-----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, Am1KK84i2T6SPVehPeIeGBvGVF4y8NmohoaV+7MjnuQ4vtX7goP05OLg1kK8p45+ aQJkqBblf51KpjTtrrRFow== 0001047469-99-012487.txt : 19990331 0001047469-99-012487.hdr.sgml : 19990331 ACCESSION NUMBER: 0001047469-99-012487 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACCURIDE CORP CENTRAL INDEX KEY: 0000817979 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 611109077 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-15435 FILM NUMBER: 99579102 BUSINESS ADDRESS: STREET 1: 2315 ADAMS LN STREET 2: BOX 40 CITY: HENDERSON STATE: KY ZIP: 42420 BUSINESS PHONE: 5028265000 10-K405 1 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 [ ] 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 333-50239 ------------------------------------------- ACCURIDE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 61-1109077 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2315 ADAMS LANE, HENDERSON, KENTUCKY 42420 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (502) 826-5000 Securities registered pursuant to Section 12(b) of the Act: "None" Securities registered pursuant to Section 12(g) of the Act: "None" Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 1, 1999, 24,768 shares of Accuride Corporation common stock, par value $.01 per share (the "Common Stock") were outstanding. The Common Stock is privately held and, to the knowledge of registrant, no shares have been sold in the past 60 days. DOCUMENTS INCORPORATED BY REFERENCE NONE ACCURIDE CORPORATION FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosure About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Party Transactions PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K Signatures FINANCIAL STATEMENTS Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Stockholders' Equity (Deficiency) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Financial Statement Schedules PART I ITEM 1. BUSINESS GENERAL Accuride Corporation, a Delaware corporation ("Accuride" or the "Company"), manufactures and supplies wheels and rims ("Wheels") for heavy and medium commercial vehicles. The Company estimates that it has approximately a 66% share in the North American Wheel market for heavy and medium trucks, buses, vans ("Heavy/Medium Trucks") and trailers ("Trailers"). The Company offers the broadest product line in the North American Heavy/Medium Truck and Trailer Wheel industry and is the only North American manufacturer and supplier of both steel and aluminum Wheels for Heavy/Medium Trucks and Trailers ("Heavy/Medium Wheels"). The Company sells its Wheels primarily to Heavy/Medium Truck, Trailer and Light Truck (as defined) original equipment manufacturers ("OEMs"). Major customers include Ford Motor Company ("Ford"), Freightliner Corporation ("Freightliner"), General Motors Corporation ("General Motors"), Mack Trucks, Inc. ("Mack"), Navistar International Transportation Corporation ("Navistar"), Volvo Trucks North America ("Volvo") and Paccar, Inc. ("Paccar"). For over 10 years, the Company's steel Wheels have been standard equipment at all North American Heavy/Medium Truck OEMs and at a majority of North American Trailer OEMs. In addition, the Company's steel Wheels are standard equipment at a majority of North America's largest trucking fleets, such as Ruan Transportation Management Systems, J.B. Hunt Transport Services, Ryder Truck Rental, Inc. and Schneider Specialized Carriers, Inc. The North American commercial vehicle industry may be divided into three areas: (i)Heavy/Medium Trucks, (ii) Trailers and (iii) commercial and other vehicles such as light commercial trucks, pick-up trucks, sport utility vehicles and vans ("Light Trucks"). According to industry sources, new builds in the North American Heavy/Medium Truck and Trailer markets have grown to 733,000 units in 1998 from 455,000 units in 1992. Over that same period, new builds in the North American Light Truck market have grown to 7.6 million units from 4.2 million units. Management believes that the growth in the North American Heavy/Medium Truck and Trailer markets has been driven by the sustained economic growth in North America and shorter fleet trade-in cycles, while the growth in the North American Light Truck market has been driven by the increase in the popularity of sport utility vehicles and pick-up trucks, coupled with overall sustained economic growth. CORPORATE HISTORY Accuride and Accuride Canada Inc., a corporation formed under the laws of the province of Ontario, Canada and a wholly owned subsidiary of Accuride, were incorporated in November 1986 for the purpose of acquiring substantially all of the assets and assuming certain of the liabilities of Firestone Steel Products, a division of The Firestone Tire & Rubber Company. The respective acquisitions by the companies were consummated in December 1986. In 1988, the Company was purchased by Phelps Dodge Corporation ("Phelps Dodge"), the sole owner prior to the Recapitalization described below. See "The Recapitalization." THE RECAPITALIZATION On November 17, 1997, the Company entered into a stock subscription agreement with Hubcap Acquisition L.L.C. ("Hubcap Acquisition") pursuant to which Hubcap Acquisition acquired control of the Company. Hubcap Acquisition is a Delaware limited liability company whose members are KKR 1996 Fund L.P. and KKR Partners II, L.P., which are affiliates of Kohlberg Kravis Roberts & Co. L.P. ("KKR"). The acquisition consisted of an equity investment in the Company (the "Equity Investment") together with approximately $363.7 million of aggregate proceeds from certain financings described below (collectively, the "Financings") which were collectively used to redeem shares of Common Stock of the Company ("Common Stock") owned by Phelps Dodge (the "Redemption") and obtain a noncompetition agreement. The Equity Investment, Financings, and Redemption are collectively referred to as the "Recapitalization." Immediately after the closing of the Recapitalization, Hubcap Acquisition owned 90% of the Common Stock and Phelps 1 Dodge owned 10% of the Common Stock. Shortly after the Recapitalization, the Company sold additional shares of Common Stock and granted options to purchase Common Stock to senior management of the Company representing, in the aggregate, approximately 10% of the fully diluted equity of the Company. Phelps Dodge subsequently sold its remaining interest in the Company to RSTW Partners III, L.P. The Financings included (i) an aggregate of approximately $164.8 million of bank borrowings by the Company, including $135.0 million of borrowings under senior secured term loans (the "Term Loans") and $29.8 million of borrowings under a $140.0 million senior secured revolving credit facility (the "Revolver" and, together with the Term Loans, the "Credit Facility"), and (ii) $200.0 million aggregate principal amount of private notes ("Private Notes"). The Revolver is available for the Company's working capital requirements and the implementation of the Company's growth strategy. The Private Notes were exchanged for public notes ("Exchange Notes") which were registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a registration statement on Form S-4 declared effective by the Securities and Exchange Commission (the "Commission") on July 23, 1998. The Exchange Notes evidence the same debt as the Private Notes (which they replace) and are entitled to the benefits of an indenture dated January 21, 1998 (the "Indenture"). The Private Notes and the Exchange Notes are sometimes collectively referred to herein as the "Notes." STRATEGIC ALLIANCES The Company has implemented a number of strategic alliances to strengthen its position in the worldwide Wheel industry. These include the following: (i) a joint venture with Kaiser Aluminum and Chemical Corporation ("Kaiser") to produce aluminum Wheels, (ii) a joint venture with Industria Automotriz S.A. de C.V. ("IaSa") to produce steel Wheels in Mexico, and (iii) a joint venture with Goodyear Tire and Rubber Company ("Goodyear") to assemble Wheels and tires for Navistar ("AOT"). ACCURIDE/KAISER WHEELS. In May, 1997, the Company and Kaiser established AKW L.P. ("AKW") to produce aluminum Wheels. Prior to the formation of AKW, the Company participated in the aluminum Wheel market through a twenty-five year buy-and-resell agreement with Kaiser. Historically, the Company often could not satisfy customer demand for aluminum Heavy/Medium Wheels because of Kaiser's capacity constraints. In response to the growing demand for its aluminum Wheels and a desire to increase its market share and further its single source capabilities, the Company invested $20.8 million in May 1997 for a 50% interest in AKW. Since its inception, AKW has increased its aluminum Heavy/Medium Wheel capacity by over 40%. Despite this recent expansion, AKW continues to operate at or near capacity and is in the process of increasing capacity further to satisfy customer demand. On January 22, 1999, the Company announced that it had executed a letter of intent to acquire Kaiser's 50% interest in AKW. ACCURIDE DE MEXICO. Most of the Company's Heavy/Medium Truck and Light Truck customers either already produce vehicles in Mexico or plan to do so in the near future. These customers have indicated that they will require local sourcing as they expand their operations in Mexico. Historically, the Company supplied OEMs in Mexico from its Henderson, Kentucky facility and its Ontario, Canada facility. On November 5, 1997, the Company invested $4.9 million for a 51% interest in Accuride de Mexico, S.A. de C.V. ("AdM"), a venture with IaSa, Mexico's only commercial vehicle Wheel manufacturer. The Company will use AdM as a platform to supply the growing Latin American assembly operations of many of its top customers, including Ford, Freightliner, General Motors, Navistar, Paccar and Volvo. AdM has built a new facility in Monterrey, Mexico, which is scheduled to begin production in mid-1999. Until such time, IaSa has agreed to contract manufacture AdM's Wheel requirements from IaSa's existing Wheel operations. IaSa has entered into a noncompetition agreement with AdM and no longer participates in the Wheel business other than through its interest in AdM. Under the AdM venture agreement, to the extent the Company pursues opportunities in Mexico and other Latin American countries, the Company is required to offer the right of first refusal to AdM. ASSEMBLIES ON TIME. The Company and Goodyear formed AOT, Inc. ("AOT") in June 1991 in order to assemble Wheels and tires for Navistar near Navistar's truck assembly operation in Springfield, Ohio. The Company and Goodyear each own 50% of AOT. In April 1998 the Company and Goodyear formed Assembly On Time Canada Inc. (which subsequently changed its name to AOT Canada Ltd), as a wholly owned subsidiary of AOT to expand the AOT operations 2 for Navistar to a new facility in Talbotville, Ontario, Canada. INDUSTRY OVERVIEW The size of the steel and aluminum commercial vehicle Wheel industry in North America is approximately $1.9 billion. Wheels are produced for (i) Heavy/Medium Trucks, which are over-the-road vehicles designed to carry over 10,000 pounds such as large multi-axle rigs, buses and moving trucks; (ii) Trailers, which includes trailers and chassis; and (iii) Light Trucks, which are vehicles designed to carry under 10,000 pounds such as pick-up trucks, walk-in delivery vans and sport utility vehicles. Wheels produced for Heavy/Medium Trucks and Trailers are larger and heavier dual Wheels. Wheels produced for Light Trucks are smaller and lighter single or dual Wheels. The commercial wheel industry may be categorized in three ways: (i) by vehicle category-Heavy/Medium Wheels and Light Truck Wheels, (ii) by production material-steel and aluminum Wheels, and (iii) by vehicle application-dual and single Wheels. HEAVY/MEDIUM WHEELS AND LIGHT TRUCK WHEELS. Heavy/Medium Wheels range in diameter from 17.5" to 24.5". Purchasers of Heavy/Medium Wheels consist primarily of Heavy/Medium Truck OEMs such as Freightliner, Mack and Navistar, and Heavy/Medium Trailer OEMs such as Great Dane Limited Partnership ("Great Dane"), Utility Trailer Manufacturing Company ("Utility") and Wabash National, Inc. ("Wabash"). The Heavy/Medium Wheel