-----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, TY9j9TO2+qoqon/c1CZfM0/1uxv4PLr+MUzfrmTX2TiqwgVKLBeWC2YdEokOUcqQ hKM61bxuioxLkg+BxKlnBQ== 0000950124-97-006676.txt : 19971231 0000950124-97-006676.hdr.sgml : 19971231 ACCESSION NUMBER: 0000950124-97-006676 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971229 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEENAH TRANSPORT INC CENTRAL INDEX KEY: 0001040597 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 391378433 STATE OF INCORPORATION: WI FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-28751-01 FILM NUMBER: 97745883 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 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended September 30,1997. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 . For the transition period from ____ to ____. Commission file number 333-28751 NEENAH FOUNDRY COMPANY NEENAH TRANSPORT, INC. HARTLEY CONTROLS CORPORATION (Exact name of registrant as it appears in its charter) Wisconsin 39-1580331 Wisconsin 39-1378433 Wisconsin 39-0842568 (State or other jurisdiction of (IRS Employer ID Number) Incorporation or organization) 2121 Brooks Avenue, P.O. Box 729, Neenah, Wisconsin 54957 2121 Brooks Avenue, P.O. Box 729, Neenah, Wisconsin 54957 2400 Holly Road, Neenah, Wisconsin 54956 (Address of principal executive offices) (Zip Code) (920) 725-7000 (920) 725-7000 (920) 734-2689 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to section 12(g) of the Act: 11 1/8% Series B Senior Subordinated Notes Due 2007 11 1/8% Series D Senior Subordinated Notes Due 2007 (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 2 PART I Item 1. BUSINESS On April 30, 1997, pursuant to an Agreement and Plan of Reorganization with NC Merger Company and NFC Castings, Inc., Neenah Corporation (the "Predecessor Company") was acquired by NFC Castings, Inc. (the "Merger"). Prior to July 1, 1997, Neenah Foundry Company was one of three wholly owned subsidiaries of Neenah Corporation, a holding company with no significant assets or operations other than its holdings in the common stock of its three wholly owned subsidiaries. On July 1, 1997, Neenah Foundry Company merged with and into Neenah Corporation and the surviving company changed its name to Neenah Foundry Company (the "Company"). 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 heavy municipal market generated approximately 45% of the Company's net sales on a pro forma basis for the six months ended September 30, 1997. 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. The industrial market generated approximately 52.6% of the Company's net sales on a pro forma basis for the six months ended September 30, 1997. 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 2.4% of the Company's net sales on a pro forma basis for the six months ended September 30, 1997. 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 over $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 have caused net sales and EBITDA to increase substantially. 2 3 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 fiscal year ended March 31, 1997 and for the Pro forma six months ended September 30, 1997.
Percentage of Net Sales(1) ------------------------------------------- Fiscal Year Pro forma Representative Ended Six Months Ended Market End Product Customers March 31, 1997 September 30, 1997 (2) ------ ----------- --------- -------------- ---------------------- Heavy Municipal Standard castings including State and local 44.6% 46.5% storm and sanitary sewer government castings, including manhole entities, utility covers and frames, storm companies, precast sewer frames and grates; concrete structure Specialty castings including producers and heavy duty airport castings, contractors (3) specialized trench drain castings, specialty flood control castings and ornamental tree grates Industrial Medium- and Heavy-Duty Truck Differential carriers and Rockwell 34.3% 33.8% cases, brackets, cages, International calipers, caps, carriers, Eaton Corp. hubs, knuckles, transmission Dana Corp housings, yokes Farm Equipment Various gear housings, planet John Deere 16.0% 15.8% carrier, axle housings, New Holland planting and harvesting equipment parts, counterweights Other Industrial Compressor components, Aisin 5.1% 3.9% various housing and gear cases The Trane Company
(1) Net sales include sales of Neenah Foundry Company only. (2) The Company changed its fiscal year end to September 30 from March 31 effective September 30, 1997. (3) No municipal customer represented more than 1.5% of Neenah Foundry Company's net sales for the fiscal year ended March 31, 1997 or the pro forma six months ended September 30, 1997. 3 4 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 that 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 a similar 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 three years, the Company has introduced what it calls "lightweighted" parts to the heavy municipal market. These lightweighted parts have been reengineered in order to reduce both their weight and 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 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. 4 5 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 bids for 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 transferable 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 and machining and sub-assembly are both processes which generally provide higher margins and increase a customer's reliance on the manufacturer. 5 6 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 that it is one of the leaders in U.S. heavy municipal casting production and that it has strong name recognition. The Company has the largest sales and marketing effort of any foundry serving the heavy municipal market, including 56 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 consisting of sales, marketing, manufacturing, engineering and quality assurance effort 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 over $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 the pro forma six months ended September 30, 1997, the Company had a combined scrap rate of less that 2.0%. 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 including 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. 6 7 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 also used by most of the Company's 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 in-mold 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 through 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. QUALITY ASSURANCE Continual 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 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. DISTRIBUTION 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, Inc. ("Neenah Transport"), a wholly owned subsidiary of the Company, which operates a fleet of 28 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 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 the Company. 7 8 RAW MATERIALS The primary raw materials used by the Company to manufacture ductile and gray iron castings are steel scrap, pig iron, metallurgical coke and silica sand. While there are multiple suppliers for each of these commodities, 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 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 an adverse or positive effect on the Company's 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 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 U.S., due in part to costs associated with transportation. However, 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 U.S. 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 24,800 tons at September 30, 1997 as compared to 16,000 tons at September 30, 1996. The increase in backlog of approximately 55% was due primarily to an increase in the medium- and heavy-duty truck market, coupled with a substantial extended order from a new customer in the railroad industry. 8 9 HARTLEY CONTROLS CORPORATION Hartley Controls Corporation ("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 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 U.S. 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 Controller," the "Even-Flo Bin," the "Automatic Compactibility Tester," the "Automatic Bond Determinator," the "Green Stand Reconditioner" and the "Sandman." Sales of these sand systems and other products represented approximately 2.4% of the Company's net sales on a pro forma basis for the six months ended September 30, 1997. EMPLOYEES As of September 30, 1997 the Company had 937 full time employees, of whom 739 were hourly employees and 198 were salaried employees. Of the 198 salaried employees, 96 are in manufacturing and engineering, 56 are in sales and marketing, 42 are in management and administration and 4 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 the representative of 705 of the Company's hourly employees. A 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 34 of the Company's hourly employees. A 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. 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 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. 9 10 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 third and fourth quarters of the Company's 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 in March or April. The Company has not historically experienced seasonality in industrial casting sales. Item 2. 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. 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 Plant 1. Item 3. LEGAL PROCEEDINGS 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 operations of the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the period ended September 30, 1997. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. There is no public market for the common stock of the Company. There was one holder of record of the Company's common stock as of September 30, 1997. Item 6. SELECTED FINANCIAL DATA The following table sets forth the selected historical consolidated financial data of the Company for the five years ended March 31,1997, the six months ended September 30, 1996 and the one month ended April 30, 1997 which have been derived from the Company's historical consolidated financial statements before the Merger and the five months ended September 30, 1997 which have been derived from the Company's historical consolidated financial statements following the Merger. 10 11 The information contained in the following table should also be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Company's historical consolidated financial statements and related notes included elsewhere in this report.
- ------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------- Predecessor Company ------------------------------------------------------------------------------- Fiscal Year Ended March 31, --------------------------- 1993 1994 1995 1996 1997 Six One Month Five Months ---- ---- ---- ---- ---- Months Ended Ended Ended April September September 30, 1997 30, 1997 30, 1996 (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Net sales (1) $133,422 $131,982 $160,621 $166,951 $165,426 $89,739 $17,276 $87,093 Cost of sales 108,279 106,531 120,981 121,631 116,736 62,986 11,351 60,166 ------- -------- -------- -------- ------- -------- ------- ------- Gross profit 25,143 25,451 39,640 45,320 48,690 26,753 5,925 26,927 Selling, general and administrative expenses 12,865 13,614 16,673 16,983 17,547 9,276 1,752 7,088 Amortization expense -- -- -- -- -- -- -- 3,678 Restructuring charge 6,172 -- -- -- -- -- -- -- ------- -------- -------- -------- ------- -------- ------- ------- Operating income 6,106 11,837 22,967 28,337 31,143 17,477 4,173 16,161 Interest expense (income), net 2,118 1,043 397 (481) (1,162) (413) (121) (8,832) ------- -------- -------- -------- ------- -------- ------- ------- Income before income taxes and cumulative effect of accounting changes 3,988 10,794 22,570 28,818 32,305 17,890 4,294 7,329 Provision for income taxes 1,544 4,213 8,866 11,676 12,467 7,154 1,615 3,479 ------- -------- -------- -------- ------- -------- ------- ------- Income before cumulative effect of accounting changes 2,444 6,581 13,704 17,142 19,838 10,736 2,679 3,850 Cumulative effect of accounting changes: Income taxes 5,200 -- -- -- -- -- -- -- Postretirement benefits other than pensions (2,564) -- -- -- -- -- -- -- ------- -------- -------- -------- ------- -------- ------- ------- Income before extraordinary item 5,080 6,581 13,704 17,142 19,838 10,736 2,679 3,850 Extraordinary item -- -- -- -- -- -- -- 1,630 ------- -------- -------- -------- ------- -------- ------- ------- Net income $ 5,080 $ 6,581 $ 13,704 $ 17,142 $19,838 $ 10,736 $ 2,679 $ 2,220 ======= ======== ======== ======== ======= ======== ======= =======
11 12
- --------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents $ 79 $ 118 $ 238 $ 10,126 $ 22,403 $ 18,166 $ 29,046 $ 20,344 Working capital 12,983 14,419 15,239 28,113 43,707 34,930 34,052 39,830 Total assets 87,388 74,327 73,813 82,957 93,869 92,759 102,067 328,425 Total debt 21,409 13,325 887 241 134 169 129 197,620 Total stockholders' 36,862 37,929 43,198 54,790 68,857 62,676 74,458 47,220 equity - ---------------------------------------------------------------------------------------------------------------------------
(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. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On April 30, 1997, pursuant to an Agreement and Plan of Reorganization with NC Merger Company and NFC Castings, Inc., the stock of Neenah Corporation (the "Predecessor Company") was acquired by NFC Castings, Inc. (the "Merger"). On July 1, 1997, Neenah Foundry Company, which was the principal operating subsidiary of Neenah Corporation, merged with and into Neenah Corporation and the surviving company changed its name to Neenah Foundry Company (the "Company"). The following discussion and analysis of the Company's financial condition and results of operations addresses the periods both before and after the Merger. The Merger has had a significant impact on the Company's results of operations and financial condition. The Merger resulted in the recording of goodwill and identifiable intangible assets totaling approximately $148.8 million. These amounts are being amortized over their estimated useful lives, ranging from 5 months to 40 years. The Merger has also resulted in a significant increase in the Company's interest expense. The Merger has been accounted for as a business combination and has resulted in differences in the basis of certain assets and liabilities between the Predecessor Company and the Company. The Company changed its fiscal year end to September 30 from March 31 effective September 30, 1997. The following discussions compare the pro forma results of operations of the Company for the six months ended September 30, 1997, assuming the Merger occurred on April 1, 1997, to the historical results of the Predecessor Company for the six months ended September 30, 1996. 12 13 RESULTS OF OPERATIONS The following table sets forth for the periods shown certain statement of income data expressed as a percentage of net sales:
Predecessor Company ----------------------------------------------------- Fiscal Year Ended March 31, Pro Forma ----------------------------- Six Months Ended Six Months Ended 1995 1996 1997 September 30, 1996 September 30, 1997 ---- ---- ---- ------------------ ------------------- Net sales: Municipal sales 43.9% 41.6% 43.1% 49.3% 45.0% Industrial sales 53.2 55.2 53.4 47.5 52.6 Hartley Controls sales 2.9 3.2 3.5 3.2 2.4 ----- ----- ----- ----- ----- Total net sales 100.0 100.0 100.0 100.0 100.0 Cost of sales 75.3 72.9 70.6 70.2 67.4 ----- ----- ----- ----- ----- Gross profit 24.7 27.1 29.4 29.8 32.6 Selling, general and administrative expense 10.4 10.1 10.6 10.3 12.1 ----- ----- ----- ----- ----- Operating income 14.3% 17.0% 18.8% 19.5% 20.5% ===== ===== ===== ===== =====
COMPARISON OF PRO FORMA SIX MONTHS ENDED SEPTEMBER 30, 1997 TO SIX MONTHS ENDED SEPTEMBER 30, 1996 Net Sales. Net sales for the pro forma six months ended September 30, 1997 were $104.4 million which are $14.6 million or 16.3% higher than the six months ended September 30, 1996. Net sales of municipal castings increased by $2.8 million or 6.2 % due primarily to a strong economy in the upper Midwest and market share gains in strategic focus areas of the East and Southwest. Net sales of industrial castings increased by $12.3 million or 28.8% due to a continuing surge in the heavy duty truck build rates, percentage gains on dual sourced components and increased build rates by a major industrial customer. Net sales for Hartley Controls for the pro forma six months ended September 30,1997, declined by $0.4 million mostly due to a reduction in equipment sales caused by capital spending cutbacks at the major foundry customers that Hartley Controls services. Gross Profit. Gross profit for the pro forma six months ended September 30, 1997 was $34.0 million, an increase of $7.3 million or 27.3%, as compared to the six months ended September 30, 1996. Gross profit as a percentage of net sales increased to 32.6% from 29.8% for the six months ended September 30, 1996. The margin improvement was due to the combined effect of spreading manufacturing overhead over a greater volume, improved efficiency in plant operations and, to a lesser extent, improved pricing in both municipal and industrial products. Production, expressed in good tons, increased during the six months ended September 30, 1997 by 12,971 tons or 16.7% over the six month period ended September 30, 1996. Furthermore, man hours per ton over this time period were reduced from 8.86 hours/ton to 8.77 hours/ton and variable expenses (most notably foundry supplies, repair parts, utilities and coke) decreased from $207 per good ton to $190 per good ton. Selling, General and Administrative Expenses. Selling, general and administrative expenses for the pro forma six months ended September 30, 1997 were $12.6 million, an increase of $3.4 million or 36.2% over the $9.3 million for the six months ended September 30, 1996. As a percentage of net sales, selling, general and administrative expenses increased from 10.3% for the six months ended September 30, 1996 to 12.1% for the pro forma six months ended September 30, 1997. The increase in selling, general and administrative expense was primarily due to amortization of goodwill and identifiable intangible assets resulting from the Merger. 13 14 Operating Income. Operating income was $21.4 million for the pro forma six months ended September 30, 1997, an increase of $3.9 million or 22.5% from the six months ended September 30, 1996. As a percentage of net sales, operating income increased from 19.5% for the six months ended September 30, 1996 to 20.5% for the pro forma six months ended September 30, 1997. The improvement in operating income was achieved for the reasons discussed above offset by amortization of goodwill and identifiable intangible assets resulting from the Merger. Net Interest Expense. Net interest expense increased from $0.4 million net interest income for the six months ended September 30, 1996 to $10.6 million net interest expense for the pro forma six months ended September 30, 1997 due to the interest expense on the indebtedness incurred in connection with the Merger. Extraordinary Item. For the pro forma six months ended September 30, 1997, the Company recorded an extraordinary loss of $1.6 million (which is net of an income tax benefit of $1.0 million) for the write-off of unamortized deferred financing costs in connection with the repayment in full of the term indebtedness under the Company's Senior Bank Facility. 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 the time of the Merger. 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. 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 14 15 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 into fiscal 1995, and mild weather from January to March 1995 which resulted in the acceleration of sales from fiscal 1996 into 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. 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 the time of the Merger. 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 In connection with the Merger, the Company issued $150.0 million aggregate principal amount of 11-1/8% Senior Subordinated Notes due 2007 ("the Senior Subordinated Notes") and entered into a credit agreement providing for term loans of $45.0 million and a revolving credit facility of up to $30.0 million (the "Senior Bank Facility.") On July 1, 1997, the Company issued an additional $45.0 million aggregate principal amount of Senior Subordinated Notes and used the proceeds of $47.6 million to pay off the term loans under the Senior Bank Facility, together with the accrued interest thereon and related fees and expenses. In addition, on September 12, 1997, the Company amended the revolving credit facility under the Senior Bank Facility to increase the borrowings available under the revolving credit facility from $30.0 million to $50.0 million and eliminate all borrowing base limitations. The Company's liquidity needs will arise primarily from debt service on the above indebtedness, working capital needs and funding of capital expenditures. Borrowings under the revolving credit facility bear interest at variable interest rates. The Senior Bank Facility imposes restrictions on the Company's ability to make capital expenditures and both the Senior Bank Facility and the indentures governing the Senior Subordinated Notes limit the Company's ability to incur additional indebtedness. The covenants contained in the Senior Bank Facility also, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur guarantee obligations, prepay the Senior Subordinated Notes or amend its indentures, 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, make capital expenditures or engage in certain transactions with affiliates, and otherwise restrict corporate activities. For the fiscal years ended March 31, 1995, 1996 and 1997, and the pro forma six months ended September 30, 1997, the Company's capital expenditures were $3.7 million, $7.3 million, $4.5 million and $2.5 million, respectively. The $3.6 15 16 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. The Company's principal source of cash to fund its liquidity needs will be net cash from operating activities and borrowings under its revolving credit facility. Net cash from operating activities for the pro forma six months ended September 30, 1997 was $25.4 million. 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. The Company believes that cash generated from operations and existing revolving lines of credit will be sufficient to meet its normal operating requirements, including future interest payments on the Company's outstanding indebtedness. 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 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 pro forma six month period ended September 30, 1997 or 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 experience 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 third and fourth quarters of the Company's 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 in March or April. The Company has not historically experienced seasonality in industrial casting sales. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and schedules are listed in Part IV Item 14 of this Form 10-K. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 16 17 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT MANAGEMENT The following sets forth certain information as of September 30, 1997, with respect to the persons who are members of the Board of Directors or executive officers 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 Manger Gary W. LaChey 51 Vice President - Finance, Treasurer and Secretary Charles M. Kurtti 60 Vice President - Manufacturing and Engineering William J. Martin 49 Vice President and General Manager - Hartley Controls Corporation John Z. Rader 48 Vice President - Human Resources Brenton F. Halsey 69 Director David F. Thomas 47 Director John D. Weber 33 Director
Mr. Hildebrand is Chairman of the Board and Chief Executive Officer of the Company, a position he has held since May 1, 1997. Mr. Hildebrand has been President and Chief Executive Officer of Advanced Cast Products, Inc. since 1988, and will continue in that position for the foreseeable future. Previously, he served as President of the Cast Products Group of Amcast Industrial Corp. Mr. Hildebrand is also employed by ACP Holding Company which, beneficially owns all the common equity of both the Company and Advanced Cast Products, Inc. Mr. Hildebrand devotes substantial time to, and is partially compensated by, Advanced Cast Products, Inc. Mr. Barrett is Vice President and General Manager of the Company, a position he has held since May 1, 1997. 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, a position he has held since May 1, 1997. Mr. LaChey joined the Company in 1971, serving in a variety of positions of increasing responsibility in the finance department. Mr. LaChey was most recently 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. Martin is Vice President and General Manger - 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. 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. Halsey is a director of the Company, a position he has held since May 1, 1997. 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. 17 18 Mr. Thomas is a director of the Company, a position he has held since May 1, 1997. 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, a position he has held since May 1, 1997. 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. Directors of the Company do not receive compensation for their services as directors. Directors of the Company receive 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. 18 19 ITEM 11. Executive Compensation The following table sets forth information concerning compensation received by the chief executive officer of the Company and its five most highly compensated executive officers (the "Named Executive Officers") for services rendered during the five months ended September 30, 1997.
Long-Term Compensation Annual Compensation ------------------------------------------ ------------------------- Other Annual Options/ LTIP All Other Name and Principal Position Salary Bonus Compensation(1) SARs(#) Payouts Compensation - --------------------------- ------ ----- --------------- -------- ------- ------------ Jim Hildebrand Chairman and Chief Executive Officer $ 50,000 $ 48,000 $527 Bill Barrett Vice President and General Manager 55,000 46,200 9,562 Gary LaChey Vice President - Finance, Secretary and Treasurer 59,175 49,700 11,528 Chuck Kurtti Vice President - Manufacturing and Engineering 55,000 46,200 12,926 Bill Martin Vice President and General Manager - Hartley Controls Corporation 50,000 30,000 11,553 John Rader Vice President - Human Resources 55,000 46,200 11,984
(1) The Named Executive 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. 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. 19 20 MANAGEMENT EQUITY PARTICIPATION In connection with the Merger, (a) certain management investors acquired units representing membership interests in ACP Products, L.L.C., ("ACP Products") which represent, in the aggregate, approximately a ten percent beneficial interest in the Company (the "Purchased Interests") and (b) certain 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 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 in connection with the closing of the Merger. The exercise price of the Options will be established by ACP Products, in consultation with the Board of Directors of the Company or a compensation committee thereof. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 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 NFC Castings, Inc. and are pledged under the Senior Bank Facility. NFC Castings, Inc. is a wholly-owned subsidiary of ACP Holdings Company ("ACP Holdings") which in turn is wholly-owned by ACP Products. The outstanding common units of ACP Products consist of 185,000 Class A-3 Common Units (the "Class A Common Units"), 815,000 Class B-3 Common Units (the "Class B Common Units", and together with the Class A Common Units, the "Common Units"). Holders of Class A Common Units are entitled to one vote per Class A Common Unit on all matters to be voted upon by the holders of Class A Common Units. Holders of Class B Common Units have no right to vote on any matters to be voted on by holders of Common Units. Holders of Class B Common Units may elect at any time to convert any or all of such Units into Class A Common Units, on a Common Unit-for-Common-Unit basis. 20 21 Set forth below is certain information regarding the beneficial ownership as of September 30, 1997 of Class A Common Units by each person who beneficially owns 5.0% or more of the outstanding Class A Common Units, 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 Foundry Company, 2121 Brooks Avenue, Box 729, Neenah, Wisconsin 54957.
