signatures (other than the signatures of Parent or Newco) on Ancillary Documents reviewed by us are genuine; (f) each person executing the Transaction Documents (other than Parent or Newco) on behalf of such party is authorized to do so; (g) the obligations of each party (other than Parent or Newco) under the Transaction Documents are such party's legal, valid and binding obligations, enforceable in accordance with the terms of the Transaction Documents; (h) the Transaction Documents accurately describe and contain the mutual understanding of the parties; (i) there are no oral or written statements or agreements that purport to modify, amend or vary any of the terms of the Transaction Documents; (j) all individuals executing and delivering the Transaction Documents have the legal capacity to so execute and deliver such document; and (k) the Company has the corporate power and authority to enter into the Transaction Documents. Based upon the foregoing and subject to the qualifications, assumptions and limitations set forth herein, it is our opinion that: 1. Parent is a corporation validly existing and in good standing under the laws of the State of Delaware. Newco is a corporation duly incorporated and validly existing under the laws of the State of Wisconsin. As of January 1, 1991, Wisconsin no longer recognizes the concept of "good standing" for corporations. We have received a certificate of status from the Wisconsin Department of Financial Institutions for Newco which is conclusive evidence of its existence. Wis. Stat. Section 180.0128. 89 Neenah Corporation _________________, 1997 Page 3 2. Parent and Newco each have the requisite corporate power and authority to carry on its business as now being conducted and to own its assets and properties. 3. The execution, delivery and performance by Parent and Newco of the Transaction Documents are within the corporate power and authority of Parent and Newco and have been duly authorized by all necessary corporate action by Parent and Newco. 4. The Transaction Documents have been duly executed and delivered by Parent and Newco and constitute legal, valid and binding obligations of Parent and Newco, enforceable against Parent and Newco in accordance with their respective terms, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, receivership, moratorium or similar laws generally affecting the rights of creditors and subject to general equity principles. 5. To our knowledge, the execution, delivery and performance by Parent and Newco of the Transaction Documents do not result in a material breach of, or constitute a default under, or result in a violation of: (a) any applicable provision of laws or regulations of the State of _______________ or laws or regulations of the United States of America; or (b) any judgment, injunction, order or decree binding upon Parent or Newco or both; or (c) the Articles of Incorporation or Bylaws of Parent or Newco. 6. To our knowledge, except for consents that have been obtained, no consent, order, authorization or approval of any governmental authority is required in connection with the execution, delivery and performance of the Transaction Documents by Parent and Newco or the consummation by Parent and Newco of the transactions contemplated thereby. 7. To our knowledge, no suit, action, investigation, inquiry or other proceeding by any person or governmental agency or body has been instituted and is pending against Parent or Newco which questions the validity or legality of the Agreement or any of the transactions contemplated thereby. Each of the opinions as to the enforceability of any agreement or instrument is: (a) subject to the limitations set forth in the General Qualifications stated in the Legal Opinion Accord of the ABA Section of Business Law (1991), which General Qualifications are attached hereto as Schedule 1; and (b) subject to the qualification that certain provisions of such documents may be 90 Neenah Corporation _________________, 1997 Page 4 unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of any such documents as a whole and each of such documents contains legally adequate provisions for the realization of the principal legal rights and benefits afforded by it. We are attorneys licensed to practice law in the State of ______________. The opinions expressed herein are specifically limited to the present internal law of the State of _____________ and federal law of the United States of America, are given as of the date of this letter, are intended to apply only to those facts and circumstances that exist as of the date hereof, and we assume no obligation or responsibility to update or supplement this opinion to reflect any facts or circumstances occurring after the date hereof that would alter the opinions contained herein. Whenever this opinion refers to matters within our "knowledge" or "known to us," such reference is limited to facts within our actual knowledge after inquiry of the attorneys in our firm who have given substantive legal attention to the representation of Parent and Newco, and after a review of our files related to Parent and Newco, and facts represented to us by officers and representatives of Parent and Newco. The opinions set forth above are delivered to you in connection with the transactions described in the Agreement. This opinion letter is rendered solely for your information and assistance in connection with the transactions described in the Agreement and may not be provided to, or used or relied upon by, any other person or for any other purpose without our prior written consent. Very truly yours, --------------------------- 91 EXHIBIT G PAYING AGENT AGREEMENT THIS PAYING AGENT AGREEMENT is made as of ____________, 199_, by and among NFC CASTINGS, INC., a Delaware corporation ("Parent"), NC MERGER COMPANY, a Wisconsin corporation ("Newco"), NEENAH CORPORATION, a Wisconsin corporation ("the Company"), E.W. AYLWARD, in his capacity as Company Representative ("Company Representative") and BANK ONE, MILWAUKEE, N.A., in its capacity as paying agent hereunder (in such capacity, the "Paying Agent"). RECITALS A. Parent, Newco and the Company are parties to an Agreement and Plan of Reorganization (the "Agreement") dated as of _______________, 1996, a copy of which has been furnished to the Paying Agent. (Any word, term or phrase which is defined in the Agreement and not otherwise defined herein shall, when used herein, have the meaning which each respectively has when used in the Agreement.) B. The Agreement contemplates and provides for the merger of Newco with and into the Company pursuant to which all of the outstanding shares of the Company's Class A and Class B Common Stock will be converted into the right to receive cash and all of the issued and outstanding shares of Newco Common Stock will be converted into shares of the Company's Class A Common Stock. C. The Agreement further contemplates and provides for the distribution of the Merger Price by the Paying Agent to the Escrow Agent and the Company Shareholders. The parties wish to establish by means of this Paying Agent Agreement a procedure to provide for the orderly payment of the Merger Price to the Escrow Agent and to the Company Shareholders. NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, and intending to be legally bound, the parties hereto agree as follows: 1. Delivery of Merger Price. Parent herewith deposits with the Paying Agent the Merger Price and the Paying Agent hereby acknowledges the receipt and the payment of such sum (the "Merger Fund"). The Paying Agent accepts the Merger Fund and agrees to hold the same in a separate and segregated account (the "Merger Account"), to invest and reinvest the Merger Fund, and to disburse the same in accordance with the terms of this Paying Agent Agreement. 2. Investment of Merger Fund. The Paying Agent shall invest and reinvest all cash funds from time to time comprising part of the Merger Fund in (i) bonds or other obligations of the government of the United States of America and not having maturities of greater than thirty (30) days; or (ii) demand or time deposits in, certificates of deposit of, or money market accounts/funds of a 92 depository institution or trust company incorporated under the laws of the United States of America, any state thereof or the District of Columbia if the commercial paper, if any, and the long-term unsecured debt obligations (other than such obligations whose rating is based on the credit of a person or entity other than such institution or trust company) of such depository institution or trust company, at the time of the Paying Agent's investment therein or contractual commitment providing for such investment, have credit ratings from Moody's and S&P of at least P-l and A-l+, respectively, in the case of the commercial paper, and a credit rating from Moody's and S&P of at least A3 and A-, respectively, in the case of long-term unsecured debt obligations, and not having maturities greater than thirty (30) days; or (iii) such other investments as Parent and Company Representative shall approve in writing. Interest and other income earned on the Merger Fund shall be paid to a Merger Payee pro rata in accordance with such Merger Payee's respective interest in the Merger Fund at the time a disbursement is made to such Merger Payee in accordance with paragraph 4 below. 3. Merger Payment Statements. The Company has heretofore delivered to the Paying Agent unsigned copies of Merger Payment Statements for all of the Company Shareholders, which statements show the net merger payment for each of the Company Shareholders (after deductions for each Company Shareholder's proportionate share of brokerage fees and expenses and each Company Shareholder's pro rata share of the Escrow Deposit). The Company shall deliver to the Paying Agent a copy of each signed Merger Payment Statement it receives promptly after the receipt thereof. 4. Release and Disbursement of Amounts in Merger Account. The amounts in the Merger Account from time to time shall be released and disbursed by the Paying Agent in the manner and under the circumstances hereinafter specified: (a) Immediately after the Effective Time, the Paying Agent shall deposit or shall cause to be deposited the Escrow Deposit with the Escrow Agent. (b) Immediately after the Effective Time, the Paying Agent shall pay or cause to be paid (i) to each Merger Payee for whom Paying Agent has received a Merger Payment Statement duly signed by such Merger Payee, an amount equal to the "Net Merger Payment" shown on such Merger Payment Statement less such Merger Payee's proportionate share of professional fees and expenses as set forth in a schedule to be delivered by Company Representative to the Paying Agent, and (ii) such professional fees and expenses as directed by Company Representative in such schedule. (c) In the event the Paying Agent does not receive a Merger Payment Statement with respect to any Merger Payee, the Paying Agent shall notify Parent, the Company and Company Representative of that fact and shall not disburse any amount allocable to that Merger Payee until Paying Agent receives a Merger Payment Statement duly signed by such Merger Payee. -2- 93 (d) Any payment to be made by the Paying Agent out of the Merger Fund shall be made in immediately available funds in the amount of the payment to be made and transmitted to the payee in the manner specified in the Merger Payment Statement. (e) At any time after 180 days after the date hereof, Parent, by notice to Paying Agent, may require Paying Agent to pay the remaining portion of the Merger Fund (including interest and other income earned thereon) to the Company as provided in Section 2.5(c) of the Agreement. (f) Paying Agent shall not disburse any amount allocable to a Company Shareholder who is not a Merger Payee until Paying Agent receives a notice from the Company authorizing the release and disbursement of amounts to such Company Shareholder, which notice shall not be unreasonably withheld by the Company. 5. Accounting. Within a reasonable time after the delivery of the remainder of the funds in the Merger Account in accordance with paragraph 4 hereof, the Paying Agent shall deliver to Parent and Company Representative an accounting which shall consist of a statement of all receipts of and disbursements made from the Merger Account. Unless Parent or Company Representative shall object to such accounting within thirty (30) days after the date of the delivery of such accounting to it, the Paying Agent shall be discharged forever and absolutely from any and all liabilities and obligations whatsoever to Parent or to Company Representative arising by virtue of this Agreement or the Merger Fund, and in no event whatsoever shall the Paying Agent be required otherwise to account for, or give evidence of the fact, amount or propriety of, any disbursements made by it, except as provided in this paragraph 5, unless the Paying Agent shall have acted in gross negligence or with willful misconduct. Any such objection to such accounting must be in writing and must be delivered or sent to the Paying Agent by registered or certified mail. 6. Tax Information. The Paying Agent shall be responsible for the preparation of any required tax reports related to the Merger Account, and shall provide any necessary tax information to the Company Shareholders. 7. Conditions to Responsibilities of Paying Agent. Acceptance by the Paying Agent of its duties under this Paying Agent Agreement is subject to the following terms and conditions, which all parties to this Paying Agent Agreement hereby agree shall define the rights, duties and immunities of the Paying Agent: (a) The duties and obligations of the Paying Agent shall be determined solely by the express provisions of this Paying Agent Agreement, and the Paying Agent shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Paying Agent Agreement. Except for the services it will render as Escrow Agent, the Paying Agent shall not have any duty or responsibility for or with respect to the Agreement or any -3- 94 related undertaking and shall in no way be bound or obligated by the terms thereof. (b) The Paying Agent shall not be responsible for any failure or inability of Parent or the Company to comply with any of the provisions of any other agreement to which they may be parties. (c) The Company shall reimburse and indemnify the Paying Agent for, and hold it harmless against, any loss, liability or expense, including but not limited to attorneys' fees and disbursements, incurred without gross negligence or willful misconduct on the part of the Paying Agent, arising out of or in connection with its acceptance of, or the performance of its duties and obligations under, this Paying Agent Agreement or its defending against any claim or liability arising out of or relating to this Paying Agent Agreement, other than claims or liabilities established to have arisen out of the gross negligence or willful misconduct of the Paying Agent. (d) The Paying Agent shall be fully protected in acting on and relying upon any written notice, direction, request, waiver, consent, receipt or other paper or document which the Paying Agent in good faith believes to be genuine and to have been signed or presented by the proper party or parties. (e) The Paying Agent shall not be liable for any error of judgment, or for any act done or step taken or omitted by it in good faith or for any mistake, in fact or law, or for anything else which it may do or refrain from doing in connection herewith, except for its own gross negligence or willful misconduct. (f) The Paying Agent may seek the advice of legal counsel in the event of any dispute or question as to the construction of any of the provisions of this Paying Agent Agreement or its duties hereunder, and it shall incur no liability and shall be fully protected in respect of any action taken, omitted or suffered by it in good faith in accordance with the advice of such counsel. (g) In the event of any dispute hereunder, the Paying Agent shall have the right (but shall not be obligated) to pay into court the entire Merger Account and thereafter be absolved of any further duty or obligation hereunder with respect to the Merger Account. 8. Compensation. The Paying Agent shall be paid the sum of $_______ for its services to be rendered hereunder, which amount shall be paid by the Company. 9. Resignation of Paying Agent; Appointment of Successor. The Paying Agent acting at any time hereunder may resign at any time by giving ten days' prior written notice of resignation to Parent and Company Representative, such resignation to be effective on the date specified in such notice. In addition, Parent and Company Representative may jointly cause the removal of the Paying -4- 95 Agent at any time upon the giving of ten days' written notice. In either event Parent and Company Representative shall appoint as successor Paying Agent a bank or trust company mutually satisfactory to them by a written instrument delivered to each of the retiring Paying Agent and the successor Paying Agent, and upon such appointment and its acceptance thereof, the successor Paying Agent shall succeed to all the rights and obligations of the retiring Paying Agent as of the effective date of resignation or removal as though it had been originally named herein, the retiring Paying Agent shall be discharged from all duties and obligations thereafter arising or accruing hereunder, and the retiring Paying Agent shall duly transfer and deliver to the successor Paying Agent the Merger Account and any other property then held by the retiring Paying Agent hereunder. After any retiring Paying Agent's resignation or removal hereunder, the provisions of this Paying Agent Agreement shall inure to its benefit as to any actions taken, omitted or suffered by it while it was the Paying Agent hereunder. 10. Amendment and Termination. This Paying Agent Agreement may be amended or terminated only by a written agreement signed by each of the Paying Agent, Parent, the Company and Company Representative. 11. Notices. All notices, requests, demands and other communications hereunder shall be given in writing and shall be: (a) personally delivered; (b) sent by telecopier, facsimile transmission or other electronic means of transmitting written documents; or (c) sent to the parties at their respective addresses indicated herein by registered or certified U.S. mail, return receipt requested and postage prepaid, or by private overnight mail courier service. The respective addresses to be used for all such notices, demands or requests are as follows: If to Parent, Newco NFC Castings, Inc. or the Company: c/o Citicorp Venture Capital, Ltd. Attn: David F. Thomas 399 Park Avenue, 14th Floor, Zone 4 New York, NY 10043 With a copy to: Kirkland & Ellis Attn: Kirk A. Radke Citicorp Center 153 East 53rd Street New York, NY 10022-4675 If to Company E.W. Aylward Representative: 241 Lake Road Menasha, WI 54952 With a copy to: Quarles & Brady Attn: Bruce C. Davidson 411 East Wisconsin Avenue Milwaukee, WI 53202 Facsimile: (414) 271-3552