segment is driven by the volume of Heavy/Medium Truck and Trailer manufacturing, which is tied to macroeconomic trends such as economic growth and fuel prices. In 1998, industry sales of Heavy/Medium Wheels in North America were approximately $679 million. Light Truck Wheels range in diameter from 14" to 19.5". Purchasers of Light Truck Wheels consist primarily of Light Truck OEMs such as Ford and General Motors. The Light Truck Wheel market is driven by the volume of production of Light Trucks as well as the trend toward the use of larger diameter Light Truck Wheels in smaller Light Trucks such as sport utility vehicles to improve styling and performance. In 1998, industry sales of Light Truck Wheels in North America were approximately $1.2 billion. STEEL AND ALUMINUM WHEELS. Steel Wheels are more resistant to damage and hold a substantial price advantage over aluminum Wheels. Aluminum Wheels are generally lighter in weight, more readily stylized and approximately four times more expensive than steel Wheels. The growth of aluminum Heavy/Medium Wheel and Light Truck Wheel sales is driven by the increasing importance of the aesthetic aspect of Wheels, particularly in the Light Truck Wheel segment, and, to a lesser extent, reduced vehicle weight. DUAL AND SINGLE WHEELS. Dual Wheels, which carry higher load ratings, are used on Heavy/Medium Trucks, Trailers and Light Trucks. Dual Wheels may be mounted in tandem (i.e., side-by-side, two wheels on each end of an axle) or individually. Single Wheels are used on Light Trucks and passenger cars. The Company is the only producer of both dual and single steel Light Truck Wheels in North America. PRODUCTS AND SERVICES The Company has the broadest product line in the North American Heavy/Medium Wheel industry. The Company also competes in the Light Truck Wheel market for larger (with diameters of 16" and over) steel Wheels for Light Trucks. The Company offers steel and aluminum Wheels for Heavy/Medium Trucks and Trailers, heavy-duty Wheels for the construction industry and stylized steel Wheels for Light Trucks. Other than through AdM, the Company does not produce smaller Wheels (with diameters under 16") or Wheels with diameters in excess of 24.5". AdM produces a wide range of steel Wheels, from smaller passenger car Wheels and motorcycle Wheels to large agricultural vehicle Wheels with diameters in excess of 24.5". 3 The following table shows the size of each market served in 1998 and the Company's estimated market share of each such market.
ACCURIDE'S SHARE OF THE 1998 NORTH AMERICAN HEAVY/MEDIUM WHEEL AND LIGHT TRUCK WHEEL MARKETS Dual Wheels Single Wheels Total (dollars in millions) Size Share(1) Size Share(1) Size Share(1) Heavy/Medium Wheels Steel ........................... $ 347 77% -- -- $ 347 77% Aluminum (2) .................... $ 332 24% -- -- $ 332 24% Total Heavy/Medium Wheels...... $ 679 66% -- -- $ 679 66% Light Truck Wheels Steel ........................... $ 46 87% $ 357 7% $ 403 13% Aluminum ........................ $ 12 0% $ 801 0% $ 813 0% Total Light Wheels ............ $ 58 79% $1,158 4% $1,216 7% ------ ------ ------ Total ........................... $ 737 $1,158 $1,895
CUSTOMERS The Company's customers fall into four general categories: (i) Heavy/Medium Truck OEMs (which represented approximately 53% of the Company's 1998 net sales); (ii) Trailer OEMs (which represented approximately 19% of the Company's 1998 net sales); (iii) Light Truck OEMs (which represented approximately 19% of the Company's 1998 net sales); and (iv) aftermarket distributors and others (which represented approximately 9% of the Company's 1998 net sales). Major customers include Freightliner, Volvo, Mack, Navistar and Paccar, which are Heavy/Medium Truck OEMs; Great Dane, Utility and Wabash, which are Trailer OEMs; and Ford and General Motors, which are Light Truck OEMs. A large portion of the Company's business, not including sales of aluminum Wheels by AKW, consists of sales to Ford, Navistar and Freightliner, representing approximately 17%, 12% and 11% of 1998 net sales, respectively (including sales of aluminum Wheels by AKW, total sales to Ford, Navistar, and Freightliner were approximately 16%, 17%, and 15% of 1998 net sales, respectively). The loss of a significant portion of the Company's sales to any of these OEMs could have a material adverse effect on the Company. The Company serves the aftermarket through a broad network of distributors. The Company's design engineers work closely with its customers to support the vehicle system design. Established contacts with OEM engineers enable the Company to track industry trends, including new features and styles, and to ensure that new products meet changing requirements for new vehicle systems. For example, over the last few years, the Company has responded to and worked with customers to complete significant new development programs in the areas of full-contoured styled steel Wheels, forged aluminum Wheels, cast aluminum Wheels for Heavy/Medium Truck applications in North America, and Wheels for Light Truck applications. In the Heavy/Medium Wheel industry, Wheels are designated as standard equipment by the OEM, although other Wheels may be selected by fleet managers as component parts for their fleets. Generally, OEMs will have one standard Wheel manufacturer for any given vehicle model. Because the Company is the only standard Steel Wheel manufacturer at all North American Heavy/Medium Truck OEMs, each - ------------------- (1) Share percentages have been calculated using a unit sold basis. (2) Aluminum sales are made through AKW, the Company's joint venture with Kaiser. 4 Heavy/Medium Truck produced in North America will have Accuride Wheels unless the end-purchaser of a particular Heavy/Medium Truck (or fleet of Heavy/Medium Trucks) specifically requests a Wheel produced by another company. Light Truck OEMs will ordinarily designate more than one Wheel option as standard for any particular vehicle model and one Wheel supplier to supply each option. Consequently, for any particular vehicle model, more than one supplier may have its Wheels designated as standard equipment. OEMs determine which of the standard Wheels to use on any one vehicle depending on factors such as marketing, consumer preference and cost. In some cases, an OEM will allow an end-consumer to select a Wheel option from the set of Wheels designated as standard. The process of being designated as a standard supplier of a particular Wheel can take more than two years from the time of initial design to first delivery. A potential supplier must first develop a Wheel design based on styling and engineering specifications provided by the OEM. After a comprehensive engineering and feasibility review, the OEM designates a specific supplier for a particular Wheel. The duration of the designation is dependent upon the life cycle of the vehicle model. A supplier that designs, engineers, manufactures and conducts quality control testing is generally referred to as a "Tier I" supplier. The Company is a Tier I supplier for both Ford and General Motors and believes that its early involvement with the engineers from its customers affords it a competitive advantage. MANUFACTURING CONTINUOUS PRODUCTIVITY IMPROVEMENT. The Company has developed and implemented a Cost Reduction and Productivity Program to continuously improve its operations and to modernize, upgrade and automate its manufacturing facilities. Since 1991, the Company has invested over $86 million to improve its facilities, which included selected use of robotics and other automation, connection of the automated component lines to the assembly lines, and improvement in product quality through upgrading of key processes. The success of this program is reflected in improvements in operating results, cost-reduction, capacity, product quality and plant safety. The majority of recent expenditures targeted the Tubeless Heavy/Medium Wheel production processes at both the Henderson, Kentucky facility and the Ontario, Canada facility, and the Light Truck Dual Wheel production process at the Ontario, Canada facility. The Company has budgeted approximately $7.7 million in 1999 (in addition to normal maintenance) for continued implementation of these productivity enhancement programs. See "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations -Liquidity and Capital Resources." Management believes that its emphasis on low-cost manufacturing will continue to yield significant operational improvements. MANUFACTURING PROCESS. The Company's Wheels are made using seven primary manufacturing processes: stamping, spin forming, roll forming, welding, coating/finishing, forging and machining. The Company's steel Wheel products are produced by spin forming or stamping of the disc, roll forming of the rim, welding, coating and finishing. The Company's forged aluminum Wheels are produced by AKW using forging, heat treating, spinning, machining and polishing processes. The following describes the major processes the Company uses to produce Wheels: STAMPING. The Company makes discs for single Light Truck Wheels using stamping, which is the most cost-effective way to produce single steel discs because it requires the lowest cycle time per part of any available process. Stamping allows for thinner gauge steels to be used to reduce weight without sacrificing strength. SPIN FORMING. The Company makes discs for dual Wheels by using spin forming, which produces discs with variable wall thicknesses, thus reducing weight and enhancing the strength-to-weight ratio of the Wheel. Spin forming also provides a high-quality product with low raw material usage and waste. ROLL FORMING. The Company makes Light and Heavy/Medium steel rims using roll forming (feeding coiled steel through equipment that forms it into a cylinder, welds it, then feeds it through rim rollers to shape the rim). The Company has developed an extensive roll forming expertise in the 40-plus years that it has used this process, and believes that it has one of the industry's highest quality yields for rim rolling. 5 COATING/FINISHING. The Company pre-treats all steel Wheels in zinc phosphate, then applies an electro-disposition coating ("E-coat"), which is an acrylic, cathodic, gray or white base coating that provides resistance to corrosion. Subsequently, some customers may choose to have the Company add a topcoat over the E-coat for further protection. FORGING. The Company makes Heavy/Medium aluminum Wheels in the AKW joint venture by using forging, in which an aluminum billet is compressed into a basic Wheel shape using high amounts of pressure and energy. Forgings are formed into their final shape using spinning (in the rim area), and by machining the entire contour to create final mounting dimensions and appearance. The Company believes that forging results in structural integrity that is unsurpassed by any other aluminum metalworking process. Forgings can offer decisive cost advantages, especially in high-volume production runs. SUPPLIER RELATIONSHIPS STEEL SUPPLIERS. The Company has secured favorable pricing from a number of different suppliers, by negotiating high-volume contracts with terms ranging from 1 to 3 years. While the Company believes that its supply contracts can be renewed on acceptable terms, there can be no assurance that such agreements can be renewed on such terms or at all. However, the Company believes that it is not dependent on long-term supply contracts for its steel requirements and has alternative sources available. ALUMINUM SUPPLIERS. The Company participates in the aluminum Wheel market through AKW, which obtains aluminum through various third-party suppliers. The Company believes that aluminum is readily available from a variety of sources. SALES AND MARKETING The Company has built its brand franchise with a targeted sales and marketing effort aimed at Heavy/Medium Truck OEMs, Trailer OEMs, Light Truck OEMs and independent distributors. The Company actively markets to major end users, including trucking fleets and dealers. The Company positions its sales managers near major customers such as Ford and General Motors in Detroit and Freightliner in Portland. Additional field sales personnel are geographically located throughout North America