Number of Percentage of Voting Voting Class A Class A Common Common NAME AND ADDRESS OF BENEFICIAL OWNER Units Units ------------------------------------ --------- ------------- Citicorp Venture Capital, Ltd. (1) (2).................................. 90,000 48.65% James K. Hildebrand (1)............................................... 20,000 10.81% William M. Barrett (1)................................................. 13,000 7.03% Gary W. LaChey (1) .................................................... 13,000 7.03% Charles W. Kurtti (1).................................................. 13,000 7.03% Bill Martin (1) ....................................................... 13,000 7.03% John Z. Rader (1)...................................................... 13,000 7.03% David F Thomas (3) ................................................... 90,000 48.65% John D. Weber (3)...................................................... 90,000 48.65% Directors and named executive officers as a group....................... 175,000 94.59%
(1) Such person disclaims beneficial ownership of the Common Stock. (2) Citicorp Venture Capital, Ltd. and its affiliates (collectively, "CVC") own 739,821.82 Class B Common Units representing 90.78% of the Class B Common Units outstanding. (3) Consists of the Class A Common Units held by CVC, which may be deemed to be beneficially owned by Messrs. Thomas and Weber. Messrs. Thomas and Weber disclaim beneficial ownership of shares held by CVC. Mr. Thomas is a managing director of CVC. Mr. Weber is a vice president of CVC. 21 22 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS RELATIONSHIP WITH ACP HOLDINGS ACP Products holds all of the issued and outstanding shares of capital stock of ACP Holdings. ACP Holdings is the parent company of NFC Castings, Inc., and thus ACP Holdings indirectly owns 100% of the Common Stock of the Company. 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"). Since the closing of the Merger, Mr. Hildebrand has devoted substantial time to, and has been 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 Merger, certain management investors and certain institutional investors, including CVC, became parties to the Third Amended and Restated Limited Liability Agreement of ACP Products 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 CVC and certain institutional investors and certain management investors, as the only members of ACP Products holding beneficial interests in the Company, have the right to direct all actions taken in respect of NFC Castings, Inc. and the Company, including, without limitation, appointing members of the Board of Directors of the Company and of NFC Castings, Inc. REGISTRATION RIGHTS AGREEMENT The Company entered into a registration rights agreement (the "Registration Rights Agreement") with CVC and certain institutional investors and certain management investors. Pursuant to the terms of the Registration Rights Agreement, certain holders of the 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 of 1933, as amended, 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 of 1933, as amended, 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. EMPLOYMENT AGREEMENTS The Company entered into a consulting agreement with James P. Keating that provides, among other things, that Mr. Keating will be available to serve as a consultant to the Company from July 1, 1997 to June 30, 1999. Mr. Keating is paid $16,500 per month under such consulting agreement. 22 23 Part IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) (1) Consolidated Financial Statements of Neenah Foundry Company
Page Report of Ernst & Young LLP, Independent Auditors 29 Consolidated Balance Sheet 30 Consolidated Statement of Income 32 Consolidated Statement of Cash Flows 33 Notes to Consolidated Financial Statements 34 Consolidated Financial Statements of Neenah Foundry Company (Predecessor) Report of Ernst & Young LLP, Independent Auditors 50 Consolidated Balance Sheets 51 Consolidated Statements of Income 53 Consolidated Statements of Changes in Stockholders' Equity 54 Consolidated Statements of Cash Flows 55 Notes to Consolidated Financial Statements 56 (2) Financial Statements Schedules Report of Ernst & Young LLP, Independent Auditors 68 Schedule II - Valuation and Qualifying Accounts of Neenah Foundry Company 69 Report of Ernst & Young LLP, Independent Auditors 70 Schedule II - Valuation and Qualifying Accounts of Neenah Foundry Company(Predecessor) 71 The following schedules are omitted as not applicable or not required under the rules of regulation S-X: I, III, IV, and V. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company for the quarter ended September 30, 1997. (c) Exhibits See Exhibit Index.
23 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Neenah, State of Wisconsin, on December 29, 1997. NEENAH FOUNDRY COMPANY NEENAH TRANSPORT, INC. HARTLEY CONTROLS CORPORATION (Registrant) /s/Gary W. LaChey ----------------- Gary W. LaChey Vice President - Finance, Secretary and Treasurer (Principal Financial and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on December 29, 1997, by the following persons on behalf of the registrant and in the capacities indicated. /s/James K. Hildebrand /s/ Brenton F. Halsey - ---------------------- --------------------- James K. Hildebrand Brenton F. Halsey Chairman of the Board and Director Chief Executive Officer /s/ David F. Thomas /s/ Gary W. LaChey - ---------------------- ------------------ David F. Thomas Gary W. LaChey Director Vice President - Finance, Secretary and Treasurer (Principal Financial and Principal Accounting Officer) /s/ John D. Weber - ----------------------- John D. Weber Director 24 25 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. ** 2.2 First Amendment to Agreement and Plan of Reorganization, dated as of January 13, 1997, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation. ** 2.3 Second Amendment to Agreement and Plan of Reorganization, dated as of February 21, 1997, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation. ** 2.4 Third Amendment to Agreement and Plan of Reorganization, dated as of April 3, 1997, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation. ** 2.5 Merger Agreement, made as of July 1,1997, by and between Neenah Corporation and Neenah Foundry Company. ** 3.1 Restated Articles of Incorporation of Neenah Foundry Company. ** 3.2 By-laws of Neenah Foundry Company. ** 3.3 (Intentionally omitted.) 3.4 (Intentionally omitted.) 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, 1997 among Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc. and Chase Securities, 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 Form of Global Note relating to the Indenture dated as of April 23, 1997. ** 4.7 Indenture dated as of July 1, 1997 among Neenah Corporation, Neenah Foundry Company, Neenah Transport, Inc., Hartley Controls Corporation and United States Trust Company of New York. ** 4.8 Purchase Agreement dated as of June 26, 1997 among Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation, Neenah Transport, Inc. and Chase Securities Inc. ** 4.9 Exchange and Registration Rights Agreement dated as of July 1, 1997 by and between Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation, Neenah Transport, Inc. and Chase Securities, Inc. ** 4.10 Form of Global Note related to the Indenture dated as of July 1, 1997. ** 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. **
25 26 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, Neenah Foundry Company, Harley Controls Corporation, Neenah Transport, Inc. and James P. Keating, Jr.** 10.9 Consulting Agreement dated September 9, 1994 between the Neenah Foundry Company and the Guarantors and James P. Keating, Jr. ** 10.10 First Amendment to Employment Agreement, dated September 9, 1994, between Neenah Foundry Company, Neenah Corporation, Hartley Controls Corporation and James P. Keating, Jr. ** 10.11 Pledge Agreement dated as of April 30, 1997, among NC Merger Company, a Wisconsin Corporation, NFC Castings, Inc., a Delaware Corporation. ** 10.12 Subsidiary Guarantee Agreement dated as of April 30, 1997, among each of the subsidiaries listed of NC Merger Company, a Wisconsin corporation, and The Chase Manhattan Bank, a New York banking corporation, as collateral agent for the secured parties. ** 10.13 Parent Guarantee Agreement dated as of April 30, 1997, between NFC Castings, Inc., a Delaware corporation and The Chase Manhattan Bank, a New York banking corporation, as collateral agent for the secured parties. ** 10.14 Security Agreement dated as of April 30, 1997, among NC Merger Company, a Wisconsin corporation, each subsidiary of the borrower and The Chase Manhattan Bank, a New York banking corporation, as collateral agent for the secured parties. ** 10.15 Form of Mortgage. ** 10.16 Amended and Restated Revolving Credit Agreement, dated September 12, 1997 among Chase Manhattan Bank, N.A., NFC Castings, Inc. and NC Merger Company. 21.1 Subsidiaries of the Registrant. 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.
- ------- ** Incorporated by reference to the Company's Form S-4 (Registration No. 333-28751) which became effective August 12, 1997. 26 27 CONSOLIDATED FINANCIAL STATEMENTS NEENAH FOUNDRY COMPANY Period from inception, May 1, 1997, through September 30, 1997 27 28 Neenah Foundry Company Consolidated Financial Statements Period from inception, May 1, 1997, through September 30, 1997 CONTENTS Report of Independent Auditors..................................... Consolidated Balance Sheet......................................... Consolidated Statement of Income................................... Consolidated Statement of Cash Flows............................... Notes to Consolidated Financial Statements......................... 28 29 Report of Ernst & Young LLP, Independent Auditors Board of Directors Neenah Foundry Company We have audited the accompanying consolidated balance sheet of Neenah Foundry Company (the Company) as of September 30, 1997, and the related consolidated statements of income and cash flows for the period from inception, May 1, 1997, through September 30, 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 audit. We conducted our audit 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 audit provides 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 September 30, 1997, and the consolidated results of its operations and its cash flows for the period from inception, May 1, 1997, through September 30, 1997, in conformity with generally accepted accounting principles. Milwaukee, Wisconsin ERNST & YOUNG LLP October 31, 1997 29 30 Neenah Foundry Company Consolidated Balance Sheet (In Thousands, Except Share and Per Share Amounts) September 30, 1997
ASSETS Current assets: Cash and cash equivalents $ 20,344 Accounts receivable, less allowance for doubtful accounts of $386 29,932 Inventories 19,639 Other current assets 318 Deferred income taxes 1,695 ------------- Total current assets 71,928 Property, plant and equipment: Land 1,576 Buildings and improvements 7,856 Machinery and equipment 71,491 Patterns 22,787 ------------- 103,710 Less accumulated depreciation 3,131 ------------- 100,579 Deferred financing costs, net of accumulated amortization of $295 6,853 Identifiable intangible assets, net of accumulated amortization of $2,450 28,424 Goodwill, net of accumulated amortization of $1,228 116,690 Other assets 3,951 ------------- 155,918 ------------- $328,425 =============
30 31
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,333 Income taxes payable 4,384 Accrued wages and employee benefits 5,174 Accrued interest 8,251 Other accrued liabilities 3,858 Current portion of long-term debt 98 ----------- Total current liabilities 32,098 Long-term debt 197,522 Postretirement benefit obligations 4,894 Deferred income taxes 44,519 Other liabilities 2,172 ----------- Total liabilities 281,205 Commitments and contingencies (Note 5) Stockholders' equity: Preferred stock, par value $100 per share; authorized 3,000 shares; no shares issued or outstanding - Common stock, Class A (voting), par value $100 per share; authorized 1,000 shares; issued and outstanding, 1,000 shares 100 Common stock, Class B (nonvoting), par value $100 per share; authorized 10,000 shares; no shares issued or outstanding - Additional paid-in capital 44,900 Retained earnings 2,220 ----------- Total stockholders' equity 47,220 ----------- $ 328,425 ===========
See accompanying notes 31 32 Neenah Foundry Company Consolidated Statement of Income (In Thousands) Period from inception, May 1, 1997, through September 30, 1997 Net sales $87,093 Cost of sales 60,166 ------------ Gross profit 26,927 Selling, general and administrative expenses 7,088 Amortization expense 3,678 ------------ Operating income 16,161 Other income (expense): Interest income 367 Interest expense (9,199) ------------ Income before income taxes and extraordinary item 7,329 Provision for income taxes 3,479 ------------ Income before extraordinary item 3,850 Extraordinary item, net of income tax benefit of $999 1,630 ============ Net income and retained earnings at end of period $ 2,220 ============
See accompanying notes 32 33 Neenah Foundry Company Consolidated Statement of Cash Flows (In Thousands) Period from inception, May 1, 1997, through September 30, 1997 OPERATING ACTIVITIES Net income $ 2,220 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item 2,629 Depreciation 3,141 Amortization of identifiable intangible assets and goodwill 3,678 Amortization of deferred financing costs and premium on notes 273 Deferred income taxes (2,939) Other (10) Changes in operating assets and liabilities: Accounts receivable (4,235) Inventories 5,707 Other current assets (318) Accounts payable (1) Income taxes payable 1,866 Accrued liabilities 9,327 Postretirement benefit obligations 141 Other liabilities 21 -------- Net cash provided by operating activities 21,500 INVESTING ACTIVITIES Payment of closing date net worth adjustment (12,530) Purchase of property, plant and equipment (2,281) Proceeds from redemption of life insurance 866 Other 43 -------- Net cash used in investing activities (13,902) FINANCING ACTIVITIES Proceeds from long-term debt 47,588 Payments on long-term debt (45,030) Debt issuance costs (1,356) -------- Net cash provided by financing activities 1,202 -------- Increase in cash and cash equivalents 8,800 Cash and cash equivalents at beginning of period 11,544 -------- Cash and cash equivalents at end of period $ 20,344 ======== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 674 Income taxes 3,502
See accompanying notes. 33 34 Neenah Foundry Company Notes to Consolidated Financial Statements September 30, 1997 (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS On April 30, 1997, pursuant to an Agreement and Plan of Reorganization with NC Merger Company and NFC Castings, Inc., Neenah Corporation (Predecessor Company) was acquired by NFC Castings, Inc. using (i) $45,000 of cash equity contributed by NFC Castings, Inc., (ii) $45,000 of term loans, (iii) proceeds from the issuance of $150,000 of unsecured Senior Subordinated Notes in a Rule 144A private placement and (iv) cash of Neenah Corporation. The purchase price was $261,713 including a closing date net worth adjustment and direct costs of the acquisition. The acquisition has been accounted for using the purchase method of accounting. The purchase price has been allocated on the basis of fair values of the underlying assets acquired and liabilities assumed. The excess of the cost of acquisition over the fair value of the net tangible and identifiable intangible assets acquired has been allocated to goodwill. Prior to July 1, 1997, Neenah Foundry Company was one of three wholly owned subsidiaries of Neenah Corporation, a holding company with no significant assets or operations other than its holdings in the common stock of its subsidiaries. On July 1, 1997, Neenah Foundry Company merged into Neenah Corporation and the surviving company changed its name to Neenah Foundry Company (the Company). The Company operates in one business segment for financial reporting purposes: the manufacture of gray and ductile iron castings. The Company manufactures castings for sale to industrial and municipal customers throughout the United States and several foreign countries. 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. 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. 34 35 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Industrial castings are generally sold to large, well-established companies, with two customers accounting for 15% and 10% of net sales in the five months ended September 30, 1997. Combined receivables from these two customers totaled $5,145 at September 30, 1997. Municipal castings are sold to a large number of customers. The Company's accounts receivable generally are unsecured. The Company has two wholly owned subsidiaries--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 the Company. 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 consolidated net sales, net income and total assets. The Company changed its fiscal year end to September 30 effective September 30, 1997. The following is unaudited financial information of the Predecessor Company for the six months ended September 30, 1996: Net sales $89,739 Gross profit 26,753 Provision for income taxes 7,154 Net income 10,736 PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, 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. 35 36 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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 Expenditures for additions and improvements to property, plant and equipment are capitalized at cost 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 the straight-line method. DEFERRED FINANCING COSTS Costs incurred to obtain long-term financing are amortized using the interest method over the term of the related debt. IDENTIFIABLE INTANGIBLE ASSETS Identifiable intangible assets are amortized on a straight-line basis over the estimated useful lives of five months to 40 years. 36 37 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) GOODWILL Goodwill is amortized on a straight-line basis over 40 years. The carrying value of goodwill will be reviewed if facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flows of the Company over the remaining amortization period, the Company would reduce the carrying value of the goodwill by the estimated shortfall of cash flows. 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 $274 for the five months ended September 30, 1997. 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. 37 38 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL INSTRUMENTS The Company has a number of financial instruments, none of which are held for trading purposes. The following presents the carrying amounts and estimated fair values of such instruments at September 30, 1997:
Carrying Fair Amount Value ------------ ------------ Cash and cash equivalents $ 20,344 $ 20,344 Accounts receivable 29,932 29,932 Accounts payable 10,333 10,333 Long-term debt 197,620 213,623 (1)
(1) The fair value of the Senior Subordinated Notes is based on quoted market prices. PENDING ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes the standards for the manner in which public enterprises are required to report financial and descriptive information about their operating segments. The statement defines operating segments as components of an enterprise for which separate financial information is available and evaluated regularly as a means for assessing segment performance and allocating resources to segments. A measure of profit or loss, total assets and other related information are required to be disclosed for each operating segment. In addition, this statement requires the annual disclosure of information concerning revenues derived from the enterprise's products or services, countries in which it earns revenue or holds assets, and major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 131 will not affect the Company's results of operations or financial position, but may affect the disclosure of segment information. 38 39 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 2. INVENTORIES Inventories consist of the following at September 30, 1997: Raw materials $ 1,688 Work in process and finished goods 13,379 Supplies 4,572 -------- $ 19,639 ========
At September 30, 1997, inventories at LIFO approximate FIFO cost. 3. IDENTIFIABLE INTANGIBLE ASSETS Identifiable intangible assets consist of the following at September 30, 1997: Customer lists $14,200 Trade names 11,700 Assembled work force 2,050 Other 2,924 ------- 30,874 Less accumulated amortization 2,450 ------- $28,424 =======
39 40 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 4. LONG-TERM DEBT Long-term debt consists of the following at September 30, 1997: 111/8% Series B Senior Subordinated Notes $150,000 111/8% Series D Senior Subordinated Notes, including unamortized premium of $2,522 47,522 Other 98 -------- 197,620 Less current portion 98 -------- $197,522 ========
The Series B and Series D Senior Subordinated Notes (collectively, the Notes) are unsecured and mature on May 1, 2007. Interest is payable semiannually on May 1 and November 1. The Notes are fully, unconditionally, jointly and severally guaranteed by Transport and Hartley (Guarantor Subsidiaries). The Notes are subordinated to all existing and future senior indebtedness of the Company but rank equally in right of 40 41 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 4. LONG-TERM DEBT (CONTINUED) payment with any future senior subordinated indebtedness of the Company. The Notes contain covenants which limit the Company from incurring additional indebtedness and restrict dividend payments, stock redemptions and certain other transactions. The Series D Senior Subordinated Notes were issued on July 1, 1997. The Company used the proceeds to repay the term loans, accrued interest thereon and related fees and expenses. In connection with the prepayment in full of the term loans, the Company wrote off the unamortized balance of the related deferred financing costs of $2,629. The Company has an unsecured revolving credit facility that provides for borrowings up to $50 million through April 30, 2002. The revolving credit facility bears interest at (a) the base rate (as defined) plus 1.5% or (b) LIBOR (as defined) plus 2.5%, in each case subject to certain reductions based on the Company's financial performance. Interest is payable quarterly on outstanding borrowings. The Company is subject to a quarterly commitment fee of .5% per annum, subject to reduction based upon the Company's financial performance, on the average daily unused portion of the revolving credit facility. The covenants contained in the revolving credit facility restrict the payment of dividends, capital expenditures and certain other transactions and require the Company to maintain leverage, net worth and interest coverage ratios. 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 five-month period ended September 30, 1997 amounted to $446. Minimum rental payments due under these operating leases for subsequent fiscal years are as follows: 1998 $ 678 1999 506 2000 223 2001 94 2002 21 ------- $ 1,522 =======
41 42 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 5. COMMITMENTS AND CONTINGENCIES (CONTINUED) 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 September 30, 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 at September 30, 1997: Current: Federal $ 5,265 State 1,153 ------- 6,418 Deferred (2,939) ------- $ 3,479 =======
42 43 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 6. INCOME TAXES (CONTINUED) The provision for income taxes differs from the amount computed by applying the federal statutory rate of 34% to income before income taxes and extraordinary item at September 30, 1997, as follows: Provision at statutory rate $ 2,492 State income taxes, net of federal tax benefit 432 Amortization of goodwill 467 Other 88 --------- Provision for income taxes $ 3,479 ========= The components of the Company's deferred income tax assets and liabilities are as follows at September 30, 1997: Deferred income tax liabilities: Book basis of inventories in excess of tax basis $ (3,270) Book basis of property, plant and equipment in excess of tax basis (32,310) Identifiable intangible assets (11,370) Employee benefit plans (720) Other (296) --------- (47,966) Deferred income tax assets: Employee benefit plans 2,805 Accrued vacation 1,011 Other accrued liabilities 1,112 Other 214 --------- 5,142 --------- Net deferred income tax liability $ (42,824) ========= Included in the consolidated balance sheet as: Current deferred income tax asset $ 1,695 Noncurrent deferred income tax liability (44,519) --------- $ (42,824) =========
43 44 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 7. EMPLOYEE BENEFIT PLANS DEFINED BENEFIT PENSION PLANS The Company sponsors two defined benefit pension plans covering substantially all hourly employees. Retirement benefits for the pension plans are based on years of credited service and defined benefit rates. The Company funds the pension plans based on an actuarially determined cost method allowable under Internal Revenue Service regulations. The following table reconciles the funded status of the pension plans as of August 31, 1997 (the Company uses a measurement date as of August 31), to the amounts included in the consolidated balance sheet at September 30, 1997:
Underfunded Overfunded Plan Plan ----------------------------- Actuarial present value of benefit obligations: Vested benefit obligations $ (821) $(20,506) ============ ============ Accumulated benefit obligations $ (836) $(21,006) ============ ============ Projected benefit obligations $ (836) $(21,006) Plan assets at fair value (consisting principally of pooled investment funds and an investment contract with an insurance company) 776 24,524 ------------ ------------ Projected benefit obligations less than (in excess of) plan assets (60) 3,518 Unrecognized net gain (3) (1,655) ------------ ------------ Prepaid (accrued) pension obligations $ (63) $ 1,863 ============ ============ Net pension asset included in other assets in the consolidated balance sheet $ 1,800 ============
44 45 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 7. EMPLOYEE BENEFIT PLANS (CONTINUED) Components of net periodic pension cost for the five-month period ended September 30, 1997 are as follows: Service cost - benefits earned during the period $ 202 Interest cost on projected benefit obligations 662 Actual return on plan assets (723) ------ $ 141 ====== The discount rate used in estimating the projected benefit obligations and in determining the interest cost component of pension expense for the following year for both plans was 7.5%. The assumed long-term rate of return on plan assets used in determining pension expense was 7.5%. PROFIT-SHARING AND SAVINGS RETIREMENT PLAN The Company sponsors a Profit-Sharing and Savings Retirement Plan covering substantially all salaried employees. 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 $378 for the five-month period ended September 30, 1997. POSTRETIREMENT BENEFITS The Company sponsors defined benefit postretirement health care plans covering substantially all salaried employees and their dependents. 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. 45 46 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 7. EMPLOYEE BENEFIT PLANS (CONTINUED) The following table reconciles the funded status of the postretirement benefit plans to the amounts included in the consolidated balance sheet at September 30, 1997: Accumulated postretirement benefit obligations: Retirees $2,191 Fully eligible active participants 801 Other active participants 1,902 ------ Accrued postretirement benefit obligations $4,894 ====== Components of net periodic postretirement benefit cost for the five-month period ended September 30, 1997 are as follows: Service cost $ 58 Interest cost on accumulated postretirement benefit obligations 148 ------ $ 206 ====== The weighted-average discount rate used in determining the accumulated postretirement benefit obligations for both plans was 7.5%, and the healthcare cost trend rate was assumed to decrease gradually to 2009 and then remain at that level thereafter. The range of cost trend rates is 8.5% to 4.5%. 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 September 30, 1997 by $825 and would increase postretirement benefit expense for the five-month period ended September 30, 1997 by $48. 46 47 Neenah Foundry Company Notes to Consolidated Financial Statements (In Thousands) 8. GUARANTOR SUBSIDIARIES Transport and Hartley, wholly owned subsidiaries of the Company, fully, unconditionally, jointly and severally guarantee the Notes. The following is summarized combined financial information of the wholly owned subsidiaries. Net sales include net sales to Neenah Foundry Company of $2,048 for the five months ended September 30, 1997. Separate financial statements of the Guarantor Subsidiaries are not separately presented because, in the opinion of management, such financial statements are not material to investors.