-5- 96 If to the Paying Agent: Bank One, Milwaukee, N.A. Attn:_____________________ __________________________ __________________________ Milwaukee WI _____________ If personally delivered, such communication shall be deemed delivered upon actual receipt; if electronically transmitted pursuant to this paragraph, such communication shall be deemed delivered the next business day after transmission (and sender shall bear the burden of proof of delivery); if sent by overnight courier pursuant to this paragraph, such communication shall be deemed delivered upon receipt; and if sent by U.S. mail pursuant to this paragraph, such communication shall be deemed delivered as of the date of delivery indicated on the receipt issued by the relevant postal service, or, if the addressee fails or refuses to accept delivery, as of the date of such failure or refusal. Delivery to the Company Representative shall constitute delivery to all Company Shareholders. Any Person may change its address for the purposes of this agreement by giving notice thereof in accordance with this Section. 12. Governing Law. This Paying Agent Agreement is being delivered and is intended to be performed in the State of Wisconsin and shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Wisconsin. 13. Entire Agreement. This Paying Agent Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, written and oral. This Paying Agent Agreement shall be binding upon the parties hereto and their successors and assigns. 14. Headings. The headings in this Paying Agent Agreement are inserted for convenience only and shall not constitute a part hereof. 15. Counterparts. This Paying Agent Agreement may be executed in any one or more counterparts, each of which shall constitute one and the same agreement. -6- 97 IN WITNESS WHEREOF, the parties have caused this Paying Agent Agreement to be executed on the date first above written. NFC CASTINGS, INC. By: _______________________________ Title: NC MERGER COMPANY By: _______________________________ Title: NEENAH CORPORATION By: _______________________________ Title: ________________________________________ E.W. Aylward, Company Representative BANK ONE, MILWAUKEE, N.A. as Paying Agent By: _______________________________ Title: -7- 98 FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION This First Amendment to Agreement and Plan of Reorganization is dated as of January 13, 1997 by and among NFC Castings, Inc., a Delaware corporation ("Parent"), NC Merger Company, a Wisconsin corporation ("Newco"), and Neenah Corporation, a Wisconsin corporation (the "Company"). RECITALS Parent, Newco and the Company entered into an Agreement and Plan of Reorganization dated as of November 20, 1996 ("Agreement") pursuant to which they agreed to consummate a transaction in which Parent would acquire the Company for cash through a reverse triangular merger of Newco with and into the Company, whereby all of the outstanding shares of the capital stock of the Company would be converted into the right to receive cash and all of the outstanding shares of the capital stock of Newco would be converted into shares of the capital stock of the Company, upon the terms and subject to the conditions set forth in the Agreement. The parties desire to amend certain provisions of the Agreement in the manner and to the extent set forth herein, to extend the closing date and the outside date for such transaction. Accordingly, in consideration of the premises and of the mutual agreements, provisions and covenants herein contained, the parties hereto hereby agree as follows: 1. AMENDMENT OF THE AGREEMENT. 1.1 Closing Date. Sections 2.2, 9.1(b)(ii) and 9.1(c)(ii) of the Agreement are amended by substituting the date "February 20, 1997" for the date "January 31, 1997" each place it appears. 1.2 Outside Date. Sections 9.1(b)(iii) and 9.1(c)(iii) of the Agreement are amended by substituting the date "February 21, 1997" for the date "February 15, 1997" each place it appears. 2. RATIFICATION. Except as expressly amended by this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. The Agreement, as amended hereby, and all rights and powers created thereby and thereunder are in all respects ratified and confirmed. 3. COUNTERPARTS. This Amendment may be signed in any number of counterparts, all of which taken together shall constitute one fully-executed agreement. 99 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written. NFC CASTINGS, INC. By: /s/ John Weber ________________________________ Title: Vice President _____________________________ NC MERGER COMPANY By: /s/ John Weber ________________________________ Title: Vice President ____________________________ NEENAH CORPORATION By: /s/ E. W. Aylward ________________________________ Title: Chairman _____________________________ -2- 100 SECOND AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION This Second Amendment to Agreement and Plan of Reorganization (the "Second Amendment") is dated as of February 21, 1997 by and among NFC Castings, Inc., a Delaware corporation ("Parent"), NC Merger Company, a Wisconsin corporation ("Newco"), and Neenah Corporation, a Wisconsin corporation (the "Company"). RECITALS Parent, Newco and the Company entered into an Agreement and Plan of Reorganization dated as of November 20, 1996 ("Agreement and Plan of Reorganization") pursuant to which they agreed to consummate a transaction in which Parent would acquire the Company for cash through a reverse triangular merger of Newco with and into the Company, whereby all of the outstanding shares of the capital stock of the Company would be converted into the right to receive cash and all of the outstanding shares of the capital stock of Newco would be converted into shares of the capital stock of the Company, upon the terms and subject to the conditions set forth in the Agreement and Plan of Reorganization. Parent, Newco and the Company entered into a First Amendment to Agreement and Plan of Reorganization dated as of January 13, 1997 ("First Amendment") pursuant to which they agreed to amend certain provisions of the Agreement and Plan of Reorganization. (The Agreement and Plan of Reorganization, as amended by the First Amendment, is referred to herein as the "Agreement".) The parties desire to further amend certain provisions of the Agreement in the manner and to the extent set forth herein. Accordingly, in consideration of the premises and of the mutual agreements, provisions and covenants herein contained, the parties hereto hereby agree as follows: 1. AMENDMENT OF THE AGREEMENT. 1.1 Closing Date. Sections 2.2, 9.1(b)(ii) and 9.1(c)(ii) of the Agreement are amended by substituting the date "April 11, 1997" for the date "February 20, 1997" each place it appears. 1.2 Outside Date. Sections 9.1(b)(iii) and 9.1(c)(iii) of the Agreement are amended by substituting the date "April 11, 1997" for the date "February 21, 1997" each place it appears. 1.3 Definitions. Section 1.1 of the Agreement is amended by amending the definitions of "Merger Price" and "Merger Price Per Share" to read in their entirety as follows: "Merger Price" shall mean the sum of $240,000,000.00 less an amount equal to the Settlement Adjustment Amount, to be delivered by Newco pursuant to Article II of this Agreement, subject to later 101 adjustment as provided in Section 2.6(e) of this Agreement. "Merger Price Per Share" shall mean the quotient determined by dividing the Merger Price to be delivered by Newco at Closing by the total number of shares of the Company Common Stock issued and outstanding immediately prior to the Effective Time. (For illustration purposes only, based on the total issued and outstanding shares of Company Common Stock set forth in Section 3.1(c) of this Agreement, the Merger Price Per Share would equal $54,060.14 less the amount determined by dividing the Settlement Adjustment Amount by the number 4439.50.) 1.4 Definitions. Section 1.1 of the Agreement is amended by adding thereto the following additional defined terms: "Former Shareholder" shall mean any former holder of any shares of capital stock of the Company, whose shares of capital stock were repurchased by the Company at any time prior to the date of this Agreement. "Former Shareholder Claim" shall mean any claim, demand, cause of action, suit, obligation or liability whatsoever, in law or equity, known or unknown, whether or not asserted or assertable, and whether or not paid or settled, that any Former Shareholder (and such Former Shareholder's directors, officers, employees, stockholders, heirs, successors, assigns and agents) had, has or may have against, or that has been, might have been or may be asserted against, the Company, any of the Subsidiaries or any of the Company Shareholders, or any of the respective directors, officers, employees, stockholders, heirs, successors, assigns or agents of the Company, any of the Subsidiaries or any of the Company Shareholders, including without limitation any claim, demand, cause of action, suit, obligation or liability arising from or in connection with any sale or conveyance of any of such Former Shareholder's or any other Person's shares of the capital stock of the Company, including any claim, demand, cause of action, suit, obligation or liability based upon an allegation that such Former Shareholder did not receive fair value for his or her shares of the capital stock of the Company at the time such shares were repurchased by the Company or any other allegation in connection with such repurchase or in connection with the transactions contemplated by this Agreement. "Former Shareholder Release" shall mean a Confidential Settlement Agreement and Release substantially in the form of Exhibit H attached to this Agreement and otherwise in substance and amount reasonably acceptable to Parent and the Company. -2- 102 "Recent Former Shareholder" shall mean any of the following Former Shareholders: James P. Keating, Jr., Mary K. and James H. Russell, Jr., Katherine K. Wilson, Dan E. Johnson and the Neenah Foundry Foundation, Inc. "Recent Former Shareholder Claim" shall mean any claim, demand, cause of action, suit, obligation or liability whatsoever, in law or equity, known or unknown, whether or not asserted or assertable, and whether or not paid or settled, that any Recent Former Shareholder (and such Recent Former Shareholder's directors, officers, employees, stockholders, heirs, successors, assigns and agents) had, has or may have against, or that has been, might have been or may be asserted against, the Company, any of the Subsidiaries or any of the Company Shareholders, or any of the respective directors, officers, employees, stockholders, heirs, successors, assigns or agents of the Company, any of the Subsidiaries or any of the Company Shareholders, arising from or in connection with any sale or conveyance of any of such Recent Former Shareholder's or any other Person's shares of the capital stock of the Company, including any claim, demand, cause of action, suit, obligation or liability based upon an allegation that such Recent Former Shareholder did not receive fair value for his or her shares of the capital stock of the Company at the time such shares were repurchased by the Company or any other allegation in connection with such repurchase or in connection with the transactions contemplated by this Agreement. "Settlement Adjustment Amount" shall mean one-half (1/2) of the aggregate amount actually paid by Parent or Newco to the Recent Former Shareholders in exchange for obtaining Former Shareholder Releases from them, provided, however, that in no event shall the Settlement Adjustment Amount exceed $2,000,000.00. 1.5 Payments to Recent Former Shareholders. Article II of the Agreement is amended by adding thereto, after Section 2.3 thereof, the following additional Section 2.3A: 2.3A Payments by Parent or Newco to Recent Former Shareholders. At the Closing, Parent or Newco shall pay to each of the Recent Former Shareholders the settlement amount recited in the Former Shareholder Release applicable to such Recent Former Shareholder. 1.6 Escrow Deposit. Section 2.5(a) of the Agreement is amended to read in its entirety as follows: (a) Immediately after the Effective Time, the Paying Agent shall deposit or shall cause to be deposited with the Escrow Agent by wire transfer of -3- 103 immediately available funds, a portion of the Merger Price equal to $12,000,000.00 less an amount equal to the Settlement Adjustment Amount (the "Escrow Deposit"), to be held by the Escrow Agent in accordance with Section 8.2 of this Agreement and in accordance with the Escrow Agreement. 1.7 Post-Closing Adjustment. Section 2.6(a) of the Agreement is amended by replacing the period at the end of clause (ii) thereof with a semi-colon and adding thereto the following additional clauses (iii), (iv) and (v): (iii) no reserves, accruals or other liabilities for any Former Shareholder Claims shall be established with respect to the Company or any Subsidiary, and the Closing Date Balance Sheet and the Final Closing Date Balance Sheet shall contain no such reserves, accruals or liabilities; and (iv) no expense for any accrual or payment of any portion of any Former Shareholder Claims, whether in settlement thereof or otherwise, shall be allowed or taken into account in computing the net income of the Company for the interim period ending immediately prior to the Effective Time on the Closing Date; and (v) no reduction or decrease shall be made in any asset account of the Company or any Subsidiary for any payments made to the Recent Former Shareholders pursuant to Section 2.3A of this Agreement to the extent any such payments are considered or deemed to have been made by the Company or any Subsidiary. 1.8 Approval of Supplemental Disclosures. Section 5.7(b) of the Agreement is amended by adding the following sentence to the end thereof: Notwithstanding the immediately preceding sentence, for purposes of this Agreement, including without limitation Section 6.1 of this Agreement, Parent hereby consents to all of the updates and supplements to the Disclosure Schedule set forth in the First Addendum to Disclosure Schedule to Agreement and Plan of Reorganization dated as of January 28, 1997 (except for the matter regarding the Recent Former Shareholders disclosed as new Item 7 under Section 3.10) and in the Second Addendum to Disclosure Schedule to Agreement and Plan of Reorganization dated as of February 7, 1997, and accordingly such updates and supplements (except for such matter regarding the Recent Former Shareholders disclosed as new Item 7 under Section 3.10) shall be taken into account for purposes of Section 6.1 of this Agreement. -4- 104 1.9 Minimum Cash on Hand. Section 6.17 of the Agreement is amended to read in its entirety as follows: 6.17 Minimum Cash on Hand. The Company and its Subsidiaries on a consolidated basis shall have at least $18,000,000 cash and cash equivalents on hand at Closing (net of checks issued but not yet presented), less the amount of any payments made to the Recent Former Shareholders pursuant to Section 2.3A of this Agreement to the extent any such payments are considered or deemed to have been made by the Company or any Subsidiary. 1.10 Conditions Precedent to Parent's and Newco's Obligations. Article VI of the Agreement is amended by adding thereto the following additional Section 6.18: 6.18 Former Shareholder Releases. Parent shall have received an irrevocable, duly executed Former Shareholder Release from each of the Recent Former Shareholders, the continued effectiveness of each of which as to the applicable Recent Former Shareholder is conditioned only upon payment to such Recent Former Shareholder at or before the Closing of the settlement amount recited in the Former Shareholder Release applicable to such Recent Former Shareholder. 1.11 Conditions Precedent to Company's Obligations. Article VII of the Agreement is amended by adding thereto the following additional Section 7.10: 7.10 Former Shareholder Releases. Parent shall have received, and Parent shall have delivered to the Company Representative a true and correct copy of, an irrevocable, duly executed Former Shareholder Release from each of the Recent Former Shareholders, the continued effectiveness of each of which as to the applicable Recent Former Shareholder is conditioned only upon payment to such Recent Former Shareholder at or before the Closing of the settlement amount recited in the Former Shareholder Release applicable to such Recent Former Shareholder. 1.12 Indemnification on Behalf of Company Shareholders --Limitations. Section 8.2(b) of the Agreement is amended by replacing the period at the end of clause (xiii) thereof with "; and" and adding thereto the following additional clause (xiv): (xiv) for any Recent Former Shareholder Claims or Losses attributable thereto. 1.13 Termination of Agreement. Section 9.1(b) of the Agreement is amended by adding thereto the following additional clause (iv): -5- 105 (iv) the condition provided for in Section 6.18 of this Agreement has not been satisfied, or waived by Parent or Newco in writing, by March 14, 1997; or 1.14 Termination of Agreement. Section 9.1(c) of the Agreement is amended by replacing the period at the end of clause (iv) thereof with "; or" and adding thereto the following additional clause (v): (v) the condition provided for in Section 7.10 of this Agreement has not been satisfied, or waived by the Company in writing, by March 14, 1997. 1.15 Exhibits. The Agreement is amended by adding thereto as Exhibit H the form of Confidential Settlement Agreement and Release attached hereto as Exhibit H, and the schedule of Exhibits is modified accordingly. 1.16 Exhibits and Schedules. Prior to Closing, the exhibits and schedules to the Agreement shall be amended to the extent necessary to reflect the amendments to the Agreement set forth in this Second Amendment. 2. RATIFICATION. Except as expressly amended by this Second Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. The Agreement, as amended hereby, and all rights and powers created thereby and thereunder are in all respects ratified and confirmed. 3. COUNTERPARTS. This Second Amendment may be signed in any number of counterparts, all of which taken together shall constitute one fully-executed agreement. -6- 106 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed as of the day and year first above written. NFC CASTINGS, INC. By: /s/ John Weber ________________________________ Title:_____________________________ NC MERGER COMPANY By: /s/ John Weber ________________________________ Title:_____________________________ NEENAH CORPORATION By: /s/ E. W. Aylward ________________________________ Title: Chairman, President & CEO _____________________________ -7- EX-3.1 3 ARTICLE OF INCORPORATION OF NEENAH CORPORATION 1 EXHIBIT 3.1 RESTATED ARTICLES OF INCORPORATION OF NEENAH CORPORATION The following Restated Articles of Incorporation duly adopted pursuant to the authority and provisions of the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statute (the "WBCL"), supersede and take the place of the existing articles of incorporation and any amendments thereto: ARTICLE I Name The name of the corporation is Neenah Corporation. ARTICLE II Purposes The purposes for which the corporation is organized are to engage in any lawful activity within the purposes for which a corporation may be organized under the WBCL. ARTICLE III Existence The corporation shall have perpetual existence. ARTICLE IV Capital Stock The total number of shares of all classes of capital stock which the corporation shall have the authority to issue is 14,000 shares, consisting of 1,000 shares of a class designated as "Class A Common Stock" having a par value of $100.00 per share, 10,000 shares of a class designated as "Class B Common Stock" having a par value of $100.00 per share, and 3,000 shares of a class designated as "Preferred Stock" having a par value of $100.00 per share. Common Stock. Except as otherwise provided in the WBCL, each outstanding share of Class A Common stock is entitled to one vote on each matter voted on at a shareholders' meeting. The Class B Common Stock shall have no voting rights except as may be provided 2 by the WBCL. Except with regard to voting rights, the shares of Class A Common Stock and Class B Common Stock shall be identical as to preferences, limitations and relative rights. Subject to the prior rights and preferences of any issued and outstanding shares of Preferred Stock, such dividends as May be determined by the Board of Directors of the corporation. may be declared and paid on the Class A Common Stock and Class B Common Stock from time to time out of any funds legally available therefor. After payment shall have been made in full to the holders of any issued and outstanding shares of Preferred Stock (in accordance with the terms thereof) in the event of any liquidation, dissolution or winding up of the affairs of the corporation the remaining assets and funds of the Corporation shall be distributed among the holders of the Class A Common Stock and Class B Common Stock according to their respective shares. Preferred Stock. The Board of Directors may, within the limits under Section 180.0601 of the WBCL (or any successor provision), do any of the following with respect to the Preferred Stock: (1) Determine with respect to the class of Preferred Stock the preferences, limitations and relative rights, in whole or in part, before the issuance of any shares of that class. (b) Create one or more series within the class of Preferred Stock, and, with respect to any series, determine the number of shares of the series, the distinguishing designations and the preferences, limitations and relative rights, in whole or in part, before the issuance of any shares of that series. Preemptive Rights. The corporation elects not to have preemptive rights. Shareholders or holders of other securities of the corporation, including "shares of a pre-existing class" (meaning shares of a class for which shares were authorized before January 1, 1991, whether the shares were issued before, on or after January 1, 1991, as defined in Section 180.1701 of the WBCL), shall not have a preemptive right to acquire unissued shares or securities convertible into unissued shares or carrying a right to subscribe to or acquire shares of the corporation. ARTICLE V Board of Directors The number of directors constituting the Board of Directors of the corporation shall be fixed by or in the manner provided in the Bylaws of the corporation. 2 3 ARTICLE VI Registered office and Agent The address of the registration office of the corporation is 2121 Brooks Avenue, P.O. Box 729, Neenah, Wisconsin 54956, and the name of its registered agent at such office is Gary W. LaChey. * * * * * 3 EX-3.2 4 BY-LAWS OF NEENAH CORPORATION 1 Exhibit 3.2 BYLAWS OF NEENAH CORPORATION AS AMENDED AND RESTATED JULY 14, 1995 2 TABLE OF CONTENTS Page ARTICLE I. OFFICES; RECORDS ............................................. 