to service other OEMs, independent distributors and trucking fleets. New emphasis is being placed on targeting end-users as the Company commercializes premium products and expands its aluminum product line. The majority of the Company's core customers source their requirements either on annual contracts or standard sourcing contracts. The Company has appointed independent distributors in every major market area. These distributors are mostly members of the National Wheel and Rim Association and serve aftermarket needs and small OEMs not serviced directly by the Company. The Company ships an average of 75 truckloads of Wheels per day to its customers, and all shipments are made FOB shipping point. As a service to its independent distributors, the Company also provides order consolidation services from its warehouse in Taylor, Michigan. COMPETITION The Company competes on the basis of price, delivery, quality, product line breadth and service. The Company's competitive advantages include long standing customer relationships, broad product lines, high quality products and low manufacturing costs. Due to the breadth of the Company's product line, the Company competes with different companies in different markets. The Company's principal competitor in the dual steel Heavy/Medium Wheel and single steel Light Truck Wheel markets is Hayes Lemmerz International, Inc. ("Hayes Wheels"). Recently, Hayes Wheels has been consolidating the operations of smaller participants in the dual steel Heavy/Medium Wheel market. In addition, Hayes Wheels has established a significant global presence through its acquisition of European wheel producer Lemmerz Holding GmbH. Hayes Wheels is the market leader in the single Light Truck Wheel market and in the passenger car Wheel industry, which are more diversified markets than the other markets in which the Company competes. In the dual steel Light Truck Wheel industry, the Company's principal competitor is Meritor Automotive, Inc. ("Meritor"), which has a 12% share. Meritor and the Company are the only suppliers 6 of OEM steel dual Light Truck Wheels in North America. All of the dual Wheels sold by Meritor in North America are produced in Brazil. In the dual aluminum Heavy/Medium Wheel market, AKW's principal competitor is Alcoa Aluminum Corporation of America ("Alcoa"), which has the leading share in that market. Alcoa does not produce steel Wheels. AKW PRODUCT RECALL On April 17, 1998, AKW, the Company's 50% owned joint venture, submitted a notice to the National Highway Safety Administration ("NHSA") of AKW's intent to recall approximately 47,800 aluminum truck wheels (the "Recalled Wheels"), because a defect may exist in the Recalled Wheels that relates to motor vehicle safety. Kaiser, the Company's partner in AKW, manufactured several hundred of the Recalled Wheels during the period April 23, 1997 through May 1, 1997. During the period May 1, 1997 through February 28, 1998, AKW manufactured all of the remaining Recalled Wheels. The Recalled Wheels were designed by the Company. AKW currently estimates that the total costs of recalling and replacing all of the Recalled Wheels will be approximately $6.8 million, an amount which may vary depending on the level of customer response to the recall, among other factors. Due to the Company's 50% ownership of AKW, the Company has reflected a portion of the recall expenses ($3.4 million) as a reduction in "Equity in earnings of affiliates" in the Company's financial statements for 1998. The Company believes that the recall will not have a material adverse effect on the Company. The Company is currently not aware of any actual or potential product liability claims related to the Recalled Wheels. There can be no assurance, however, that no such claims will be made and that the Company will not experience any material product liability losses in the future. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - Subsequent Events" regarding the Company's execution of a letter of intent to acquire Kaiser's 50% interest in AKW. EMPLOYEES As of December 31, 1998, the Company had 1,209 employees. Both the Ontario, Canada facility and the Henderson, Kentucky facility are currently unionized. Bargaining unit employees in the Ontario, Canada facility are represented by National Automobile, Aerospace, Transportation and General Workers Union of Canada ("CAW") Local #27. The existing contract was implemented in March 1997, following a 53-day strike in which there was no disruption to the customer base. The contract expires on March 13, 2000. Hourly employees at the Henderson, Kentucky Facility are represented by the International Union, Automobile, Aerospace, and Agriculture Implement Workers of America ("UAW") Local #2036. The Company's contract with the UAW expired in February 1998. The Company was not able to negotiate a mutually acceptable agreement with the UAW, and a strike occurred at the Henderson, Kentucky Facility on February 20, 1998. Effective as of March 31, 1998, the Company began an indefinite lockout in order to provide security for plant personnel and equipment. The UAW has rejected all of the Company offers, and the parties continue to be unable to reach an agreement. The Company is continuing to operate with its salaried employees and outside contractors. Currently, there is, and the Company believes that there will be no supply disruption to the Company's customer base; however, there can be no assurance to that effect. A supply disruption to the Company's customer base could have a material adverse effect on the Company. Management estimates that the strike at the Henderson facility affected pre-tax earnings in 1998 by $3.9 million. See "Item 7 -Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview." The Company's AdM, AKW and AOT ventures have 58, 170, and 71 employees, respectively. The AKW employees at the Erie, Pennsylvania facility are represented by UAW Local #1186 pursuant to a collective bargaining agreement that expires in August 2003. RESEARCH DEVELOPMENT The Research and Development department is composed of 28 employees, 18 of whom are degreed engineers (seven with advanced degrees). The objectives of the R&D department are to design and develop new products, provide technical support and service to customers, and to investigate and develop new process 7 technology. Over the last few years, the Company has completed significant new development programs in the areas of full-contoured styled steel Wheels, new designs in forged aluminum Wheels, cast aluminum Wheels for Heavy/Medium Truck applications in North America, and cladded wheels for Light Truck applications. Research and Development costs for fiscal years 1998, 1997, and 1996 were approximately $2.9 million, $3.7 million, and $3.7 million, respectively. These costs were expensed and included in general and administration expenses during the period incurred. PATENTS AND TRADEMARKS Accuride maintains a significant intellectual property estate, including patents and extensive proprietary knowledge of products and systems. The Company currently holds 7 patents and 5 patents pending relating to Wheel technology. The Company has applied for federal and international trademark protection for numerous marks. Although management believes that the patents and trademarks associated with the Company's various product lines are valuable to the Company, it does not consider any of them to be essential to its business. SEASONALITY The Company's operations are typically seasonal as a result of regular customer maintenance and model changeover shutdowns, which normally occur in the third quarter of each calendar year. At times, this may result in decreased net sales and profitability during the Company's third fiscal quarter. ENVIRONMENTAL MATTERS The Company's operations are subject to various federal, state and local requirements, including, environmental laws. Under certain environmental laws, a current or previous owner or operator of property may be liable for the costs of removal or remediation of certain hazardous substances or petroleum products on, under or in such property, without regard to whether the owner or operator knew of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred. The presence of, or failure to remediate properly such substances, may adversely affect the ability to sell or rent such property or to borrow using such property as collateral. Persons who generate, arrange for the disposal or treatment of, or dispose of hazardous substances may be liable for the costs of investigation, remediation or removal of such hazardous substances at or from the disposal storage or treatment facility, regardless of whether such facility is owned or operated by such person. Additionally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. Compliance with environmental laws, stricter interpretations of or amendments to any such laws, or more vigorous enforcement policies by regulatory agencies with respect to any of them may require material expenditures by the Company. There can be no assurance that future regulations will not require the Company to modify its facilities to meet revised requirements of environmental laws. The nature of the Company's current and former operations and the history of industrial uses at its facilities expose the Company to the risk of liabilities or claims with respect to environmental and worker health and safety matters that could have a material adverse effect on the Company. Phelps Dodge has indemnified the Company with respect to environmental liabilities at the Henderson, Kentucky facility and the Ontario, Canada facility. The Phelps Dodge environmental indemnity, however, does not apply to liability or injury incurred or sustained by the Company attributable to the handling of hazardous substances at any time after the Recapitalization or any failure after the Recapitalization of the Company to be in compliance with any applicable environmental law or environmental permit. In addition, the Phelps Dodge environmental indemnity does not apply to liability or injury arising out of or resulting from the investigation, assessment or remediation of a hazardous substance not required by or under an environmental law. Kaiser has also indemnified the Company with respect to environmental liabilities at the AKW facilities except (i) AKW shall be solely responsible for claims, losses and liabilities that are caused by or arise from any action by AKW or in connection with the conduct of the business by AKW, (ii) Kaiser and AKW shall be responsible for their appropriate share of such claims, losses and liabilities associated with contamination due to the failure of 8 AKW to maintain the pits at the AKW Erie facility which contain hydraulic presses, (iii) Kaiser and AKW shall be responsible for their appropriate share of such claims, losses and liabilities that arise from both the actions of Kaiser and AKW, or the conduct of the business by either of them or (iv) to the extent that any fines or penalties assessed or threatened against AKW during the period in which Kaiser is implementing an environmental compliance plan at the AKW Erie facility exceed $1,000,000. ITEM 2. PROPERTIES The Company operates six facilities in North America. The Company owns manufacturing facilities in Henderson, Kentucky; Columbia, Tennessee; and London, Ontario, Canada. The Company also leases a distribution warehouse in Michigan, has a sales office in the greater Detroit area, and recently signed a lease for a new office building in Evansville, Indiana, which should be available in November 1999. The Company operates facilities in Springfield, Ohio and Talbotville, Ontario, Canada through its joint ventures with Goodyear and operates facilities in Erie, Pennsylvania and Cuyahoga Falls, Ohio and leases office space in Akron, Ohio through its joint venture with Kaiser. The Company believes that its plants are adequate and suitable for the manufacturing of products for the markets in which it sells. The Henderson Facility, Ontario Facility and all three joint venture facilities are operating at or near capacity. The Company is in the process of establishing the Monterrey Facility, which the Company believes will, together with its existing facilities, provide production capacity to meet expected demand for its products. The Company's manufacturing and research facilities are as follows:
LOCATION SQUARE USE OWNED/ ------- FEET --- LEASED ------ ------ London, Ontario, Canada 462,993 Heavy/Medium Steel Wheels; steel Light Truck Owned Wheels Henderson, Kentucky (a) 364,365 Headquarters; R&D; Heavy/Medium Steel Wheels Owned/Leased Taylor, Michigan 7,500 Warehouse Leased Springfield, Ohio (b) 136,000 Wheel and tire assemblies for Navistar Owned Talbotville, Ontario, Canada (c) 159,140 Wheel and tire assemblies for Navistar Owned Erie, Pennsylvania (d) 126,000 Aluminum Wheels forging Owned/Leased Cuyahoga Falls, Ohio (e) 131,700 Aluminum Wheels machining Owned/Leased Columbia, Tennessee (f) 340,000 Steel Light Truck Wheels Owned Monterrey, Mexico (g) 262,000 Steel Wheels Owned Evansville, Indiana (h) 34,000 Future headquarters of the Company Leased
- ----------- (a) The land on which this facility is located is leased pursuant to an industrial revenue financing arrangement. In February 1999, the initial 25-year term expired and the lease was renewed for an additional 25-year period with monthly lease payments of $1,333.00. At anytime during the renewal period, the Company has the right to repurchase the land for $1.00. (b) Owned by AOT, the joint venture with Goodyear. See "Item 1-Business- Products and Services-Heavy/Medium Wheels" and "-Strategic Alliances- Assemblies on Time." (c) Owned by AOT Canada Ltd. (the subsidiary of AOT) as part of the joint venture with Goodyear. See "Item 1-Business-Products" and "-Strategic Alliances-Assemblies on Time." (d) The equipment is owned by AKW and the building is leased by AKW under a ten-year lease from Kaiser at the rate of $1.00 per year. The initial term of the lease expires in 2007. See "Item 1-Business -Strategic Alliances-Accuride/Kaiser Wheels." 9 (e) The equipment is owned by AKW and the building is leased by AKW from The Bell Company on a month-to-month basis. This lease expired in November 1998 and AKW is currently finalizing terms of the renewal and anticipates yearly lease payments totaling $373,765. See "Item 1-Business -Strategic Alliances-Accuride/Kaiser Wheels." (f) This facility began production in mid-1998. (g) This facility is currently under construction and is scheduled to begin production by mid-1999. The facility is owned by AdM. See "Item 1-Business-Strategic Alliances-Accuride de Mexico." (h) This facility, currently under construction, will be the new worldwide headquarters of the Company. It is scheduled to be completed in November, 1999. The address of the Company's principal executive office is 2315 Adams Lane, P.O. Box 40, Henderson, Kentucky 42419 and the Company's phone number is (502) 826-5000. ITEM 3. LEGAL PROCEEDINGS The Company does not believe that there are any material pending or threatened legal proceedings other than ordinary litigation incidental to the Company's business, that, if adversely determined, could have a material adverse effect on the Company. ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is privately held and not listed on any public market. As of March 1, 1999, there were approximately 51 holders of the Company's Common Stock. DIVIDEND POLICY The Company has not declared or paid cash dividends on its Common Stock. The Company currently intends to retain any future earnings to finance the growth and development of its business and therefore does not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be made by the Board of Directors in light of the Company's earnings, financial position, capital requirements and such other factors as the Board of Directors deems relevant. The payment of dividends is restricted under the terms of the Revolver and the Indenture. See "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." RECENT SALES OF UNREGISTERED SECURITIES During the 1998 fiscal year, the Company issued approximately 768 shares of the Company's Common Stock to certain members of management for aggregate consideration in cash and secured promissory notes of approximately $3.8 million. During such period, the Company also issued options to purchase approximately 1,458 shares of Common Stock to such members of management. The exercise price of such options was $5,000 per share. None of these securities were registered under the Securities Act. Such issuances of Common Stock and options to purchase Common Stock were made pursuant to the 1998 Stock Purchase and Option Plan for Employees of Accuride Corporation and Subsidiaries. In each of the above instances, exemption from registration under the Securities Act was based upon the grounds that the issuance of such securities either (i) did not involve a public offering within the meaning of Section 4(2) of the Securities Act or (ii) was offered and sold pursuant to a compensatory benefit plan within the meaning of Rule 701 of the Securities Act. See "Item 11-Executive Compensation -Employee Equity Arrangements." 11 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following financial data is an integral part of, and should be read in conjunction with the "Consolidated Financial Statements" and notes thereto. Information concerning significant trends in the financial condition and results of operations is contained in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations." SELECTED HISTORICAL OPERATIONS DATA (In thousands, except per share data)
1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- FISCAL YEAR ENDED DECEMBER 31, ------------------------------ (DOLLARS IN THOUSANDS) OPERATING DATA: Net sales (a)......................... $383,583 $332,966 $307,830 $357,802 $333,556 Gross profit (b)...................... 82,554 65,994 61,723 64,549 59,020 Operating expenses (c)................ 34,034 21,316 17,941 16,869 16,938 Income from operations(b)............. 48,520 44,678 43,782 47,680 42,082 Interest income (expense), net........ (32,311) 385 400 717 701 Equity in earnings of affiliates...... 3,929 4,384 115 300 308 Other income (expense), net (d)....... (2,904) 719 (381) (1,375) (1,684) Net income............................ 7,951 27,837 26,466 26,592 24,301 OTHER DATA: Adjusted EBITDA (e)................... $ 88,160 $76,888 $64,023 $70,101 $62,928 Adjusted EBITDA Margin (f)............ 21.1% 21.8% 20.8% 19.5% 18.8% Net cash provided by (used in): Operating activities............ 22,662 38,219 43,678 50,012 44,600 Investing activities............ (44,669) (47,065) (9,370) (6,766) (6,342) Financing activities............ 18,060 9,953 (37,463) (57,718) (14,900) Cash interest expense (g)............. 31,450 145 33 35 90 Depreciation and amortization......... 24,926 20,726 20,126 21,121 20,538 Capital expenditures.................. 46,579 24,032 9,584 6,960 6,535 BALANCE SHEET DATA (END OF PERIOD): Cash and cash equivalents............. $ 3,471 $7,418 $6,311 $9,466 $23,938 Working capital....................... 49,203 27,416 38,608 34,785 33,385 Total assets.......................... 404,925 347,447 288,703 298,900 341,014 Total debt............................ 393,200 16,040 -- -- -- Stockholders' equity (deficiency)..... (58,096) 256,055 228,451 239,081 271,262
- ------------------- (a) Results of operations for the year ended December 31, 1997 (subsequent to May 1997) do not reflect net sales and gross profit for aluminum Wheels due to the formation of the AKW joint venture. Net sales and gross profit for aluminum Wheels were $19.1 million and $1.1 million, respectively, for the period beginning on January 1, 1997 and ending on April 30, 1997. See "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations." (b) Gross profit and income from operations for the year ended December 31, 1997 reflect $7.1 million of costs incurred in connection with the strike in early 1997 at the Company's facility in Ontario, Canada. Gross profit and income from operations for 1998 reflect $3.9 million of costs incurred in connection with the strike in 1998 at the Company's facility in Henderson, Kentucky and $1.1 million of restructuring charges related to Accuride Canada, Inc. 12 (c) Operating expenses include selling, general and administrative plus (i) $3.3 million of start-up costs related to the Columbia, Tennessee facility incurred during 1998, (ii) $1.9 million of management retention bonuses reimbursed by Phelps Dodge in 1998, and (iii) $2.2 million of Recapitalization professional fees recorded in 1998. (d) Other income (expense), net consists of currency hedging and foreign exchange gains and losses related to the Company's Canadian and Mexican operations. (e) Adjusted EBITDA represents income from operations plus depreciation and amortization, net of $1.7 million in amortization of deferred financing costs in 1998 plus equity in earnings of affiliates, plus (i) $7.1 million representing the impact of the strike at the Ontario, Canada facility incurred during the first quarter of 1997, (ii) $1.1 million of restructuring charges incurred in 1998, (iii) $3.4 million representing the impact of the AKW wheel recall campaign implemented in 1998, (iv) $1.9 million of management retention bonuses reimbursed by Phelps Dodge in 1998, (v) $2.2 million of Recapitalization professional fees recorded in 1998 and (vi) $3.9 million of costs incurred in connection with the strike in 1998 at the Henderson, Kentucky facility. Adjusted EBITDA is not intended to represent cash flows from operations as defined by generally accepted accounting principles ("GAAP") and should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. Adjusted EBITDA is included in this Annual Report as it is a basis upon which the Company assesses its financial performance and certain covenants in the Company's borrowing arrangements are tied to similar measures. (f) Adjusted EBITDA Margin represents Adjusted EBITDA before equity in earnings of affiliates and before the $3.4 million impact of the AKW wheel recall campaign implemented in 1998, as a percentage of net sales. (g) Cash Interest Expense represents accrued interest expense exclusive of $1.7 million amortization of deferred financing costs for the year ended December 31, 1998. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with the "Item 6 -- Selected Consolidated Financial Data" and the Company's Consolidated Financial Statements and the notes thereto, all included elsewhere herein. The information set forth in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" includes forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to differ materially from those contained in the forward-looking statements below. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations -Factors Affecting Future Results." GENERAL NET SALES. The Company derives a substantial portion of its net sales from the sale of steel Wheels to North American Heavy/Medium Truck, Trailer and Light Truck OEMs. The Company also supplies aluminum Heavy/Medium Wheels to North American Heavy/Medium Truck and Trailer OEMs. In addition, the Company supplies the aftermarket with replacement products. Revenues are recognized upon shipment to customers from the Company's production facilities. Prior to May 1997, the Company participated in the aluminum Wheel market through a twenty-five year buy-and-resell agreement with Kaiser. Under that agreement, aluminum Wheels were engineered and designed by the Company, manufactured by Kaiser and sold through the Company's distribution channels under the Accuride name. Therefore, the Company's results of operations reflected revenues received from the 13 sale of aluminum Wheels and the cost of acquiring the Wheels from Kaiser. However, under that arrangement, the Company often could not satisfy customer demand for aluminum Heavy/Medium Wheels because of Kaiser's capacity constraints. In May 1997, the Company invested $20.8 million for a 50% interest in AKW, a joint venture with Kaiser. AKW acquired Kaiser's Wheel operations in Erie, Pennsylvania and Cuyahoga Falls, Ohio. Since its inception, AKW has increased its capacity by over 40%. Despite this recent expansion, AKW continues to operate at or near capacity and is in the process of increasing capacity further to meet customer demand. The Company's participation in AKW's earnings has been recorded on an equity basis since the establishment of the joint venture. Accordingly, the Company's financial results are not directly comparable to periods prior to May 1997. In November, 1997, the Company established AdM, a 51%-owned venture with IaSa, Mexico's only commercial vehicle Wheel manufacturer. Historically, the Company supplied OEMs in Mexico from its Henderson, Kentucky facility and its Ontario, Canada facility. The Company will use AdM as a platform to supply the growing Latin American assembly operations of many of the Company's top customers, including Ford, Freightliner, General Motors, Navistar, Paccar and Volvo. AdM is building a new facility in Monterrey, Mexico, which is scheduled to begin production in mid-1999. Until such time, IaSa has agreed to contract manufacture AdM's Wheel requirements from IaSa's existing Wheel operations. IaSa has entered into a noncompetition agreement with AdM and no longer participates in the Wheel business other than through its interest in AdM. Under the AdM venture agreement, to the extent the Company pursues opportunities in Mexico and other Latin American countries, the Company is required to offer the right of first refusal to AdM. In order to expand its presence in the growing Light Wheel market, the Company developed the Columbia, Tennessee facility, which began production in August 1998. Sales to customers outside of the United States are considered international sales by the Company. International sales in 1998 were $60.2 million, or 15.7% of the Company's 1998 sales volume. For additional information, see footnote 14 to the "Notes to Consolidated Financial Statements" included herein. The Company competes in a cyclical industry that historically has experienced significant fluctuations in demand as a result of factors such as general economic conditions, interest rates, governmental regulations and consumer confidence. The Company's results of operations for 1995 benefited from strong market conditions, with 1995 representing a peak according to most industry indicators. Although demand declined in 1996, backlogs that had built up during 1995 kept sales in line with 1995 levels through the first quarter of 1996. However, by the end of the second quarter of 1996, backlogs had declined, and sales fell significantly. The Company's steel Wheel net sales volume for the third quarter of 1996 was 15% lower than such net sales volume for the second quarter of 1996 and 18% lower than such net sales volume for the comparable period in 1995, with net sales for the year ended December 31, 1996 substantially lower than net sales for 1995. By the second quarter of 1997, steel Wheel net sales volume was generally comparable to such net sales volume for the same period in 1995, and steel Wheel net sales volume for the third quarter of 1997 exceeded such net sales volume for the comparable period in 1995 by approximately 11%. Steel Wheel sales volume for the fiscal year ended 1997 exceeded 1996 levels by 22% and was substantially equivalent to the 1995 levels, excluding sales generated by AdM. Steel Wheel sales volume for the fiscal year ended 1998 exceeded 1997 levels by 22%. On a quarter to quarter basis, 1998 sales volume was relatively stable and did not vary in a significant manner. GROSS PROFIT. The Company continuously strives to improve productivity, increase quality and lower costs. Management has budgeted approximately $7.7 million in 1999 for productivity initiatives (in addition to normal maintenance) and believes that the Company's emphasis on low-cost manufacturing will continue to yield significant operational improvements. The $7.7 million productivity initiatives include investments to automate and reduce manual operations, to improve both material and labor efficiencies, and to increase throughput on assembly lines, disc blankers and paint processes. Steel costs have been relatively constant, reflecting both overall stability in the steel market as well as the Company's efforts to improve its material efficiency and supply sources. Although standard steel Wheel pricing has been relatively constant, the Company was able to achieve a modest price increase on standard steel products in early 1996. 14 The Company believes that the experience of its labor force is a significant element in maintaining low-cost production. However, the Company has experienced two significant labor problems in the past two years. In the first quarter of 1997, the Company experienced a 53-day strike at the Ontario, Canada facility. The Company estimates that the strike at the Ontario, Canada facility negatively impacted 1997 gross profit by $7.1 million. The Company's contract with the UAW covering employees at the Henderson, Kentucky facility expired in February 1998. The Company was not able to negotiate a mutually acceptable agreement with the UAW, and a strike occurred at the Henderson, Kentucky facility on February 20, 1998. Effective March 31, 1998, the Company began an indefinite lockout in order to provide security for plant personnel and equipment. The UAW has rejected all of the Company's offers and the parties continue to be unable to reach an agreement. The Company is continuing to operate with its salaried employees and outside contractors. Currently there is, and the Company believes that there will be, no supply disruption to the Company's customer base; however, there can be no assurance to that effect. A supply disruption to the Company's customer base could have a material adverse effect on the Company. The Company estimates that the strike at the Henderson, Kentucky Facility negatively impacted 1998 gross profit by $3.9 million. OPERATING EXPENSES. Operating expenses are comprised of selling, general and administrative ("SG&A"), start up costs, management retention bonuses and Recapitalization professional fees. SG&A is comprised of corporate overhead, such as marketing and sales, research and development, finance, human resources, and administrative as well as related professional consulting fees. In an effort to support its growth initiatives, and its new stand-alone status, the Company has invested in additional professional and administrative resources, primarily in sales and marketing. These resource additions resulted in increased SG&A for 1996, 1997 and 1998. EQUITY IN EARNINGS OF AFFILIATES. Equity in earnings of affiliates includes the Company's income from (i) AKW, subsequent to its inception in May 1997, and (ii) AOT, which provides Navistar with Wheel/tire assembly services. Income from AKW and AOT is reported on the equity method and represents the Company's share of such joint ventures' net income. AKW total sales were $86.5 million and $52.5 million for 1998 and 1997, respectively. AOT total sales were $7.8 million and $6.9 million for 1998 and 1997, respectively. ADJUSTED EBITDA. Adjusted EBITDA represents income from operations plus depreciation and amortization, net of $1.7 million in amortization of deferred financing costs in 1998 plus equity in earnings of affiliates, plus (i) $7.1 million representing the impact of the strike at the Ontario, Canada facility incurred during the first quarter of 1997, (ii) $1.1 million of restructuring charges incurred in 1998, (iii) $3.4 million representing the impact of the AKW wheel recall campaign implemented in 1998, (iv) $1.9 million of management retention bonuses reimbursed by Phelps Dodge in 1998, (v) $2.2 million of Recapitalization professional fees recorded in 1998 and (vi) $3.9 million of costs incurred in connection with the strike in 1998 at the Henderson, Kentucky facility. Adjusted EBITDA is not intended to represent cash flows from operations as defined by generally accepted accounting principles ("GAAP") and should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. Adjusted EBITDA is included in the Annual Report as it is a basis upon which the Company assesses its financial performance and certain covenants in the Company's borrowing arrangements are tied to similar measures. AKW PRODUCT RECALL On April 17, 1998, AKW, the Company's 50% owned joint venture, submitted a notice to the NHSA of AKW's intent to recall approximately 47,800 Recalled Wheels because a defect may exist in the Recalled Wheels that relates to motor vehicle safety. Kaiser, the Company's partner in AKW, manufactured several hundred of the Recalled Wheels during the period April 23, 1997 through May 1, 1997. During the period May 1, 1997 through February 28, 1998, AKW manufactured all of the remaining Recalled Wheels. The Recalled Wheels were designed by the Company. AKW estimates that the total costs of recalling and replacing all of the Recalled Wheels will be approximately $6.8 million, an amount which may vary depending on the level of customer response to the recall, among other factors. Due to the Company's 50% 15 ownership of AKW, the Company has reflected a portion of the recall expenses ($3.4 million) as a reduction in "Equity in earnings of affiliates" in the Company's financial statements for 1998. The Company believes that the recall will not have a material adverse effect on the Company. The Company is currently not aware of any actual or potential product liability claims related to the Recalled Wheels. There can be no assurance, however, that no such claims will be made and that the Company will not experience any material product liability losses in the future. See "Item 1-Business-AKW Product Recall," and "--Subsequent Events." RESULTS OF OPERATIONS COMPARISON OF FISCAL YEARS 1998 AND 1997 The following table sets forth certain income statement information of the Company for the fiscal years ended December 31, 1998 and December 31, 1997:
FISCAL 1998 FISCAL 1997 ----------- ----------- (DOLLARS IN THOUSANDS) Net sales................................... $383,583 100.0% $332,966 100.0% Gross profit................................ 82,554 21.5% 65,994 19.8% Operating expenses.......................... 34,034 8.9% 21,316 6.4% Income from operations...................... 48,520 12.6% 44,678 13.4% Equity in earnings of affiliates............ 3,929 1.0% 4,384 1.3% Other Income (expense)...................... (35,215) (9.2%) 1,104 0.3% Net income.................................. 7,951 2.1% 27,837 8.4% OTHER DATA: Adjusted EBITDA............................. 88,160 21.1%(a) $76,888 21.8%(a)
- ------------------- (a) Represents Adjusted EBITDA Margin. NET SALES. Net sales increased by $50.6 million, or 15.2%, in 1998 to $383.6 million, compared to $333.0 million for 1997. The increase in net sales is primarily due to increased industry volume and sales of AdM, which was formed in November, 1997. Sales of aluminum wheels prior to the formation of the AKW joint venture in May, 1997, were reflected in the Company's net sales and gross profit amounts through the former buy and resell agreement between the Company and Kaiser Aluminum & Chemical Corporation. Earnings from the AKW joint venture are currently reflected in other income as equity in earnings of affiliates. Excluding $19.1 million in net sales of aluminum products through the buy and resell agreement for the four month period ended April 30, 1997, net sales increased by $69.7 million, or 22.2%, to $383.6 million for 1998 compared to $313.9 million for 1997. GROSS PROFIT. Gross profit increased by $16.6 million, or 25.1%, to $82.6 million for 1998 from $66.0 million for 1997. Gross profit as a percentage of net sales increased to 21.5% for 1998 from 19.8% for 1997. Production costs were higher for 1997 due to estimated incremental strike costs of $7.1 million at the London, Ontario facility, partially offset by estimated incremental strike costs of $3.9 million at the Henderson, Kentucky facility in 1998. Additionally, 1997 included aluminum sales under the buy and resell agreement, which had significantly lower margins than steel wheel sales. Excluding strike costs in 1997 and 1998 and $1.1 million in gross profit relating to sales of aluminum products through the buy and resell agreement for the first four months of 1997, gross profit increased by $14.5 million, or 20.1 %, to $86.5 million for 1998 from $72.0 million for 1997. OPERATING EXPENSES. Operating expenses increased by $12.7 million, or 59.7% to $34.0 million for 1998 from $21.3 million for 1997. This increase was primarily due to start-up costs of $3.3 