SEPTEMBER 30, 1997 ------------------ Current assets $1,999 Noncurrent assets 2,464 Current liabilities 1,337 Noncurrent liabilities 382 FIVE MONTHS ENDED SEPTEMBER 30, 1997 --------------------- Net sales $4,232 Gross profit 1,530 Net income 381
47 48 CONSOLIDATED FINANCIAL STATEMENTS NEENAH FOUNDRY COMPANY (PREDECESSOR) Years ended March 31, 1995, 1996 and 1997 and one month ended April 30, 1997 48 49 Neenah Foundry Company (Predecessor) Consolidated Financial Statements Years ended March 31, 1995, 1996 and 1997 and one month ended April 30, 1997 CONTENTS Report of Independent Auditors............................................ Consolidated Balance Sheets............................................... Consolidated Statements of Income......................................... Consolidated Statements of Changes in Stockholders' Equity................ Consolidated Statements of Cash Flows..................................... Notes to Consolidated Financial Statements................................ 49 50 Report of Ernst & Young LLP, Independent Auditors Board of Directors Neenah Foundry Company (formerly Neenah Corporation - see Note 1) We have audited the accompanying consolidated balance sheets of Neenah Foundry Company (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, and for the one month ended April 30, 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, and for the one month ended April 30, 1997, in conformity with generally accepted accounting principles. Milwaukee, Wisconsin ERNST & YOUNG LLP June 4, 1997, except for Notes 1 and 10 as to which the date is July 1, 1997 50 51 Neenah Foundry Company (Predecessor) 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 ========= ============
51 52
MARCH 31 1996 1997 ----------------------------- 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 52 53 Neenah Foundry Company (Predecessor) Consolidated Statements of Income (In Thousands)
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1995 1996 1997 1997 ------------------------------------------------------------ Net sales $ 160,621 $166,951 $165,426 $17,276 Cost of sales 120,981 121,631 116,736 11,351 --------- --------- --------- -------- Gross profit 39,640 45,320 48,690 5,925 Selling, general and administrative expenses 16,673 16,983 17,547 1,752 --------- --------- --------- -------- Operating income 22,967 28,337 31,143 4,173 Net interest income (expense) (397) 481 1,162 121 --------- --------- --------- -------- Income before income taxes 22,570 28,818 32,305 4,294 Provision for income taxes 8,866 11,676 12,467 1,615 --------- --------- --------- -------- Net income $ 13,704 $ 17,142 $ 19,838 $ 2,679 ========= ========= ========= ========
See accompanying notes 53 54 Neenah Foundry Company (Predecessor) 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 Shares Amount Shares Amount Shares Amount Earnings Stock 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 Collection of notes receivable from owners -- -- -- -- -- -- -- 2,922 2,922 Net income -- -- -- -- -- -- 2,679 -- 2,679 ------ ------ ------ ------ ------ ------ -------- ------- ------- Balance at April 30, 1997 -- $ -- 620 $ 62 3,820 $ 382 $ 74,01 $ -- $74,458 ====== ====== ====== ====== ====== ====== ======== ======= =======
See accompanying notes 54 55 Neenah Foundry Company (Predecessor) Consolidated Statements of Cash Flows (In Thousands)
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1995 1996 1997 1997 ------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 13,704 $ 17,142 $19,838 $ 2,679 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,842 6,776 6,881 518 Deferred income taxes 2,862 1,863 (103) (120) Other (274) 48 (103) - Changes in operating assets and liabilities: Accounts receivable (3,384) 439 (592) (3,764) Inventories (142) (603) (632) 495 Other current assets 186 27 (401) 401 Accounts payable 684 (2,653) 373 1,308 Income taxes payable 526 (585) 56 1,734 Accrued liabilities 1,388 (1,261) 144 (185) Pension obligations 900 859 (2,349) 822 Postretirement benefit obligations 289 221 367 29 -------- -------- ------- ------- Net cash provided by (used in) operating activities 23,581 22,273 23,479 3,917 INVESTING ACTIVITIES Purchase of property, plant and equipment (3,665) (7,275) (4,546) (190) Proceeds from life insurance policy - - 1,439 - Other 253 (24) 3 (1) -------- -------- ------- ------- Net cash used in investing activities (3,412) (7,299) (3,104) (191) 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) (5) Collection of notes receivable from owners - - - 2,922 -------- -------- ------- ------- Net cash provided by (used in) financing activities (20,049) (5,086) (8,098) 2,917 -------- -------- ------- ------- Increase in cash and cash equivalents 120 9,888 12,277 6,643 Cash and cash equivalents at beginning of period 118 238 10,126 22,403 -------- -------- ------- -------- Cash and cash equivalents at end of period $ 238 $ 10,126 $22,403 $ 29,046 ======== ======== ======= ======== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 624 $ 84 $ 39 $ 1 Income taxes 5,478 10,398 12,515 -
See accompanying notes. 55 56 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements NEENAH FOUNDRY COMPANY (PREDECESSOR) Years ended March 31, 1995, 1996 and 1997 and one month ended April 30, 1997 (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Prior to July 1, 1997, Neenah Foundry Company was one of three wholly owned subsidiaries of Neenah Corporation, a holding company with no significant assets or operations other than its holdings in the common stock of its subsidiaries. On July 1, 1997, Neenah Foundry Company merged into Neenah Corporation and the surviving company changed its name to Neenah Foundry Company (the Company). The Company operates in one business segment for financial reporting purposes: the manufacture of gray and ductile iron castings. The Company manufactures castings for sale to industrial and municipal customers throughout the United States and several foreign countries. 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. 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, 16% and 10% of net sales in fiscal 1997 and 29% and 24% for the one month ended April 30, 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 has two wholly owned subsidiaries--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 the Company. 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 consolidated net sales, net income and total assets. 56 57 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, 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 or the one month ended April 30, 1997. 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. 57 58 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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, $524 and $55 for the years ended March 31, 1995, 1996 and 1997 and one month ended April 30, 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)
58 59 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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, SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," on January 1, 1997, and Statement of Position 96-1, "Environmental Remediation Liabilities," on April 1, 1997. The adoption of these statements did not have any effect on the Company's consolidated financial statements. In accordance with SFAS No. 121, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. 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 $ - ===== =======
59 60 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (In Thousands) 3. LONG-TERM DEBT (CONTINUED) 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 were repaid by the owners prior to the consummation of the plan of reorganization described in Note 10. The proceeds of the notes receivable were used to purchase 1,461 shares of Company Class B common stock from other shareholders, and were secured by such common stock. 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 and one month ended April 30, 1997 amounted to $850, $996, $1,088 and $85, 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 ======= 60 61 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (In Thousands) 5. COMMITMENTS AND CONTINGENCIES (CONTINUED) 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:
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1995 1996 1997 1997 ---------------------------------------------------- Current: Federal $5,556 $ 9,147 $11,554 $1,460 State 448 666 1,016 275 ------ -------- ------- ------ 6,004 9,813 12,570 1,735 Deferred 2,862 1,863 (103) (120) ------ -------- ------- ------ $8,866 $11,676 $12,467 $1,615 ====== ======== ======= ======
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:
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1995 1996 1997 1997 ---------------------------------------------------- Provision at statutory rate $7,900 $10,086 $11,307 $1,503 State income taxes, net of federal tax benefit 801 1,126 1,318 112 Other 165 464 (158) - ------ ------- ------- ------ Provision for income taxes $8,866 $11,676 $12,467 $1,615 ====== ======= ======= ======
61 62 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (In Thousands) 6. INCOME TAXES (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 62 63 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (In Thousands) 7. EMPLOYEE BENEFIT PLANS (CONTINUED) 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. The following table reconciles the funded status of the pension 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) -- -- -- ---------- ---------- ---------- ---------- (6,537) (19,805) (845) (20,150) Projected benefit obligations 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 ========== ==========
63 64 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (In Thousands) 7. EMPLOYEE BENEFIT PLANS (CONTINUED) Components of net periodic pension cost are as follows:
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1995 1996 1997 1997 ------------ ------------ -------------- ------------ Service cost - benefits earned during the year $ 822 $ 880 $ 820 $ 38 Interest cost on projected benefit obligations 1,437 1,545 1,742 125 Actual return on plan assets (1,412) (1,450) (1,531) (132) Net amortization and deferral 217 203 220 (1) --------- -------- -------- ------- $ 1,064 $ 1,178 $ 1,251 $ 30 ========= ======== ======== =======
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 cost 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. PROFIT-SHARING AND SAVINGS RETIREMENT PLAN The Company sponsors a Profit-Sharing and Savings Retirement Plan covering substantially all salaried employees. 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, $915 and $82 for the years ended March 31, 1995, 1996 and 1997 and one month ended April 30, 1997, respectively. POSTRETIREMENT BENEFITS The Company sponsors defined benefit postretirement health care plans covering substantially all salaried employees and their dependents. 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. 64 65 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (In Thousands) 7. EMPLOYEE BENEFIT PLANS (CONTINUED) 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:
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1995 1996 1997 1997 ---- ---- ---- ----------- Service cost $ 164 $ 176 $ 193 $ 11 Interest cost on accumulated post- retirement benefit obligations 340 361 370 27 Net amortization and deferral (4) (4) (5) (7) ====== ===== ====== ===== $ 500 $ 533 $ 558 $ 31 ====== ===== ====== =====
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. 65 66 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (In Thousands) 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 was terminated concurrently with the consummation of the plan of reorganization described in Note 10. 9. 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
10. SUBSEQUENT EVENT On April 30, 1997, pursuant to an Agreement and Plan of Reorganization with NC Merger Company and NFC Castings, Inc., Neenah Corporation was acquired by NFC Castings, Inc. using (i) $45,000 of cash equity contributed by NFC Castings, Inc., (ii) $45,000 of term loans, (iii) proceeds from the issuance of $150,000 of unsecured 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. On July 1, 1997, the Company issued $45,000 of unsecured Senior Subordinated Notes in a Rule 144A private placement and used the proceeds to repay the term loans. 66 67 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (In Thousands) 10. SUBSEQUENT EVENT (CONTINUED) As described in Note 1, on July 1, 1997, Neenah Foundry Company, the principal operating subsidiary of Neenah Corporation, merged into Neenah Corporation. Transport and Hartley, wholly owned subsidiaries of the Company, fully, unconditionally, jointly and severally guarantee the Senior Subordinated Notes issued in the private placement discussed above. The following is summarized combined financial information of the wholly owned subsidiaries. Net sales includes net sales to Neenah Foundry Company of $4,181, $4,090, $4,012 and $365 for the years ended March 31, 1995, 1996 and 1997 and one month ended April 30, 1997, respectively. Separate financial statements of the guarantor subsidiaries are not separately presented because, in the opinion of management, such financial statements are not material to investors.
MARCH 31 1996 1997 ---------- ---------- Current assets $1,494 $1,867 Noncurrent assets 1,661 1,918 Current liabilities 941 1,006 Noncurrent liabilities 401 453
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1995 1996 1997 1997 --------------- -------------- -------------- ---------------- Net sales $9,131 $9,795 $9,971 $703 Gross profit 2,719 3,165 3,247 169 Net income (loss) 501 651 513 (15)
67 68 Report of Ernst & Young LLP, Independent Auditors We have audited the consolidated financial statements of Neenah Foundry Company as of September 30, 1997, and for the period from inception, May 1, 1997 through September 30, 1997, and have issued our report thereon dated October 31, 1997 (included elsewhere in this Annual Report on Form 10-K). Our audit also included the financial statement schedule listed in the index at Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. 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. Milwaukee, Wisconsin ERNST & YOUNG LLP October 31, 1997 68 69 Schedule II NEENAH FOUNDRY COMPANY VALUATION AND QUALIFYING ACCOUNTS Period from inception, May 1, 1997, through September 30, 1997 (Dollars in Thousands)
BALANCE AT ADDITIONS BEGINNING CHARGED TO BALANCE AT DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD - --------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts receivable: 1997 $ 386 $ 36 $ 36 (A) $ 386 ===== ======= ======= ========
(A) Uncollectible accounts written off, net of recoveries. 69 70 Report of Ernst & Young LLP, Independent Auditors We have audited the consolidated financial statements of Neenah Foundry Company (formerly 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 June 4, 1997, except for Notes 1 and 10 as to which the date is July 1, 1997 (included elsewhere in this Annual Report on Form 10-K). Our audits also included the financial statement schedule listed in the index at Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Milwaukee, Wisconsin ERNST & YOUNG LLP June 4, 1997 70 71 Schedule II NEENAH FOUNDRY COMPANY (PREDECESSOR) VALUATION AND QUALIFYING ACCOUNTS Years ended March 31, 1995, 1996 and 1997 (Dollars in Thousands)
BALANCE AT ADDITIONS BEGINNING CHARGED TO BALANCE AT DESCRIPTION OF YEAR EXPENSE DEDUCTIONS END OF YEAR - --------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts receivable: 1995 $ 386 $ 214 $ 214 (A) $ 386 ===== ======= ======= ======== 1996 $ 386 $ 233 $ 233 (A) $ 386 ===== ======= ======= ======== 1997 $ 386 $ 175 $ 175 (A) $ 386 ===== ======= ======= ========
(A) Uncollectible accounts written off, net of recoveries. 71 EX-10.16 2 EX-10.16 1 Exhibit 10.16 NEENAH FOUNDRY COMPANY NFC CASTINGS, INC. $50,000,000 Credit Agreement Dated as of April 30, 1997, as Amended and Restated as of September 12, 1997 CHASE SECURITIES INC. AS ARRANGER THE CHASE MANHATTAN BANK AS ADMINISTRATIVE AGENT 2 TABLE OF CONTENTS
Page ARTICLE I Definitions SECTION 1.01. Definitions.................................................... 1 SECTION 1.02. Terms Generally................................................ 17 ARTICLE II The Credits SECTION 2.01. Commitments.................................................... 17 SECTION 2.02. Loans.......................................................... 17 SECTION 2.03. Borrowing Procedure............................................ 19 SECTION 2.04. Evidence of Debt; Repayment of Loans........................... 19 SECTION 2.05. Fees........................................................... 20 SECTION 2.06. Interest of Loans.............................................. 20 SECTION 2.07. Default Interest............................................... 21 SECTION 2.08. Alternate Rate of Interest..................................... 21 SECTION 2.09. Termination and Reduction of Commitments....................... 21 SECTION 2.10. Conversion and Continuation of Borrowings...................... 21 SECTION 2.11. [Intentionally Omitted]........................................ 22 SECTION 2.12. Optional Prepayment............................................ 22 SECTION 2.13. Mandatory Prepayments.......................................... 23 SECTION 2.14. Reserve Requirements; Change in Circumstances.................. 24 SECTION 2.15. Change in Legality............................................. 25 SECTION 2.16. Indemnity...................................................... 25 SECTION 2.17. Pro Rata Treatment............................................. 25 SECTION 2.18. Sharing of Setoffs............................................. 26 SECTION 2.19. Payments....................................................... 26 SECTION 2.20. Taxes.......................................................... 26 SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate............................................. 27 SECTION 2.22. Letters of Credit.............................................. 28
3 ARTICLE III Representations and Warranties
SECTION 3.01. Organization; Powers........................................... 31 SECTION 3.02. Authorization.................................................. 31 SECTION 3.03. Enforceability................................................. 31 SECTION 3.04. Governmental Approvals......................................... 31 SECTION 3.05. Financial Statements........................................... 31 SECTION 3.06. No Material Adverse Change..................................... 32 SECTION 3.07. Title to Properties; Possession Under Leases................... 32 SECTION 3.08. Subsidiaries................................................... 32 SECTION 3.09. Litigation; Compliance with Laws............................... 32 SECTION 3.10. Agreements..................................................... 33 SECTION 3.11. Federal Reserve Regulations.................................... 33 SECTION 3.12. Investment Company Act; Public Utility Holding Company Act..... 33 SECTION 3.13. Use of Proceeds................................................ 33 SECTION 3.14. Tax Returns.................................................... 33 SECTION 3.15. No Material Misstatements...................................... 33 SECTION 3.16. ERISA.......................................................... 34 SECTION 3.17. Environmental Matters.......................................... 34 SECTION 3.18. Insurance...................................................... 34 SECTION 3.19. Security Documents............................................. 34 SECTION 3.20. Location of Real Property and Leased Premises.................. 35 SECTION 3.21. Labor Matters.................................................. 35 SECTION 3.22. Solvency....................................................... 35 ARTICLE IV Conditions of Lending SECTION 4.01. All Credit Events.............................................. 36 SECTION 4.02. First Credit Event............................................. 36 ARTICLE V Affirmative Covenants SECTION 5.01. Existence; Business and Properties............................. 38 SECTION 5.02. Insurance...................................................... 39 SECTION 5.03. Obligations and Taxes.......................................... 40 SECTION 5.04 Financial Statements, Reports, etc............................. 40 SECTION 5.05. Litigation and Other Notices................................... 41 SECTION 5.06. Maintaining Records; Access to Properties and Inspections...... 41 SECTION 5.07. Use of Proceeds................................................ 41 SECTION 5.08. Compliance with Environmental Laws............................. 41 SECTION 5.09. Preparation of Environmental Reports........................... 41 SECTION 5.10. [Intentionally Omitted]........................................ 42
4 SECTION 5.11. Further Assurances............................................ 42 ARTICLE VI Negative Covenants SECTION 6.01. Indebtedness.................................................. 42 SECTION 6.02. Liens......................................................... 43 SECTION 6.03. Sale and Lease-Back Transactions.............................. 44 SECTION 6.04. Investments, Loans and Advances............................... 45 SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions..... 45 SECTION 6.06. Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends............................... 46 SECTION 6.07. Transactions with Affiliates.................................. 47 SECTION 6.08. Business of Borrower and Subsidiaries......................... 47 SECTION 6.09. Other Indebtedness and Agreements............................. 47 SECTION 6.10. Capital Expenditures.......................................... 48 SECTION 6.11. Consolidated Leverage Ratio................................... 48 SECTION 6.12. Consolidated Net Worth........................................ 48 SECTION 6.13. Consolidated Interest Coverage Ratio.......................... 48 SECTION 6.14. Fiscal Year................................................... 48 ARTICLE VII Events of Default............................................. 48 ARTICLE VIII The Administrative Agent and the Collateral Agent............. 50 ARTICLE IX Miscellaneous SECTION 9.01. Notices....................................................... 52 SECTION 9.02. Survival of Agreement......................................... 53 SECTION 9.03. Binding Effect................................................ 53 SECTION 9.04. Successors and Assigns........................................ 53 SECTION 9.05. Expenses; Indemnity........................................... 55 SECTION 9.06. Right of Setoff............................................... 56 SECTION 9.07. Applicable Law................................................ 56 SECTION 9.08. Waivers; Amendment............................................ 57 SECTION 9.09. Interest Rate Limitation...................................... 57 SECTION 9.10. Entire Agreement.............................................. 57 SECTION 9.11. WAIVER OF JURY TRIAL.......................................... 57 SECTION 9.12. Severability.................................................. 58
5
SECTION 9.13. Counterparts.................................................. 58 SECTION 9.14. Headings...................................................... 58 SECTION 9.15. Jurisdiction; Consent to Service of Process................... 58 SECTION 9.16. Confidentiality............................................... 58 SECTION 9.17. Termination................................................... 59
SCHEDULES: Schedule 1.01(a) -- Subsidiary Guarantors Schedule 2.01 -- Lenders and Commitments Schedule 3.07(d) -- Contractual Rights Regarding Mortgaged Property Schedule 3.08 -- Subsidiaries Schedule 3.09(a) -- Litigation Schedule 3.09(c) -- Certificates of Occupancy Schedule 3.10 -- Agreements and Instruments Schedule 3.17 -- Environmental Matters Schedule 3.18 -- Insurance Schedule 3.19(d) -- Filing Offices-- Mortgages Schedule 3.20(a) -- Mortgaged Properties Schedule 3.20(b) -- Leased Properties Schedule 6.01 -- Existing Indebtedness Schedule 6.02 -- Existing Liens Schedule 6.07 -- Transactions with Affiliates EXHIBITS: Exhibit A -- Form of Administrative Questionnaire Exhibit B -- Form of Assignment and Acceptance Exhibit C -- Form of Borrowing Request Exhibit D -- Form of Indemnity, Subrogation and Contribution Agreement Exhibit E -- Form of Mortgages Exhibit F -- Form of Parent Guarantee Agreement Exhibit G -- Form of Pledge Agreement Exhibit H -- Form of Security Agreement Exhibit I -- Form of Subsidiary Guarantee Agreement Exhibit J -- Form of Opinion of Kirkland & Ellis 6 CREDIT AGREEMENT dated as of April 30, 1997, amended and restated as of September 12, 1997, among NEENAH FOUNDRY COMPANY (formerly known as Neenah Corporation), a Wisconsin corporation (the "Borrower"), NFC CASTINGS, INC., a Delaware corporation ("Holdings"), the Lenders (as defined in Article I), and THE CHASE MANHATTAN BANK, a New York banking corporation, as issuing bank (in such capacity, the "Issuing Bank"), as administrative agent (in such capacity, the "Administrative Agent") and as collateral agent (in such capacity, the "Collateral Agent") for the Lenders. Holdings and the Borrower have requested the Lenders to extend credit to the Borrower in the form of Loans at any time and from time to time prior to the Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $50,000,000. Holdings and the Borrower have requested the Issuing Bank to issue letters of credit, in an aggregate face amount at any time outstanding not in excess of $15,000,000, to support payment obligations incurred in the ordinary course of business by the Borrower and its Subsidiaries. The proceeds of the Loans are to be used solely for general corporate purposes in the ordinary course of the Borrower's business, including acquisitions of other businesses subject to the terms and conditions set forth herein. The Lenders are willing to extend such credit to the Borrower and the Issuing Bank is willing to issue letters of credit for the account of the Borrower on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below: "ABR Borrowing" shall mean a Borrowing comprised of ABR Loans. "ABR Loan" shall mean any Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "Account" shall mean any right to payment for goods sold or for services rendered, whether or not it has been earned by performance. "ACP Holdings" shall mean ACP Holding Company, a Delaware corporation. "ACP Merger" shall have the meaning assigned to such term in the definition of the term "Change in Control". "ACP Products" shall mean ACP Products, L.L.C., a Delaware limited liability company. 7 "Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves. "Administrative Agent Fees" shall have the meaning assigned to such term in Section 2.05(b). "Administrative Questionnaire" shall mean an Administrative Questionnaire in the form of Exhibit A. "Affiliate" shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified. "Aggregate Credit Exposure" shall mean the aggregate amount of the Lenders' Credit Exposures. "Alternate Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the preceding sentence, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. The term "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective. The term "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate. "Amendment Agreement" shall mean the Amendment Agreement dated as of September 12, 1997 among the Borrower, Holdings, the Continuing Lenders (as defined therein) and the Departing Lenders (as defined therein), the Administrative Agent, the Collateral Agent and the Issuing Bank. "Applicable Percentage" shall mean, for any day, with respect to any Loan, or with respect to the Commitment Fees, as the case may be, the applicable percentage set forth below under the caption "Eurodollar Spread", "ABR Spread", or "Fee Percentage", as the case may be, based upon the Consolidated Leverage Ratio as of the relevant date of determination: 8
=========================================================================================================== Consolidated Leverage Eurodollar Fee Ratio Spread ABR Spread Percentage - ----------------------------------------------------------------------------------------------------------- Category 1 2.50% 1.50% .50% - ---------- Equal to or greater than 4.50 to 1.00 - ----------------------------------------------------------------------------------------------------------- Category 2 2.25% 1.25% .50% - ---------- Equal to or greater than 4.00 to 1.00, but less than 4.50 to 1.00 - ----------------------------------------------------------------------------------------------------------- Category 3 2.00% 1.00% .50% - ---------- Equal to or greater than 3.50 to 1.00, but less than 4.00 to 1.00 - ----------------------------------------------------------------------------------------------------------- Category 4 1.75% .75% .375% - ---------- Equal to or greater than 3.00 to 1.00, but less than 3.50 to 1.00 - ----------------------------------------------------------------------------------------------------------- Category 5 1.50% .50% .375% - ---------- Less than 3.00 to 1.00 ===========================================================================================================