1 1.01 Principal and Business Offices ................................ 1 1.02 Registered Office and Registered Agent ........................ 1 1.03 Corporate Records ............................................. 1 ARTICLE II. SHAREHOLDERS ................................................ 2 2.01 Annual Meeting ................................................ 2 2.02 Special Meetings .............................................. 2 2.03 Place of Meeting .............................................. 2 2.04 Notices to Shareholders ....................................... 2 2.05 Fixing of Record Date ......................................... 3 2.06 Shareholder List .............................................. 4 2.07 Quorum and Voting Requirements ................................ 4 2.08 Conduct of Meetings ........................................... 4 2.09 Proxies ....................................................... 5 2.10 Voting of Shares .............................................. 5 ARTICLE III. BOARD OF DIRECTORS ......................................... 5 3.01 General Powers and Number ..................................... 5 3.02 Election, Removal, Tenure and Qualifications .................. 5 3.03 Regular Meetings .............................................. 6 3.04 Special Meetings .............................................. 6 3.05 Meetings By Telephone or Other Communication Technology ....... 6 3.06 Notice of Meetings ............................................ 6 3.07 Quorum ........................................................ 7 3.08 Manner of Acting .............................................. 7 3.09 Conduct of Meetings ........................................... 7 3.10 Vacancies ..................................................... 7 3.11 Compensation .................................................. 7 3.12 Presumption of Assent ......................................... 7 3.13 Committees .................................................... 8 ARTICLE IV. OFFICERS .................................................... 8 4.01 Appointment ................................................... 8 4.02 Resignation and Removal ....................................... 8 4.03 Vacancies ..................................................... 9 4.04 Chairman of the Board ......................................... 9 4.05 President ..................................................... 9 4.06 Shared Functions .............................................. 9 4.07 Vice Presidents ............................................... 10 4.08 Secretary ..................................................... 10 4.09 Treasurer ..................................................... 10 4.10 Assistants and Acting Officers ................................ 10 -i- 3 4.11 Salaries ........................................................ 11 ARTICLE V. CERTIFICATES FOR SHARES AND THEIR TRANSFER .................... 11 5.01 Certificates for Shares ......................................... 11 5.02 Signature by Former Officers .................................... 11 5.03 Transfer of Shares .............................................. 11 5.04 Restrictions on Transfer ........................................ 12 5.05 Lost, Destroyed or Stolen Certificates .......................... 12 5.06 Consideration for Shares ........................................ 12 5.07 Stock Regulations ............................................... 12 ARTICLE VI. WAIVER OF NOTICE ............................................. 12 6.01 Shareholder Written Waiver ...................................... 12 6.02 Shareholder Waiver by Attendance ................................ 12 6.03 Director Written Waiver ......................................... 13 6.04 Director Waiver by Attendance ................................... 13 ARTICLE VII. ACTION WITHOUT MEETINGS ..................................... 13 7.01 Shareholder Action Without Meeting .............................. 13 7.02 Director Action Without Meeting ................................. 13 ARTICLE VIII. INDEMNIFICATION ............................................ 14 8.01 Indemnification for Successful Defense .......................... 14 8.02 Other Indemnification ........................................... 14 8.03 Written Request ................................................. 14 8.04 Nonduplication .................................................. 14 8.05 Determination of Right to Indemnification ....................... 15 8.06 Advance of Expenses ............................................. 16 8.07 Nonexclusivity .................................................. 16 8.08 Court-Ordered Indemnification ................................... 17 8.09 Indemnification and Allowance of Expenses of Employees and Agents 17 8.10 Insurance ....................................................... 18 8.11 Securities Law Claims ........................................... 18 8.12 Liberal Construction ............................................ 18 8.13 Definitions Applicable to this Article .......................... 18 ARTICLE IX. CONTRACTS, LOANS, CHECKS AND DEPOSITS ......................... 19 9.01 Contracts; Director Conflict of Interest ........................ 19 9.02 Loans ........................................................... 20 9.03 Checks, Drafts, etc ............................................. 20 9.04 Deposits ........................................................ 20 -ii- 4 ARTICLE X. MISCELLANEOUS ................................................ 20 10.01 Corporate Seal ............................................... 20 10.02 Fiscal Year .................................................. 20 ARTICLE XI. AMENDMENTS .................................................. 21 11.01 By Shareholders .............................................. 21 11.02 By Directors ................................................. 21 11.03 Implied Amendments ........................................... 21 -iii- 5 ARTICLE I. OFFICES; RECORDS 1.01 Principal and Business Offices. The corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the corporation may require from time to time. 1.02 Registered Office and Registered Agent. The registered office of the corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin. The address of the registered office may be changed from time to time by any officer or by the registered agent. The office of the registered agent of the corporation shall be identical to such registered office. 1.03 Corporate Records. The following documents and records shall be kept at the corporation's principal office or at such other reasonable location as may be specified by the corporation: (a) Minutes of shareholders, and Board of Directors' meetings and any written notices thereof. (b) Records of actions taken by the shareholders or directors without a meeting. (c) Records of actions taken by committees of the Board of Directors. (d) Accounting records. (e) Records of its shareholders. (f) Current Bylaws. (g) Written waivers of notice by shareholders or directors (if any). (h) Written consents by shareholders or directors for actions without a meeting (if any). (i) Voting trust agreements (if any). (j) Stock transfer agreements to which the corporation is a party or of which it has notice (if any). -1- 6 ARTICLE II. SHAREHOLDERS 2.01 Annual Meeting. The annual meeting of the shareholders shall be held not earlier than the second Tuesday in April nor later than the third Tuesday in June, as determined each year by the Chairman of the Board or the President, and the time and place of meeting shall be such as shall be fixed by the Secretary and specified in the notice or waiver of notice of the meeting. The annual meeting shall be held for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the election of directors is not held on the day fixed as herein provided, for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a meeting of the shareholders as soon thereafter as may be convenient. 2.02 Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairperson of the Board, if there is one, the President or the Board of Directors. If and as required by the Wisconsin Business Corporation Law, a special meeting shall be called upon written demand describing one or more purposes for which it is to be held by holders of shares with at least 10% of the votes entitled to be cast on any issue proposed to be considered at the meeting. The purpose or purposes of any special meeting shall be described in the notice required by Section 2.04 of these Bylaws. 2.03 Place of Meeting. The Board of Directors may designate any place, either within or without the State of Wisconsin, as the place of meeting for any annual meeting or any special meeting. If no designation is made, the place of meeting shall be the principal office of the corporation but any meeting may be adjourned to reconvene at any place designated by vote of a majority of the shares represented thereat and entitled to vote thereon. 2.04 Notices to Shareholders. (a) Required Notice. Written notice stating the place, day and hour of the meeting. and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten days nor more than sixty (60) days before the date of the meeting (unless a different time is provided by law or the Articles of Incorporation), by or at the direction of the Chairman of the Board, the President or the Secretary, to each shareholder entitled to vote at such meeting or, for the fundamental transactions described in subsections (e)(1) to (4) below (for which the Wisconsin Business Corporation Law requires that notice be given to shareholders not entitled to vote), to all shareholders. If mailed, such notice is effective when deposited in the United States mail, and shall be addressed to the shareholder's address shown in the current record of shareholders of the corporation, with postage thereon prepaid. At least twenty (20) days' notice shall be provided if the purpose, or one of the purposes, of the meeting is to consider a plan of merger or share exchange for which shareholder approval is required by law, or the sale, lease, exchange or other disposition of all or substantially all of the corporation's property, with or without good will, otherwise than in the usual and regular course of business. (b) Adjourned Meeting. Except as provided in the next sentence, if any shareholder meeting is adjourned to a different date, time, or place, notice need not be given of -2- 7 the new date, time, and place, if the new date, time and place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or must be fixed, then notice must be given pursuant to the requirements of paragraph (a) of this Section 2.04, to those persons who are shareholders as of the new record date. (c) Waiver of Notice. A shareholder may waive notice in accordance with Article VI of these Bylaws. (d) Contents of Notice. The notice of each special shareholder meeting shall include a description of the purpose or purposes for which the meeting is called, and only business within the purpose described in the meeting notice may be conducted at a special shareholder meeting. Except as otherwise provided in subsection (e) of this Section 2.04, in the Articles of Incorporation, or in the Wisconsin Business Corporation Law, the notice of an annual shareholder meeting need not include a description of the purpose or purposes for which the meeting is called. (e) Fundamental Transactions. If a purpose of any shareholder meeting is to consider either: (1) a proposed amendment to the Articles of Incorporation (including any restated articles); (2) a plan of merger or share exchange for which shareholder approval is required by law; (3) the sale, lease, exchange or other disposition of all or substantially all of the corporation's property, with or without good will, otherwise than in the usual and regular course of business; (4) the dissolution of the corporation; or (5) the removal of a director, the notice must so state and in cases (1), (2) and (3) above must be accompanied by, respectively, a copy or summary of the: (1) proposed articles of amendment or a copy of the restated articles that identifies any amendment or other change; (2) proposed plan of merger or share exchange; or (3) proposed transaction for disposition of all or substantially all of the corporation's property. If the proposed corporate action creates dissenters, rights, the notice must state that shareholders and beneficial shareholders are or may be entitled to assert dissenters' rights, and must be accompanied by a copy of Sections 180.1301 to 180.1331 of the Wisconsin Business Corporation Law, or the corresponding provisions of any successor statute. 2.05 Fixing of Record Date. The Board of Directors may fix in advance a date as the record date for one or more voting groups for any determination of shareholders entitled to notice of a shareholders, meeting, to demand a special meeting, to vote, or to take any other action, such date in any case to be not more than seventy (70) days prior to the meeting or action requiring such determination of shareholders, and may fix the record date for determining shareholders entitled to a share dividend or distribution. If no record date is fixed for the determination of shareholders entitled to demand a shareholder meeting, to notice of or to vote at a meeting of shareholders, or to consent to action without a meeting, (a) the close of business on the day before the corporation receives the first written demand for a shareholder meeting, (b) the close of business on the day before the first notice of the meeting is mailed or otherwise delivered to shareholders, or (c) the close of business on the day before the first written consent to shareholder action without a meeting is received by the corporation, as the case may be, shall be the record date for the determination of shareholders. If no record date is fixed for the determination of shareholders entitled to receive a share dividend or distribution (other than a distribution involving a purchase, redemption or other acquisition of the corporation's shares), -3- 8 the close of business on the day on which the resolution of the Board of Directors is adopted declaring the dividend or distribution shall be the record date. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall be applied to any adjournment thereof unless the Board of Directors fixes a new record date and except as otherwise required by law. A new record date must be set if a meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. 2.06 Shareholder List. The officer or agent having charge of the stock transfer books for shares of the corporation shall, before each meeting of shareholders, make a complete record of the shareholders entitled to notice of such meeting, arranged by class or series of shares and showing the address of and the number of shares held by each shareholder. The shareholder list shall be available at the meeting and may be inspected by any shareholder or his or her agent or attorney at any time during the meeting or any adjournment. Any shareholder or his or her agent or attorney may inspect the shareholder list beginning two (2) business days after the notice of the meeting is given and continuing to the date of the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held and, subject to Section 180-1602(2)(b) 3 to 5 of the Wisconsin Business Corporation Law, may copy the list, during regular business hours and at his or her expense, during the period that it is available for inspection hereunder. The original stock transfer books and nominee certificates on file with the corporation (if any) shall be prima facie evidence as to who are the shareholders entitled to inspect the shareholder list or to vote at any meeting of shareholders. Failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting. 2.07 Quorum and Voting Requirements. Except as otherwise provided in the Articles of Incorporation or in the Wisconsin Business Corporation Law, a majority of the votes entitled to be cast by shares entitled to vote as a separate voting group on a matter, represented in person or by proxy, shall constitute a quorum of that voting group for action on that matter at a meeting of shareholders. If a quorum exists, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action unless a greater number of affirmative votes is required by the Wisconsin Business Corporation Law or the Articles of Incorporation. If the Articles of Incorporation or Wisconsin Business Corporation Law provide for voting by two (2) or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately. Action may be taken by one (1) voting group on a matter even though no action is taken by another voting group entitled to vote on the matter. Once a share is represented for any purpose at a meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must he set for that meeting. 2.08 Conduct of Meetings. The Chairman of the Board, or in his or her absence, the President, and in the President's absence, a Vice President in the order provided under Section 4.07 of these Bylaws, and in their absence, any person chosen by the shareholders present shall call the meeting of the shareholders to order and shall act as chairperson of the meeting, and the -4- 9 Secretary shall act as secretary of all meetings of the shareholders, but, in the absence of the Secretary, the presiding officer may appoint any other person to act as secretary of the meeting. 2.09 Proxies. At all meetings of shareholders, a shareholder entitled to vote may vote in person or by proxy appointed in writing by the shareholder or by his or her duly authorized attorney-in-fact. All proxy appointment forms shall be filed with the Secretary or other officer or agent of the corporation authorized to tabulate votes before or at the time of the meeting. Unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest, a proxy appointment may be revoked at any time. The presence of a shareholder who has filed a proxy appointment shall not of itself constitute a revocation. No proxy appointment shall be valid after eleven months from the date of its execution, unless otherwise expressly provided in the appointment form. The Board of Directors shall have the power and authority to make rules that are not inconsistent with the Wisconsin Business Corporation Law as to the validity and sufficiency of proxy appointments. 2.10 Voting of Shares. Each outstanding share of Class A common stock shall be entitled to one (1) vote on each matter submitted to a vote at a meeting of shareholders. The holders of preferred stock and of Class B common stock shall have no voting rights whatsoever, except as required by law. Shares owned directly or indirectly by another corporation are not entitled to vote if this corporation owns, directly or indirectly, sufficient shares to elect a majority of the directors of such other corporation. However the prior sentence shall not limit the power of the corporation to vote any shares, including its own shares, held by it in a fiduciary capacity. Redeemable shares are not entitled to vote after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares. ARTICLE III. BOARD OF DIRECTORS 3.01 General Powers and Number. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, its Board of Directors. The number of directors of the corporation shall be three (3). The number of directors may be increased or decreased from time to time by amendment to this Section adopted by the shareholders or the Board of Directors, but no decrease shall have the effect of shortening the term of an incumbent director. 3.02 Election, Removal, Tenure and Qualifications. Unless action is taken without a meeting under Section 7.01 of these Bylaws, directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a shareholders meeting at which a quorum is present; i.e., the individuals with the largest number of votes in favor of their election are elected as directors up to the maximum number of directors to be chosen in the election. Votes against a candidate are not given legal effect and are not counted as votes cast in an election of directors. In the event two (2) or more persons tie for the last vacancy to be filled, a run-off vote shall be taken from among the candidates receiving the tie vote. Each director shall hold office until the next annual meeting of shareholders and until the director's successor shall have been elected -5- 10 and qualified or there is a decrease in the number of directors, or until his or her prior death, resignation or removal. If cumulative voting for directors is not authorized by the Articles of Incorporation, any director or directors may be removed from office by the shareholders if the number of votes cast to remove the director exceeds the number cast not to remove him or her, taken at a meeting of shareholders called for that purpose (unless action is taken without a meeting under Section 7.01 of these Bylaws), provided that the meeting notice states that the purpose, or one of the purposes, of the meeting is removal of the director. The removal may be made with or without cause unless the Articles of Incorporation or these Bylaws provide that directors may be removed only for cause. A director may resign at any time by delivering a written resignation to the Board of Directors, to the Chairman of the Board, or to the corporation through the Secretary or otherwise. Directors need not be residents of the State of Wisconsin or shareholders of the corporation. 