million relating to the new Tennessee light truck wheels facility, management retention bonuses of $1.9 million reimbursed by Phelps Dodge in conjunction with the Recapitalization, professional fees related to the Recapitalization of $2.2 million and selling, general and administrative expenses of AdM of $2.7 million. Excluding the expenses recorded for start-up costs, management retention bonuses and Recapitalization 16 professional fees for 1998, operating expenses as a percentage of net sales increased to 6.9% for 1998 from 6.4% for 1997 primarily due to stand alone costs associated with operating as a separate company since the Recapitalization. EQUITY IN EARNINGS OF AFFILIATES. Equity in earnings of affiliates decreased by approximately $0.5 million to $3.9 million for 1998 from $4.4 million for 1997. The decrease was primarily due to the effect of a product recall campaign implemented at AKW. Excluding the $3.4 million related to the recall, equity in earnings of affiliates increased $2.9 million for 1998 to $7.3 million from $4.4 million for 1997 due to increased equity earnings related to the AKW joint venture. The AKW joint venture contributed $6.9 million (excluding the $3.4 million recall) of earnings for 1998 compared to earnings of $4.2 million for 1997. OTHER INCOME (EXPENSE). Interest expense increased to $33.1 million for 1998 compared to $145 thousand for 1997 due to the debt incurred related to the Recapitalization on January 21, 1998. Other expenses increased by $3.6 million due to a $2.6 million loss on forward exchange contracts and $1.5 million of currency losses incurred at AdM, partially offset by $0.5 million currency gains incurred at Accuride Canada, Inc. ADJUSTED EBITDA. Adjusted EBITDA increased by $11.3 million, or 14.7%, to $88.2 million for 1998 from $76.9 million for 1997 due to higher steel product sales volume. In determining Adjusted EBITDA for 1998, income from operations has been increased by depreciation and amortization (except for amortization of deferred financing costs), equity in earnings of affiliates and (i) an estimated $3.9 million of costs incurred in connection with the strike in 1998 at the Company's facility in Henderson, Kentucky, (ii) $1.9 million of management retention bonuses reimbursed by Phelps Dodge, a previous principal stockholder, in 1998, (iii) $2.2 million of Recapitalization professional fees, (iv) $3.4 million representing the impact of the AKW wheel recall campaign implemented in 1998 and (v) $1.1 million of estimated restructuring costs at the London, Ontario facility. In determining Adjusted EBITDA for 1997, income from operations has been increased by depreciation and amortization, equity in earnings of affiliates and $7.1million representing the estimated impact of the strike at the London, Ontario facility in the first quarter of 1997. NET INCOME. Net income decreased by $19.9 million, or 71.6 %, to $8.0 million for 1998 from $27.8 million for 1997, due to lower pretax earnings, as described above, and a higher effective tax rate. COMPARISON OF FISCAL YEARS 1997 AND 1996 The following table sets forth certain income statement information of the Company for the fiscal years ended December 31, 1997 and December 31, 1996:
FISCAL 1997 FISCAL 1996 ----------- ----------- (DOLLARS IN THOUSANDS) Net sales.............................................. $332,966 100.0% $307,830 100.0% Gross profit........................................... 65,994 19.8% 61,723 20.1% Operating expenses..................................... 21,316 6.4% 17,941 5.8% Income from operations................................. 44,678 13.4% 43,782 14.2% Equity in earnings of affiliates....................... 4,384 1.3% 115 0.0% Other Income (expense)................................. 1,104 0.33% 19 0.0% Net income............................................. 27,837 8.4% 26,466 8.6% OTHER DATA: Adjusted EBITDA........................................ $76,888 21.8%(a) $64,023 20.8%(a)
(a) Represents Adjusted EBITDA Margin. 17 NET SALES. Net sales increased by $25.2 million, or 8.2%, to $333.0 million in 1997 from $307.8 million in 1996. Net sales in 1997 do not reflect sales of aluminum Wheels subsequent to the commencement of the operations of AKW in May, 1997. Excluding net sales of aluminum products, net sales increased by $56.8 million, or 22.1%, to $313.9 million in 1997 from $257.1 million in 1996. The significant increase in steel product net sales resulted from improved Heavy/Medium Truck and Trailer builds driven by high freight demand and the consolidation of AdM sales in November and December of 1997. The Company also increased its market share at several major Trailer OEMs. GROSS PROFIT. Gross profit increased by $4.3 million, or 6.9%, to $66.0 million in 1997 from $61.7 million in 1996. Gross profit as a percentage of net sales decreased to 19.8% in 1997 from 20.1% in 1996. Excluding the gross profit relating to aluminum products, gross profit increased by $7.0 million, or 12.0%, to $64.9 million in 1997 from $57.9 million in 1996, and gross profit as a percentage of net sales decreased to 20.7% in 1997 from 22.5% in 1996. The Company has historically realized lower margins on sales of aluminum products than on sales of steel products. Production costs increased due to the increase in steel product sales volume and the impact of the strike at the Ontario, Canada facility in the first quarter of 1997. These increases were partially offset by lower manufacturing costs for steel products and additional cost improvements from the Company's Cost Reduction and Productivity Program, which is an initiative created by the Company's Customer Focused Manufacturing Council, a team headed by the Company's Vice President of Operations to achieve process improvements and waste reduction. Excluding the gross profit relating to aluminum products and the impact of the strike at the Ontario, Canada facility in the first quarter of 1997, gross profit increased by $14.1 million, or 24.3%, and gross profit as a percentage of net sales increased to 22.9% in 1997 from 22.5% in 1996. OPERATING EXPENSES. SG&A increased by $3.4 million, or 18.8%, to $21.3 million in 1997 from $17.9 million in 1996. As a percentage of net sales, SG&A increased to 6.4% in 1997 from 5.8% in 1996. This increase was due to additional advertising and marketing expenses related to new product initiatives including premium steel, cast aluminum and forged aluminum Wheels. SG&A also included costs related to the formation of AKW and AdM. The increase in SG&A as a percentage of net sales also reflects the reduction in net sales subsequent to May 1997 due to the formation of AKW. Excluding aluminum Wheel net sales, SG&A as a percentage of net sales decreased to 6.8% in 1997 from 7.0% in 1996. EQUITY IN EARNINGS OF AFFILIATES. Equity in earnings of affiliates increased by $4.3 million to $4.4 million in 1997 from $.1 million in 1996, primarily due to the Company's interest in the earnings of AKW since May 1997. ADJUSTED EBITDA. Adjusted EBITDA increased by $12.9 million, or 20.1%, to $76.9 million in 1997 from $64.0 million in 1996 due to higher steel sales volumes and increased earnings from aluminum Wheel sales. In determining Adjusted EBITDA in 1997, income from operations has been increased by $7.1 million to reflect the impact of the strike at the Ontario, Canada facility in the first quarter of 1997. Adjusted EBITDA growth was limited by the effect of relatively low volumes in the first quarter of 1997. Adjusted EBITDA Margin increased to 21.8% in 1997 from 20.8% in 1996. On a pro forma basis after giving effect to the acquisition of the interest in AKW, Adjusted EBITDA Margin declined to 22.6% in 1997 from 23.1% in 1996. NET INCOME. Net income increased by $1.3 million, or 5.1%, to $27.8 million in 1997 from $26.5 million in 1996 due to the higher pretax earnings, which were offset in part by a higher effective tax rate. The provision for income taxes increased by $4.7 million, or 27.0%, to $22.2 million in 1997 from $17.5 million in 1996, primarily due to the effects of higher pretax earnings and a higher effective tax rate. EFFECTS OF INFLATION. The effects of inflation were not considered material during fiscal years 1998, 1997, or 1996. 18 CAPITAL RESOURCES AND LIQUIDITY The Company's primary sources of liquidity are cash flow from operations and borrowings under the Revolver. The Company's primary uses of cash are funding working capital, capital expenditures relating to the Company's expansion plans and to service debt. At the end of 1998, the Company had cash and short-term investments of $3.5 million compared to $7.4 million at the beginning of the year. The Company's operating activities provided $22.7 million and the financing activities provided $18.1 million which was used to fund its investing activities of $44.7 million. Cash flows from operating activities in 1998 were $22.7 million compared to $38.2 million in 1997. The $15.5 million decrease was primarily due to the interest expense associated with the Recapitalization of $33.0 million and was partially offset by the tax effect of the interest deduction of $15.2 million. Investing activities during 1998 was $44.7 million compared to $47.1 million in 1997. Included in the 1998 investing were capital expenditures for the new facilities at AdM of $16.7 million and Columbia, Tennessee of $15.8 million as well as capital spending for the base business of $14.1 million. In 1997, investing activities included the Company's investment in AKW of $20.8 million and the investment in AdM of $4.9 million and capital spending for the base business of $22.2 million and $1.8 million in capital expenditures for AdM. Cash flow from financing activity of $18.1 million was primarily driven by the Recapitalization, a $11.5 million increase in the borrowings at AdM to fund its new facility, and a $3.2 million increase in the Company's revolving credit facility since the Recapitalization. The Company incurred capital expenditures in 1998 (excluding capital expenditures by AdM) of $29.9 million. The Company expects its capital expenditures (excluding capital expenditures by AdM) to decrease to approximately $26.2 in 1999. It is anticipated that these expenditures will fund (i) approximately $6.0 million of technology advancement projects; (ii) investments in productivity improvements in 1999 to the Company's steel Wheel business of approximately $7.7 million and (iii) maintenance of business expenditures of approximately $10.5 million. Future investments in productivity improvements are expected to be focused on additional automation, shop floor and engineering systems, and improved coating capabilities. The Company anticipates that AdM will require capital expenditures of approximately $11.9 million in 1999 to finalize construction and equip the Monterrey, Mexico facility. The Monterrey, Mexico facility is expected to be operational in mid-1999 at an approximate cost for land and building of $9.2 million. Total project cost through 1999 is expected to be approximately $29.4 million, of which approximately $18.5 million was spent as of December 31, 1998. The Company finalized a $32.5 million credit facility for AdM on July 9, 1998. This is comprised of a term loan of $25.0 million and a working capital facility of $7.5 million. DESCRIPTION OF THE CREDIT FACILITY. The Credit Facility was provided by a syndicate of banks and other financial institutions (the "Lenders") led by Citicorp USA, Inc., as administrative agent (the "Administrative Agent"), Citicorp Securities, Inc., as arranger, Bankers Trust Company, as syndication agent, and Wells Fargo Bank, as documentation agent. The Credit Facility provides for term loans of $135.0 million (the "Term Loans") and a $140.0 million Revolver. The Revolver includes a borrowing capacity of up to $20.0 million for letters of credit, and up to $10.0 million for short-term, same-day borrowings. The Term Loans are comprised of a $60.0 million loan that will mature on January 21, 2005 ("Tranche A") and a $75.0 million loan that will mature on January 21, 2006 ("Tranche B"). The Company's Canadian subsidiary is the borrower under Tranche A, and the Company has guaranteed the repayment of such borrowing under Tranche A and all other obligations