Each change in the Applicable Percentage resulting from a change in the Consolidated Leverage Ratio shall be effective with respect to all Loans, Commitments and Letters of Credit outstanding on and after the date of delivery to the Administrative Agent of the financial statements and certificates required by Section 5.04(a) or (b) indicating such change until the date immediately preceding the next date of delivery of such financial statements and certificates indicating another such change. Notwithstanding the foregoing, (a) at any time during which the Borrower has failed to deliver the financial statements and certificates required by Section 5.04(a) or (b), or (b) at any time after the occurrence and during the continuance of an Event of Default, the Consolidated Leverage Ratio shall be deemed to be in Category 1 for purposes of determining the Applicable Percentage. "Approved Fund" shall mean, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Assessment Rate" shall mean for any date the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Administrative Agent as the then current net annual assessment rate that will be employed in determining amounts payable by 9 the Administrative Agent to the Federal Deposit Insurance Corporation (or any successor thereto) for insurance by such Corporation (or such successor) of time deposits made in dollars at the Administrative Agent's domestic offices. "Asset Sale" shall mean the sale, transfer or other disposition (by way of merger or otherwise) by the Borrower or any of the Subsidiaries to any person other than the Borrower or any Subsidiary Guarantor of (a) any capital stock of any of the Subsidiaries (other than directors' qualifying shares) or (b) any other assets of the Borrower or any of the Subsidiaries (other than (i) inventory, excess, damaged, obsolete or worn out assets, scrap, Permitted Investments and licenses of patterns developed for customers of the Borrower or any Subsidiary, in each case disposed of in the ordinary course of business, (ii) assets transferred for an aggregate purchase price not exceeding $3,000,000 in any fiscal year of the Borrower in connection with the replacement or upgrade of a tangible asset of the Borrower or any Subsidiary Guarantor within 180 days of such transfer or (iii) dispositions resulting in Casualty Proceeds or Condemnation Proceeds), provided that neither (x) any asset sale or series of related asset sales described in clause (b) above having a value not in excess of $100,000 nor (y) any Equity Issuance shall be deemed an "Asset Sale" for purposes of this Agreement. "Assignment and Acceptance" shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Administrative Agent, in the form of Exhibit B or such other form as shall be approved by the Administrative Agent. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States of America. "Borrower Tax Amount" shall mean, with respect to any fiscal quarter, the amount paid by Holdings, the Borrower and the Subsidiaries to ACP Holdings pursuant to the Tax Sharing Agreement, which amount shall not be greater than the amount of taxes that would be required to be paid in cash by Holdings, the Borrower and the Subsidiaries on a consolidated basis if Holdings, the Borrower and the Subsidiaries were not consolidated with ACP Holdings and its other subsidiaries for tax purposes. "Borrowing" shall mean a group of Loans of a single Type made by the Lenders on a single date and as to which a single Interest Period is in effect. "Borrowing Request" shall mean a request by the Borrower in accordance with the terms of Section 2.03 and substantially in the form of Exhibit C. "Business Day" shall mean any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease Obligations" of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Capital Stock" of any Person shall mean any and all shares, interests (including membership and economic interests in a limited liability company), rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such 10 Person, including any Preferred Stock, but excluding any debt securities convertible into such equity prior to such conversion. "Casualty" shall have the meaning set forth in each of the Mortgages. "Casualty Proceeds" shall have the meaning set forth in each of the Mortgages. A "Change in Control" shall be deemed to have occurred if (a) prior to the earlier to occur of the first fully distributed public offering of Voting Stock of Holdings (or, in the event (i) Holdings shall merge with and into ACP Holdings or the Borrower in a transaction permitted by Section 6.05 (a "Holdings Merger"), ACP Holdings, or (ii) following a Holdings Merger, ACP Holdings shall merge with and into ACP Products or the Borrower in a transaction permitted by Section 6.05 (an "ACP Holdings Merger"), ACP Products), the Permitted Holders shall cease to own directly or indirectly (including by way of direct or indirect ownership of economic interests in ACP Products), beneficially or of record, shares representing at least 51% on a fully diluted, as if converted, basis of the aggregate ordinary voting power represented by the issued and outstanding Voting Stock of Holdings (or, in the event of (i) a Holdings Merger, ACP Holdings, or (ii) an ACP Holdings Merger, ACP Products), (b) after the first fully distributed public offering of Voting Stock of Holdings (or, in the event of (i) a Holdings Merger, ACP Holdings, or (ii) an ACP Holdings Merger, ACP Products), the Permitted Holders shall cease to own directly or indirectly (including by way of direct or indirect ownership of economic interests in ACP Products), beneficially or of record, shares representing at least 25% on a fully diluted, as if converted, basis of the aggregate ordinary voting power represented by the issued and outstanding Voting Stock of Holdings (or, in the event of (i) a Holdings Merger, ACP Holdings, or (ii) an ACP Holdings Merger, ACP Products), (c) after the first fully distributed public offering of Voting Stock of Holdings (or, in the event of (i) a Holdings Merger, ACP Holdings, or (ii) an ACP Holdings Merger, ACP Products), any person or group (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934 as in effect on the date hereof) other than the Permitted Holders shall own directly or indirectly, beneficially or of record, a percentage of the issued and outstanding Voting Stock of Holdings (or, in the event of (i) a Holdings Merger, ACP Holdings, or (ii) an ACP Holdings Merger, ACP Products) on a fully diluted, as if converted, basis having ordinary voting power in excess of the percentage then owned, directly or indirectly (including by way of direct or indirect ownership of economic interests in ACP Products), beneficially and of record, on a fully diluted, as if converted, basis, by the Permitted Holders; (d) a majority of the seats (except in the case of any vacancy for 30 days or less resulting from the death or resignation of any director of Holdings (or, in the event of (i) a Holdings Merger, ACP Holdings, or (ii) an ACP Holdings Merger, ACP Products)) on the board of directors of Holdings (or, in the event of (i) a Holdings Merger, ACP Holdings, or (ii) an ACP Holdings Merger, ACP Products) shall at any time be occupied by persons who were neither (i) nominated by the board of directors of Holdings, ACP Holdings or ACP Products, as the case may be, nor (ii) appointed by directors so nominated; (e) any change in control (or similar event, however denominated) with respect to Holdings (or, in the event of (i) a Holdings Merger, ACP Holdings, or (ii) an ACP Holdings Merger, ACP Products) or the Borrower shall occur under and as defined in any indenture or agreement in respect of Indebtedness to which any such person or any Subsidiary is a party; or (f) Holdings (or in the event of (i) a Holdings Merger, ACP Holdings, or (ii) an ACP Holdings Merger, ACP Products) shall cease to own, beneficially and of record, 100% of the issued and outstanding Capital Stock of the Borrower. "Citicorp" shall mean Citicorp, a Delaware corporation. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collateral" shall mean all the "Collateral" as defined in any Security Document and shall also include the Mortgaged Properties. 11 "Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Loans hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender assumed its Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. "Commitment Fee" shall have the meaning assigned to such term in Section 2.05(a). "Condemnation" shall have the meaning set forth in each of the Mortgages. "Condemnation Proceeds" shall have the meaning set forth in each of the Mortgages. "Confidential Information Memorandum" shall mean the Confidential Information Memorandum of the Borrower dated August 1997. "Consolidated Capital Expenditures" shall mean, for any period, the sum of (a) the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability) by the Borrower or any of the Subsidiaries during such period that, in accordance with GAAP, are or should be included in "additions to property, plant and equipment" or similar items reflected in the consolidated statement of cash flows of the Borrower and the Subsidiaries for such period (including the amount of assets leased in connection with any Capital Lease Obligation), and (b) to the extent not included pursuant to clause (a) above, the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability) by the Borrower or any Subsidiary to acquire, by purchase or otherwise, the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any person (other than expenditures for Permitted Acquisitions); provided, however, that, for purposes of Section 6.10 only, to the extent the Borrower or a Subsidiary uses, within 180 days of the receipt thereof, the proceeds of the disposition of assets described in clause (b)(i), (ii) or (iii) of the definition of the term "Asset Sale" or Condemnation Proceeds to purchase, construct, repair, lease or replace any property, plant or equipment, the amount of the related Consolidated Capital Expenditure shall be reduced by the amount of such proceeds. "Consolidated EBITDA" shall mean, for any period, Consolidated Net Income for such period, plus, to the extent deducted in computing such Consolidated Net Income, (a) the sum of (i) all Federal, state, local and foreign taxes, (ii) Consolidated Net Interest Expense and (iii) depreciation, depletion, amortization of intangibles and other non-cash charges or non-cash losses (including non-cash transaction expenses and the amortization of debt discounts), minus, to the extent added in computing such Consolidated Net Income, (b) any non-cash income or non-cash gains, all as determined on a consolidated basis with respect to the Borrower and the Subsidiaries in accordance with GAAP. "Consolidated Interest Coverage Ratio" shall mean, for any period, the ratio for such period of (a) Consolidated EBITDA to (b) Consolidated Net Interest Expense determined in each case for the period of four consecutive fiscal quarters ending on the last day of such period; provided, however, that for purposes of determining the Consolidated Interest Coverage Ratio for the four-fiscal-quarter periods ending on the last day of the fiscal year ending September 30, 1997 (the "1997 Fiscal Year"), and the last day of the first quarter of the fiscal year ending on September 30, 1998, (the "1998 Fiscal Year"), Consolidated EBITDA and Consolidated Net Interest Expense shall be deemed to be (i) in the case of the four-fiscal-quarter period ending on the last day of the last quarter of the 1997 Fiscal Year, Consolidated EBITDA and Consolidated Net Interest Expense for the two-fiscal-quarter period ending on such date, multiplied by 2 and (ii) in the case of the four-fiscal-quarter period ending on the last day of the first quarter of the 1998 Fiscal Year, Consolidated 12 EBITDA and Consolidated Net Interest Expense for the three-fiscal-quarter period ending on such date, multiplied by 1-1/3. "Consolidated Leverage Ratio" shall mean, as of any date of determination, the ratio of (a) Net Debt on such date to (b) Consolidated EBITDA for the period of four consecutive fiscal quarters ending on such date (including the Consolidated EBITDA for such four fiscal quarters of any Subsidiary acquired during such four fiscal quarters constituting a Permitted Acquisition pursuant to Section 6.04(g)); provided, however, that for purposes of determining the Consolidated Leverage Ratio for the four-fiscal-quarter periods ending on the last day of the fiscal year ending on September 30, 1997 (the "1997 Fiscal Year"), and the last day of the first quarter of the fiscal year ending on September 30, 1998 (the "1998 Fiscal Year"), Consolidated EBITDA shall be deemed to be (i) in the case of the four-fiscal-quarter period ending on the last day of the 1997 Fiscal Year, Consolidated EBITDA for the two-fiscal-quarter period ending on such date, multiplied by 2 and (ii) in the case of the four-fiscal-quarter period ending on the last day of the first quarter of the 1998 Fiscal Year, Consolidated EBITDA for the three-fiscal-quarter period ending on such date, multiplied by 1-1/3. "Consolidated Net Income" shall mean, for any period, net income or loss of the Borrower and the Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income of any person in which any other person (other than the Borrower or any of the Subsidiaries or any director holding qualifying shares in accordance with applicable law) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any wholly owned Subsidiary by such person during such period, (b) the income (or loss) of any person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of the Subsidiaries or the date that person's assets are acquired by the Borrower or any of the Subsidiaries (except, in the case of any Subsidiary acquired during such period constituting a Permitted Acquisition pursuant to Section 6.04(g), which shall not be excluded for purposes of determining Consolidated EBITDA for purposes of the Consolidated Leverage Ratio only), (c) the income of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by the Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (d) any after tax gains or losses attributable to sales of assets out of the ordinary course of business and (e) (to the extent not included in clauses (a) through (d) above) any non-cash extraordinary gains or non-cash extraordinary losses. "Consolidated Net Interest Expense" shall mean, for any period, (a) the gross interest expense of the Borrower and the Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including the portion of any payments or accruals with respect to Capital Lease Obligations that are allocable to interest expense in accordance with GAAP, but excluding (i) the amortization of debt discounts and (ii) the amortization of all fees (including fees with respect to Interest Rate Protection Agreements) payable in connection with the incurrence of Indebtedness to the extent included in interest expense in accordance with GAAP less the total interest income of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments made or received by the Borrower or any Subsidiary with respect to Interest Rate Protection Agreements. "Consolidated Net Worth" shall mean, as of any date of determination, the consolidated stockholder's equity of the Borrower and the Subsidiaries at such date, as determined on a consolidated basis in accordance with GAAP; provided, however, that common stock or preferred stock (a) with respect to which no payments that would violate Section 6.06 are required to be 13 made and (b) that is redeemable not earlier than April 30, 2009 shall be included regardless of its classification under GAAP. "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Credit Event" shall have the meaning assigned to such term in Section 4.01. "Credit Exposure" shall mean, with respect to any Lender at any time, the aggregate principal amount at such time of all outstanding Loans of such Lender, plus the aggregate amount at such time of such Lender's L/C Exposure. "CVC" shall mean Citicorp Venture Capital, Ltd., a New York corporation. "Default" shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default. "dollars" or "$" shall mean lawful money of the United States of America. "Domestic Subsidiaries" shall mean all Subsidiaries incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "Earn-Out Obligation" shall mean any unsecured contingent liability of the Borrower or any Subsidiary owed to any seller in connection with any Permitted Acquisition permitted pursuant to Section 6.04(g) by the Borrower or any Subsidiary that (a) constitutes a portion of the purchase price for such Permitted Acquisition but is not an amount certain on the date of incurrence thereof and is not subject to any right of acceleration by such seller or (b) is only payable upon the achievement of performance standards by the property acquired in such Permitted Acquisition and in an amount based upon such achievement. "Environment" shall mean ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, the workplace or as otherwise defined in any Environmental Law. "Environmental Claim" shall mean any written accusation, allegation, notice of violation, claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Remedial Action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the environment caused by any Hazardous Material, or for fines, penalties or restrictions, resulting from or based upon (a) the existence, or the continuation of the existence, of a Release (including sudden or non-sudden, accidental or non-accidental Releases), (b) exposure to any Hazardous Material, (c) the presence, use, handling, transportation, storage, treatment or disposal of any Hazardous Material or (d) the violation or alleged violation of any Environmental Law or Environmental Permit. "Environmental Law" shall mean any and all applicable present and future treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 14 as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. ss.ss. 9601 et seq. (collectively "CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. ss.ss. 6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. ss.ss. 1251 et seq., the Clean Air Act of 1970, as amended 42 U.S.C. ss.ss. 7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. ss.ss. 2601 et seq., the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. ss.ss. 651 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. ss.ss. 11001 et seq., the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. ss.ss. 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 5101 et seq., and any similar or implementing state or local law, and all amendments or regulations promulgated under any of the foregoing. "Environmental Permit" shall mean any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law. "Equity Issuance" shall mean any issuance or sale by Holdings (or, in the event of (i) a Holdings Merger, ACP Holdings, or (ii) an ACP Holdings Merger, ACP Products), the Borrower or any Subsidiary of any shares of capital stock or other equity securities of any such person or any obligations convertible into or exchangeable for, or giving any person a right, option or warrant to acquire such securities or such convertible or exchangeable obligations, except in each case for (a) any issuance or sale to Holdings (or, in the event of (i) a Holdings Merger, ACP Holdings, or (ii) an ACP Holdings Merger, ACP Products), the Borrower or any Subsidiary, (b) any issuance of directors' qualifying shares, (c) sales or issuances of common stock to management or key employees of Holdings (or, in the event of (i) a Holdings Merger, ACP Holdings, or (ii) an ACP Holdings Merger, ACP Products), the Borrower or any Subsidiary under any employee stock option or stock purchase plan in existence from time to time to the extent that the proceeds from all sales and issuances described in this clause (c) shall not exceed in the aggregate $1,000,000 in any fiscal year, (d) any issuance of Capital Stock the proceeds of which are substantially concurrently used to make Permitted Acquisitions pursuant to Section 6.04(g) and (e) any issuance of Capital Stock the proceeds of which are substantially concurrently used to make Consolidated Capital Expenditures pursuant to Section 6.10. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" shall mean (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or 15 any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar Loans. "Eurodollar Loan" shall mean any Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. "Event of Default" shall have the meaning assigned to such term in Article VII. "Excluded Taxes" shall mean, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.21(a)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.20(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.20(a). "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" shall mean the Fee Letter dated July 28, 1997, among the Borrower and The Chase Manhattan Bank. "Fees" shall mean the Commitment Fees, the Administrative Agent's Fees, the L/C Participation Fees and the Issuing Bank Fees. "Financial Officer" of any corporation shall mean the chief financial officer, principal accounting officer, Treasurer or Controller of such corporation. "Foreign Lender" shall mean any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "Foreign Subsidiary" shall mean any Subsidiary that is not a Domestic Subsidiary. "GAAP" shall mean generally accepted accounting principles applied on a consistent basis. "Governmental Authority" shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. 16 "Guarantee" of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. "Guarantee Agreements" shall mean the Parent Guarantee Agreement and the Subsidiary Guarantee Agreement. "Guarantors" shall mean Holdings and the Subsidiary Guarantors. "Hazardous Materials" shall mean all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Holdings Merger" shall have the meaning assigned to such term in the definition of the term "Change in Control". "Indebtedness" of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person upon which interest charges are customarily paid (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business), (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable, accrued obligations incurred in the ordinary course of business and any unaccrued Earn-Out Obligation), (f) all Indebtedness of others of the type described in clauses (a) through (e) and (g) through (j) of this definition secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all obligations of such person in respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements and (j) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner. "Indemnified Taxes" shall mean Taxes other than Excluded Taxes. "Indemnity, Subrogation and Contribution Agreement" shall mean the Indemnity, Subrogation and Contribution Agreement, as amended and restated as of the date hereof, substantially in the form of Exhibit D, among the Borrower, the Subsidiary Guarantors and the Collateral Agent. 17 "Interest Payment Date" shall mean, with respect to any Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months' duration been applicable to such Borrowing, and, in addition, the date of any prepayment of such Borrowing or conversion of such Borrowing to a Borrowing of a different Type. "Interest Period" shall mean (a) as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect and (b) as to any ABR Borrowing, the period commencing on the date of such Borrowing and ending on the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) the Maturity Date and (iii) the date such Borrowing is converted to a Borrowing of a different Type in accordance with Section 2.10 or repaid or prepaid in accordance with Section 2.12 or 2.13; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Interest Rate Protection Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or similar agreement or arrangement designed to protect the Borrower or any Subsidiary against fluctuations in interest rates, and not entered into for speculation. "Investors" shall mean CVC and certain other investors. "Issuing Bank Fees" shall have the meaning assigned to such term in Section 2.05(c). "L/C Commitment" shall mean the commitment of the Issuing Bank to issue Letters of Credit pursuant to Section 2.22. "L/C Disbursement" shall mean a payment or disbursement made by the Issuing Bank pursuant to a Letter of Credit. "L/C Exposure" shall mean at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate principal amount of all L/C Disbursements that have not yet been reimbursed at such time. The L/C Exposure of any Lender at any time shall mean its Pro Rata Percentage of the aggregate L/C Exposure at such time. "L/C Participation Fee" shall have the meaning assigned to such term in Section 2.05(c). "Lenders" shall mean (a) the financial institutions listed on Schedule 2.01 (other than any such financial institution that has ceased to be a party hereto pursuant to an Assignment and Acceptance) and (b) any financial institution that has become a party hereto pursuant to an Assignment and Acceptance. "Letter of Credit" shall mean any letter of credit issued pursuant to Section 2.22. "LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Service (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of the Telerate Service, as 18 determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not so available at such time for any reason, the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits approximately equal in principal amount to the Administrative Agent's portion of such Eurodollar Borrowing and for a maturity comparable to such Interest Period are offered to the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" shall mean this Agreement, the Letters of Credit, the Guarantee Agreements, the Security Documents and the Indemnity, Subrogation and Contribution Agreement. "Loan Parties" shall mean the Borrower and the Guarantors. "Loans" shall mean the loans made by the Lenders to the Borrower pursuant to Section 2.01. Each Loan shall be a Eurodollar Loan or an ABR Loan. "Management Investors" shall mean the officers, directors and employees of ACP Holdings, ACP Products, Holdings, the Borrower or a Subsidiary of the Borrower who acquire Voting Stock of ACP Holdings, ACP Products, Holdings or the Borrower on or after the Original Closing Date. "Margin Stock" shall have the meaning assigned to such term in Regulation U. "Material Adverse Effect" shall mean (a) a materially adverse effect on the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and the Subsidiaries, taken as a whole, (b) material impairment of the ability of the Borrower or any other Loan Party to perform any of its obligations under any Loan Document to which it is or will be a party or (c) material impairment of the rights of or benefits available to the Lenders under any Loan Document. "Maturity Date" shall mean April 30, 2002. "Merger Agreement" shall mean the Agreement and Plan of Reorganization dated as of November 20, 1996, by and among Holdings, the Borrower and Neenah, as the same may be amended, restated, modified or supplemented from time to time prior to the date hereof or in accordance with Section 6.09(a). "Mortgaged Properties" shall mean the owned real properties of the Loan Parties specified on Schedule 3.20(a). 19 "Mortgages" shall mean the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents delivered pursuant to clause (i) of Section 4.02(j) or pursuant to Section 5.11, each substantially in the form of Exhibit E. "Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Debt" shall mean, at any date and without duplication, (a) the aggregate amount of all Indebtedness of the Borrower and the Subsidiaries on a consolidated basis at such date (other than any Indebtedness described in clause (i) or (j) of the definition of the term "Indebtedness") minus (b) the aggregate amount of all marketable securities on the Borrower's balance sheet on such date. "Obligations" shall mean all obligations defined as "Obligations" in the Guarantee Agreements and the Security Documents. "Original Closing Date" shall mean April 30, 1997. "Other Taxes" shall mean any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "Parent Guarantee Agreement" shall mean the Parent Guarantee Agreement, as amended and restated as of the date hereof, substantially in the form of Exhibit F, made by Holdings in favor of the Collateral Agent for the benefit of the Secured Parties. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA. "Perfection Certificate" shall mean the Perfection Certificate substantially in the form of Annex 2 to the Security Agreement. "Permitted Acquisitions" shall mean acquisitions of not less than 100% of the outstanding capital stock of any corporation, a division of any corporation or any similar business unit (or of substantially all the assets and business of any of the foregoing) engaged in a Related Business (each, an "Acquisition") so long as (i) in the case of each such Acquisition of capital stock, such Acquisition was not preceded by an unsolicited tender offer for such capital stock by Holdings or any of its Affiliates and (ii) in the case of all Acquisitions, the aggregate principal amount of the Loans at any time outstanding used to finance the cash consideration paid in connection with all such Acquisitions, to refinance Indebtedness in connection with all such Acquisitions and to pay related fees and expenses, taken as a whole, does not exceed the excess of (a) $40,000,000 over (b) the aggregate principal amount of outstanding Loans used to finance Consolidated Capital Expenditures pursuant to Section 6.10(d). "Permitted Holders" shall mean (i) CVC and its Affiliates and Permitted Transferees and (ii) the Management Investors and their Permitted Transferees. 20 "Permitted Investments" shall mean: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from Standard & Poor's Ratings Service or from Moody's Investors Service, Inc.; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within one year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $250,000,000; (d) other investment instruments approved in writing by the Required Lenders and offered by financial institutions which have a combined capital and surplus and undivided profits of not less than $250,000,000; and (e) shares of funds registered under the Investment Company Act of 1940, as amended, that have assets of at least $100,000,000 and invest only in obligations described in clauses (a) through (d) above, to the extent that such shares are rated by Moody's Investors Service, Inc. or Standard & Poor's Ratings Service in one of the two highest rating categories assigned by such agency for shares of such nature. "Permitted Transferee" shall mean (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 referred 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, ACP Holdings, Holdings, the Borrower or a Subsidiary, (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" shall mean any natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. "Plan" shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreement" shall mean the Pledge Agreement, as amended and restated as of the date hereof, substantially in the form of Exhibit G, among the Borrower, Holdings, the Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties. 21 "Preferred Stock" as applied to the Capital Stock of any corporation, shall mean 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. "Pro Rata Percentage" of any Lender at any time shall mean the percentage of the Total Commitment represented by such Lender's Commitment. "Register" shall have the meaning given such term in Section 9.04(d). "Regulation G" shall mean Regulation G of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation U" shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation X" shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Related Business" shall mean any business of the Borrower and its Subsidiaries as conducted on the Original Closing Date or the Restatement Closing Date and any business related, ancillary or complementary thereto. "Release" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "Remedial Action" shall mean (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, (i) or (ii) above. "Required Lenders" shall mean, at any time, Lenders having Loans, L/C Exposure and unused Commitments representing at least a majority of the sum of all Loans outstanding, L/C Exposure and unused Commitments at such time. "Responsible Officer" of any corporation shall mean any executive officer or Financial Officer of such corporation and any other officer or similar official thereof responsible for the administration of the obligations of such corporation in respect of this Agreement. "Restatement Closing Date" shall mean September 12, 1997. "Secured Parties" shall have the meaning assigned to such term in the Security Agreement. "Security Agreement" shall mean the Security Agreement, as amended and restated as of the date hereof, substantially in the form of Exhibit H, between the Borrower, the Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties. 22 "Security Documents" shall mean the Mortgages, the Security Agreement, the Pledge Agreement and each of the security agreements, mortgages and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 5.12. "Senior Subordinated Notes" shall mean (a) the 11.125% Senior Subordinated Notes due 2007 of the Borrower, issued on the Original Closing Date in an aggregate principal amount of $150,000,000 and (b) the 11.125% Series C Senior Subordinated Notes due 2007 of the Borrower issued on July 1, 1997, in an aggregate principal amount of $45,000,000. "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority, domestic or foreign, to which the Administrative Agent or any Lender (including any branch, Affiliate, or other fronting office making or holding a Loan) is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months, and (b) with respect to the Adjusted LIBO Rate, for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" shall mean, with respect to any person (herein referred to as the "parent"), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held, or (b) that is, at the time any determination is made, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" shall mean any subsidiary of the Borrower. "Subsidiary Guarantee Agreement" shall mean the Subsidiary Guarantee Agreement, as amended and restated as of the date hereof, substantially in the form of Exhibit I, made by the Subsidiary Guarantors in favor of the Collateral Agent for the benefit of the Secured Parties. "Subsidiary Guarantor" shall mean each Subsidiary listed on Schedule 1.01(a), and each other Subsidiary that is or becomes a party to a Subsidiary Guarantee Agreement. "Taxes" shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Tax Sharing Agreement" shall mean the Tax Sharing Agreement, substantially in the form of Exhibit K, among ACP Holdings, Holdings and ACP Holdings' other direct and indirect subsidiaries. "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such 23 next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. "Total Commitment" shall mean, at any time, the aggregate amount of the Commitments, as in effect at such time. "Transactions" shall have the meaning assigned to such term in Section 3.02. "Type", when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, the term "Rate" shall include the Adjusted LIBO Rate and the Alternate Base Rate. "Voting Stock" of a corporation shall mean all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "wholly owned Subsidiary" of any person shall mean a subsidiary of such person of which securities (except for directors' qualifying shares) or other ownership interests representing 100% of the equity or 100% of the ordinary voting power or 100% of the general partnership interests are, at the time any determination is being made, owned, controlled or held by such person or one or more wholly owned subsidiaries of such person or by such person and one or more wholly owned subsidiaries of such person. "Withdrawal Liability" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, (a) any reference in this Agreement to any Loan Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time and (b) all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that for purposes of determining compliance with the covenants contained in Article VI, except as otherwise provided herein, all accounting terms herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with GAAP as in effect on the date of this Agreement and applied on a basis consistent with the application used in the financial statements referred to in Section 3.05(a) (except to the extent that such financial statements accounted for inventory on a last-in-first-out basis). 24 ARTICLE II The Credits SECTION 2.01. Commitments. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, to make Loans to the Borrower, at any time and from time to time on or after the date hereof, and until the earlier of the Maturity Date and the termination of the Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in such Lender's Credit Exposure exceeding such Lender's Commitment. Within the limits set forth in the preceding sentence and subject to the terms, conditions and limitations set forth herein, the Borrower may borrow, pay or prepay and reborrow Loans. SECTION 2.02. Loans. (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their applicable Commitments; provided, however, that the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). Except for Loans deemed made pursuant to Section 2.02(f), the Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) an integral multiple of $500,000 and not less than $1,000,000 in the case of Eurodollar Loans, (ii) an integral multiple of $100,000 and not less than $500,000 in the case of ABR Loans or (iii) in the case of ABR Loans, equal to the remaining available balance of the applicable Commitments. (b) Subject to Sections 2.08 and 2.15, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request pursuant to Section 2.03. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Borrower shall not be entitled to request any Borrowing that, if made, would result in more than seven Eurodollar Borrowings outstanding hereunder at any time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings. (c) Except with respect to Loans made pursuant to Section 2.02(f), each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account in New York City as the Administrative Agent may designate not later than 11:00 a.m., New York City time, and the Administrative Agent shall by 12:00 (noon), New York City time, credit the amounts so received to an account in the name of the Borrower, maintained with the Administrative Agent and designated by the Borrower in the applicable Borrowing Request or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with paragraph (c) above and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If the Administrative Agent shall have so made funds available then, to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the 25 Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent at (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing (in lieu of interest which would otherwise become due to such Lender pursuant to Section 2.06) and (ii) in the case of such Lender, a rate determined by the Administrative Agent to represent its cost of overnight or short-term funds (which determination shall be conclusive absent manifest error). If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender's Loan as part of such Borrowing for purposes of this Agreement. (e) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request a Borrowing pursuant to which the Interest Period requested with respect thereto would end after the Maturity Date. (f) If the Issuing Bank shall not have received from the Borrower the payment required to be made by Section 2.22(e) within the time specified in such Section, the Issuing Bank will promptly notify the Administrative Agent of the L/C Disbursement and the Administrative Agent will promptly notify each Lender of such L/C Disbursement and its Pro Rata Percentage thereof. Each Lender shall pay by wire transfer of immediately available funds to the Administrative Agent not later than 2:00 p.m., New York City time, on such date (or, if such Lender shall have received such notice later than 12:00 (noon), New York City time, on any day, not later than 10:00 a.m., New York City time, on the immediately following Business Day), an amount equal to such Lender's Pro Rata Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute an ABR Loan of such Lender and such payment shall be deemed to have reduced the L/C Exposure), and the Administrative Agent will promptly pay to the Issuing Bank amounts so received by it from the Lenders. The Administrative Agent will promptly pay to the Issuing Bank any amounts received by it from the Borrower pursuant to Section 2.22(e) prior to the time that any Lender makes any payment pursuant to this paragraph (f); any such amounts received by the Administrative Agent thereafter will be promptly remitted by the Administrative Agent to the Lenders that shall have made such payments and to the Issuing Bank, as their interests may appear. If any Lender shall not have made its Pro Rata Percentage of such L/C Disbursement available to the Administrative Agent as provided above, such Lender and the Borrower severally agree to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Administrative Agent for the account of the Issuing Bank at (i) in the case of the Borrower, a rate per annum equal to the interest rate applicable to Loans pursuant to Section 2.06(a) (in lieu of interest which would otherwise become due to such Lender pursuant to Section 2.06), and (ii) in the case of such Lender, for the first such day, the Federal Funds Effective Rate, and for each day thereafter, the Alternate Base Rate. SECTION 2.03. Borrowing Procedure. In order to request a Borrowing (other than a deemed Borrowing pursuant to Section 2.02(f), as to which this Section 2.03 shall not apply), the Borrower shall hand deliver or telecopy to the Administrative Agent a duly completed Borrowing Request (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before a proposed Borrowing, and (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the Business Day of a proposed Borrowing. Each Borrowing Request shall be irrevocable, shall be signed by or on behalf of the Borrower and shall specify the following information: (i) whether such Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Borrowing (which shall be a Business Day), (iii) the number and location of the account to which funds are to be disbursed (which shall be an account that complies with the requirements of Section 2.02(c)); (iv) the amount of such Borrowing; and (v) if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto; provided, however, that, notwithstanding any contrary specification in any Borrowing Request, 26 each requested Borrowing shall comply with the requirements set forth in Section 2.02. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall promptly advise the applicable Lenders of any notice given pursuant to this Section 2.03 (and the contents thereof), and of each Lender's portion of the requested Borrowing. SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the principal amount of the then unpaid principal amount of each Loan on the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower or any Guarantor and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraphs (b) and (c) above shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrower to repay the Loans in accordance with their terms. (e) Notwithstanding any other provision of this Agreement, in the event any Lender shall request and receive a promissory note payable to such Lender and its registered assigns, the interests represented by such note shall at all times (including after any assignment of all or part of such interests pursuant to Section 9.04) be represented by one or more promissory notes payable to the payee named therein or its registered assigns. SECTION 2.05. Fees. (a) The Borrower agrees to pay to each Lender, through the Administrative Agent, on the last day of March, June, September and December in each year and on each date on which any Commitment of such Lender shall expire or be terminated as provided herein, a commitment fee (a "Commitment Fee") equal to the Applicable Percentage set forth under the heading "Fee Percentage" in the definition of the term "Applicable Percentage" per annum in effect from time to time on the average daily unused amount of the Commitments of such Lender during the preceding quarter (or other period commencing with the date of acceptance by the Borrower of the Commitment of such Lender or ending with the Maturity Date or the date on which the Commitment of such Lender shall expire or be terminated). All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Commitment Fee due to each Lender shall commence to accrue on the date of acceptance by the Borrower of the Commitment of such Lender and shall cease to accrue on the date on which the Commitment of such Lender shall expire or be terminated as provided herein. For purposes of this Section 2.05, the unused amount of any Lender's Commitment on any date shall equal such Lender's Commitment on such date minus such Lender's outstanding Loans and L/C Exposure on such date. 27 (b) The Borrower agrees to pay to the Administrative Agent, for its own account, the administrative fees set forth in the Fee Letter at the times and in the amounts specified therein (the "Administrative Agent Fees"). (c) The Borrower agrees to pay (i) to each Lender, through the Administrative Agent, on the last day of March, June, September and December of each year and on the date on which the Commitment of such Lender shall be terminated as provided herein, a fee (an "L/C Participation Fee") calculated on such Lender's Pro Rata Percentage of the average daily aggregate L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements) during the preceding quarter (or shorter period commencing with the date hereof or ending with the Maturity Date or the date on which all Letters of Credit have been canceled or have expired and the Commitments of all Lenders shall have been terminated) at a rate equal to the Applicable Percentage from time to time used to determine the interest rate on Borrowings comprised of Eurodollar Loans pursuant to Section 2.06, and (ii) to the Issuing Bank with respect to each Letter of Credit the standard fronting, issuance and drawing fees specified from time to time by the Issuing Bank (the "Issuing Bank Fees"). All L/C Participation Fees and Issuing Bank Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. (d) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders, except that the Issuing Bank Fees shall be paid directly to the Issuing Bank. Once paid, none of the Fees shall be refundable under any circumstances. SECTION 2.06. Interest on Loans. (a) Subject to the provisions of Section 2.07, the Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when the Alternate Base Rate is determined by reference to the Prime Rate and over a year of 360 days at all other times) at a rate per annum equal to the Alternate Base Rate plus the Applicable Percentage in effect from time to time. (b) Subject to the provisions of Section 2.07, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Percentage in effect from time to time. (c) Interest on each Loan shall be payable on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. The applicable Alternate Base Rate or Adjusted LIBO Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.07. Default Interest. If the Borrower shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, by acceleration or otherwise, or under any other Loan Document, the Borrower shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount to but excluding the date of actual payment (after as well as before judgment) (a) in the case of overdue principal, at the rate otherwise applicable to such Loan pursuant to Section 2.06 plus 2.00% per annum and (b) in all other cases, at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when determined by reference to the Prime Rate and over a year of 360 days at all other times) equal to the sum of the Alternate Base Rate plus 2.00%. SECTION 2.08. Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar 28 Borrowing the Administrative Agent shall have determined in good faith that dollar deposits in the principal amounts of the Loans comprising such Borrowing are not generally available in the London interbank market, or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to any Lender of making or maintaining its Eurodollar Loan during such Interest Period, or that reasonable means do not exist for ascertaining the Adjusted LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter, but, in any event, prior to the commencement of any Interest Period, give written or telecopy notice of such determination to the Borrower and the Lenders. In the event of any such determination, until the Administrative Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, any request by the Borrower for a Eurodollar Borrowing pursuant to Section 2.03 or 2.10 shall be deemed to be a request for an ABR Borrowing. Each determination by the Administrative Agent hereunder shall be conclusive absent manifest error. SECTION 2.09. Termination and Reduction of Commitments. (a) The Commitments and the L/C Commitment shall automatically terminate on the Maturity Date. (b) Upon at least three Business Days' prior irrevocable written or telecopy notice to the Administrative Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, in each case, without premium or penalty, the Commitments; provided, however, that (i) each partial reduction of the Commitments shall be in an integral multiple of $500,000 and in a minimum amount of $1,000,000 and (ii) the Total Commitment shall not be reduced to an amount that is less than the Aggregate Credit Exposure at the time. (c) Each reduction in the Commitments hereunder shall be made ratably among the Lenders in accordance with their respective Commitments. The Borrower shall pay to the Administrative Agent for the account of the Lenders, on the date of each termination or reduction, the unpaid Commitment Fees on the amount of the Commitments so terminated or reduced accrued to but excluding the date of such termination or reduction. SECTION 2.10. Conversion and Continuation of Borrowings. The Borrower shall have the right at any time upon prior irrevocable notice to the Administrative Agent (a) not later than 11:00 a.m., New York City time, on the Business Day of conversion, to convert any Eurodollar Borrowing into an ABR Borrowing, (b) not later than 10:00 a.m., New York City time, three Business Days prior to conversion or continuation, to convert any ABR Borrowing into a Eurodollar Borrowing or to continue any Eurodollar Borrowing as a Eurodollar Borrowing for an additional Interest Period, and (c) not later than 10:00 a.m., New York City time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Borrowing to another permissible Interest Period, subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Lenders in accordance with the respective principal amounts of the Loans comprising the converted or continued Borrowing; (ii) if less than all the outstanding principal amount of any Borrowing shall be converted or continued, then each resulting Borrowing shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b) regarding the principal amount and maximum number of Borrowings of the relevant Type; (iii) each conversion shall be effected by each Lender and the Administrative Agent by recording for the account of such Lender the new Loan of such Lender resulting from such conversion and reducing the Loan (or portion thereof) of such Lender being converted by an equivalent principal amount; accrued and unpaid interest on any 29 Eurodollar Loan (or portion thereof) being converted shall be paid by the Borrower at the time of conversion; (iv) if any Eurodollar Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Borrower shall pay, upon demand, any amounts due to the Lenders pursuant to Section 2.16; (v) any portion of a Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Borrowing; (vi) any portion of a Eurodollar Borrowing that cannot be converted into or continued as a Eurodollar Borrowing by reason of the immediately preceding clause shall be automatically converted at the end of the Interest Period in effect for such Borrowing into an ABR Borrowing; and (vii) upon notice to the Borrower from the Administrative Agent given at the request of the Required Lenders, after the occurrence and during the continuance of a Default or Event of Default, no outstanding Loan may be converted into, or continued as, a Eurodollar Loan. Each notice pursuant to this Section 2.10 shall be irrevocable and shall refer to this Agreement and specify (i) the identity and amount of the Borrowing that the Borrower requests be converted or continued, (ii) whether such Borrowing is to be converted to or continued as a Eurodollar Borrowing or an ABR Borrowing, (iii) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (iv) if such Borrowing is to be converted to or continued as a Eurodollar Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Borrowing, the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall advise the Lenders of any notice given pursuant to this Section 2.10 and of each Lender's portion of any converted or continued Borrowing. If the Borrower shall not have given notice in accordance with this Section 2.10 to continue any Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.10 to convert such Borrowing), such Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be continued into a new Interest Period as an ABR Borrowing. SECTION 2.11. [Intentionally Omitted.] SECTION 2.12. Optional Prepayment. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, upon at least three Business Days' prior written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) in the case of Eurodollar Loans, or prior written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) on or prior to the date of prepayment in the case of ABR Loans, to the Administrative Agent before 11:00 a.m., New York City time; provided, however, that each partial prepayment shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000. (b) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such Borrowing by the amount stated therein on the date stated therein. All prepayments of Eurodollar Loans under this Section 2.12 shall be subject to Section 2.16 but otherwise without premium or penalty. All prepayments of ABR Loans shall be without premium or penalty. All prepayments under this Section 2.12 shall be accompanied by accrued but unpaid interest on the principal amount being prepaid to the date of payment. 30 SECTION 2.13. Mandatory Prepayments. (a) In the event of any termination of all the Commitments, the Borrower shall repay or prepay all its outstanding Borrowings on the date of such termination. In the event of any partial reduction of the Commitments, then (i) at or prior to the effective date of such reduction, the Administrative Agent shall notify the Borrower and the Lenders of the Aggregate Credit Exposure after giving effect thereto and (ii) if the Aggregate Credit Exposure would exceed the Total Commitment after giving effect to such reduction or termination, then the Borrower shall, on the date of such reduction or termination, first, prepay Borrowings in an amount sufficient to eliminate such excess and second, to the extent of any remaining excess (after the prepayment of Loans), replace outstanding Letters of Credit and/or deposit an amount in cash in a cash collateral account established with the Collateral Agent for the benefit of the Secured Parties. (b) In the event that there shall occur any Casualty or Condemnation and, pursuant to the applicable Mortgage, the Casualty Proceeds or Condemnation Proceeds, as the case may be, are required to be used to prepay the Loans, then the Borrower shall apply an amount equal to 100% of such Casualty Proceeds or Condemnation Proceeds, as the case may be, to prepay outstanding Loans and/or cash collateralizing Letters of Credit in accordance with Section 2.13(a). (c) The Borrower shall deliver to the Administrative Agent, at the time of each prepayment required under this Section 2.13, a certificate signed by a Financial Officer of the Borrower setting forth in reasonable detail the calculation of the amount of such prepayment. Each notice of prepayment shall specify the prepayment date, the Type of each Loan being prepaid and the principal amount of each Loan (or portion thereof) to be prepaid. All prepayments of Borrowings under this Section 2.13 shall be subject to Section 2.16, but shall otherwise be without premium or penalty. (d) Amounts to be applied pursuant to this Section 2.13 to the prepayment of Loans shall be applied, as applicable, first to reduce outstanding ABR Loans. Any amounts remaining after each such application shall, at the option of the Borrower, be applied to prepay Eurodollar Loans immediately and/or shall be deposited in the Prepayment Account (as defined below). The Administrative Agent shall apply any cash deposited in the Prepayment Account to prepay Eurodollar Loans on the last day of their respective Interest Periods (or, at the direction of the Borrower, on any earlier date) until all outstanding Loans have been prepaid or until all the allocable cash on deposit with respect to such Loans has been exhausted. For purposes of this Agreement, the term "Prepayment Account" shall mean an account established by the Borrower with the Administrative Agent and over which the Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal for application in accordance with this paragraph (d). The Administrative Agent will, at the request of the Borrower, invest amounts on deposit in the Prepayment Account in Permitted Investments that mature prior to the last day of the applicable Interest Periods of the Eurodollar Borrowings to be prepaid, as the case may be; provided, however, that (i) the Administrative Agent shall not be required to make any investment that, in its sole judgment, would require or cause the Administrative Agent to be in, or would result in any, violation of any law, statute, rule or regulation and (ii) the Administrative Agent shall have no obligation to invest amounts on deposit in the Prepayment Account if an Event of Default shall have occurred and be continuing. The Borrower shall indemnify the Administrative Agent for any losses relating to the investments so that the amount available to prepay Eurodollar Borrowings on the last day of the applicable Interest Period is not less than the amount that would have been available had no investments been made pursuant thereto. Other than any interest earned on such investments, the Prepayment Account shall not bear interest. Interest or profits, if any, on such investments shall be deposited in the Prepayment Account and reinvested and disbursed as specified above. If the maturity of the Loans has been accelerated pursuant to Article VII, the Administrative Agent may, in its sole discretion, apply all amounts on deposit in the Prepayment Account to satisfy any of the Obligations. The Borrower hereby grants 31 to the Administrative Agent, for its benefit and the benefit of the Issuing Bank and the Lenders, a security interest in the Prepayment Account to secure the Obligations. SECTION 2.14. Reserve Requirements; Change in Circumstances. (a) Notwithstanding any other provision of this Agreement, if after the date of this Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of payments to any Lender or the Issuing Bank of the principal of or interest on any Eurodollar Loan made by such Lender or any Fees or other amounts payable hereunder (other than changes in respect of taxes imposed on the overall net income of such Lender or the Issuing Bank by the jurisdiction in which such Lender or the Issuing Bank has its principal office or lending office or by any political subdivision or taxing authority therein), or shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by any Lender or the Issuing Bank (except any such reserve requirement which is reflected in the Adjusted LIBO Rate) or shall impose on such Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein, and the result of any of the foregoing shall be to increase the cost to such Lender or the Issuing Bank of making or maintaining any Eurodollar Loan or increase the cost to any Lender of issuing or maintaining any Letter of Credit or purchasing or maintaining a participation therein or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or otherwise) by an amount reasonably deemed by such Lender or the Issuing Bank to be material, then the Borrower will pay to such Lender or the Issuing Bank, as the case may be, upon demand such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender or the Issuing Bank shall have determined that the adoption after the date hereof of any law, rule, regulation, agreement or guideline regarding capital adequacy, or any change after the date hereof in any such law, rule, regulation, agreement or guideline (whether such law, rule, regulation, agreement or guideline has been adopted) or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or compliance by any Lender (or any lending office of such Lender) or the Issuing Bank or any Lender's or the Issuing Bank's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any Governmental Authority has or would have the effect of reducing the rate of return on such Lender's or the Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made or participations in Letters of Credit purchased by such Lender pursuant hereto or the Letters of Credit issued by the Issuing Bank pursuant hereto to a level below that which such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Lender's or the Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's holding company with respect to capital adequacy) by an amount reasonably deemed by such Lender or the Issuing Bank to be material, then from time to time the Borrower shall pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts reasonably determined by such Lender or Issuing Bank to be necessary to compensate such Lender or the Issuing Bank or its holding company, as applicable, as specified in paragraph (a) or (b) above shall be delivered to the Borrower and shall be conclusive absent manifest error. The 32 Borrower shall pay such Lender or the Issuing Bank the amount shown as due on any such certificate delivered by it within 10 days after its receipt of the same. (d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation. The protection of this Section shall be available to each Lender and the Issuing Bank regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, agreement, guideline or other change or condition that shall have occurred or been imposed. SECTION 2.15. Change in Legality. (a) Notwithstanding any other provision of this Agreement, if, after the date hereof, any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Administrative Agent: (i) such Lender may declare that Eurodollar Loans will not thereafter (for the duration of such unlawfulness) be made by such Lender hereunder (or be continued for additional Interest Periods and ABR Loans will not thereafter (for such duration) be converted into Eurodollar Loans), whereupon any request for a Eurodollar Borrowing (or to convert an ABR Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing for an additional Interest Period) shall, as to such Lender only, be deemed a request for an ABR Loan (or a request to continue an ABR Loan as such for an additional Interest Period or to convert a Eurodollar Loan into an ABR Loan, as the case may be), unless such declaration shall be subsequently withdrawn; and (ii) such Lender may require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans as of the effective date of such notice as provided in paragraph (b) below. In the event any Lender shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal that would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans. (b) For purposes of this Section 2.15, a notice to the Borrower by any Lender shall be effective as to each Eurodollar Loan made by such Lender, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower. SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender against any loss or expense that such Lender may sustain or incur as a consequence of (a) any event, other than a default by such Lender in the performance of its obligations hereunder, which results in (i) such Lender receiving or being deemed to receive any amount on account of the principal of any Eurodollar Loan prior to the end of the Interest Period in effect therefor, (ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of the Interest Period with respect to any Eurodollar Loan, in each case other than on the last day of the Interest Period in effect therefor, or (iii) any Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be made pursuant to a conversion or continuation under Section 2.10) not being made after notice of such Loan shall have been given by the Borrower hereunder (any of the events referred to in this 33 clause (a) being called a "Breakage Event") or (b) any default in the making of any payment or prepayment required to be made hereunder. In the case of any Breakage Event, such loss shall include an amount equal to the excess, as reasonably determined by such Lender, of (i) its cost of obtaining funds for the Eurodollar Loan that is the subject of such Breakage Event for the period from the date of such Breakage Event to the last day of the Interest Period in effect (or that would have been in effect) for such Loan over (ii) the amount of interest likely to be realized by such Lender in redeploying the funds released or not utilized by reason of such Breakage Event for such period. A certificate of any Lender setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section 2.16 shall be delivered to the Borrower and shall be conclusive absent manifest error. SECTION 2.17. Pro Rata Treatment. Except as required under Sections 2.14, 2.15 or 2.20, each Borrowing, each payment or prepayment of principal of any Borrowing, each payment of interest on the Loans, each payment of the Commitment Fees, each reduction of the Commitments and each conversion of any Borrowing to or continuation of any Borrowing as a Borrowing of any Type shall be allocated pro rata among the Lenders in accordance with their respective Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Loans). Each Lender agrees that in computing such Lender's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Lender's percentage of such Borrowing to the next higher or lower whole dollar amount. SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Borrower or any other Loan Party, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Loan or Loans or L/C Disbursement as a result of which the unpaid principal portion of its Loans or participations in L/C Disbursements shall be proportionately less than the unpaid principal portion of the Loans or participations in L/C Disbursements of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Loans or L/C Exposure, as the case may be of such other Lender, so that the aggregate unpaid principal amount of the Loans and L/C Exposure and participations in Loans and L/C Exposure held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Loans and L/C Exposure then outstanding as the principal amount of its Loans and L/C Exposure prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Loans and L/C Exposure outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. The Borrower and Holdings expressly consent to the foregoing arrangements and agree that any Lender holding a participation in a Loan or L/C Disbursement deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower and Holdings to such Lender by reason thereof as fully as if such Lender had made a Loan directly to the Borrower in the amount of such participation. SECTION 2.19. Payments. (a) The Borrower shall make each payment (including principal of or interest on any Borrowing or any L/C Disbursement or any Fees or other amounts) hereunder and under any other Loan Document not later than 1:00 p.m., New York City time, on the date when due in immediately available dollars, without setoff, defense or counterclaim. Each such payment (other than Issuing Bank Fees, which shall be paid directly to the Issuing 34 Bank) shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York by wire transfer. (b) Whenever any payment (including principal of or interest on any Borrowing or any Fees or other amounts) hereunder or under any other Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Fees, if applicable. SECTION 2.20. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that, if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the Code and the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate. (a) In the event (i) any Lender or the Issuing Bank delivers a certificate requesting compensation pursuant to Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15 or (iii) the Borrower is required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the 35 Issuing Bank pursuant to Section 2.20, the Borrower may, at its sole expense and effort (including with respect to the processing and recordation fee referred to in Section 9.04(b)), upon notice to such Lender or the Issuing Bank and the Administrative Agent, require such Lender or the Issuing Bank to transfer and assign, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all of its interests, rights and obligations under this Agreement to an assignee that shall assume such assigned obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (x) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, (y) the Borrower shall have received the prior written consent of the Administrative Agent (and, if a Commitment is being assigned, of the Issuing Bank), which consent shall not unreasonably be withheld, and (z) the Borrower or such assignee shall have paid to the affected Lender or the Issuing Bank in immediately available funds an amount equal to the sum of the principal of and interest accrued to the date of such payment on the outstanding Loans or L/C Disbursements of such Lender or the Issuing Bank, respectively, plus all Fees and other amounts accrued for the account of such Lender or the Issuing Bank hereunder (including any amounts under Section 2.14 and Section 2.16); provided further that, if prior to any such transfer and assignment the circumstances or event that resulted in such Lender's or the Issuing Bank's claim for compensation under Section 2.14 or notice under Section 2.15 or the amounts paid pursuant to Section 2.20, as the case may be, cease to cause such Lender or the Issuing Bank to suffer increased costs or reductions in amounts received or receivable or reduction in return on capital, or cease to have the consequences specified in Section 2.15, or cease to result in amounts being payable under Section 2.20, as the case may be (including as a result of any action taken by such Lender or the Issuing Bank pursuant to paragraph (b) below), or if such Lender or the Issuing Bank shall waive its right to claim further compensation under Section 2.14 in respect of such circumstances or event or shall withdraw its notice under Section 2.15 or shall waive its right to further payments under Section 2.20 in respect of such circumstances or event, as the case may be, then such Lender or the Issuing Bank shall not thereafter be required to make any such transfer and assignment hereunder. (b) If (i) any Lender or the Issuing Bank shall request compensation under Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15 or (iii) the Borrower is required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the Issuing Bank, pursuant to Section 2.20, then such Lender or the Issuing Bank shall use reasonable efforts (which shall not require such Lender or the Issuing Bank to incur an unreimbursed loss or unreimbursed cost or expense or otherwise take any action inconsistent with its internal policies or legal or regulatory restrictions or suffer any disadvantage or burden deemed by it to be significant) (x) to file any certificate or document reasonably requested in writing by the Borrower or (y) to assign its rights and delegate and transfer its obligations hereunder to another of its offices, branches or affiliates, if such filing or assignment would reduce its claims for compensation under Section 2.14 or enable it to withdraw its notice pursuant to Section 2.15 or would reduce amounts payable pursuant to Section 2.20, as the case may be, in the future. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender or the Issuing Bank in connection with any such filing or assignment, delegation and transfer. SECTION 2.22. Letters of Credit. (a) General. The Borrower may request the issuance of a Letter of Credit for its own account or the account of any Subsidiary Guarantor, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time while the Commitments remain in effect. This Section shall not be construed to impose an obligation upon the Issuing Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. In order to request the issuance of a Letter of 36 Credit (or to amend, renew or extend an existing Letter of Credit), the Borrower shall hand deliver or telecopy to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension (A) the L/C Exposure shall not exceed $15,000,000 and (B) the Aggregate Credit Exposure shall not exceed the Total Commitment. (c) Expiration Date. Each Letter of Credit shall expire at the close of business on the earlier of the date one year after the date of the issuance of such Letter of Credit and the date that is five Business Days prior to the Maturity Date, unless such Letter of Credit expires by its terms on an earlier date. (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each such Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender's Pro Rata Percentage of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender's Pro Rata Percentage of each L/C Disbursement made by the Issuing Bank and not reimbursed by the Borrower (or, if applicable, another party pursuant to its obligations under any other Loan Document) forthwith on the date due as provided in Section 2.02(f). Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, the Borrower shall pay or cause to be paid to the Administrative Agent an amount equal to such L/C Disbursement not later than 2:00 p.m. on the Business Day the Borrower shall have received notice from the Issuing Bank that payment of such draft will be made, or, if the Borrower shall have received such notice later than 10:00 a.m., New York City time, on any Business Day, not later than 10:00 a.m., New York City time, on the immediately following Business Day. (f) Obligations Absolute. The Borrower's obligations to reimburse L/C Disbursements as provided in paragraph (e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document; 37 (iii) the existence of any claim, setoff, defense or other right that the Borrower, any other party guaranteeing, or otherwise obligated with, the Borrower, any Subsidiary or other Affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Issuing Bank, the Administrative Agent or any Lender or any other person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and (vi) any other act or omission to act or delay of any kind of the Issuing Bank, the Lenders, the Administrative Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the Borrower's obligations hereunder. Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligation of the Borrower hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or wilful misconduct of the Issuing Bank. However, the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank's gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof; it is understood that the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the Issuing Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute wilful misconduct or gross negligence of the Issuing Bank. (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall as promptly as possible give telephonic notification, confirmed by telecopy, to the Administrative Agent and the Borrower of such demand for payment and whether the Issuing Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to any such L/C Disbursement. The Administrative Agent shall promptly give each Lender notice thereof. (h) Interim Interest. If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless the Borrower shall reimburse such L/C Disbursement in full on such date, the unpaid amount thereof shall bear interest for the account of the Issuing Bank, for each 38 day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the Borrower or the date on which interest shall commence to accrue thereon as provided in Section 2.02(f), at the rate per annum that would apply to such amount if such amount were an ABR Loan. (i) Resignation or Removal of the Issuing Bank. The Issuing Bank may resign at any time by giving 180 days' prior written notice to the Administrative Agent, the Lenders and the Borrower, and may be removed at any time by the Borrower by notice to the Issuing Bank, the Administrative Agent and the Lenders. Subject to the next succeeding paragraph, upon the acceptance of any appointment as the Issuing Bank hereunder by a Lender that shall agree to serve as successor Issuing Bank, such successor shall succeed to and become vested with all the interests, rights and obligations of the retiring Issuing Bank and the retiring Issuing Bank shall be discharged from its obligations to issue additional Letters of Credit hereunder, without affecting its rights and obligations with respect to Letters of Credit previously issued by it. At the time such removal or resignation shall become effective, the Borrower shall pay all accrued and unpaid fees pursuant to Section 2.05(c)(ii). The acceptance of any appointment as the Issuing Bank hereunder by a successor Lender shall be evidenced by an agreement entered into by such successor, in a form satisfactory to the Borrower and the Administrative Agent, and, from and after the effective date of such agreement, (i) such successor Lender shall have all the rights and obligations of the previous Issuing Bank under this Agreement and the other Loan Documents and (ii) references herein and in the other Loan Documents to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the resignation or removal of the Issuing Bank hereunder, the retiring Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement and the other Loan Documents with respect to Letters of Credit issued by it prior to such resignation or removal, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If any Event of Default shall occur and be continuing, the Borrower shall, on the Business Day it receives notice from the Administrative Agent or the Required Lenders thereof and of the amount to be deposited, deposit in an account with the Collateral Agent, for the benefit of the Lenders, an amount in cash equal to the L/C Exposure as of such date. Such deposit shall be held by the Collateral Agent as collateral for the payment and performance of the Obligations. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits in Permitted Investments, which investments shall be made at the option and sole discretion of the Collateral Agent, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall (i) automatically be applied by the Administrative Agent to reimburse the Issuing Bank for L/C Disbursements for which it has not been reimbursed, (ii) be held for the satisfaction of the reimbursement obligations of the Borrower for the L/C Exposure at such time and (iii) if the maturity of the Loans has been accelerated, be applied to satisfy the Obligations. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. 39 ARTICLE III Representations and Warranties Each of Holdings and the Borrower represents and warrants to the Administrative Agent, the Collateral Agent, the Issuing Bank and each of the Lenders that: SECTION 3.01. Organization; Powers. Each of Holdings, the Borrower and each of the Subsidiaries (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where the failure so to qualify could not reasonably be expected to result in a Material Adverse Effect, and (d) has the corporate power and authority to execute, deliver and perform its obligations under each of the Loan Documents and each other agreement or instrument contemplated hereby to which it is or will be a party and, in the case of the Borrower, to borrow hereunder. SECTION 3.02. Authorization. The execution, delivery and performance by each Loan Party of each of the Loan Documents and the borrowings hereunder and the other transactions contemplated hereby (collectively, the "Transactions") (a) have been duly authorized by all requisite corporate and, if required, stockholder action and (b) will not (i) violate (A) any provision of law, statute, rule or regulation, or of the certificate or articles of incorporation or other constitutive documents or by-laws of Holdings, the Borrower or any Subsidiary, (B) any order of any Governmental Authority or (C) any provision of any material indenture, agreement or other instrument to which Holdings, the Borrower or any Subsidiary is a party or by which any of them or any of their property is or may be bound, (ii) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under, or give rise to any right to accelerate or to require the prepayment, repurchase or redemption of any obligation under any such indenture, agreement or other instrument or (iii) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by Holdings, the Borrower or any Subsidiary (other than any Lien created hereunder or under the Security Documents). SECTION 3.03. Enforceability. This Agreement has been duly executed and delivered by Holdings and the Borrower and constitutes, and each other Loan Document when executed and delivered by the each Loan party thereto will constitute, a legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its terms, subject to the effects of applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors' rights generally and equitable principles of general applicability (regardless of whether such enforceability is considered in a proceeding at law or in equity). SECTION 3.04. Governmental Approvals. No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required in connection with the Transactions, except for (a) the filing of Uniform Commercial Code financing statements and filings with the United States Patent and Trademark Office and the United States Copyright Office, (b) recordation of the Mortgages and (c) such as have been made or obtained and are in full force and effect. SECTION 3.05. Financial Statements. (a) The Borrower has heretofore furnished to the Lenders the consolidated balance sheets and statements of income and cash flows of Neenah as of and for the fiscal year ended March 31, 1997, audited by and accompanied by the opinion of Ernst & Young LLP, independent public accountants. Such financial statements present fairly the 40 financial condition and results of operations and cash flows of Neenah and its consolidated Subsidiaries as of such dates and for such periods. Such balance sheets and the notes thereto disclose all material liabilities, direct or contingent, of Neenah and its consolidated Subsidiaries as of the dates thereof. Such financial statements were prepared in accordance with GAAP applied on a consistent basis. (b) The Borrower has heretofore delivered to the Lenders its unaudited pro forma statements of income for the period of April 1, 1997 through and including June 30, 1997. Such pro forma financial statements have been prepared in good faith by the Borrower, based on the assumptions used to prepare the pro forma financial information contained in the Confidential Information Memorandum (which assumptions are believed by the Borrower on the Restatement Closing Date to be reasonable), is based on the best information available to the Borrower as of the date of delivery thereof. SECTION 3.06. No Material Adverse Change. There has been no material adverse change in the business, assets, operations, prospects, condition, financial or otherwise, or material agreements of the Borrower and the Subsidiaries, taken as a whole, since March 31, 1997. SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each of Holdings, the Borrower and the Subsidiaries has good and marketable title to, or valid leasehold interests in, all its material properties and assets (including all Mortgaged Property), except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens, other than Liens expressly permitted by Section 6.02. (b) Each of Holdings, the Borrower and the Subsidiaries has complied with all obligations under all material leases to which it is a party and all such leases are in full force and effect. Each of Holdings, the Borrower and the Subsidiaries enjoys peaceful and undisturbed possession under all such material leases. (c) Neither Holdings nor the Borrower has received any notice of, nor has any knowledge of, any pending or contemplated condemnation proceeding materially and adversely affecting the Mortgaged Properties or any sale or disposition thereof in lieu of condemnation. (d) Except as set forth on Schedule 3.07(d), none of Holdings, the Borrower or any of the Subsidiaries is obligated under any right of first refusal, option or other contractual right to sell, assign or otherwise dispose of any Mortgaged Property or any interest therein. SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Restatement Closing Date a list of all Subsidiaries and the percentage ownership interest of the Borrower therein. The shares of capital stock or other ownership interests so indicated on Schedule 3.08 are fully paid and non-assessable and are owned by the Borrower, directly or indirectly, free and clear of all Liens (other than Liens in favor of the Collateral Agent, created under the Security Documents). Holdings owns 100% of the issued and outstanding capital stock of the Borrower, free and clear of all Liens (other than Liens in favor of the Collateral Agent, created under the Security Documents). SECTION 3.09. Litigation; Compliance with Laws. (a) Except as set forth on Schedule 3.09, there are not any actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of Holdings or the Borrower, threatened against or affecting Holdings or the Borrower or any Subsidiary or any business, property or rights of any such person (i) that involve any Loan Document or the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and that, if adversely 41 determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. (b) None of Holdings, the Borrower or any of the Subsidiaries or any of their respective material properties or assets is in violation of, nor will the continued operation of their material properties and assets as currently conducted violate, any law, rule or regulation (including any zoning, building, Environmental Law, ordinance, code or approval or any building permits) or any restrictions of record or agreements affecting the Mortgaged Property, or is in default with respect to any judgment, writ, injunction, decree or order of any Governmental Authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect. (c) Except as set forth on Schedule 3.09(c), certificates of occupancy and permits to the extent required by law are in effect for each Mortgaged Property as currently constructed, and true and complete copies of such certificates of occupancy have been delivered to the Collateral Agent as mortgagee with respect to each Mortgaged Property. SECTION 3.10. Agreements. (a) Except as set forth on Schedule 3.10, none of Holdings, the Borrower or any of the Subsidiaries is a party to any agreement or instrument or subject to any corporate restriction that has resulted or could reasonably be expected to result in a Material Adverse Effect. (b) None of Holdings, the Borrower or any of the Subsidiaries is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default could reasonably be expected to result in a Material Adverse Effect. SECTION 3.11. Federal Reserve Regulations. (a) None of Holdings, the Borrower or any of the Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock. (b) No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of, or that is inconsistent with, the provisions of the Regulations of the Board, including Regulation G, U or X. SECTION 3.12. Investment Company Act; Public Utility Holding Company Act. None of Holdings, the Borrower or any Subsidiary is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of the Loans and will request the issuance of Letters of Credit only for the purposes specified in the preamble to this Agreement. SECTION 3.14. Tax Returns. Each of the Holdings, the Borrower and the Subsidiaries has filed or caused to be filed all Federal, material state, material local and material foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes shown on such returns to be due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which Holdings, the Borrower or such Subsidiary, as applicable, shall have set aside on its books adequate reserves. SECTION 3.15. No Material Misstatements. None of (a) the Confidential Information Memorandum or (b) any other information, report, financial statement, exhibit or schedule 42 furnished by or on behalf of Holdings or the Borrower to the Administrative Agent or any Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading; provided that to the extent any such information, report, financial statement, exhibit or schedule was based upon or constitutes a forecast or projection, each of Holdings and the Borrower represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information, report, financial statement, exhibit or schedule. SECTION 3.16. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under all Plans in the aggregate (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $2,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $4,000,000 the fair market value of the assets of all such underfunded Plans. SECTION 3.17. Environmental Matters. Except as set forth in Schedule 3.17: (a) The properties owned or operated by Holdings, the Borrower and the Subsidiaries (the "Properties") do not contain any Hazardous Materials in amounts or concentrations which (i) constitute, or constituted a violation of, (ii) require Remedial Action under, or (iii) could give rise to liability under, Environmental Laws, which violations, Remedial Actions and liabilities, in the aggregate, could reasonably be expected to result in a Material Adverse Effect; (b) The Properties and all operations of the Borrower and the Subsidiaries are in compliance, and in the last seven years have been in compliance, with all Environmental Laws and all necessary Environmental Permits have been obtained and are in effect, except to the extent that such non-compliance or failure to obtain any necessary permits, in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; (c) There have been no Releases or threatened Releases at, from, under or proximate to the Properties or otherwise in connection with the operations of the Borrower or the Subsidiaries, which Releases or threatened Releases, in the aggregate, could reasonably be expected to result in a Material Adverse Effect; (d) None of Holdings, the Borrower or any of the Subsidiaries has received any notice of an Environmental Claim in connection with the Properties or the operations of the Borrower or the Subsidiaries or with regard to any person whose liabilities for environmental matters Holdings, the Borrower or the Subsidiaries has retained or assumed, in whole or in part, contractually, by operation of law or otherwise, which, in the aggregate, could reasonably be expected to result in a Material Adverse Effect, nor do Holdings, the Borrower or the Subsidiaries have reason to believe that any such notice will be received or is being threatened; and (e) Hazardous Materials have not been transported from the Properties, nor have Hazardous Materials been generated, treated, stored or disposed of at, on or under any of the Properties in a manner that could reasonably be expected to give rise to liability under any Environmental Law, nor have the Borrower or the Subsidiaries retained or assumed any liability, contractually, by operation of law or otherwise, with respect to the generation, treatment, storage or disposal of Hazardous Materials, which transportation, generation, treatment, storage 43 or disposal, or retained or assumed liabilities, in the aggregate, could reasonably be expected to result in a Material Adverse Effect. SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and correct description of all insurance maintained by the Borrower or by the Borrower for its Subsidiaries as of the Restatement Closing Date. As of such date, such insurance is in full force and effect and all premiums have been duly paid. The Borrower and its Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice. SECTION 3.19. Security Documents. (a) The Pledge Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Pledge Agreement) and, for so long as the Collateral Agent continues to hold such Collateral, the Pledge Agreement shall constitute a fully perfected first priority Lien on, and security interest in, all right, title and interest of the pledgors thereunder in such Collateral, in each case prior and superior in right to any other person. (b) The Security Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Security Agreement) and, when financing statements in appropriate form are filed in the offices specified on Schedule 6 to the Perfection Certificate, the Security Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in such Collateral (other than the Intellectual Property, as defined in the Security Agreement), in each case prior and superior in right to any other person, other than with respect to Liens expressly permitted by Section 6.02. (c) Assuming the Security Agreement has been filed in the United States Patent and Trademark Office and the United States Copyright Office, the Security Agreement constitutes a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in the Intellectual Property (as defined in the Security Agreement), in each case prior and superior in right to any other person (it being understood that subsequent recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary to perfect a lien on registered trademarks, trademark applications and copyrights acquired by the grantors after the date hereof). (d) The Mortgages are effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable Lien on all of the Loan Parties' right, title and interest in and to the Mortgaged Property thereunder and the proceeds thereof, and assuming the Mortgages have been filed in the offices specified on Schedule 3.19(d), the Mortgages constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Mortgaged Property and the proceeds thereof, in each case prior and superior in right to any other person, other than with respect to the rights of persons pursuant to Liens expressly permitted by Section 6.02. SECTION 3.20. Location of Real Property and Leased Premises. (a) Schedule 3.20(a) lists completely and correctly as of the Restatement Closing Date all real property owned by the Borrower and the Subsidiaries and the addresses thereof. The Borrower and the Subsidiaries own in fee all the real property set forth on Schedule 3.20(a). (b) Schedule 3.20(b) lists completely and correctly as of the Restatement Closing Date all real property leased by the Borrower and the Subsidiaries and the addresses thereof. The 44 Borrower and such Subsidiaries have valid leasehold interests in all the real property set forth on Schedule 3.20(b) SECTION 3.21. Labor Matters. As of the Restatement Closing Date, there are no strikes, lockouts or slowdowns against Holdings, the Borrower or any Subsidiary pending or, to the knowledge of Holdings or the Borrower, threatened. The hours worked by and payments made to employees of Holdings, the Borrower and the Subsidiaries have not been in material violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from Holdings, the Borrower or any Subsidiary, or for which any claim may be made against Holdings, the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of Holdings, the Borrower or such Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which Holdings, the Borrower or any Subsidiary is bound. SECTION 3.22. Solvency. (a) Immediately after the consummation of the Transactions to occur on the Restatement Closing Date and immediately following the making of each Loan made on the Restatement Closing Date and after giving effect to the application of the proceeds of such Loans, (i) the fair value of the assets of each Loan Party, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (ii) the present fair saleable value of the property of each Loan Party will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) each Loan Party will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) each Loan Party will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following the Restatement Closing Date. ARTICLE IV Conditions of Lending The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder are subject to the satisfaction of the following conditions: SECTION 4.01. All Credit Events. On the date of each Borrowing, including on the date of each issuance of a Letter of Credit (each such event being called a "Credit Event"): (a) The Administrative Agent shall have received a notice of such Borrowing as required by Section 2.03 (or such notice shall have been deemed given in accordance with Section 2.03) or, in the case of the issuance of a Letter of Credit, the Issuing Bank and the Administrative Agent shall have received a notice requesting the issuance of such Letter of Credit as required by Section 2.22(b). (b) Except in the case of a Borrowing that does not increase the aggregate principal amount of Loans outstanding of any Lender, the representations and warranties set forth in Article III hereof shall be true and correct in all material respects on and as of the date of such Credit Event with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. (c) No Event of Default or Default shall have occurred and be continuing. 45 Each Credit Event shall be deemed to constitute a representation and warranty by the Borrower and Holdings on the date of such Credit Event as to the matters specified in paragraphs (b) (except as aforesaid) and (c) of this Section 4.01. SECTION 4.02. First Credit Event. On the Restatement Closing Date: (a) The Administrative Agent shall have received, on behalf of itself, the Lenders and the Issuing Bank, a favorable written opinion of Kirkland & Ellis, counsel for Holdings and the Borrower, substantially to the effect set forth in Exhibit J, (i) dated the Restatement Closing Date, (ii) addressed to the Issuing Bank, the Administrative Agent and the Lenders, and (iii) covering such other matters relating to the Loan Documents and the Transactions as the Administrative Agent shall reasonably request, and Holdings and the Borrower hereby request such counsel to deliver such opinions. (b) All legal matters incident to this Agreement, the Borrowings and extensions of credit hereunder and the other Loan Documents shall be satisfactory to the Lenders, to the Issuing Bank and to Cravath, Swaine & Moore, counsel for the Administrative Agent. (c) The Administrative Agent shall have received (i) a certificate of the Secretary or Assistant Secretary of each Loan Party dated the Restatement Closing Date and certifying (A) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Loan Party authorizing the execution, delivery and performance of the Loan Documents to which such person is a party and, in the case of the Borrower, the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (B) that the certificate or articles of incorporation and by-laws of such Loan Party have not been amended since the July 1, 1997, (C) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party; (ii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to (i) above; and (iii) such other documents as the Lenders, the Issuing Bank or Cravath, Swaine & Moore, counsel for the Administrative Agent, may reasonably request. (d) The Administrative Agent shall have received a certificate, dated the Restatement Closing Date and signed by a Financial Officer of the Borrower, confirming compliance with the conditions precedent set forth in paragraphs (b) and (c) of Section 4.01. (e) The Administrative Agent shall have received all Fees and other amounts due and payable on or prior to the Restatement Closing Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder or under any other Loan Document. (f) The Pledge Agreement shall have been duly executed by the parties thereto and delivered to the Collateral Agent and shall be in full force and effect, and all the outstanding Capital Stock of the Borrower and the Subsidiaries shall have been duly and validly pledged thereunder to the Collateral Agent for the ratable benefit of the Secured Parties and certificates representing such shares, accompanied by instruments of transfer and stock powers endorsed in blank, shall be in the actual possession of the Collateral Agent; provided that, to the extent to do so would cause adverse tax consequence to the Borrower, (i) neither the Borrower nor any Domestic Subsidiary shall be required to pledge more than 65% of the capital stock of any Foreign Subsidiary and (ii) no Foreign Subsidiary shall be required to pledge the capital stock of any of its Foreign Subsidiaries. 46 (g) The Security Agreement shall have been duly executed by the Loan Parties party thereto and shall have been delivered to the Collateral Agent and shall be in full force and effect on such date and each document (including each Uniform Commercial Code financing statement) required by law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Collateral Agent for the benefit of the Secured Parties a valid, legal and perfected first-priority security interest in and lien on the Collateral (subject to any Lien expressly permitted by Section 6.02) described in such agreement shall have been delivered to the Collateral Agent. (h) The Collateral Agent shall have received the results of a search of the Uniform Commercial Code (or equivalent filings) filings made with respect to the Loan Parties in the states (or other jurisdictions) in which the chief executive office of each such person is located, any offices of such persons in which records have been kept relating to Accounts and the other jurisdictions in which Uniform Commercial Code filings (or equivalent filings) are to be made pursuant to the preceding paragraph, together with copies of the financing statements (or similar documents) disclosed by such search, and accompanied by evidence satisfactory to the Collateral Agent that the Liens indicated in any such financing statement (or similar document) would be permitted under Section 6.02 or have been released. (i) The Collateral Agent shall have received a Perfection Certificate with respect to the Loan Parties dated the Restatement Closing Date and duly executed by a Responsible Officer of the Borrower. (j) Each of the Security Documents, in form and substance satisfactory to the Lenders, relating to each of the Mortgaged Properties shall have been duly executed by the parties thereto and delivered to the Collateral Agent and shall be in full force and effect, (ii) each of such Mortgaged Properties shall not be subject to any Lien other than those permitted under Section 6.02, (iii) each of such Security Documents shall have been filed and recorded in the recording office as specified on Schedule 3.19(d) (or a lender's marked and redated title commitment for title insurance, in form and substance acceptable to the Collateral Agent, insuring such Security Document as a first lien on such Mortgaged Property (subject to any Lien permitted by Section 6.02) shall have been received by the Collateral Agent) and, in connection therewith, the Collateral Agent shall have received evidence satisfactory to it of the title company's agreement to record or file such Security Documents, as applicable, and (iv) the Collateral Agent shall have received such other documents, including a policy or policies of title insurance issued by a nationally recognized title insurance company, together with such endorsements, coinsurance and reinsurance as may be requested by the Collateral Agent and the Lenders, insuring the Mortgages as valid first liens on the Mortgaged Properties, free of Liens other than those permitted under Section 6.02, together with such surveys, abstracts, appraisals and legal opinions required to be furnished pursuant to the terms of the Mortgages or as reasonably requested by the Collateral Agent or the Lenders. (k) Each of the Parent Guarantee Agreement, the Subsidiary Guarantee Agreement, the Indemnity, Subrogation and Contribution Agreement and the Tax Sharing Agreement shall have been duly executed by the parties thereto, shall have been delivered to the Collateral Agent and shall be in full force and effect. 