3.03 Regular Meetings. A regular meeting of the Board of Directors shall be held, without other notice than this Bylaw, immediately after the annual meeting of shareholders, and each adjourned session thereof. The place of such regular meeting shall be the same as the place of the meeting of shareholders which precedes it, or such other suitable place as may be announced at such meeting of shareholders. The Board of Directors and any committee may provide, by resolution, the time and place, either within or without the State of Wisconsin, for the holding of additional regular meetings without other notice than such resolution. 3.04 Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the President or any two (2) directors. Special meetings of any committee may be called by or at the request of the foregoing persons or the chairperson of the committee. The persons calling any special meeting of the Board of Directors or committee may fix any place, either within or without the State of Wisconsin, as the place for holding any special meeting called by them, and if no other place is fixed the place of meeting shall be the principal office of the corporation in the State of Wisconsin. 3.05 Meetings By Telephone or Other Communication Technology. (a) Any or all directors may participate in a regular or special meeting or in a committee meeting of the Board of Directors by, or conduct the meeting through the use of, telephone or any other means of communication by which either: (i) all participating directors may simultaneously hear each other during the meeting or (ii) all communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting will be conducted through the use of any means described in paragraph (a), all participating directors shall be informed that a meeting is taking place at which official business may be transacted. A director participating in a meeting by any means described in paragraph (a) is deemed to be present in person at the meeting. 3.06 Notice of Meetings. Except as otherwise provided in the Articles of Incorporation or the Wisconsin Business Corporation Law, notice of the date, time and place of any special meeting of the Board of Directors and of any special meeting of a committee of the Board shall be given orally or in writing to each director or committee member at least 48 hours -6- 11 prior to the meeting, except that notice by mail shall be given at least 72 hours prior to the meeting. The notice need not describe the purpose of the meeting. Notice may be communicated in person, by telephone, telegraph or facsimile or by mail or private carrier. Oral notice is effective when communicated. Written notice is effective as follows: If delivered in person, when received; if given by mail, when deposited, postage prepaid, in the United States mail addressed to the director at his or her business or home address (or such other address as the director may have designated in writing filed with the Secretary); if given by facsimile, at the time transmitted to a facsimile number at any address designated above; and if given by telegraph, when delivered to the telegraph company. 3.07 Quorum. Except as otherwise provided by the Wisconsin Business Corporation Law, a majority of the number of directors as provided in Section 3.01 shall constitute a quorum of the Board of Directors. Except as otherwise provided by the Wisconsin Business Corporation Law, a majority of the number of directors appointed to serve on a committee shall constitute a quorum of the committee. 3.08 Manner of Acting. Except as otherwise provided by the Wisconsin Business Corporation Law, the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors or any committee thereof. 3.09 Conduct of Meetings. The Chairman of the Board, or in his or her absence, the President, and in the President's absence, a Vice President in the order provided under Section 4.07 of these Bylaws, and in their absence, any director chosen by the directors present, shall call meetings of the Board of Directors to order and shall chair the meeting. The Secretary of the corporation shall act as secretary of all meetings of the Board of Directors, but in the absence of the Secretary, the presiding officer may appoint any assistant secretary or any director or other person present to act as secretary of the meeting. 3.10 Vacancies. Any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, may be filled by the shareholders or the Board of Directors. If the directors remaining in office constitute fewer than a quorum of the Board, the directors may fill a vacancy by the affirmative vote of a majority of all directors remaining in office. A vacancy that will occur at a specific later date (because of a resignation effective at a later date or otherwise) may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. 3.11 Compensation. The Board of Directors, irrespective of any personal interest of any of its members, may fix the compensation of directors. 3.12 Presumption of Assent. A director who is present and is announced as present at a meeting of the Board of Directors or a committee thereof at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (i) the director objects at the beginning of the meeting or promptly upon his or her arrival to ho1ding the meeting or transacting business at the meeting, or (ii) the director's dissent or abstention from the action taken is entered in the minutes of the meeting, or (iii) the director delivers his or her written dissent or abstention to the presiding officer of the meeting before the adjournment -7- 12 thereof or to the corporation immediately after the adjournment of the meeting. Such right to dissent or abstain shall not apply to a director who voted in favor of such action. 3.13 Committees. The Board of Directors, by resolution adopted by the affirmative vote of a majority of all the directors then in office, may create one (1) or more committees, each committee to consist of two (2) or more directors as members, which to the extent provided in the resolution as initially adopted, and as thereafter supplemented or amended by further resolution adopted by a like vote, may exercise the authority of the Board of Directors, except that no committee may: (a) authorize distributions; (b) approve or propose to shareholders action that the Wisconsin Business Corporation Law requires be approved by shareholders; (c) fill vacancies on the Board of Directors or any of its committees, except that the Board of Directors may provide by resolution that any vacancies on a committee shall be filled by the affirmative vote of a majority of the remaining committee members; (d) amend the Articles of Incorporation; (e) adopt, amend or repeal Bylaws; (f) approve a plan of merger not requiring shareholder approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors or (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except within limits prescribed by the Board of Directors. All members of the Board of Directors who are not members of a given committee shall be alternate members of such committee and may take the place of any absent member or members at any meeting of such committee, upon request by the Chairman of the Board, the President or upon request by the chairperson of such meeting. Each such committee shall fix its own rules (consistent with the Wisconsin Business Corporation Law, the Articles of Incorporation and these Bylaws) governing the conduct of its activities and shall make such reports to the Board of Directors of its activities as the Board of Directors may request. Unless otherwise provided by the Board of Directors in creating a committee, a committee may employ counsel, accountants and other consultants to assist it in the exercise of authority. The creation of a committee, delegation of authority to a committee or action by a committee does not relieve the Board of Directors or any of its members of any responsibility imposed on the Board of Directors or its members by law. ARTICLE IV. OFFICERS 4.01 Appointment. The principal officers shall include a Chairman of the Board, a President, one or more Vice Presidents (the number and designations to be determined by the Board of Directors), a Secretary and a Treasurer, each of whom shall be appointed by the Board of Directors. The Board of Directors may designate one or more of the Vice Presidents as Executive Vice Presidents or Senior Vice Presidents. Such other officers and assistant officers as may be deemed necessary may be appointed by the Board of Directors, the Chairman of the Board or the President. Any two or more offices may be held by the same person. 4.02 Resignation and Removal. An officer shall hold office until he or she resigns, dies, is removed hereunder, or a different person is appointed to the office. An officer may resign at any time by delivering an appropriate written notice to the corporation. The resignation -8- 13 is effective when the notice is delivered, unless the notice specifies a later effective date and the corporation accepts the later effective date. Any officer may be removed by the Board of Directors with or without cause and notwithstanding the contract rights, if any, of the person removed. Except as provided in the preceding sentence, the resignation or removal is subject to any remedies provided by any contract between the officer and the corporation or otherwise provided by law. Appointment shall not of itself create contract rights. 4.03 Vacancies. A vacancy in any principal office because of death, resignation, removal or otherwise, shall be filled by the Board of Directors and a vacancy in any other office shall be filled by the Board of Directors, the Chairman of the Board or the President. If a resignation is effective at a later date, the vacancy may be filled before the effective date if the appointment provides that the successor may not take office until the effective date. 4.04 Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. He or she shall, when present, preside at all meetings of the shareholders and of the Board of Directors. He or she shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the corporation as he or she shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the Chairman of the Board. In general, he or she shall perform all duties incident to the office of the Chairman of the Board and such other duties as may be prescribed by the Board of Directors from time to time. In the absence of the President, or in the event that such office is for any reason vacant, the Chairman of the Board shall perform the functions of the President. 4.05 President. The President shall be the chief operating officer of the corporation, carrying out his or her functions subject to the directions of the Chairman of the Board and the Board of Directors. In the absence of the Chairman of the Board, or in the event that such office is for any reason vacant, the President shall perform the functions of the Chairman of the Board. However, if the offices of Chairman of the Board and President are held by the same person, the Board of Directors may designate an Executive Vice President as the chief operating officer of the corporation, in which event references in the Bylaws to the President shall be regarded as references to such Executive Vice President, as chief operating officer, except where a contrary meaning is clearly required. 4.06 Shared Functions. Except in cases where the signing and execution thereof is expressly delegated by the Board of Directors or these Bylaws to some other officer or agent of the corporation, or is required by law to be otherwise signed or executed, the Chairman of the Board and the President shall each have authority to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of a corporation's regular business, or which shall be authorized by resolution of the Board of Directors (provided that in no case shall the Chairman be empowered in place of the President to sign the certificates for shares of stock of the corporation); and, except as otherwise provided by law or the Board of Directors, they may authorize any Vice President or other officer or agent of -9- 14 the corporation to sign, execute and acknowledge such documents or instruments in their place and stead. 4.07 Vice Presidents. In the absence of both the Chairman of the Board and the President, or in the event of the death, inability or refusal to act of both the Chairman of the Board and the President, or in the event for any reason it shall be impracticable for either of them to act personally, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign, with the Secretary or Assistant Secretary, certificates for shares of the corporation; and shall perform such other duties and have such authority as from time to time may be delegated or assigned to him or her by the Chairman of the Board, the President or the Board of Directors. The execution of any instrument of the corporation by any Vice President shall be conclusive evidence, as to third parties, of the Vice President's authority to act in the stead of the President. Vice Presidents may, by their election, have charge and supervision of designated divisions, departments or units of the corporation's business. 4.08 Secretary. The Secretary shall: (a) keep (or cause to be kept) regular minutes of all meetings of the shareholders, the Board of Directors and any committees of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation, if any, and see that the seal of the corporation, if any, is affixed to all documents which are authorized to be executed on behalf of the corporation under its seal; (d) keep or arrange for the keeping of a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (e) sign with the President, or a Vice President, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general perform all duties incident to the office of Secretary and have such other duties and exercise such authority as from time to time may be delegated-or assigned to him or her by the Chairman of the Board or the President or by the Board of Directors. 4.09 Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected by the corporation; and (c) in general perform all of the duties incident to the office of Treasurer and have such other duties and exercise such other authority as from time to time may be delegated or assigned to him or her by the Chairman of the Board or the President or by the Board of Directors. 4.10 Assistants and Acting Officers. The Board of Directors, the Chairman of the Board and the President shall have the power to appoint any person to act as assistant to any officer, or as agent for the corporation in the officer's stead, or to perform the duties of such officer whenever for any reason it is impracticable for such officer to act personally, and such -10- 15 assistant or acting officer or other agent so appointed by the Board of Directors, the Chairman of the Board or President shall have the power to perform all the duties of the office to which that person is so appointed to be assistant, or as to which he or she is so appointed to act, except as such power may be otherwise defined or restricted by the Board of Directors, the Chairman of the Board or the President. 4.11 Salaries. The salaries of the principal officers may be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the corporation. ARTICLE V. CERTIFICATES FOR SHARES AND THEIR TRANSFER 5.01 Certificates for Shares. All shares of this corporation shall be represented by certificates. Certificates representing shares of the corporation shall be in such form, consistent with law, as shall be determined by the Board of Directors. At a minimum, a share certificate shall state on its face the name of the corporation and that it is organized under the laws of the State of Wisconsin, the name of the person to whom issued, and the number and class of shares and the designation of the series, if any, that the certificate represents. The front or back of the certificate also must contain either (a) a summary of the designations, relative rights, preferences and limitations applicable to each class, and the variations in the rights, preferences and limitations determined for each series and the authority of the Board of Directors to determine variations for future series, or (b) a conspicuous statement that the corporation will furnish the shareholder the information described in clause (a) on request, in writing and without charge. Such certificates shall be signed, either manually or in facsimile, by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except as provided in Section 5.05. 5.02 Signature by Former Officers. If an officer or assistant officer, who has signed or whose facsimile signature has been placed upon any certificate for shares, has ceased to be such officer or assistant officer before such certificate is issued, the certificate may be issued by the corporation with the same effect as if that person were still an officer or assistant officer at the date of its issue. 5.03 Transfer of Shares. Prior to due presentment of a certificate for shares for registration of transfer, and unless the corporation has established a procedure by which a beneficial owner of shares held by a nominee is to be recognized by the corporation as the shareholder, the corporation may treat the registered owner of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to have and exercise all the rights and power of an owner. The corporation may require reasonable assurance that all transfer -11- 16 endorsements are genuine and effective and in compliance with all regulations prescribed by or under the authority of the Board of Directors. 5.04 Restrictions on Transfer. The face or reverse side of each certificate representing shares shall bear a conspicuous notation of the restrictions upon the transfer of such shares imposed by the Articles of Incorporation of the corporation and any other restrictions imposed by any agreement of which the corporation has written notice. 5.05 Lost, Destroyed or Stolen Certificates. Where the owner claims that his or her certificate for shares has been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the corporation has notice that such shares have been acquired by a bona fide purchaser, and (b) if required by the corporation, files with the corporation a sufficient indemnity bond or affidavit and indemnity agreement, and (c) satisfies such other reasonable requirements as may be prescribed by or under the authority of the Board of Directors. 5.06 Consideration for Shares. The shares of the corporation may be issued for such consideration as shall be fixed from time to time and determined to be adequate by the Board of Directors, but not less than the par value thereof. The consideration may consist of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other securities of the corporation. When the corporation receives the consideration for which the Board of Directors authorized the issuance of shares, such shares shall be deemed to be fully paid and nonassessable by the corporation. 5.07 Stock Regulations. The Board of Directors shall have the power and authority to make all such rules and regulations not inconsistent with the statutes of the State of Wisconsin as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of the corporation, including the appointment or designation of one or more stock transfer agents and one or more registrars. ARTICLE VI. WAIVER OF NOTICE 6.01 Shareholder Written Waiver. A shareholder may waive any notice required by the Wisconsin Business Corporation Law, the Articles of Incorporation or these Bylaws before or after the date and time stated in the notice. The waiver shall be in writing and signed by the shareholder entitled to the notice, shall contain the same information that would have been required in the notice under the Wisconsin Business Corporation Law except that the time and place of meeting need not be stated, and shall be delivered to the corporation for inclusion in the corporate records. 6.02 Shareholder Waiver by Attendance. A shareholder's attendance at a meeting, in person or by proxy, waives objection to both of the following: -12- 17 (a) Lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting business at the meeting. (b) Consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 6.03 Director Written Waiver. A director may waive any notice required by the Wisconsin Business Corporation Law, the Articles of Incorporation or the Bylaws before or after the date and time stated in the notice. The waiver shall be in writing, signed by the director entitled to the notice and retained by the corporation. 