of such Canadian subsidiary under the Credit Facility. The Term Loans provide for nominal 19 annual amortization (approximately 1% per year). The commitment under the Revolver will decline to $100.0 million on January 21, 2003 and final maturity of loans under the Revolver will be January 21, 2004. The interest rate under the Term Loans fluctuates based on leverage and, at the option of the Company, is either the Eurodollar Rate (as defined in the Credit Facility) plus 1.25% to 2.50% or Base Rate (as defined in the Credit Facility) plus 0.25% to 1.50%. The interest rate under the Revolver fluctuates based on leverage and, at the option of the Company, is either the Eurodollar Rate plus 0.875% to 2.25% or the Base Rate plus 0.0% to 1.25%. The Company may elect interest periods of 1, 2, 3, 6 and, if available, 9 or 12 months for Eurodollar Rate borrowings. The Credit Facility defines "Base Rate" as the highest of Citibank's base rate, the Federal Funds Rate plus 0.50% and the CD Rate plus 0.50%. The Eurodollar Rate and the CD Rate will at all times include statutory reserves (and, in the case of the CD Rate, FDIC assessment rates). At December 31, 1998, the interest rate for the Term Loan, Tranche A was the Eurodollar Rate plus 1.75%, for the Term Loan, Tranche B the interest rate was the Eurodollar Rate plus 2.0% and for the Revolver the interest rate was the Eurodollar Rate plus 1.625%. The Company has entered into an interest rate cap agreement and an interest rate swap agreement to manage its interest rate exposure on a portion of its floating-rate debt obligation. (See Item 7A "Quantitative and Qualitative Disclosure About Market Risk"). DESCRIPTION OF THE NOTES. The Notes were issued pursuant to the Indenture (the "Indenture") between the Company and U.S. Trust Company, N. A., as trustee (the "Trustee"). The Indenture is limited in aggregate principal amount to $300.0 million, of which $200.0 million were issued as Private Notes and subsequently exchanged for Exchange Notes, which exchange has been registered under the Securities Act. Additional notes may be issued in one or more series from time to time, subject to the limitations set forth under the Indenture. The Indenture provides certain restrictions on the payment of dividends by the Company. The Indenture is subject to and governed by the Trust Indenture Act of 1939, as amended. The Notes are general unsecured obligations of the Company and are subordinated in right of payment to all existing and future Senior Indebtedness of the Company. As of December 31, 1998, the aggregate amount of the Company's outstanding Senior Indebtedness was approximately $194.2 million. The Notes mature on February 1, 2008. Interest on the Notes accrues at the rate of 9 1/4% per annum and is due and payable semi-annually in arrears on February 1 and August 1, commencing on August 1, 1998, to holders of record of the Notes on the immediately preceding January 15 and July 15. Management believes that cash flow from operations and availability under the Revolver will provide adequate funds for the Company's foreseeable working capital needs for 1999, planned capital expenditures and debt service obligations. Any future acquisitions, joint ventures or other similar transactions will likely require additional capital, and there can be no assurance that any such capital will be available to the Company on acceptable terms or at all. The Company's ability to fund its working capital needs, planned capital expenditures and scheduled debt payments, to implement its expansion plans, to refinance indebtedness and to comply with all of the financial covenants under its debt agreements, depends on its future operating performance and cash flow, which in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond the Company's control. At December 31, 1998, the Company's stockholders' equity (deficiency) amounted to $(58.1) million, compared to $256.1 million at December 31, 1997. The decrease in stockholders' equity (deficiency) was primarily due to the cost of the Redemption of $452.6 million, which was partially offset by $110.2 million increase in common stock and additional paid-in capital, net of the related stock subscriptions receivable. YEAR 2000 COMPLIANCE In 1997, a comprehensive project plan to address the Year 2000 issue as it relates to the Company's operation was developed and implemented. The scope of the plan includes seven phases including Awareness, Identification, Impact Analysis, Risk Evaluation, Remediation, Testing and 20 Contingency Planning. A project team that consists of key members of the technology staff, representatives of functional business units and senior management was developed. An assessment of the impact of the Year 2000 issue on the Company's computer systems was completed in the fourth quarter of 1997. From the assessment, the Company identified and prioritized those systems deemed to be mission critical or those that have a significant impact on normal operations. The Company relies on third party vendors and service providers for certain data processing capabilities. Formal communications with these providers were initiated in 1997 to assess the Year 2000 readiness of their products and services. Responses indicate that the significant providers currently have compliant versions available or are well into the renovation and testing phases. However, the Company can give no guarantee that the systems of these service providers and vendors on which the Company's systems rely will be timely Year 2000 compliant. Additionally, the Company has implemented a plan to manage the potential risk posed by the impact of the Year 2000 issue on its major customers and suppliers. Formal communications have been initiated, and the assessment is moving forward on schedule. CURRENT STATUS. The project team estimates that the Company's Year 2000 readiness project is approximately 75% complete. The following table provides a summary of the current status of the seven phases involved and a projected timetable for completion.
Project Phase % Completed Completion Comments ------------- ----------- ---------- -------- Awareness 100% Completed Identification 100% Completed Impact Analysis 100% Completed Risk Evaluation 95% April 30, 1999 Suppliers & service providers are being evaluated. Remediation 95% Aug. 31, 1999 All critical systems are completed. Testing 85% June 30, 1999 Involves ongoing testing of critical systems Contingency Plan 10% Sept. 30, 1999 Overall Completion Estimate 75%
COSTS. The Company has thus far primarily used and expects to continue to use internal resources to implement its readiness plan and to upgrade or replace and test systems affected by the Year 2000 issue. During 1998, the Company incurred approximately $1.3 million of direct and indirect costs for company-owned systems and applications related to Year 2000 remediation. A majority of these costs are currently believed to be incremental expenses that will not recur in the Year 2000 or thereafter. Year 2000 remediation costs were approximately $1.4 million in 1997. The Company estimates that its additional costs for Year 2000 remediation and testing of its computer systems through the end of 1999 will not exceed $1.1 million. The costs and the timetable in which the Company plans to complete the Year 2000 readiness activities are based on management's estimates, which were derived using numerous assumptions of future events including the continued availability of certain resources, third party readiness plans and other factors. The Company can make no guarantee that these estimates will be achieved, and actual results could differ from such plans. RISK ASSESSMENT. Given information known at this time about the Company's systems that are non-compliant, coupled with the Company's ongoing, normal course of business efforts to upgrade or replace critical systems, as necessary, management does not expect Year 2000 compliance costs to have a material adverse impact on the Company. Although the Company believes that internal Year 2000 compliance will be achieved by December 31, 1999, there can be no assurance that the Year 2000 problem affecting the Company, its customers and suppliers will not have a material adverse effect on the Company's business, 21 financial condition and results of operations. In light of the many adverse conditions that could happen to the Company associated with Year 2000 compliance, along with the speculation that some or many of them may not happen, it is difficult to hypothesize a most reasonably likely worst case Year 2000 scenario with any degree of certainty. With that in mind, the Company currently believes the most reasonably likely worst case scenario would be the failure of certain key production capabilities or similar failures occurring within the Company's supply chain. These types of catastrophic failures, although unlikely, would result in the inability of the Company to supply products to customers for a period of time. CONTINGENCY PLAN. Realizing that some disruption may occur despite its efforts, the Company is in the process of developing contingency plans for each critical system in the event that one or more of those systems fail. Although not yet complete, the Company is considering the following items, among others, as key pieces of the contingency plans: the creation of special "rapid response" technology teams; scheduling availability of key personnel, additional testing and simulation activities, establishment of rapid decision processes, development of support critical customer functions in the event information systems or mechanized processes experience Year 2000 disruptions, determination of alternative suppliers and implementation of data retention and recovery procedures for customers and critical business data with on-site (primary) as well as off-site (secondary) data copies. While this is an ongoing process, the Company expects to have the contingency plan substantially completed by September 30, 1999. INDUSTRY OUTLOOK The Company's primary market is Wheels for the North American commercial vehicle industry. This industry and the global vehicle industry in general are in a period of transition, marked by strengthening competition, geographic expansion of manufacturing, and consolidation at both vehicle manufacturer and supplier levels. These trends are expected to continue into the near future. Major OEM customers are consolidating and continue to extend their globalization efforts and emphasize their desire for global support through local production. These customers also continue to reduce the number of suppliers in their supply base. As a result of these developments and recognizing the importance of the customer to its business, the Company expects in the future to increasingly serve other global commercial and consumer wheel markets. The Company aims to be a full line, global wheel supplier. In a further effort to reduce their number of suppliers, OEMs are also moving toward systems sourcing. This provides opportunity for wheel makers to expand into related components such as hubs and drums, suspension systems and brake systems. Current industry forecasts by America's Commercial Transportation Publications, the Automotive Market Research Council, and Martin Labbe Associates (collectively referred to as "Analysts"), predict that the North American commercial vehicle industry will remain strong in 1999, and should equal or exceed its 1998 levels. The industry has historically been cyclical however, and the Analysts predict that the industry will enter the downward portion of this cycle in late 1999 or early 2000. The industry cycle has typically had a 5 to 7 year period and a 25% upside/downside, although this volatility could be diminishing. On a global basis, the Company believes that the demand for commercial and other on-highway vehicles will continue to grow. The North American and European markets are expected to remain relatively stable and experience modest growth rates, while South America and Asia are expected to experience higher growth rates and be more volatile. In the light vehicle Wheel market in North America, Wheels are now considered to be more integral to styling, and the Company believes that styling and design