47 ARTICLE V Affirmative Covenants Each of Holdings and the Borrower covenants and agrees with each Lender that until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document (other than wholly contingent indemnification obligations) shall have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full or cash collateralized to the satisfaction of the Administrative Agent and the Issuing Bank, unless the Required Lenders shall otherwise consent in writing, each of Holdings and the Borrower will, and will cause each of the Subsidiaries to: SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.05. (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect in all material respects the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; maintain and operate such business in substantially the manner in which it is presently conducted and operated; comply in all material respects with all applicable laws, rules, regulations (including any zoning, building, Environmental Law, ordinance, code or approval or any building permits or any restrictions of record or agreements affecting the Mortgaged Properties) and decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted, except where such non-compliance could not reasonably be expected to result in a Material Adverse Effect; and, except in the case of sales of assets permitted pursuant to Section 6.05, at all times maintain and preserve all property material to the conduct of such business and keep, in all material respects, such property in good repair, working order and condition, normal wear and tear excepted, and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times. SECTION 5.02. Insurance. In the case of the Borrower and each Subsidiary: (a) Keep its insurable properties adequately insured at all times by financially sound and reputable insurers; and maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, in each case as is customary with companies in the same or similar businesses operating in the same or similar locations, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; and maintain such other insurance as may be required by law. (b) Cause all such policies to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance satisfactory to the Administrative Agent and the Collateral Agent, which endorsement shall provide that, from and after the Closing Date, if the insurance carrier shall have received written notice from the Administrative Agent or the Collateral Agent of the occurrence of an Event of Default, the insurance carrier shall, during the continuance of such Event of Default, pay all proceeds otherwise payable to the Borrower or the Loan Parties under such policies directly to the Collateral Agent; cause all such policies to provide that neither the Borrower, the Administrative Agent, the Collateral Agent nor any 48 other party shall be a coinsurer thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Administrative Agent or the Collateral Agent may reasonably require from time to time to protect their interests; deliver original or certified copies of all such policies to the Collateral Agent; cause each such policy to provide that it shall not be canceled, modified or not renewed (i) by reason of nonpayment of premium upon not less than 10 days' prior written notice thereof by the insurer to the Administrative Agent and the Collateral Agent (giving the Administrative Agent and the Collateral Agent the right to cure defaults in the payment of premiums) or (ii) for any other reason upon not less than 30 days' prior written notice thereof by the insurer to the Administrative Agent and the Collateral Agent; deliver to the Administrative Agent and the Collateral Agent, prior to the cancellation, modification or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Administrative Agent and the Collateral Agent) together with evidence satisfactory to the Administrative Agent and the Collateral Agent of payment of the premium therefor. (c) If at any time the area in which the Premises (as defined in the Mortgages) are located is designated (i) a "flood hazard area" in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency), obtain flood insurance in such total amount as the Administrative Agent, the Collateral Agent or the Required Lenders may from time to time require, and otherwise comply with the National Flood Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as it may be amended from time to time, or (ii) a "Zone 1" area, obtain earthquake insurance in such total amount as the Administrative Agent, the Collateral Agent or the Required Lenders may from time to time require. (d) With respect to any Mortgaged Property, carry and maintain comprehensive general liability insurance including the "broad form CGL endorsement" and coverage on an occurrence basis against claims made for personal injury (including bodily injury, death and property damage) and umbrella liability insurance against any and all claims, in no event for a combined single limit of less than $25,000,000, naming the Collateral Agent as an additional insured, on forms satisfactory to the Collateral Agent. (e) Notify the Administrative Agent and the Collateral Agent immediately whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 5.02 is taken out by the Borrower; and promptly deliver to the Administrative Agent and the Collateral Agent a duplicate original copy of such policy or policies. SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and other obligations promptly and in accordance with their terms and pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Borrower shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP and such contest operates to suspend collection of the contested obligation, tax, assessment or charge and enforcement of a Lien and, in the case of a Mortgaged Property, there is no risk of forfeiture of such property. 49 SECTION 5.04. Financial Statements, Reports, etc. In the case of the Borrower, furnish to the Administrative Agent and each Lender: (a) within 90 days after the end of each fiscal year, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows showing the financial condition of the Borrower and its consolidated Subsidiaries as of the close of such fiscal year and the results of its operations and the operations of such Subsidiaries during such year, all audited by Ernst & Young LLP or other independent public accountants of recognized national standing acceptable to the Required Lenders and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows showing the financial condition of the Borrower and its consolidated Subsidiaries as of the close of such fiscal quarter and the results of its operations and the operations of such Subsidiaries during such fiscal quarter and the then elapsed portion of the fiscal year, all certified by one of its Financial Officers as fairly presenting in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments; (c) concurrently with any delivery of financial statements under sub-paragraph (a) or (b) above, a letter of the accounting firm or certificate of the Financial Officer reporting on or certifying such statements (which letter, when furnished by an accounting firm, may be limited to accounting matters and disclaim responsibility for legal interpretations) reporting that they are unaware that any Event of Default has occurred, in the case of the accounting firm, or certifying that no Event of Default or Default has occurred, in the case of the Financial Officer, or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto; (d) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed to its shareholders, as the case may be; and (e) prior to the beginning of each fiscal year, a copy of the budget for its consolidated balance sheet and related statements of income and cash flows for each quarter of such fiscal year; and (f) promptly, from time to time, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request. 50 SECTION 5.05. Litigation and Other Notices. Furnish to the Administrative Agent, the Issuing Bank and each Lender prompt written notice of the following: (a) the occurrence of any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto; (b) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, against the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect; and (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $1,000,000; and (d) any development that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect. SECTION 5.06. Maintaining Records; Access to Properties and Inspections. Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law are made of all dealings and transactions in relation to its business and activities. Each Loan Party will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender to visit and inspect the financial records and the properties of Holdings, the Borrower or any Subsidiary at reasonable times and upon reasonable notice and as often as reasonably requested and to make extracts from and copies of such financial records, and permit any representatives designated by the Administrative Agent or any Lender to discuss the affairs, finances and condition of Holdings, the Borrower or any Subsidiary with the officers thereof and independent accountants therefor; provided, however, that, unless a Default or Event of Default shall have occurred and be continuing, in no event shall the Administrative Agent or any Lender or any of their respective designees contact any customer or supplier of the Borrower or any Subsidiary regarding this Agreement and the Indebtedness hereunder without the prior consent of the Borrower. SECTION 5.07. Use of Proceeds. Use the proceeds of the Loans and request the issuance of Letters of Credit only for the purposes set forth in the preamble to this Agreement. SECTION 5.08. Compliance with Environmental Laws. Except for any non-compliance that could not reasonably be expected to result in a Material Adverse Effect, comply, and cause all lessees and other persons occupying its Properties to comply, with all Environmental Laws and Environmental Permits applicable to its operations and Properties; obtain and renew all Environmental Permits necessary for its operations and Properties; and conduct any Remedial Action in accordance with Environmental Laws; provided, however, that none of Holdings, the Borrower or any of the Subsidiaries shall be required to undertake any Remedial Action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances. SECTION 5.09. Preparation of Environmental Reports. If a Default caused by reason of a breach of Section 3.17 or 5.08 shall have occurred and be continuing, at the request of the Required Lenders through the Administrative Agent, provide to the Lenders within 45 days after such request, at the expense of the Borrower, an environmental site assessment report for the Properties which are the subject of such default prepared by an environmental consulting firm acceptable to the Administrative Agent and indicating the presence or absence of Hazardous 51 Materials and the estimated cost of any compliance or Remedial Action in connection with such Properties. SECTION 5.10. [Intentionally Omitted.] SECTION 5.11. Further Assurances. Execute any and all further documents, financing statements, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, mortgages and deeds of trust) that may be required under applicable law, or that the Required Lenders, the Administrative Agent or the Collateral Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority of the security interests created or intended to be created by the Security Documents. The Borrower will cause any subsequently acquired or organized Domestic Subsidiary to execute a Subsidiary Guarantee Agreement, Indemnity Subrogation and Contribution Agreement and each applicable Security Document in favor of the Collateral Agent. In addition, from time to time, the Borrower will, at its cost and expense, promptly secure the Obligations by pledging or creating, or causing to be pledged or created, perfected security interests with respect to such of its assets and properties as the Administrative Agent or the Required Lenders shall designate (it being understood that it is the intent of the parties that the Obligations shall be secured by, among other things, substantially all the assets of the Borrower (including real and other properties acquired subsequent to the Closing Date)). Such security interests and Liens will be created under the Security Documents and other security agreements, mortgages, deeds of trust and other instruments and documents in form and substance satisfactory to the Collateral Agent, and the Borrower shall deliver or cause to be delivered to the Lenders all such instruments and documents (including legal opinions, title insurance policies and lien searches) as the Collateral Agent shall reasonably request to evidence compliance with this Section. The Borrower agrees to provide such evidence as the Collateral Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. ARTICLE VI Negative Covenants Each of Holdings and the Borrower covenants and agrees with each Lender that, until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document (other than wholly contingent indemnification obligations) have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full or cash collateralized to the satisfaction of the Administrative Agent and the Issuing Bank, unless the Required Lenders shall otherwise consent in writing, neither Holdings nor the Borrower will, nor will they cause or permit any of the Subsidiaries to: SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist any Indebtedness, except: (a) Indebtedness for borrowed money existing on the Restatement Closing Date and set forth in Schedule 6.01; (b) Indebtedness created hereunder and under the other Loan Documents; (c) the Senior Subordinated Notes (or the notes exchanged therefor pursuant to and in accordance with Section 6.09(c)); 52 (d) Earn-Out Obligations in an aggregate principal amount at any time outstanding not exceeding $15,000,000; (e) Indebtedness consisting of purchase money Indebtedness or Capital Lease Obligations incurred in the ordinary course of business after the Original Closing Date to finance Consolidated Capital Expenditures; provided that (i) a description of the assets financed thereby shall have been furnished to the Administrative Agent for any assets for which the purchase price is greater than $1,000,000 and (ii) the aggregate principal amount of any Indebtedness or Capital Lease Obligations incurred pursuant to this paragraph (d) outstanding at any time shall not exceed $5,000,000; (f) intercompany loans and advances permitted by Section 6.04(c); (g) Indebtedness of the Borrower or any Subsidiary to Holdings; provided that such Indebtedness (i) is subordinated to the prior payment in full of the Obligations on terms satisfactory to the Administrative Agent and (ii) is evidenced by an intercompany note pledged by Holdings to the Collateral Agent pursuant to the Pledge Agreement for the benefit of the Secured Parties; (h) ordinary course Interest Rate Protection Agreements and ordinary course, non-speculative foreign exchange and commodity protection agreements; (i) Indebtedness arising out of judgments or awards (other than any judgment that is described in clause (i) of Article VII and constitutes a Default or Event of Default thereunder) in respect of which the Borrower shall in good faith be prosecuting an appeal or proceedings for review and in respect of which it shall have secured a subsisting stay of execution pending such appeal or proceedings for review, provided the Borrower shall have set aside on its books adequate reserves, in accordance with GAAP, with respect to such judgment or award; (j) Indebtedness under performance bonds in an aggregate principal amount at any time outstanding not exceeding $2,000,000; and (k) additional unsecured Indebtedness in an aggregate amount at any time outstanding not exceeding $20,000,000. SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person, including any Subsidiary) now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except: (a) Liens on property or assets of the Borrower and its Subsidiaries existing on the Restatement Closing Date and set forth in Schedule 6.02; provided that such Liens shall secure only those obligations which they secure on the date hereof; (b) any Lien created under the Loan Documents; (c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition (except as permitted pursuant to Section 6.02(i)), (ii) such Lien does not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien does not (A) materially interfere with the use, occupancy and operation of any Mortgaged Property, (B) materially reduce the fair 53 market value of such Mortgaged Property but for such Lien or (C) result in any material increase in the cost of operating, occupying or owning or leasing such Mortgaged Property; (d) Liens for taxes not yet due or which are being contested in compliance with Section 5.03; (e) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising, in the case of such other like Liens, in the ordinary course of business and securing obligations that are not due and payable or which are being contested in compliance with Section 5.03; (f) pledges and deposits made in the ordinary course of business in compliance with workmen's compensation, unemployment insurance and other social security laws or regulations; (g) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (h) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred, in the case of such other similar encumbrances, in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (i) purchase money security interests in real property, improvements thereto or equipment hereafter acquired (or, in the case of improvements, constructed) by the Borrower or any Subsidiary; provided that (i) such security interests secure Indebtedness permitted by Section 6.01(e), (ii) such security interests are incurred, and the Indebtedness secured thereby is created, within 90 days after such acquisition (or construction), (iii) the Indebtedness secured thereby does not exceed 85% of the lesser of the cost or the fair market value of such real property, improvements or equipment at the time of such acquisition (or construction) (or if such Indebtedness exceeds such 85% limit, such Indebtedness is non-recourse to Holdings, the Borrower and the Subsidiaries) and (iv) such security interests do not apply to any other property or assets of the Borrower or any Subsidiary; (j) any Lien disclosed on the marked and redated title insurance commitments delivered to the Collateral Agent on the Original Closing Date; (k) Liens arising out of judgments or awards (other than any judgment that is described in clause (i) of Article VII and constitutes a Default or Event of Default thereunder) in respect of which the Borrower shall in good faith be prosecuting an appeal or proceedings for review and in respect of which it shall have secured a subsisting stay of execution pending such appeal or proceedings for review, provided the Borrower shall have set aside on its books adequate reserves, in accordance with GAAP, with respect to such judgment or award; and (l) additional Liens on property or assets securing obligations (other than Indebtedness for borrowed money) not exceeding $500,000 at any time, provided that, to the extent any such Lien applies to any Collateral (as defined in any such Security 54 Document), such Lien does not have priority over the Liens created under the Security Documents. SECTION 6.03. Sale and Lease-Back Transactions. Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred. SECTION 6.04. Investments, Loans and Advances. Purchase, hold or acquire any capital stock, evidences of indebtedness or other securities of, make or permit to exist any loans or advances to, or make or permit to exist any investment or any other interest in, any other person, except: (a) investments by the Borrower existing on the Restatement Closing Date in the capital stock of the Subsidiaries and additional investments by Holdings in the Capital Stock of the Borrower or by the Borrower in the Capital Stock of the Subsidiary Guarantors; (b) Permitted Investments; (c) investments, loans or advances made by any Loan Party to the Borrower or any Subsidiary, provided that any such loans or advances are evidenced by an intercompany note pledged to the Collateral Agent pursuant to the Pledge Agreement for the benefit of the Secured Parties; (d) investments consisting of non-cash consideration received in connection with a sale of assets permitted by Section 6.05(b); (e) loans and advances to employees and officers of the Borrower or any of the Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business in an aggregate principal amount outstanding at any one time not to exceed $250,000; (f) loans and advances in an aggregate principal amount outstanding at any one time not to exceed $250,000 to management and other employees of the Borrower, the proceeds of which are used in their entirety to purchase capital stock of Holdings and other investments pursuant to retirement savings programs; (g) the Borrower may make any Permitted Acquisition; provided that (i) the aggregate purchase price of all such Permitted Acquisitions consummated after the Restatement Closing Date does not exceed $65,000,000 and (ii) the Borrower shall have delivered to the Administrative Agent a certificate certifying that at the time of and immediately after giving effect to such Permitted Acquisition, (A) no Event of Default or Default shall have occurred and be continuing and (B) the Borrower shall be in compliance on a pro forma basis (including as adjusted to reduce or exclude any identified costs that will be reduced or will cease to be incurred after such Permitted Acquisition) with the covenants set forth in Sections 6.11, 6.12 and 6.13, in each case as of the last day of the most recent fiscal quarter adjusted to give effect (as if such event had occurred on the first day of the four fiscal quarter period ended on such last day) to such Permitted Acquisition and the financing therefor, and the adjustments and calculations set forth in such certificate shall be based on assumptions and otherwise in form and substance satisfactory to the Administrative Agent; 55 (h) Consolidated Capital Expenditures permitted pursuant to Section 6.10; (i) Accounts; and (j) ordinary course Interest Rate Protection Agreements and ordinary course, non-speculative foreign exchange and commodity protection agreements. SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions. (a) Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets (whether now owned or hereafter acquired) or any capital stock of any Subsidiary, or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or any substantial part of the assets of any other person, except that (i) the Borrower and any Subsidiary may purchase and sell inventory and scrap, obsolete, excess and worn out assets in the ordinary course of business, (ii) if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing (w) any wholly owned Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (x) any wholly owned Subsidiary may merge into or consolidate with any other wholly owned Domestic Subsidiary in a transaction in which the surviving entity is a wholly owned Domestic Subsidiary and no person other than the Borrower or a wholly owned Domestic Subsidiary receives any consideration, (y) Holdings may merge into ACP Holdings or the Borrower in a transaction in which the Borrower is the surviving corporation (in the case of any such merger of Holdings into the Borrower) so long as concurrently with any merger of Holdings with and into the Borrower, or any merger of Holdings with and into ACP Holdings in which Holdings is not the surviving corporation, ACP Holdings assumes all the obligations of Holdings under this Agreement and the other Loan Documents (including entering into a supplement to the Pledge Agreement to pledge 100% of the Capital Stock of the Borrower to the Collateral Agent for the benefit of the Secured Parties) and (z) following any merger described in clause (y), ACP Holdings may merge into ACP Products or the Borrower in a transaction in which the Borrower is the surviving corporation (in the case of any such merger of ACP Holdings into the Borrower) so long as concurrently with any merger of ACP Holdings with and into the Borrower, or any merger of ACP Holdings with and into ACP Products in which ACP Holdings is not the surviving corporation, ACP Products assumes all the obligations of ACP Holdings under this Agreement and the other Loan Documents (including entering into a supplement to the Pledge Agreement to pledge 100% of the Capital Stock of the Borrower to the Collateral Agent for the benefit of the Secured Parties), (iii) the Borrower and any Subsidiary may make Permitted Acquisitions permitted by Section 6.04(g), (iv) the Borrower and any Subsidiary may make Consolidated Capital Expenditures permitted by Section 6.10 and (v) the Borrower and any Subsidiary may engage in any Asset Sale of capital stock or other assets acquired pursuant to a Permitted Acquisition permitted pursuant to Section 6.04(g). (b) Neither the Borrower nor any Subsidiary shall engage in any Asset Sale otherwise permitted under paragraph (a) above unless (i) such Asset Sale is for consideration at least 85% of which is cash, (ii) such consideration is at least equal to the fair market value (as determined in good faith by the Borrower's board of directors) of the assets being sold, transferred, leased or disposed of and (iii) the fair market value (as determined in good faith by the Borrower's board of directors) of all assets sold, transferred, leased or disposed of pursuant to this paragraph (b) (except for assets sold, transferred, leased or disposed of pursuant to Section 6.05(a)(v)) shall not exceed (i) $2,000,000 in any fiscal year or (ii) $10,000,000 in the aggregate. SECTION 6.06. Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends. (a) Declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any shares of its Capital Stock or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any Subsidiary to purchase or 56 acquire) any shares of any class of its Capital Stock or set aside any amount for any such purpose; provided, however, that (i) any Subsidiary may declare and pay dividends or make other distributions to the Borrower; (ii) the Borrower may declare and pay dividends or make other distributions to Holdings (A) to pay the Borrower Tax Amount required to be paid by Holdings and (B) to fund payments to be made by Holdings as permitted by clause (iv) below in an aggregate amount not to exceed the amounts of such payments; (iii) so long as no Default or Event of Default shall have occurred and be continuing, the Borrower may declare and pay dividends or make other distributions to Holdings to pay the actual operating costs of Holdings and ACP Holdings in an aggregate amount not exceeding $250,000 in any fiscal year of the Borrower; (iv) Holdings may, or Holdings may declare and pay dividends or make other distributions to ACP Holdings to permit ACP Holdings or ACP Products to, purchase, redeem, retire or otherwise acquire (A) shares of its Capital Stock, or options or warrants to purchase shares of its Capital Stock, held by officers, directors or employees of Holdings, the Borrower or any Subsidiary pursuant to a compensation plan or arrangement in connection with the death, disability or termination of employment of any such officer, director or employee or (B) shares of its capital stock owned by any officer, director or employee of Holdings, the Borrower or any Subsidiary pursuant to the exercise of options or warrants to purchase such Capital Stock by such officer, director or employee or to pay taxes incurred in connection with such exercise of options or warrants in an aggregate amount for all such transactions described in clauses (A) and (B) not exceeding the sum of (x) $2,000,000 plus (y) the proceeds of any substantially concurrent issuance of Capital Stock of ACP Products, ACP Holdings or Holdings to any officer, director or employee of Holdings, the Borrower or any Subsidiary; (v) Holdings may declare and pay dividends or make other distributions to ACP Holdings to pay the Borrower Tax Amount required to be paid by ACP Holdings; and (vi) so long as no Default or Event of Default shall have occurred and be continuing, Holdings may declare and pay dividends or make other distributions to ACP Holdings, out of the proceeds of dividends or distributions received by Holdings pursuant to clause (iii) above, to pay ACP Holdings' actual operating costs. (b) Permit its subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such subsidiary to (i) pay any dividends or make any other distributions on its capital stock or any other interest or (ii) make or repay any loans or advances to the Borrower or the parent of such subsidiary. SECTION 6.07. Transactions with Affiliates. Except as set forth on Schedule 6.07, sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except that the Borrower or any Subsidiary may engage in (a) any of the foregoing transactions in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) the transactions permitted pursuant to Sections 6.05 and 6.06, and (c) the Transactions. SECTION 6.08. Business of Borrower and Subsidiaries. Engage at any time in any business or business activity other than Related Businesses. 57 SECTION 6.09. Other Indebtedness and Agreements. (a) Permit any waiver, supplement, modification, amendment, determination or release of (i) the Merger Agreement or the Tax Sharing Agreement or (ii) any indenture, instrument or agreement pursuant to which any Indebtedness or preferred stock of the Borrower or any Subsidiary is outstanding in an aggregate outstanding principal amount in excess of $1,000,000, or modify its charter or by-laws, in each case to the extent that any such waiver, supplement, modification, amendment, termination or release would be adverse to the Lenders in any material respect. (b) (i) Make any distribution, whether in cash, property, securities or a combination thereof, other than regular scheduled payments of principal and interest as and when due (to the extent not prohibited by applicable subordination provisions), in respect of, or pay, or offer or commit to pay, or directly or indirectly redeem, repurchase, retire or otherwise acquire for consideration, or set apart any sum for the aforesaid purposes, any Indebtedness for borrowed money of the Borrower or any Subsidiary in an outstanding principal amount exceeding $1,000,000 or (ii) pay in cash any amount in respect of such Indebtedness that may at the obligor's option be paid in kind or in other securities. (c) Notwithstanding anything contained in this Section 6.09 to the contrary, the Borrower shall be permitted to exchange the Senior Subordinated Notes for substantially identical notes in accordance with the Exchange and Registration Rights Agreements with respect thereto. SECTION 6.10. Capital Expenditures. Permit the aggregate amount of Consolidated Capital Expenditures (other than Consolidated Capital Expenditures for patterns and Permitted Acquisitions permitted by Section 6.04(g)) made by the Borrower and the Subsidiaries, taken as a whole, in any fiscal year to exceed the sum of (a) $10,000,000, (b) the proceeds of any Equity Issuance made during such fiscal year and substantially concurrently used to fund Consolidated Capital Expenditures, and (c) other Consolidated Capital Expenditures not covered by clauses (a) and (b) above financed by Loans, so long as the aggregate principal amount of such Loans at any time outstanding used to finance all such Consolidated Capital Expenditures pursuant to this clause (c) does not exceed the excess of (A) $40,000,000 over (B) the aggregate principal amount of outstanding Loans used to finance Permitted Acquisitions pursuant to Section 6.04(g); provided, however, that the amount of Consolidated Capital Expenditures in any fiscal year of the Borrower permitted to be incurred pursuant to clause (a) above shall be increased by an amount equal to the amount of unused Consolidated Capital Expenditures permitted to be incurred pursuant to clause (a) above for the immediately preceding fiscal year of the Borrower (without giving effect to this proviso). SECTION 6.11. Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio as of the end of any fiscal quarter falling in any period set forth below to be in excess of the ratio set forth below for such period.