6.04 Director Waiver by Attendance. A director's attendance at or participation in a meeting of the Board of Directors or any committee thereof waives any required notice to him or her of the meeting unless the director at the beginning of the meeting or promptly upon his or her arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. ARTICLE VII. ACTION WITHOUT MEETINGS 7.01 Shareholder Action Without Meeting. Action required or permitted by the Wisconsin Business Corporation Law to be taken at a shareholders, meeting may be taken without a meeting by all shareholders entitled to vote on the action. The action must be evidenced by one or more written consents describing the action taken, signed by the shareholders consenting thereto and delivered to the corporation for inclusion in its corporate records. A consent hereunder has the effect of a meeting vote and may be described as such in any document. The Wisconsin Business Corporation Law requires that notice of the action be given to certain shareholders and specifies the effective date thereof and the record date in respect thereto. 7.02 Director Action Without Meeting. Unless the Articles of Incorporation provide otherwise, action required or permitted by the Wisconsin Business Corporation Law to be taken at a Board of Directors meeting or committee meeting may be taken without a meeting if the action is taken by all members of the Board or committee. The action shall be evidenced by one or more written consents describing the action taken, signed by each director and retained by the corporation ion taken hereunder is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed hereunder has the effect of a unanimous vote taken at a meeting at which all directors or committee members were present, and may be described as such in any document. -13- 18 ARTICLE VIII. INDEMNIFICATION 8.01 Indemnification for Successful Defense. Within twenty (20) days after receipt of a written request pursuant to Section 8.03, the corporation shall indemnify a director or officer, to the extent 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. 8.02 Other Indemnification. (a) In cases not included under Section 8.01, the corporation shall indemnify a director or officer against all liabilities and expenses incurred by the director or officer in a proceeding to which the director or officer was a party because he or she is a director or officer of the corporation, unless liability was incurred because the director or officer breached or failed to perform a duty 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 criminal law, unless the director or officer had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful. (3) A transaction from which the director or officer derived an improper personal profit. (4) Willful misconduct. (b) Determination of whether indemnification is required under this Section shall be made pursuant to Section 8.05. (c) The termination of a proceeding by judgment, order, settlement or conviction, or upon a plea of no contest or an equivalent plea does not, by itself, create a presumption that indemnification of the director or officer is not required under this Section. 8.03 Written Request. A director or officer who seeks indemnification under Sections 8.01 or 8.02 shall make a written request to the corporation. 8.04 Nonduplication. The corporation shall not indemnify a director or officer under Sections 8.01 or 8.02 if the director or officer has previously received indemnification or allowance of expenses from any person, including the corporation, in connection with the same -14- 19 proceeding. However, the director or officer has no duty to look to any other person for indemnification. 8.05 Determination of Right to Indemnification. (a) Unless otherwise provided by the Articles of Incorporation or by written agreement between the director or officer and the corporation, the director or officer seeking indemnification under Section 8.02 shall select one of the following means for determining his or her right to indemnification: (1) By a majority vote of a quorum of the Board of Directors consisting of directors not at the time parties to the same or related proceedings. If a quorum of disinterested directors cannot be obtained, by majority vote of a committee duly appointed by the Board of Directors and consisting solely of two (2) or more directors who are not at the time parties to the same or related proceedings. Directors who are parties to the same or related proceedings may participate in the designation of members of the committee. (2) By independent legal counsel selected by a quorum of the Board of Directors or its committee in the manner prescribed in sub. (1) or, if unable to obtain such a quorum or committee, by a majority vote of the full Board of Directors, including directors who are parties to the same or related proceedings. (3) By a panel of three (3) arbitrators consisting of one arbitrator selected by those directors entitled under sub. (2) to select independent legal counsel, one arbitrator selected by the director or officer seeking indemnification and one arbitrator selected by the two (2) arbitrators previously selected. (4) By an affirmative vote of shares represented at a meeting of shareholders at which a quorum of the voting group entitled to vote thereon is present. Shares owned by, or voted under the control of, persons who are at the time parties to the same or related proceedings, whether as plaintiffs or defendants or in any other capacity, may not be voted in making the determination. (5) By a court under Section 8.08. (6) By any other method provided for in any additional right to indemnification permitted under Section 8.07. (b) In any determination under (a), the burden of proof is on the corporation to prove by clear and convincing evidence that indemnification under Section 8.02 should not be allowed. -15- 20 (c) A written determination as to a director's or officer's indemnification under Section 8.02 shall be submitted to both the corporation and the director or officer within 60 days of the selection made under (a). (d) If it is determined that indemnification is required under Section 8.02, the corporation shall pay all liabilities and expenses not prohibited by Section 8.04 within ten (10) days after receipt of the written determination under (c). The corporation shall also pay all expenses incurred by the director or officer in the determination process under (a). 8.06 Advance of Expenses. Within ten (10) days after receipt of a written request by a director or officer who is a party to a proceeding, the corporation shall pay or reimburse his or her reasonable expenses as incurred if the director or officer provides the corporation with all of the following: (1) A written affirmation of his or her good faith belief that he or she has not breached or failed to perform his or her duties to the corporation. (2) A written undertaking, executed personally or on his or her behalf, to repay the allowance to the extent that it is ultimately determined under Section 8.05 that indemnification under Section 8.02 is not required and that indemnification is not ordered by a court under Section 8.08(b)(2). The undertaking under this subsection shall be an unlimited general obligation of the director or officer and may be accepted without reference to his or her ability to repay the allowance. The undertaking may be secured or unsecured. 8.07 Nonexclusivity. (a) Except as provided in (b), Sections 8.01, 8.02 and 8.06 do not preclude any additional right to indemnification or allowance of expenses that a director or officer may have under any of the following: (1) The Articles of Incorporation. (2) A written agreement between the director or officer and the corporation. (3) A resolution of the Board of Directors. (4) A resolution, after notice, adopted by a majority vote of all of the corporation's voting shares then issued and outstanding. (b) Regardless of the existence of an additional right under (a), the corporation shall not indemnify a director or officer, or permit a director or officer to retain any allowance of expenses unless it is determined by or on behalf of the corporation that the director or officer did not breach or fail to perform a duty he or she owes to the corporation which constitutes conduct under Section 8.02(a)(1). (2), (3) or -16- 21 (4). A director or officer who is a party to the same or related proceeding for which indemnification or an allowance of expenses is sought may not participate in a determination under this subsection. (c) Sections 8.01 to 8.13 do not affect the corporation's power to pay or reimburse expenses incurred by a director or officer in any of the following circumstances. (1) As a witness in a proceeding to which he or she is not a party. (2) As a plaintiff or petitioner in a proceeding because he or she is or was an employee, agent, director or officer of the corporation. 8.08 Court-Ordered Indemnification. (a) Except as provided otherwise by written agreement between the director or officer and the corporation, a director or officer who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. Application shall be made for an initial determination by the court under Section 8.05(a)(5) or for review by the court of an adverse determination under Section 8.05(a)(1), (2), (3), (4) or (6). After receipt of an application, the court shall give any notice it considers necessary. (b) The court shall order indemnification if it determines any of the following: (1) That the director or officer is entitled to indemnification under Sections 8.01 or 8.02. (2) That the director or officer is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, regardless of whether indemnification is required under Section 8.02. (3) If the court determines under (b) that the director or officer is entitled to indemnification, the corporation shall pay the director's or officer's expenses incurred to obtain the court-ordered indemnification. 8.09 Indemnification and Allowance of Expenses of Employees and Agents. The corporation shall indemnify an employee of the corporation who is not a director or officer of the corporation, to the extent that he or she has been successful on the merits or otherwise in defense of a proceeding, for all reasonable expenses incurred in the proceeding if the employee was a party because he or she was an employee of the corporation. In addition, the corporation may indemnify and allow reasonable expenses of an employee or agent who is not a director or officer of the corporation to the extent provided by the Articles of Incorporation or these Bylaws, by general or specific action of the Board of Directors or by contract. -17- 22 8.10 Insurance. The corporation may purchase and maintain insurance on behalf of an individual who is an employee, agent, director or officer of the corporation against liability asserted against or incurred by the individual in his or her capacity as an employee, agent, director or officer, regardless of whether the corporation is required or authorized to indemnify or allow expenses to the individual against the same liability under Sections 8.01, 8.02, 8.06, 8.07 and 8.09. 8.11 Securities Law Claims. (a) Pursuant to the public policy of the State of Wisconsin, the corporation shall provide indemnification and allowance of expenses and may insure for any liability incurred in connection with a proceeding involving securities regulation described under (b) to the extent required or permitted under Sections 8.01 to 8.10. (b) Sections 8.01 to 8.10 apply, to the extent applicable to any other proceeding, to any proceeding involving a federal or state statute, rule or regulation regulating the offer, sale or purchase of securities, securities brokers or dealers, or investment companies or investment advisers. 8.12 Liberal Construction. In order for the corporation to obtain and retain qualified directors, officers and employees, the foregoing provisions shall be liberally administered in order to afford maximum indemnification of directors, officers and, where Section 8.09 of these Bylaws applies, employees. The indemnification above provided for shall be granted in all applicable cases unless to do so would clearly contravene law, controlling precedent or public policy. 8.13 Definitions Applicable to this Article. For purposes of this article: (a) "Affiliate" shall include, without limitation, any corporation, partnership, joint venture, employee benefit plan, trust or other enterprise that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the corporation. (b) "Corporation" means this corporation and any domestic or foreign predecessor of this corporation where the predecessor corporation's existence ceased upon the consummation of a merger or other transaction. (c) "Director or officer" means any of the following: (1) An individual who is or was a director or officer of this corporation. (2) An individual who, while a director or officer of this corporation, is or was serving at the corporation's request as a director, officer, partner, trustee, member of any governing or decision-making committee, employee or agent of -18- 23 another corporation or foreign corporation, partnership, joint venture, trust or other enterprise. (3) An individual who, while a director or officer of this corporation, is or was serving an employee benefit plan because his or her duties to the corporation also impose duties on, or otherwise involve services by, the person to the plan or to participants in or beneficiaries of the plan. (4) Unless the context requires otherwise, the estate or personal representative of a director or officer. For purposes of this Article, it shall be conclusively presumed that any director or officer serving as a director, officer, partner, trustee, member of any governing or decision-making committee, employee or agent of an affiliate shall be so serving at the request of the corporation. (d) "Expenses" include fees, costs, charges, disbursements, attorney fees and other expenses incurred in connection with a proceeding. (e) "Liability" includes the obligation to pay a judgment, settlement, penalty, assessment, forfeiture or fine, including an excise tax assessed with respect to an employee benefit plan, and reasonable expenses. (f) "Party" includes an individual who was or is, or who is threatened to be made, a named defendant or respondent in a proceeding. (g) "Proceeding" means any threatened, pending or completed civil, criminal, administrative or investigative action, suit, arbitration or other proceeding, whether formal or informal, which involves foreign, federal, state or local law and which is brought by or in the right of the corporation or by any other person. ARTICLE IX. CONTRACTS, LOANS, CHECKS AND DEPOSITS 9.01 Contracts; Director Conflict of Interest. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute or deliver any instrument in the name of and on behalf of the corporation, and such authorization may be general or confined to specific instances. Any contract or other transaction between the corporation and one or more of its directors, or between the corporation and any entity of which one or more of its directors are members or employees or in which one or more of its directors are interested, or between the corporation and any corporation or association of which one or more of its directors are shareholders, members, directors, officers or employees or-in which one or more of its directors are interested, shall not be voidable by the corporation solely because of the director's interest, whether direct or indirect, in the transaction if: -19- 24 (a) The material facts of the transaction and the director's interest were disclosed or known to the Board of Directors or a committee of the Board of Directors, and a majority of disinterested members of the Board of Directors or committee authorized, approved, or specifically ratified the transaction; or (b) The material facts of the transaction and the director's interest were disclosed or known to the shareholders entitled to vote, and a majority of the shares held by disinterested shareholders authorized, approved, or specifically ratified the transaction; or (c) The transaction was fair to the corporation. For purposes of this Section 9.01, a majority of directors having no direct or indirect interest in the transaction shall constitute a quorum of the Board or a committee of the Board acting on the matter, and a majority of the shares entitled to vote on the matter, whether or not present, and other than those owned by or under the control of a director having a direct or indirect interest in the transaction, shall constitute a quorum of the shareholders for the purpose of acting on the matter. 9.02 Loans. No indebtedness for borrowed money shall be contracted on behalf of the corporation and no evidences of such indebtedness shall be issued in its name unless authorized by or under the authority of a resolution of the Board of Directors. Such authorization may be general or confined to specific instances. 9.03 Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer(s), employees or agents of the corporation and in such manner as shall from time to time be determined by or under the authority of a resolution of the Board of Directors. 9.04 Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as may be selected by or under the authority of a resolution of the Board of Directors. ARTICLE X. MISCELLANEOUS 10.01 Corporate Seal. The Board of Directors may provide a corporate seal which may be circular in form and have inscribed thereon the name of the corporation and the state of incorporation and the words "Corporate Seal." 10.02 Fiscal Year. The fiscal year of the corporation shall begin on the first day of April and end on the last day of March in each year. -20- 25 ARTICLE XI. AMENDMENTS 11.01 By Shareholders. These Bylaws may be amended or repealed and new Bylaws may be adopted by the shareholders by the vote provided in Section 2.07 of these Bylaws or as specifically provided below. The shareholders may adopt or amend a Bylaw that fixes a greater or lower quorum requirement or a greater voting requirement for shareholders or voting groups of shareholders than otherwise is provided in the Wisconsin Business Corporation Law. The adoption or amendment of a Bylaw that adds, changes or deletes a greater or lower quorum requirement or a greater voting requirement for shareholders must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect. 11.02 By Directors. Except as the Articles of Incorporation may otherwise provide, these Bylaws may also be amended or repealed and new Bylaws may be adopted by the Board of Directors by the vote provided in Section 3.08, but (a) no Bylaw adopted by the shareholders shall be amended, repealed or readopted by the Board of Directors if the Bylaw so adopted so provides and (b) a Bylaw adopted or amended by the shareholders that fixes a greater or lower quorum requirement or a greater voting requirement for the Board of Directors than otherwise is provided in the Wisconsin Business Corporation Law may not be amended or repealed by the Board of Directors unless the Bylaw expressly provides that it may be amended or repealed by a specified vote of the Board of Directors. Action by the Board of Directors to adopt or amend a Bylaw that changes the quorum or voting requirement for the Board of Directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect, unless a different voting requirement is specified as provided by the preceding sentence. A Bylaw that fixes a greater or lower quorum requirement or a greater voting requirement for shareholders or voting groups of shareholders than otherwise is provided in the Wisconsin Business Corporation Law may not be adopted, amended or repealed by the Board of Directors. 