Period Ratio ------ ----- July 1, 1997 through September 30, 1999 6.00 to 1.00 October 1, 1999 through September 30, 2000 5.75 to 1.00 Thereafter 5.50 to 1.00
SECTION 6.12. Permit Consolidated Net Worth (a) on the Original Closing Date, to be less than $35,000,000 or (b) on the last day of any fiscal quarter thereafter, to be less than the sum of (i) $35,000,000 plus (ii) 50% of the cumulative amount of positive Consolidated Net Income for each fiscal year ending after the Original Closing Date. 58 SECTION 6.13. Consolidated Interest Coverage Ratio. Permit the Consolidated Interest Coverage Ratio as of the end of any fiscal quarter to be less than 1.50 to 1.00. SECTION 6.14. Fiscal Year. Permit the fiscal year of the Borrower to end on a day other than September 30. ARTICLE VII Events of Default In case of the happening of any of the following events ("Events of Default"): (a) any representation or warranty made or deemed made in or in connection with any Loan Document or the borrowings or issuances of Letters of Credit hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished; (b) default shall be made in the payment of any principal of any Loan or the reimbursement with respect to any L/C Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise; (c) default shall be made in the payment of any interest on any Loan or any Fee or L/C Disbursement or any other amount (other than an amount referred to in (b) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of five Business Days; (d) default shall be made in the due observance or performance by Holdings, the Borrower or any Subsidiary of any covenant, condition or agreement contained in Section 5.01(a), 5.05 or 5.07 or in Article VI; (e) default shall be made in the due observance or performance by Holdings, the Borrower or any Subsidiary of any covenant, condition or agreement contained in any Loan Document (other than those specified in (b), (c) or (d) above) and such default shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent or any Lender to the Borrower; (f) Holdings, the Borrower or any Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $1,750,000, when and as the same shall become due and payable, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity; (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of Holdings, the Borrower or any Subsidiary, or of a substantial part of the property or assets of 59 Holdings, the Borrower or a Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Holdings, the Borrower or any Subsidiary or for a substantial part of the property or assets of Holdings, the Borrower or a Subsidiary or (iii) the winding-up or liquidation of Holdings, the Borrower or any Subsidiary; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (h) Holdings, the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Holdings, the Borrower or any Subsidiary or for a substantial part of the property or assets of Holdings, the Borrower or any Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing; (i) one or more judgments for the payment of money in an aggregate amount in excess of $1,750,000, which amount is not covered by insurance (provided that in the event such a judgment is covered by insurance, the Administrative Agent is provided with satisfactory evidence that the insurance provider will provide the coverage relating thereto) shall be rendered against Holdings, the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of Holdings, the Borrower or any Subsidiary to enforce any such judgment; (j) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding (i) $1,000,000 in any year or (ii) $5,000,000 for all periods; or (k) any security interest purported to be created by any Security Document shall cease to be, or shall be asserted by the Borrower or any other Loan Party not to be, a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document) security interest in the securities, assets or properties covered thereby, except to the extent that any such loss of perfection or priority results from the failure of the Collateral Agent to maintain possession of certificates representing securities pledged under the Pledge Agreement or to continue previously filed financing statements prior to the expiration thereof and except to the extent that such loss is covered by a lender's title insurance policy and the related insurer promptly after such loss shall have acknowledged in writing that such loss is covered by such title insurance policy; or (l) there shall have occurred a Change in Control; then, and in every such event (other than an event with respect to the Borrower described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, the 60 Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Loans then outstanding, if any, to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding; and in any event with respect to the Borrower described in paragraph (g) or (h) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding. ARTICLE VIII The Administrative Agent and the Collateral Agent In order to expedite the transactions contemplated by this Agreement, The Chase Manhattan Bank is hereby appointed to act as Administrative Agent and Collateral Agent on behalf of the Lenders and the Issuing Bank (for purposes of this Article VIII, the Administrative Agent and the Collateral Agent are referred to collectively as the "Agents"). Each of the Lenders and each assignee of any such Lender, hereby irrevocably authorizes the Agents to take such actions on behalf of such Lender or assignee or the Issuing Bank and to exercise such powers as are specifically delegated to the Agents by the terms and provisions hereof and of the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. The Administrative Agent is hereby expressly authorized by the Lenders and the Issuing Bank, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders and the Issuing Bank all payments of principal of and interest on the Loans, all payments in respect of L/C Disbursements and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender or the Issuing Bank its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to the Borrower of any Event of Default specified in this Agreement of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Lender copies of all notices, financial statements and other materials delivered by the Borrower or any other Loan Party pursuant to this Agreement or the other Loan Documents as received by the Administrative Agent. Without limiting the generality of the foregoing, the Agents are hereby expressly authorized to execute any and all documents (including releases) with respect to the Collateral and the rights of the Secured Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement and the Security Documents. Neither the Agents nor any of their respective directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them except for its or his own gross negligence or wilful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrower or any other Loan Party of any of the terms, conditions, covenants or agreements contained in any Loan Document. The Agents shall not be responsible to the Lenders for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or any other Loan Documents, instruments or agreements. The Agents shall in all cases be fully protected in 61 acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders. Each Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper person or persons. Neither the Agents nor any of their respective directors, officers, employees or agents shall have any responsibility in their capacity as such to the Borrower or any other Loan Party on account of the failure of or delay in performance or breach by any Lender or the Issuing Bank of any of its obligations hereunder or to any Lender or the Issuing Bank on account of the failure of or delay in performance or breach by any other Lender or the Issuing Bank or the Borrower or any other Loan Party of any of their respective obligations hereunder or under any other Loan Document or in connection herewith or therewith. Each of the Agents may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. The Lenders hereby acknowledge that neither Agent shall be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Lenders. Subject to the appointment and acceptance of a successor Agent as provided below, either Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor, subject to the Borrower's approval, not to be unreasonably withheld, so long as no Default or Event of Default shall have occurred and be continuing. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations hereunder. After the Agent's resignation hereunder, the provisions of this Article and Section 9.05 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. With respect to the Loans made by it hereunder, each Agent in its individual capacity and not as Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not an Agent, and the Agents and their Affiliates may accept deposits from, lend money to and generally engage in any kind of business with Holdings, the Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent. Each Lender agrees (a) to reimburse the Agents, on demand, in the amount of its pro rata share (based on its Commitments hereunder) of any expenses incurred for the benefit of the Lenders by the Agents, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, that shall not have been reimbursed by the Borrower and (b) to indemnify and hold harmless each Agent and any of its directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against it in its capacity as Agent, or any of them in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by it or any of them under this Agreement or any other Loan Document, to the extent the same shall not have been reimbursed by the Borrower or any other Loan Party, provided that no Lender shall be liable 62 to an Agent or any such other indemnified person for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Agent or any of its directors, officers, employees or agents. Each Lender agrees to reimburse and indemnify the Issuing Bank to the same extent and subject to the same limitations as provided for the Agents in the preceding sentence. Each Lender acknowledges that it has, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document, any related agreement or any document furnished hereunder or thereunder. ARTICLE IX Miscellaneous SECTION 9.01. Notices. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, or sent by telecopy, as follows: (a) if to the Borrower or Holdings, to it at 2121 Brooks Avenue, Neenah, WI 54956, Attention of President or Chief Financial Officer (Telecopy No. (414) 729-3633) with copies to (which shall not constitute notice to the Borrower) Citicorp Venture Capital, Ltd., 399 Park Avenue, 14th Floor, Zone 4, New York, NY 10043, Attention of Mr. David F. Thomas and Mr. John D. Weber (Telecopy No. (212) 888-2940) and Kirkland & Ellis, Citicorp Center, 153 East 53rd Street, New York, NY 10022, Attention of Kirk A. Radke, Esq. (Telecopy No. (212) 446-4900); (b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Janet Belden (Telecopy No. (212) 552-5658), with a copy to The Chase Manhattan Bank, One Chase Manhattan Plaza, 5th Floor, New York, New York 10081, Attention of James H. Ramage (Telecopy No. (212) 552-5555); and (c) if to a Lender, to it at its address (or telecopy number) set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have become a party hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.01. SECTION 9.02. Survival of Agreement. All covenants, agreements, representations and warranties made by the Borrower or Holdings herein and in the certificates or other instruments 63 prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Lenders and the Issuing Bank and shall survive the making by the Lenders of the Loans and the issuance of Letters of Credit by the Issuing Bank, regardless of any investigation made by the Lenders or the Issuing Bank or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount then due and payable under this Agreement or any other Loan Document is outstanding and unpaid (other than wholly-contingent indemnification obligations) or any Letter of Credit is outstanding and so long as the Commitments have not been terminated. The provisions of Sections 2.14, 2.16, 2.20 and 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank. SECTION 9.03. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower, Holdings and the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrower, Holdings, the Administrative Agent, the Issuing Bank or the Lenders that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. (b) Each Lender may assign to one or more assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided, however, that (i) except in the case of an assignment to a Lender or an Affiliate of, or an Approved Fund with respect to, such Lender, (x) the Borrower, the Administrative Agent and the Issuing Bank must give their prior written consent to such assignment (which consent shall not be unreasonably withheld) and (y) the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 (or, if less, the entire remaining amount of such Lender's Commitment), (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500 and (iii) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this Section 9.04, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05, as well as to any Fees accrued for its account and not yet paid). (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other 64 and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Commitment, and the outstanding balances of its Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, or the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower or any Subsidiary of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to in Section 3.05(a) or delivered pursuant to Section 5.04 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon the Administrative Agent, the Collateral Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Administrative Agent and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent and the Collateral Agent, respectively, by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive and the Borrower, the Administrative Agent, the Issuing Bank, the Collateral Agent and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Bank, the Collateral Agent and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) above and, if required, the written consent of the Borrower, the Issuing Bank and the Administrative Agent to such assignment, the Administrative Agent shall (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Lenders and the Issuing Bank. No assignment shall be effective unless it has been recorded in the Register as provided in this paragraph (e). (f) Each Lender may without the consent of the Borrower, the Issuing Bank or the Administrative Agent sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other 65 entities shall be entitled to the benefit of the cost protection provisions contained in Sections 2.14, 2.16 and 2.20 to the same extent as if they were Lenders and (iv) the Borrower, the Administrative Agent, the Issuing Bank and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to the Loans or L/C Disbursements and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loans, extending any scheduled principal payment date or date fixed for the payment of interest on the Loans or increasing or extending the Commitments). (g) Any Lender or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.04, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure of information designated by the Borrower as confidential, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree (subject to customary exceptions) to preserve the confidentiality of such confidential information on terms no less restrictive than those applicable to the Lenders pursuant to Section 9.16. (h) Any Lender may at any time assign all or any portion of its rights under this Agreement to a Federal Reserve Bank to secure extensions of credit by such Federal Reserve Bank to such Lender; provided that no such assignment shall release a Lender from any of its obligations hereunder or substitute any such Bank for such Lender as a party hereto. In order to facilitate such an assignment to a Federal Reserve Bank, the Borrower shall, at the request of the assigning Lender, duly execute and deliver to the assigning Lender a promissory note or notes evidencing the Loans made to the Borrower by the assigning Lender hereunder. (i) Neither Holdings nor the Borrower shall assign or delegate any of its rights or duties hereunder without the prior written consent of the Administrative Agent, the Issuing Bank and each Lender, and any attempted assignment without such consent shall be null and void. (j) In the event that Standard & Poor's Ratings Group, Moody's Investors Service, Inc., and Thompson's BankWatch (or InsuranceWatch Ratings Service, in the case of Lenders that are insurance companies (or Best's Insurance Reports, if such insurance company is not rated by Insurance Watch Ratings Service)) shall, after the date that any Lender becomes a Lender, downgrade the long-term certificate deposit ratings of such Lender, and the resulting ratings shall be below BBB-, Baa3 and C (or BB, in the case of a Lender that is an insurance company (or B, in the case of an insurance company not rated by InsuranceWatch Ratings Service)), then the Issuing Bank shall have the right, but not the obligation, at its own expense, upon notice to such Lender and the Administrative Agent, to replace (or to request the Borrower to use its reasonable efforts to replace) such Lender with an assignee (in accordance with and subject to the restrictions contained in paragraph (b) above), and such Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in paragraph (b) above) all its interests, rights and obligations in respect of its Commitment to such assignee; provided, however, that (i) no such assignment shall conflict with any law, rule and regulation or order of any Governmental Authority and (ii) the Issuing Bank or such assignee, as the case may be, shall pay to such Lender in immediately available funds on the date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Lender hereunder and all other amounts accrued for such Lender's account or owed to it hereunder. SECTION 9.05. Expenses; Indemnity. (a) The Borrower and Holdings agree, jointly and severally, to pay all out-of-pocket expenses incurred by the Administrative Agent, the Collateral 66 Agent and the Issuing Bank in connection with the syndication of the credit facilities provided for herein and the preparation and administration of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby or thereby contemplated shall be consummated) or incurred by the Administrative Agent, the Collateral Agent or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents or in connection with the Loans made or Letters of Credit issued hereunder, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent and the Collateral Agent, and, in connection with any such enforcement or protection, the reasonable fees, charges and disbursements of any other counsel for the Administrative Agent, the Collateral Agent or any Lender. (b) The Borrower and Holdings agree, jointly and severally, to indemnify the Administrative Agent, the Collateral Agent, each Lender and the Issuing Bank, each Affiliate of any of the foregoing persons and each of their respective directors, officers, employees and agents (each such person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby, (ii) the use of the proceeds of the Loans or issuance of Letters of Credit, (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, or (iv) any actual or alleged presence or Release of Hazardous Materials on any property owned or operated by the Borrower or any of the Subsidiaries, or any Environmental Claim related in any way to the Borrower or the Subsidiaries; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of any Indemnitee. (c) The provisions of this Section 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank. All amounts due under this Section 9.05 shall be payable on written demand therefor. SECTION 9.06. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, except to the extent prohibited by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower or Holdings against any of and all the obligations of the Borrower or Holdings now or hereafter existing under this Agreement and other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. The rights of each Lender under this Section 9.06 are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH LETTER OF 67 CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK. SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank in exercising any power or right hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower or any other Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrower or Holdings in any case shall entitle the Borrower or Holdings to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower, Holdings and the Required Lenders; provided, however, that no such agreement shall (i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan or any date for reimbursement of an L/C Disbursement, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan or L/C Disbursement, without the prior written consent of each Lender affected thereby, (ii) change or extend the Commitment or decrease or extend the date for payment of the Commitment Fees of any Lender without the prior written consent of such Lender or (iii) amend or modify the provisions of Section 2.17 or 9.04(i), the provisions of this Section, the definition of the term "Required Lenders" or release any Guarantor or all or any substantial part of the Collateral, without the prior written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Collateral Agent or the Issuing Bank hereunder or under any other Loan Document without the prior written consent of the Administrative Agent, the Collateral Agent or the Issuing Bank. SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan or participation in any L/C Disbursement, together with all fees, charges and other amounts which are treated as interest on such Loan or participation in such L/C Disbursement under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan or participation in accordance with applicable law, the rate of interest payable in respect of such Loan or participation hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan or participation but were not payable as a result of the operation of this Section 9.09 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or participations or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. 68 SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter and the other Loan Documents constitute the entire contract between the parties relative to the subject matter hereof. Any other previous agreement among the parties with respect to the subject matter hereof (including, following the Restatement Closing Date, the Commitment Letter dated July 28, 1997 among the Administrative Agent, Chase Securities Inc. and the Borrower) is superseded by this Agreement and the other Loan Documents and shall be terminated on the Restatement Closing Date. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents. SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11. SECTION 9.12. Severability. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 9.13. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 9.03. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. SECTION 9.14. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) Each of Holdings and the Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any 69 other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against the Borrower, Holdings or their respective properties in the courts of any jurisdiction. (b) Each of Holdings and the Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.16. Confidentiality. The Administrative Agent, the Collateral Agent, the Issuing Bank and each of the Lenders agrees to keep confidential (and to use its best efforts to cause its respective agents and representatives to keep confidential) the Information (as defined below) and all copies thereof, extracts therefrom and analyses or other materials based thereon, except that the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender shall be permitted to disclose Information (a) to such of its respective officers, directors, employees, agents, affiliates and representatives as need to know such Information, (b) to the extent requested by any regulatory authority, (c) to the extent otherwise required by applicable laws and regulations or by any subpoena or similar legal process, (d) in connection with any suit, action or proceeding relating to the enforcement of its rights hereunder or under the other Loan Documents or (e) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 9.16 or (ii) becomes available to the Administrative Agent, the Issuing Bank, any Lender or the Collateral Agent on a nonconfidential basis from a source other than the Borrower or Holdings. For the purposes of this Section, "Information" shall mean all financial statements, certificates, reports, agreements and information (including all analyses, compilations and studies prepared by the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender based on any of the foregoing) heretofore or hereafter received from the Borrower or Holdings or any of their respective Affiliates and related to the Borrower or Holdings, any shareholder or Affiliate of the Borrower or Holdings or any employee, customer or supplier of the Borrower or Holdings, other than any of the foregoing that were available to the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to its disclosure thereto by the Borrower or Holdings, and which are in the case of Information provided after the date hereof, clearly identified at the time of delivery as confidential. The provisions of this Section 9.16 shall remain operative and in full force and effect regardless of the expiration and term of this Agreement. SECTION 9.17. Termination. Subject to the last sentence of Section 9.02, this Agreement and the other Loan Documents shall terminate when all the Obligations have been indefeasibly paid in full, the Lenders have no further commitment to lend, the L/C Exposure has been reduced to zero and the Issuing Bank has no further commitment to issue Letters of Credit under this Agreement, at which time the Collateral Agent shall execute and deliver to the Borrower, Holdings and the Subsidiary Guarantors all Uniform Commercial Code termination statements and similar documents which the Borrower, Holdings and the Subsidiary Guarantors shall reasonably request to evidence such termination. 70 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. NEENAH FOUNDRY COMPANY, by ------------------------- Name: Title: NFC CASTINGS, INC., by ------------------------- Name: Title: THE CHASE MANHATTAN BANK, individually and as Administrative Agent, Collateral Agent and Issuing Bank, by ------------------------- Name: Title: EX-21.1 3 EX-21.1 1 Exhibit 21.1 Subsidiaries of the Registrants 1. Neenah Foundry Company Hartley Controls Corporation - wholly owned. Neenah Transport, Inc. - wholly owned. 2. Hartley Controls Corporation None. 3. Neenah Transport, Inc. None. EX-27.1 4 EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF NEENAH FOUNDRY COMPANY AS OF AND FOR THE FIVE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 5-MOS SEP-30-1997 MAY-1-1997 SEP-30-1997 20,344 0 30,318 386 19,639 71,928 103,710 3,131 328,425 32,098 197,522 100 0 0 47,120 328,425 87,093 87,093 60,166 60,166 0 0 (9,199) 7,329 3,479 3,850 0 (1,630) 0 2,220 0 0
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