11.03 Implied Amendments. Any action taken or authorized by the shareholders or by the Board of Directors, which would be inconsistent with the Bylaws then in effect but is taken or authorized by a vote that would be sufficient to amend the Bylaws so that the Bylaws would be consistent with such action, shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. -21- EX-3.3 5 ARTICLES OF INCORP. OF NEENAH FOUNDRY COMPANY 1 EXHIBIT 3.3 RESTATED ARTICLES OF INCORPORATION OF NEENAH FOUNDRY COMPANY The following Restated Articles of Incorporation, duly adopted pursuant to the authority and provisions of Chapter 180 of the Wisconsin Statutes, supersede and take the place of the existing articles of incorporation and all amendments thereto: ARTICLE I NAME The name of the corporation is NEENAH FOUNDRY COMPANY ARTICLE II PURPOSES The purposes for which the corporation is organized are to engage in any lawful activity within the purposes for which a corporation may be organized under the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statutes. ARTICLE III AUTHORIZED SHARES The aggregate number of shares which the corporation shall have authority to issue is 14,000 shares, consisting of one class only, designated as Common Stock of the par value of $1OO.00 per share. Upon the effectiveness of these Restated Articles of Incorporation, the shares of the corporation's Class A Common Stock, $100.00 par value, then issued and outstanding shall, without any further action required on the part of the corporation or its sole shareholder, be converted into an aggregate of 100 shares of the corporation's Common Stock of the par value of $100.00 per share, and the issued and outstanding shares of the corporation's Class B Common Stock, $100.00 par value, and Preferred Stock, $100.00 par value, all of which are owned by the corporation's sole shareholder, shall be canceled. ARTICLE IV BOARD OF DIRECTORS The number of directors shall be fixed by or in the manner provided in the Bylaws. ARTICLE V REGISTERED OFFICE AND AGENT The registered office of the corporation is located in Winnebago County, Wisconsin, and the address of such registered office is 2121 Brooks Avenue, P.O. Box 729, Neenah, Wisconsin 54957. The name of the registered agent at such address is E.W. Aylward, Sr. 2 The undersigned officers of NEENAH FOUNDRY COMPANY, a Wisconsin corporation with its registered office in Winnebago County, Wisconsin, hereby certify that the foregoing Restated Articles of Incorporation, and the amendment of the heretofore existing articles of incorporation of the corporation reflected therein, were consented to in writing by the sole shareholder of the corporation, duly signed by such sole shareholder. The reclassification and conversion of the outstanding shares, without par value, of the corporation effected by the amendment reflected in the foregoing Restated Articles of Incorporation will change the stated capital of the corporation to the aggregate par value of the 100 shares of Common Stock, par value S100.00 per share, outstanding immediately after such reclassification. The amount of stated capital, as so changed, will be $10,000. The effective time of the foregoing Restated Articles of Incorporation shall be 12:01 a.m. on October 1, 1988. * * * * * 2 EX-3.5 6 ARTICLES OF INCORPORATION OF HARTLEY CONTROLS CORP 1 EXHIBIT 3.5 RESTATED ARTICLES OF INCORPORATION OF HARTLEY CONTROLS CORPORATION The following Restated Articles of Incorporation, duly adopted pursuant to the authority and provisions of Chapter 180 of the Wisconsin Statutes, supersede and take the place of the existing articles of incorporation and all amendments thereto: ARTICLE I NAME The name of the corporation is HARTLEY CONTROLS CORPORATION. ARTICLE II PURPOSES The purposes for which the corporation is organized are to engage in any lawful activity within the purposes for which a corporation may be organized under the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statutes. ARTICLE III AUTHORIZED SHARES The aggregate number of shares which the corporation shall have authority to issue is 1,000 shares, consisting of one class only, designated as Common Stock of the par value of $100.00 per share. Upon the effectiveness of these Restated Articles of Incorporation, the shares, without par va1ue, then issued and outstanding shall, without any further action required on the part of the corporation or its sole shareholder, be converted into an aggregate of 100 shares of the corporation's Common Stock of the par value of $100.00 per share. ARTICLE IV BOARD OF DIRECTORS The number of directors sha11 be fixed by or in the manner provided in the Bylaws. ARTICLE V REGISTERED OFFICE AND AGENT The registered office of the corporation is located in Winnebago County, Wisconsin, and the address of such registered off ice is 2121 Brooks Avenue, P.O. Box 729, Neenah, Wisconsin 54957. The name of the registered agent at such address is E.W. Aylward, Sr. 2 The undersigned officers of HARTLEY CONTROLS CORPORATION, a Wisconsin corporation with its registered office in Winnebago County, Wisconsin, hereby certify that the foregoing Restated Articles of Incorporation, and the amendment of the heretofore existing articles of incorporation of the corporation reflected therein, were consented to in writing by the sole shareholder of the corporation, duly signed by such sole shareholder. The reclassification and conversion of the outstanding shares, without par value, of the corporation effected by the amendment reflected in the foregoing Restated Articles of Incorporation will change the stated capital of the corporation to the aggregate par value of the 100 shares of Common Stock, par value $100.00 per share, outstanding immediately after such reclassification. The amount of stated capital, as so changed, will be $10,000. The effective time of the foregoing Restated Articles of Incorporation shall be 12:01 a.m. on October 1, 1988. * * * * * 2 EX-3.7 7 ARTICLE OF INCORPORATION OF NEENAH TRANSPORT, INC. 1 EXHIBIT 3.7 RESTATED ARTICLES OF INCORPORATION OF NEENAH TRANSPORT, INC. The following Restated Articles of Incorporation, duly adopted pursuant to the authority and provisions of Chapter 180 of the Wisconsin Statutes, supersede and take the place of the existing articles of incorporation and all amendments thereto: ARTICLE I NAME The name of the corporation is NEENAH TRANSPORT, INC. ARTICLE II PURPOSES The purposes for which the corporation is organized are to engage in any lawful activity within the purposes for which a corporation may be organized under the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statutes. ARTICLE III AUTHORIZED SHARES The aggregate number of shares which the corporation shall have authority to issue is 560 shares, consisting of one class only, designated as Common Stock of the par value of $1OO.00 per share. Upon the effectiveness of these Restated Articles of Incorporation, the shares, without par value, then issued and outstanding shall, without any further action required on the part of the corporation or its sole shareholder, be converted into an aggregate of 100 shares of the corporation's Common Stock of the par value of $100.00 per share. ARTICLE IV BOARD OF DIRECTORS The number of directors shall be fixed by or in the manner Provided in the Bylaws. ARTICLE V REGISTERED OFFICE AND AGENT The registered office of the corporation is located in Winnebago County, Wisconsin, and the address of such registered office is 2121 Brooks Avenue, P.O. Box 729, Neenah, Wisconsin 54957. The name of the registered agent at such address is E.W. Aylward, Sr. The undersigned officers of NEENAH TRANSPORT, INC., a Wisconsin corporation with its registered office in Winnebago County, Wisconsin, hereby certify that the foregoing 2 Restated Articles of Incorporation, and the amendment of the heretofore existing articles of incorporation of the corporation reflected therein, were consented to in writing by the sole shareholder of the corporation, duly signed by such sole shareholder. The reclassification and conversion of the outstanding shares, without par value, of the corporation effected by the amendment reflected in the foregoing Restated Articles of Incorporation will change the stated capital of the corporation to the aggregate par value of the 100 shares of Common Stock, par value S100.00 per share, outstanding immediately after such reclassification. The amount of stated capital, as so changed, will be $10,000. The effective time of the foregoing Restated Articles of Incorporation shall be 12:01 a.m. on October 1, 1988. * * * * * 2 EX-10.8 8 EMPLOYMENT AGREEMENT 1 Exhibit 10.8 EMPLOYMENT AGREEMENT AGREEMENT dated the 9th day of September, 1994, effective September 9th, 1994, between NEENAH FOUNDRY COMPANY, a Wisconsin corporation, and its affiliated companies, to-wit, NEENAH CORPORATION, HARTLEY CONTROLS CORPORATION and NEENAH TRANSPORT, INC., hereinafter called the Employer, and JAMES P. KEATING, JR., of Neenah, Wisconsin, hereinafter called the Employee. 1. Employment. The Employer hereby employs the Employee and the Employee hereby accepts employment upon the terms and conditions hereinafter set forth. 2. Term. The term of this Agreement shall be for the period from the effective date through June 30, 1997. 3. Compensation. For all services rendered by the Employee under this Agreement, Employee shall receive the following: a. A minimum annual salary of $180,000, payable in periodic installments as shall be in accordance with Employer's regular payroll policies. This minimum salary shall be subject to annual increases in accordance with Employer's policies of reviewing all executive salaries. b. Employee shall be eligible to receive incentive compensation in each year of employment hereunder, plus bonuses, including Christmas bonuses, said payments to be made in the sole discretion of Employer's Chief Executive officer in accordance with his current policies. 4. Duties. Employee is being hired on a full-time basis by Employer to perform various management duties. The precise duties of the Employee shall be as determined from time to time by the President and/or Board of Directors of Employer, with Employee's initial management duty to be President and Chief Executive Officer of Employer's affiliated company, Hartley Controls Corporation. If Employee is elected to be an officer and/or director of the Employer during the term of this Agreement, the Employee will serve in such capacity without further compensation; but nothing herein shall be construed as requiring the Employer, or anybody else, to cause the election of the Employee as an officer and/or director. 5. Extent of Services. The Employee shall devote his best efforts and abilities to the business of the Employer, which shall consist of at least forty (40) hours per week, and shall not during the term of this Agreement engage in outside business activities except as may be authorized from time to time specifically by Employer. Nothing in this section 5. shall preclude Employee from outside investments in enterprises not in competition with the Employer as long as the time spent by Employee thereon is substantially outside normal business hours and does not interfere with Employee's duties hereunder. 2 6. Expenses. The Employee shall be reimbursed such business related expenses as may be approved by Employer and as are consistent with expense reimbursement policies as may be established from time to time by Employer. 7. Vacations. The Employee shall be entitled to annual paid vacations in the amount of six (6) weeks during the term of this Agreement, in accordance with the vacation policies established from time to time by the Employer. 8. Disability/Sick Leave. If Employee becomes sick or disabled during the term of this contract, then he shall be entitled to receive compensation at the then current minimum annual salary while he is sick or disabled until the end of the term of this Agreement, but not beyond the end of the contract term, to-wit, June 30, 1997. 9. Employment Benefits. Employee shall also receive the standard fringe benefits that Employer provides to its full-time executive employees. 10. Death During Employment. If the Employee dies during the term of this employment, the Employer shall continue to pay the then current minimum annual salary to Employee's widow, Sally Ann Keating, if she survives, or if she is predeceased, to Employee's estate, with said payments to continue until the end of the contract period, to-wit, June 30, 1997. 11. Supplemental Employee Retirement Payments (SERP). As additional consideration for entering into this Employment Agreement, which Employment Agreement ends prior to Employee reaching age sixty-five, Employer agrees that at the end of this Employment Agreement period, Employee shall be considered eligible for full benefits under Employer's SERP plan as if he retired at age sixty-five, which SERP payments will commence on July 1, 1997. 12. Covenant Not To Compete. As additional consideration for Employer entering into this Employment Agreement, Employee covenants and agrees that for the period that this Employment Agreement is in effect and for a one year period after its termination, he will not, without the prior written consent of the Employer, directly or indirectly, whether as principal or as agent, officer, director, employee, Employee or otherwise, alone or in association with any other person, firm, corporation or other business organization, carry on, or be engaged, concerned or take part in, or render services to, or own any interest or share in the earnings of or invest in the stock, bonds or other securities of any person, firm, corporation or other business organization (except for publicly traded securities) which is located in the continental United States in a business which is in competition with the Employer. Employee also covenants and agrees that for such period that this Employment Agreement is in effect and for one year after its termination, he will not without the prior written consent of Employer, whether for his own account or for the account of any other person, firm, corporation or other business organization, intentionally interfere with the Employer's relationship with, or endeavor to entice away from the Employer, any person who is employed by or associated with the Employer in an executive, managerial or sales capacity or who is a customer of the Employer. -2- 3 13. Covenant Not To Disclose. Employee covenants and agrees that he will not, to the detriment of Employer, at any time during the term of this Agreement, and for a one year period thereafter, reveal, divulge or make known to any person (other than Employer) or use for his own account any confidential or proprietary records, data, trade secrets or any other confidential or proprietary information whatever (the Confidential Information) previously used by the Employer to date or during the term of this Agreement and made known to Employee by reason of his association with the Employer pursuant to this Agreement, unless the disclosure of this Confidential Information is made with the permission of Employer when same is necessary during the course of any customer contact or for any other legitimate business reason. Employee and Employer agree that this Section 13. shall not change any duties Employee may have under common law not to disclose the aforementioned confidential information. 14. Specific Performance. Without intending to limit the remedies available to the Employer, Employee further agrees that damages at law will be an insufficient remedy to the Employer in the event that he violates the terms of Sections 12. and 13. of this Agreement, and that the Employer may apply for and obtain injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of, or otherwise to specifically enforce, any of the covenants of such Sections. The parties hereto understand that each of the covenants contained in Sections 12. and 13. of this Agreement is an essential element of this Agreement. 15. Purchase of Life Insurance Policies on Termination of Employment. Upon Employee's termination of employment, Employee shall have the right within thirty (30) days after the effective date of termination to purchase from Employer the policies of life insurance then owned by it on the life of Employee at a price equal to the cash surrender value. Upon receipt of the purchase price, the Employer shall deliver the life insurance policies to the Employee and shall execute any necessary instruments of transfer. Employee shall have no further rights in any such policies not purchased within the above thirty (30) day period. 16. Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing, and if delivered personally or sent by registered or certified mail to his residence in the case of the Employee, or to its principal office in the case of the Employer. 17. Waiver of Breach. The waiver by the Employer of a breach of any provision of this Agreement by the Employee shall not operate or be construed as a waiver of any subsequent breach by the Employee. 18. Binding Effect; Benefits. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs and legal representatives. 19. Severability. If any provision of this Agreement shall be held invalid or unenforceable, the remainder shall nevertheless remain in full force and effect. If any provision is held invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances. -3- 4 20. Entire Agreement. This instrument contains the entire agreement of the parties. It may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. 21. Governing Law. This Agreement shall be construed under the laws of the State of Wisconsin, and all matters pertaining to this Agreement which cannot be resolved by reference to its provisions shall be governed by the laws of Wisconsin. 22. Headings. The headings of sections in this Agreement are for convenience only, and shall not affect its interpretation. -4- 5 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement in five counterparts as of the date first above written. In the Presence of: - ------------------------------------------ EMPLOYER: NEENAH FOUNDRY COMPANY By: ------------------------------- Name: Title: NEENAH CORPORATION By: ------------------------------- Name: Title: HARTLEY CONTROLS CORPORATION By: ------------------------------- Name: Title: NEENAH TRANSPORT, INC. By: ------------------------------- Name: Title: CONSULTANT: ----------------------------------- James P. Keating, Jr. -5- 6 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This is a First Amendment to the Employment Agreement entered into the 9th day of September, 1994, by and between NEENAH FOUNDRY COMPANY, a Wisconsin corporation, and its affiliated companies, to-wit, NEENAH CORPORATION, HARTLEY CONTROLS CORPORATION and NEENAH TRANSPORT, INC., hereinafter called the Employer, and JAMES P. KEATING, JR., of Neenah, Wisconsin, hereinafter called the Employee. WITNESSETH: WHEREAS, the parties desire to amend the aforesaid employment agreement. NOW, THEREFORE, it is agreed between the parties that the employment agreement be as amended as follows: 1. That Section 11 be deleted in its entirety and replaced with the following Section 11. "11. Supplemental Employee Retirement Payments (SERP). As additional consideration for entering into this Employment Agreement, which Employment Agreement ends prior to Employee reaching age sixty-five, Employer agrees that at the end of this Employment Agreement period, Employee shall be paid full benefits under Employer's SERP plan as if he retired at age sixty-five without regard to Employer's right to amend, modify or revoke the SERP Plan. The SERP payments will commence on July 1, 1997. Employer and Employee agree that Employee's benefits under the SERP plan shall be fully vested and irrevocable as of the date of this Agreement." 2. All other terms and conditions of the employment agreement, except as modified by this first amendment, are agreed by both parties to be in full force and effect and binding on their heirs, personal representatives, successors and assigns. 7 IN WITNESS WHEREOF, the parties have set their hands and seals this 23rd day of July, 1996. In the Presence of: - ------------------------------------- EMPLOYER: NEENAH FOUNDRY COMPANY By: ---------------------------------- Name: Title: NEENAH CORPORATION By: ---------------------------------- Name: Title: HARTLEY CONTROLS CORPORATION By: ---------------------------------- Name: Title: NEENAH TRANSPORT, INC. By: ---------------------------------- Name: Title: EMPLOYEE: ---------------------------------------- James P. Keating, Jr. -2- EX-10.9 9 CONSULTING AGREEMENT 1 Exhibit 10.9 CONSULTING AGREEMENT AGREEMENT, entered into this 9th day of September, 1994, effective July 1, 1997, by and between NEENAH FOUNDRY COMPANY, a Wisconsin corporation, and its affiliated companies, to-wit, NEENAH CORPORATION, HARTLEY CONTROLS CORPORATION and NEENAH TRANSPORT, INC., hereinafter referred to as Company, and JAMES P. KEATING, JR., of Neenah, Wisconsin, hereinafter referred to as Consultant. WHEREAS, the Consultant has considerable knowledge and experience relating to the business of the Company as a result of his affiliation with the Company as a director, officer and key employee; and WHEREAS, the Consultant desires to aid and assist the Company as a consultant by providing consulting services to the Company; and WHEREAS, the Company desires to recognize the valuable and meritorious services performed on behalf of the Company by the Consultant throughout the many years in which he served the Company as a director, officer and key employee, and further desires to engage the Consultant as a consultant to render certain advisory services to the Company on a standby basis, and to reflect herein his agreement not to compete with it. NOW THEREFORE, in consideration of the premises and of the covenants and agreements herein provided, the parties hereto agree as follows: 1. TERM. The Company hereby agrees to retain Consultant, and Consultant hereby agrees to be retained by the Company, all in accordance with the terms and conditions hereof, for a two-year term beginning July 1, 1997 and ending June 30, 1999, unless sooner terminated as hereinafter provided (the Consulting Period). 2. DUTIES. Consultant shall be retained by the Company and shall, subject to paragraph 7. below, devote such time as may be reasonably required by the Company so that Company shall have the benefit of Consultant's experience and knowledge of the affairs of the business that Company is engaged in, but not in excess of 960 hours per year of this Agreement as mutually agreed upon by Consultant and Company. Consultant agrees to make himself available to give such advice and counsel to the officers and employees of Company at all reasonable times by telephone, letter or in person. The Consultant's failure to render the services or to give advice and counsel required by this Agreement as a result of Consultant's illness or other incapacities, including death, shall not affect his rights to receive the compensation provided herein. 3. COMPENSATION. a. The Company agrees to pay Consultant a monthly compensation for his services hereunder in the amount of $16,500. Also, if Consultant provides services to Company in excess of 960 hours per contract year as set forth in section 7. hereof, then Consultant shall 2 receive additional compensation for his services as mutually agreed upon between Consultant and Company. b. Upon advance approval thereof and submission of appropriate invoices or vouchers, the Company shall pay or reimburse Consultant for all reasonable expenses incurred by Consultant in the performance of his duties hereunder in furtherance of the business, and in keeping with the policies of the Company. 4. DEATH. If Consultant dies during the term of the Agreement, the Company's obligations under this Agreement shall not terminate, but shall continue, with the remaining payments during the term of this Agreement to be made to Consultant's widow, Sally Ann Keating. If she has not survived or dies prior to date of the last payment due in June, 1999, then the payments shall be made to the estate of the last to die of Consultant or his spouse, Sally Ann Keating. 5. TERMINATION. This Agreement may be terminated by the Company for cause at any time upon thirty (30) days' advance notice from the Company to Consultant, which notice shall set forth the specific facts on which such termination is based. Upon any such termination, Consultant shall be entitled to all arrearages of amounts to be paid pursuant to this Agreement but shall not be entitled to any further compensation. For the purposes of this Agreement, and without limitation, "cause" shall mean: Consultant's having been convicted of any crime involving fraud, embezzlement or moral turpitude. 6. COVENANT NOT TO DISCLOSE. Consultant covenants and agrees that he will not, to the detriment of the Company, at any time during the term of this Agreement, and for a one year period thereafter, reveal, divulge or make known to any person (other than the Company) or use for his own account any confidential or proprietary records, data, trade secrets or any other confidential or proprietary information whatever (the Confidential Information) previously used by the Company to date or during the term of this Agreement and made known to Consultant by reason of his association with the Company pursuant to this Agreement, unless the disclosure of this Confidential Information is made with the permission of company when same is necessary during the course of any customer contact or for any other legitimate business reason. Consultant and Company agree that this Section 6. shall not change any duties Consultant may have under common law not to disclose the aforementioned confidential information. 7. LIMITATION ON SERVICES REQUIRED OF CONSULTANT. Unless the parties otherwise agree, assignments of responsibility to Consultant shall be limited to those which can be reasonably expected to require not more than 960 hours of services per contract year. 8. COVENANT NOT TO COMPETE. As additional consideration for Company entering into this Consulting Agreement, Consultant covenants and agrees that for the period that this Consulting Agreement is in effect and for a one year period after its termination, he will not, without the prior written consent of the Company, directly or indirectly, whether as principal or -2- 3 as agent, officer, director, employee, consultant or otherwise, alone or in association with any other person, firm, corporation or other business organization, carry on, or be engaged, concerned or take part in, or render services to, or own any interest or share in the earnings of or invest in the stock, bonds or other securities of any person, firm, corporation or other business organization (except for publicly traded securities) which is located in the continental United States in a business which is in competition with the Company. Consultant also covenants and agrees that for such period that this Consulting Agreement is in effect and for one year after its termination, he will not without the prior written consent of Company, whether for his own account or for the account of any other person, firm, corporation or other business organization, intentionally interfere with the Company's relationship with, or endeavor to entice away from the Company, any person who is employed by or associated with the Company in an executive managerial or sales capacity or who is a customer of the Company. 9. BUSINESS MATERIALS, COVENANT TO REPORT. All written materials, records and documents made by Consultant or coming into his possession, after becoming Consultant, concerning the business or affairs of the Company shall be the sole property of the Company and, upon the termination of his association with the Company pursuant to this Agreement or upon the request of the Company at any time, Consultant shall promptly deliver the same to the Company and shall retain no copies thereof. Consultant agrees to render to the Company such reports of the activities undertaken by him or conducted under its direction pursuant hereto during the term of this Agreement as the Company may request. Consultant and Company agree that this section 9. does not change Consultant's duty as a former employee of Company to return to Company whatever materials, records and documents that Consultant has as required by common law. 10. SPECIFIC PERFORMANCE. Without intending to limit the remedies available to the Company, Consultant further agrees that damages at law will be an insufficient remedy to the Company in the event that he violates the terms of Section 6., 8. and 9. of this Agreement, and that the Company may apply for and obtain injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of, or otherwise to specifically enforce, any of the covenants of such Sections. The parties hereto understand that each of the covenants contained in Sections 6., 8. and 9. of this Agreement is an essential element of this Agreement. 11. INDEPENDENT CONTRACTOR. Nothing contained herein shall constitute Consultant an employee or agent of the Company and the relationship of Consultant to the Company shall, during such period, be one of an independent contractor. 12. BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs and legal representatives. Insofar as Consultant is concerned, this contract, being personal, cannot be assigned. No assignment of this Agreement shall relieve the assigning party of its obligations under this Agreement. -3- 4 13. NOTICES. All notices and other communications which are required or permitted hereunder shall be in writing and shall be sufficient if mailed by registered or certified mail, with return receipt, postage prepaid, shall be effective on receipt, to the following addresses or such other address as any party hereto shall have specified by notice in writing to the other party hereto: a. If to Consultant: James P. Keating, Jr., 232 Limekiln Drive, Neenah, WI 54956. b. If to Company: Neenah Foundry Company, Attention Mr. E. W. Aylward, Jr., President, 2121 Brooks Avenue, Neenah, WI 54956. 14. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof. 15. AMENDMENTS AND WAIVERS. This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment is sought. Either party hereto may, by an instrument in writing, waive compliance by the other party with any term or provision of this Agreement on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach. 16. SEVERABILITY. If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, this Agreement shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement. 17. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Wisconsin. -4- 5 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement in five counterparts as of the date first above written. In the Presence of: - ----------------------------------- COMPANY: NEENAH FOUNDRY COMPANY By: ---------------------------------- Name: Title: NEENAH CORPORATION By: ---------------------------------- Name: Title: HARTLEY CONTROLS CORPORATION By: ---------------------------------- Name: Title: NEENAH TRANSPORT, INC. By: ---------------------------------- Name: Title: CONSULTANT: -------------------------------------- James P. Keating, Jr. -5- EX-12.1 10 STATEMENT RE COMPUTATION OF RATIOS OF EARNINGS 1 EXHIBIT 12.1 NEENAH CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (AMOUNTS IN THOUSANDS)
PRO FORMA ---------- YEAR ENDED YEAR ENDED MARCH 31, MARCH 31, ------------------------------------------------------ ---------- 1993 1994 1995 1996 1997 1997 ------ ------- ------- ------- ------- ---------- Income before income taxes................... $3,988 $10,794 $22,570 $28,818 $32,305 $ 9,353 Fixed charges............. 2,348 1,278 907 416 402 21,929 ------ ------- ------- ------- ------- ---------- Earnings.................. $6,336 $12,072 $23,477 $29,234 $32,707 $ 31,282 ====== ======== ======== ======== ======== ========= Interest expense.......... 2,128 1,049 624 84 39 $ 20,408 Amortization of deferred financing costs......... -- -- -- -- -- 1,158 Interest portion of rent expense................. 220 229 283 332 363 363 ------ ------- ------- ------- ------- ---------- Fixed charges............. $2,348 $ 1,278 $ 907 $ 416 $ 402 $ 21,929 ====== ======== ======== ======== ======== ========= Ratio of earnings to fixed charges................. 2.70 9.45 25.88 70.27 81.36 1.43 ====== ======== ======== ======== ======== =========
EX-23.1 11 CONSENT OF ERNST & YOUNG 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Experts," "Summary Consolidated Financial and Other Data" and "Selected Consolidated Financial and Other Data" and to the use of our reports dated April 29, 1997, in the Registration Statement (Form S-4) and related Prospectus of Neenah Corporation for the registration of $150,000,000 11 1/8% Senior Subordinated Notes. ERNST & YOUNG LLP Milwaukee, Wisconsin June 4, 1997 EX-99.1 12 LETTER OF TRANSMITTAL 1 Exhibit 99.1 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE. NEENAH CORPORATION LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 11 1/8% SENIOR SUBORDINATED NOTES DUE 2006 THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: UNITED STATES TRUST COMPANY OF NEW YORK FOR INFORMATION BY TELEPHONE: (800) 548-6565
By Overnight Courier: By Hand: By Registered Or Certified Mail: United States Trust Company United States Trust Company United States Trust Company of New York of New York of New York 770 Broadway, 13th Floor 111 Broadway P.O. Box 844 New York, New York 10003 Lower Level Attn: Corporate Trust Services Attn: Corporate Trust Services Attn: Corporate Trust Services Cooper Station New York, New York 10006 New York, New York 10276-0844
(Originals of all documents sent by facsimile should be sent promptly by registered or certified mail, by hand or by overnight courier) Delivery of this instrument to an address other than as set forth above or transmission of instructions via a facsimile number other than the one listed above will not constitute a valid delivery. The instructions accompanying this Letter of Transmittal should be read carefully before this Letter of Transmittal is completed. HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR OLD NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. The undersigned acknowledges receipt of the Prospectus dated , 1997 (the "Prospectus") of Neenah Corporation, (the "Company") and this Letter of Transmittal (the "Letter of Transmittal"), which together constitute the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 11 1/8% Series B Senior Subordinated Notes due 2007 (the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which the Prospectus is a part, for each $1,000 principal amount of its outstanding 11 1/8% Series A Senior Subordinated Notes due 2007 (the "Old Notes"), of which $150,000,000 principal amount is outstanding, upon the terms and conditions set forth in the Prospectus. Other capitalized terms used but not defined herein have the meaning given to them in the Prospectus. 2 For each Old Note accepted for exchange, the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. Interest on the New Notes will accrue from the last interest payment date on which interest was paid on the Old Notes surrendered in exchange therefor or, if no interest has been paid on the Old Notes, from the date of original issue of the Old Notes. Holders of Old Notes accepted for exchange will be deemed to have waived the right to receive any other payments or accrued interest on the Old Notes. The Company reserves the right, at any time or from time to time, to extend the Exchange Offer at its discretion, in which event the term "Expiration Date" shall mean the latest time and date to which the Exchange Offer is extended. The Company shall notify holders of the Old Notes of any extension by means of a press release or other public announcement prior to 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. This Letter of Transmittal is to be used by Holders if: (i) certificates representing Old Notes are to be physically delivered to the Exchange Agent herewith by Holders; (ii) tender of Old Notes is to be made by book-entry transfer to the Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to the procedures set forth in the Prospectus under "The Exchange Offer -- Procedures for Tendering" by any financial institution that is a participant in DTC and whose name appears on a security position listing as the owner of Old Notes; or (iii) tender of Old Notes is to be made according to the guaranteed delivery procedures set forth in the Prospectus under "The Exchange Offer -- Guaranteed Delivery." DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. The term "Holder" with respect to the Exchange Offer means any person: (i) in whose name Old Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered Holder; or (ii) whose Old Notes are held of record by DTC who desires to deliver such old Notes by book-entry transfer at DTC. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. Questions and requests for assistance or for additional copies of the Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Exchange Agent. See Instruction 11 herein. HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY. 3 PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE CHECKING ANY BOX BELOW DESCRIPTION OF 11-1/8% SENIOR SUBORDINATED NOTES DUE 2007 (OLD NOTES)
AGGREGATE PRINCIPAL PRINCIPAL AMOUNT AMOUNT NAME(S) AND ADDRESS(ES) OF REPRESENTED TENDERED (IF REGISTERED HOLDER(S) CERTIFICATE BY LESS (PLEASE FILL IN, IF BLANK) NUMBER(S)* CERTIFICATE(S) THAN ALL)** Total
* Need not be completed by Holders tendering by book-entry transfer. ** Unless indicated in the column labeled "Principal Amount Tendered," any tendering Holder of Old Notes will be deemed to have tendered the entire aggregate principal amount represented by the column labeled "Aggregate Principal Amount Represented by Certificate(s)." If the space provided above is inadequate, list the certificate numbers and principal amounts on a separate signed schedule and affix the list to this Letter of Transmittal. The minimum permitted tender is $1,000 in principal amount of Old Notes. All other tenders must be integral multiples of $1,000. 4 SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 4, 5 AND 6) To be completed ONLY if certificates for Old Notes in a principal amount not tendered or not accepted for exchange, or New Notes issued in exchange for Old Notes accepted for exchange, are to be issued in the name of someone other than the undersigned, or if the Old Notes tendered by book-entry transfer that are not accepted for exchange are to be credited to an account maintained by DTC. Issue certificate(s) to: Name............................................................................ (PLEASE PRINT) Address......................................................................... ................................................................................ (INCLUDE ZIP CODE) ................................................................................ (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4, 5 AND 6) To be completed ONLY if certificates for Old Notes in a principal amount not tendered or not accepted for exchange, or New Notes issued in exchange for Old Notes accepted for exchange, are to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown above. Mail to: Name............................................................................ (PLEASE PRINT) Address......................................................................... ................................................................................ (INCLUDE ZIP CODE) ................................................................................ (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) / / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution:.............................................. DTC Book-Entry Account No.:................................................. Transaction Code No.:....................................................... / / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s):............................................ Window Ticket Number (if any):.............................................. Date of Execution of Notice of Guaranteed Delivery:......................... IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING: Account Number:...................... Transaction Code Number:.............. / / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name:....................................................................... Address:.................................................................... ............................................................................ 5 Ladies and Gentlemen: Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to the Company the principal amount of Old Notes indicated above. Subject to and effective upon the acceptance for exchange of the principal amount of Old Notes tendered in accordance with this Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Old Notes tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company and as Trustee under the Indenture for the Old Notes and New Notes) with respect to the tendered Old Notes with full power of substitution to (i) deliver certificates for such Old Notes to the Company, or transfer ownership of such Old Notes on the account books maintained by DTC and deliver all accompanying evidence of transfer and authenticity to, or upon the order of, the Company and (ii) present such Old Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Old Notes, all in accordance with the terms and subject to the conditions of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed irrevocable and coupled with an interest. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Old Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim, when the same are acquired by the Company. The undersigned hereby further represents that any New Notes acquired in exchange for Old Notes tendered hereby will have been acquired in the ordinary course of business of the Holder receiving such New Notes, whether or not such person is the Holder, that neither the Holder nor any such other person has an arrangement or understanding with any person to participate in the distribution of such New Notes and that neither the Holder nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company or any of its subsidiaries. The undersigned also acknowledges that this Exchange Offer is being made in reliance on an interpretation by the staff of the Securities and Exchange Commission (the "SEC") that the New Notes issued in exchange for the Old Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no intent, or oral arrangements with any person, to participate in the distribution of such New Notes. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the assignment, transfer and purchase of the Old Notes tendered hereby. All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, personal representatives, successors and assigns, trustees in bankruptcy or other legal representatives of the undersigned. This tender may be withdrawn only in 6 accordance with the procedures set forth in "The Exchange Offer -- Withdrawal Rights" section of the Prospectus. For purposes of the Exchange Offer, the Company shall be deemed to have accepted validly tendered Old Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. If any tendered Old Notes are not accepted for exchange pursuant to the Exchange Offer for any reason, certificates for any such unaccepted Old Notes will be returned (except as noted below with respect to tenders through DTC), without expense, to the undersigned at the address shown below or at a different address as may be indicated under "Special Delivery Instructions" as promptly as practicable after the Expiration Date. 7 The undersigned understands that tenders of Old Notes pursuant to the procedures described under the caption "The Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. Unless otherwise indicated under "Special Payment Instructions," please issue the certificates representing the New Notes issued in exchange for the Old Notes accepted for exchange and return any Old Notes not tendered or not exchanged in the name(s) of the undersigned (or in either such event in the case of the Old Notes tendered by DTC, by credit to the undersigned's account, at DTC). Similarly, unless otherwise indicated under "Special Delivery Instructions," please send the certificates representing the New Notes issued in exchange for the Old Notes accepted for exchange and any certificates for Old Notes not tendered or not exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s), unless, in either event, tender is being made through DTC. In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the certificates representing the New Notes issued in exchange for the Old Notes accepted for exchange and return any Old Notes not tendered or not exchanged in the name(s) of, and send said certificates to, the person(s) so indicated. The undersigned recognizes that the Company has no obligation pursuant to the "Special Payment Instructions" and "Special Delivery Instructions" to transfer any Old Notes from the name of the registered Holder(s) thereof if the Company does not accept for exchange any of the Old Notes so tendered. Holders of Old Notes who wish to tender their Old Notes and (i) whose Old Notes are not immediately available or (ii) who cannot deliver their Old Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent, or cannot complete the procedure for book-entry transfer, prior to the Expiration Date, may tender their Old Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 1 regarding the completion of the Letter of Transmittal printed below. 8 PLEASE SIGN HERE WHETHER OR NOT OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY X .................................................... ......................... DATE X .................................................... ......................... SIGNATURE(S) OF REGISTERED HOLDER(S) DATE OR AUTHORIZED SIGNATORY Area Code and Telephone Number:................................................ The above lines must be signed by the registered Holder(s) of Old Notes as their name(s) appear(s) on the Old Notes or, if the Old Notes are tendered by a participant in DTC, as such participant's name appears on a security position listing as the owner of Old Notes, or by person(s) authorized to become registered Holder(s) by a properly completed bond power from the registered Holder(s), a copy of which must be transmitted with this Letter of Transmittal. If Old Notes to which this Letter of Transmittal relates are held of record by two or more joint Holders, then all such Holders must sign this Letter of Transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person must (i) set forth his or her full title below and (ii) unless waived by the Company, submit evidence satisfactory to the Company of such person's authority as to act. See Instruction 4 regarding the completion of this Letter of Transmittal printed below. Name(s): ................................................................... (PLEASE PRINT) Capacity: ................................................................... Address: ................................................................... (INCLUDE ZIP CODE) Signature(s) Guaranteed by an Eligible Institution: (If required by Instruction 4) ................................................................... (AUTHORIZED SIGNATURE) ................................................................... (TITLE) ................................................................... (NAME OF FIRM) ................................................................... (ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF FIRM) Dated: .............................................................., 1996 9 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by noteholders, either if certificates are to be forwarded herewith or if tenders are to be made pursuant to the procedures for delivery by book-entry transfer set forth in "The Exchange Offer -- Book-Entry Transfer" section of the Prospectus. Certificates for all physically tendered Old Notes, or Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed Letter of Transmittal (or manually signed facsimile hereof) and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at the address set forth herein on or prior to the Expiration Date, or the tendering holder must comply with the guaranteed delivery procedures set forth below. Old Notes tendered hereby must be in denominations of principal amount that are integral multiples of $1,000. Noteholders whose certificates for Old Notes are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis, may tender their Old Notes pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such procedures, (i) such tender must be made through an Eligible Institution (as defined in Instruction 4 below), (ii) prior to the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Notes, or a Book-Entry Confirmation, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or Book-Entry Confirmation, as the case may be, and all other documents required by this Letter of Transmittal, must be received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. The method of delivery of this Letter of Transmittal, the Old Notes and all other required documents is at the election and risk of the tendering holders, but the delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If Old Notes are sent by mail, it is suggested that the mailing be made sufficiently in advance of the Expiration Date to permit the delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer" section in the Prospectus. 2. TENDER BY HOLDER. Only a holder of Old Notes may tender such Old Notes in the Exchange Offer. Any beneficial holder of Old Notes who is not the registered holder and who wishes to tender should arrange with the registered holder to execute and deliver this Letter of Transmittal on his or her behalf or must, prior to completing and executing this Letter of Transmittal and delivering his or her Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such holder's name or obtain a properly completed bond power from the registered holder. 10 3. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in integral multiples of $1,000. If less than the entire principal amount of any Old Notes is tendered, the tendering holder should fill in the principal amount tendered in the fourth column of the box entitled "Description of 11 1/8% Senior Subordinated Notes due 2007 (Old Notes)" above. The entire principal amount of Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Old Notes is not tendered, then Old Notes for the principal amount of Old Notes not tendered and a certificate or certificates representing New Notes issued in exchange for any Old Notes accepted will be sent to the holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal of Transmittal, promptly after the Old Notes are accepted for exchange. 4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; POWERS OF ATTORNEY AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder of the Old Notes tendered hereby, the signature must correspond exactly with the name as written on the face of the certificates without any change whatsoever. If any tendered Old Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Old Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of certificates. When this Letter of Transmittal is signed by the registered holder or holders of the Old Notes specified herein and tendered hereby, no endorsements of certificates or separate powers of attorney are required. If, however, the New Notes are to be issued, or any untendered Old Notes are to be reissued, to a person other than the registered holder, then endorsements of any certificates transmitted hereby or separate powers of attorney are required. Signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder or holders of any certificate(s) specified herein, such certificate(s) must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names on the registered holder or holders appear(s) on the certificate(s) and signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this letter of Transmittal or any certificates or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. Endorsements on certificates for Old Notes or signatures on powers of attorney required by this Instruction 4 must be guaranteed by an eligible guarantor institution that is a member or participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program, the Stock Exchange Medallion Program, or by an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (collectively "Eligible Institutions"). Signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution unless the Old Notes are tendered (i) by a registered holder of Old Notes (which term, for purposes of the Exchange Offer, includes any participant in the Book-Entry Transfer Facility system whose name appears on a security position listing as the holder of such Old Notes) who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter of Transmittal, or (ii) for the account of an Eligible Institution. 11 5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the applicable box or boxes, the name and address to which New Notes or substitute Old Notes for principal amounts not tendered or not accepted for exchange are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal of Transmittal (or in the case of tender of Old Notes through DTC, if different from DTC). In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. Noteholders tendering Old Notes by book-entry transfer may request that Old Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such noteholder may designate hereon. If no such instructions are given, such Old Notes not exchanged will be returned to the name and address of the person signing this Letter of Transmittal. 6. TAX IDENTIFICATION NUMBER. United States federal income tax law may require that a holder whose offered Old Notes are accepted for exchange provide the Company (as payer) with his, her or its correct Taxpayer Identification Number ("TIN"), which, in the case of an exchanging holder who is an individual, is his or her social security number. If the Company is not provided with the correct TIN or an adequate basis for exemption, such holder may be subject to a $50 penalty imposed by the Internal Revenue Service (the "IRS"), and payments made with respect to the Notes may be subject to backup withholding at a 31% rate. If withholding results in an overpayment of taxes, a refund may be obtained. Exempt holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding requirements. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9." To prevent backup withholding, each exchanging holder should provide his, her or its correct TIN by completing the Substitute Form W-9 enclosed herewith, certifying that the TIN provided is correct and as to certain other matters. If a foreign individual qualifies as an exempt recipient, such holder should submit a Form W-8 signed under penalty of perjury attesting to such exempt status. Such forms may be obtained from the Exchange Agent. If the Old Notes are in more than one name or are not in the name of the actual owner, consult the Substitute Form W-9 for information on which TIN to report. 7. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing New Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Notes tendered hereby, or if tendered Old Notes are registered in the name of any person other than the person signing this Letter of Transmittal of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. 8. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend, waive or modify specified conditions in the Exchange Offer in the case of any Old Notes tendered. 9. NO CONDITIONAL TRANSFERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Old Notes, by execution of this Letter of Transmittal, shall waive any right to receive notice of the acceptance of their Old Notes for exchange. Neither the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Old Notes nor shall any of them incur any liability for failure to give any such notice. 12 10. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering holder whose Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance for additional copies of the Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Exchange Agent at the address specified in the Prospectus. 13 (DO NOT WRITE IN THE SPACE BELOW) CERTIFICATE OLD NOTES OLD NOTES SURRENDERED TENDERED ACCEPTED Delivery Prepared by - -----------------------Checked By---------------------Date--------------------- 14 PAYER'S NAME: NEENAH CORPORATION SUBSTITUTE Name (if joint names, list first and circle the name of FORM W-9 the person or entity whose number you enter in Part 1 below. See instructions if your name has changed.) DEPARTMENT OF THE TREASURY Address INTERNAL REVENUE SERVICE City, state and ZIP code List account number(s) here (optional) PART 1 -- PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION NUMBER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. Social security number or TIN PART 2 -- Check the box if you are NOT subject to backup withholding because (1) you have not been notified that you are subject to backup withholding as a result of failure to report all interest or dividends, (2) the Internal Revenue Service has notified you that you are no longer subject to backup withholding or (3) you are exempt from backup withholding. [ ] PART 2 -- AWAITING TIN [ ] Payer's Request for TIN CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE. Signature Date NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OR SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. EX-99.2 13 NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY WITH RESPECT TO 11 1/8% SENIOR SUBORDINATED NOTES DUE 2007 OF NEENAH CORPORATION Pursuant to the Prospectus Dated _______________, 1997 This form must be used by a holder of 11 1/8% Senior Subordinated Notes due 2007 (the "Notes") of Neenah Corporation, a Wisconsin corporation (the "Company"), who wishes to tender Notes to the Exchange Agent pursuant to the guaranteed delivery procedures described in "The Exchange Offer - Guaranteed Delivery Procedures" of the Company's Prospectus, dated ____________, 1997 (the "Prospectus") and in Instruction 2 to the related Letter of Transmittal. Any holder who wishes to tender Notes pursuant to such guaranteed delivery procedures must ensure that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the Expiration Date of the Exchange Offer. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus or the Letter of Transmittal. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ________________, 1997 UNLESS EXTENDED (THE "EXPIRATION DATE"). United States Trust Company of New York (the "Exchange Agent") By Overnight Courier: By Hand: By Registered or Certified Mail: United States Trust Company United States Trust Company United States Trust Company of New York of New York of New York 770 Broadway, 13th Floor 111 Broadway P.O. Box 844 New York, New York 10003 Lower Level Attn: Corporate Trust Services Attn: Corporate Trust Services Attn: Corporate Trust Services Cooper Station New York, New York 10006 New York, New York 10276-0844
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. 2 This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal. The undersigned hereby tenders the Notes listed below:
CERTIFICATE NUMBER(S) (IF KNOWN) OF NOTES OR AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED - ---------------------------------------------------- ----------------- ------------------ - ---------------------------------------------------- ----------------- ------------------ - ---------------------------------------------------- ----------------- ------------------ - ---------------------------------------------------- ----------------- ------------------
2 3 PLEASE SIGN AND COMPLETE Signatures of Registered Holder(s) or Authorized Signatory:______________________ Date: ___________________, 1996 ___________________________________________ Address:________________________ Name(s) of Registered Holder(s):___________ Area Code and Telephone No._____ ___________________________________________ ___________________________________________ This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly as their name(s) appear on certificates for Notes or on a security position listing as the owner of Notes, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information. Please print name(s) and address(es) Name(s): _______________________________________________________________________ ________________________________________________________________________________ Capacity: ______________________________________________________________________ Address(es):____________________________________________________________________ ________________________________________________________________________________ 3 4 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or is a commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal (or facsimile thereof), together with the Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Notes into the Exchange Agent's account at the Book-Entry Transfer Facility described in the prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures" and in the Letter of Transmittal) and any other required documents, all by 5:00 p.m., New York City time, on the fifth New York Stock Exchange trading day following the Expiration Date. Name of firm________________________ ____________________________________ (Authorized Signature) Address_____________________________ Name________________________________ (Please Print) ____________________________________ Title_______________________________ (Include Zip Code) Area Code and Tel. No. _____________ Dated_________________________, 1996 DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL. 4 5 INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1. Delivery of this Notice of Guaranteed Delivery. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and sole risk of the holder, and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. As an alternative to delivery by mail, the holders may wish to consider using an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedures, see Instruction 2 of the Letter of Transmittal. 2. Signatures on this Notice of Guaranteed Delivery. If this Notice of Guaranteed Delivery is signed by the registered holder(s) of the Notes referred to herein, the signature must correspond with the name(s) written on the face of the Notes without alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of the Notes, the signature must correspond with the name shown on the security position listing as the owner of the Notes. If this Notice of Guaranteed Delivery is signed by a person other than the registered holder(s) of any Notes listed or a participant of the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by appropriate bond powers, signed as the name of the registered holder(s) appears on the Notes or signed as the name of the participant shown on the Book-Entry Transfer Facility's security position listing. If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and submit with the Letter of Transmittal evidence satisfactory to the Company of such person's authority to so act. 3. Requests for Assistance or Additional Copies. Questions and requests for assistance and requests for additional copies of the Prospectus may be directed to the Exchange Agent at the address specified in the Prospectus. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. 5 -----END PRIVACY-ENHANCED MESSAGE-----