innovation will continue to play a key role for both steel and aluminum wheel suppliers in this market. Wheels for on-road vehicles, both consumer and commercial, are generally made of steel or aluminum, which offer vehicle OEMs a range of design options. Steel wheels, which are heavier than aluminum wheels, are generally low cost, high volume production products. Aluminum wheels are lighter in weight, more readily stylized and more expensive than steel wheels. The share of aluminum wheels on commercial vehicles in North America is approximately 30%, and the Company believes that this share will continue to grow modestly due to the value placed on reduced weight and more attractive aesthetics. On light vehicles, aluminum wheels have an approximate 45% share of the wheel market, and this share 22 has apparently reached a plateau as more highly styled and lighter weight steel wheels have been developed. The Company believes the current share of aluminum light wheels will decline modestly in the near future due to continued steel wheel developments. Market and general economic conditions can also significantly impact the relative share of the two materials in both consumer and commercial wheel markets, due to their large difference in cost and the elasticity of price and demand. SUBSEQUENT EVENTS On January 22, 1999, the Company announced that it had executed a letter of intent to acquire Kaiser's 50% interest in AKW. The transaction is subject to completion of due diligence, government approvals, and the preparation and execution of definitive documents. FACTORS THAT MAY AFFECT FUTURE RESULTS In this report, the Company has made various statements regarding current expectations or forecasts of future events. These statements are referred to as "forward-looking statements." Forward-looking statements are also made from time-to-time in the Company's press releases and in oral statements made by Company officers. Forward-looking statements can be identified by the words "estimate," "project," "anticipate," "will continue," "will likely result," "expect," "intend," "believe," "plan," "predict," and similar expressions. All of these forward-looking statements are based on estimates and assumptions made by management of the Company, which, although believed to be reasonable, may turn out to be incorrect. Therefore, undue reliance should not be placed upon such estimates and statements. No assurance can be given that any such statements or estimates will be realized and actual results may differ from those contemplated by such forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. You are advised, however, to consult further disclosures the Company may make on related subjects in its filings with the SEC. There can be no assurance that management's expectations, beliefs, or projections will result or be achieved or accomplished. In addition to other factors discussed in the report, some of the important factors that could cause actual results to differ materially from those discussed in the forward-looking statements include the following: DEPENDENCE ON MAJOR CUSTOMERS. The Company derived (not including sales of aluminum Wheels by AKW) approximately 17%, 12% and 11% of its 1998 net sales from Ford, Navistar and Freightliner, respectively (including sales of aluminum wheels by AKW, total sales to Ford, Navistar, and Freightliner were 16%, 17%, and 15% of 1998 net sales, respectively). The Company has been a supplier to these companies for many years, and continually engages in efforts to improve and expand on its relations with each of these customers. The Company has also supported its position with these customers through direct and active contact with end users, trucking fleets and dealers, and has located certain of its sales personnel in offices near these customers and most of its other major customers. There can be no assurance, however, that the Company will maintain or improve these relationships or that the Company will continue to supply these customers or any of its other customers at current levels. The loss of a significant portion of sales to Freightliner, Ford, and/or Navistar could have a material adverse effect on the Company's business. In addition, the delay or cancellation of material orders from, or problems at, Freightliner, Ford, and Navistar or any of the Company's major customers could have a material adverse effect on the Company. See "Item 1-Business-Customers." SIGNIFICANT INDEBTEDNESS. At December 31, 1998, the Company's total indebtedness was $393.2 million and its total stockholders' deficit was $58.1 million. The Company may incur additional indebtedness in the future. The Company's ability to make debt payments or to refinance its indebtedness depends on its future performance, which, to a certain extent, is subject to general economic, financial, competitive and other factors, some of which are beyond its control. Based upon the current level of operations and anticipated growth, the Company believes that available cash flow, together with available credit, will be adequate to meet the Company's financial needs. There can be no assurance, however, that the Company's business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable the Company to pay its debts or to make necessary capital expenditures, or that any 23 refinancing of debt would be available on commercially reasonable terms or at all. See "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." The Company's high degree of leverage may have important consequences including, but not limited to, the following: (i) the ability of the Company to obtain additional financing for acquisitions, working capital, capital expenditures or other purposes may be impaired or unavailable; (ii) a substantial portion of the Company's cash flow will be used to pay the Company's interest expense and debt amortization, which will reduce the funds that would otherwise be available to the Company for its operations and future business opportunities; (iii) a substantial decrease in net operating cash flows or an increase in expenses of the Company could make it difficult for the Company to meet its debt service requirements and force it to modify its operations; (iv) the Company may be more highly leveraged than its competitors, which may place it at a competitive disadvantage; (v) the Company's high degree of leverage may make it more vulnerable to a downturn in its business or the economy generally; and (vi) the Indenture, the Credit Facility and the AdM Credit Facility contain financial and restrictive covenants that limit the ability of the Company and its subsidiaries to, among other things, borrow additional funds, dispose of assets and pay cash dividends. A significant portion of the Company's outstanding debt bears interest at variable rates. While the Company has entered into interest rate protection agreements to limit its exposure to increases in such interest rates, such agreements will not eliminate the exposure to variable rates. Therefore, any future increase in the interest rates on the Company's indebtedness will reduce funds available to the Company for its operations and future business opportunities and will exacerbate the consequences of the Company's leveraged capital structure. DEPENDENCE ON THE COMPANY'S SUBSIDIARIES AND VENTURES. Since a substantial portion of the Company's operations is conducted through its subsidiaries and ventures with third parties, the Company's operating cash flow and its ability to service its indebtedness is dependent upon the cash flow of such subsidiaries and ventures and the payment of funds by such subsidiaries and ventures to the Company in the form of loans, dividends or otherwise. As of December 31, 1998, the subsidiaries of the Company had total liabilities of $60.6 million, excluding guarantees and direct borrowings of indebtedness under the credit facility. In addition, the AdM credit facility prohibits AdM from distributing cash to the Company. THE OEM SUPPLIER INDUSTRY. The Company is a supplier to the Heavy/Medium Truck, Trailer and Light Truck industries, which are characterized by a small number of OEMs that are able to exert considerable pressure on suppliers to reduce costs, improve quality and provide additional design and engineering capabilities. OEMs continue to demand and receive price reductions and measurable increases in quality through their use of competitive selection processes, rating programs and various other arrangements. Although the Company has been able to offset a portion of such price reductions through production cost savings, there can be no assurance that it will be able to continue to generate such cost savings in the future. If the Company were unable to generate sufficient production cost savings in the future to offset such price reductions, its profitability would be adversely affected. Additionally, OEMs have generally required suppliers to provide more design engineering input at earlier stages of the product development process, the costs of which have, in some cases, been absorbed by the suppliers. There can be no assurance that future price reductions, increased quality standards or additional engineering capabilities required by OEMs will not have a material adverse effect on the Company. CYCLICAL NATURE OF INDUSTRY. The Heavy/Medium Wheel and Light Wheel industries are highly cyclical and, in large part, dependent upon the overall strength of the demand for Heavy/Medium Trucks, Trailers and Light Trucks. The Heavy/Medium Truck, Trailer and Light Truck industries have historically experienced significant fluctuations in demand based on such factors as general economic conditions, interest rates, government regulations and consumer confidence. It is likely that the Heavy/Medium Truck, Trailer and Light Truck industries supplied by the Company will experience downturns at some time in the future. A significant decrease in overall consumer demand for Heavy/Medium Trucks, Trailers and/or Light Trucks could have a material adverse effect on the Company. In addition, the Company's operations are typically seasonal as a result of regular customer maintenance and model changeover shutdowns, which typically occur in the third quarter of each calendar year. This may result in decreased net sales and profitability during the Company's third fiscal quarter. 24 LABOR RELATIONS. At December 31, 1998, approximately 78% of the Company's employees at its Henderson, Kentucky facility were represented by the UAW and approximately 83% of the Company's employees at the Ontario, Canada facility were represented by the CAW. The Company had a 53-day strike at the Ontario, Canada facility in 1997 and currently has a strike at the Henderson, Kentucky facility (See "Item 1-Business-Employees"). Throughout the strike periods the Company's operations has continued with salaried personnel and outside contractors. There has not been, and the Company believes that there will be no supply disruption to the Company's customer base; however, there can be no assurance to that effect. A supply disruption to the Company's customer base could have a material adverse effect on the Company. Management estimates that the strike at the Henderson, Kentucky Facility affected pre-tax earnings in 1998 by $3.9 million. See "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations". DEPENDENCE ON RAW MATERIALS. The raw materials on which the Company depends are steel and aluminum. Although steel is generally available from a number of sources, the Company has obtained favorable sourcing by negotiating high-volume contracts with terms ranging from 1 to 3 years. AKW obtains aluminum for its Wheels from various third-party suppliers. While the Company believes that its supply contracts can be renewed on acceptable terms, there can be no assurance that such agreements can be renewed on such terms or at all. A substantial interruption in the Company's supply of steel or aluminum could have a material adverse effect on the Company. In addition, although the prices of steel and aluminum have not been volatile in recent periods and the Company has had success in passing through steel price increases to its customers, there can be no assurance that there will not be rapid and significant changes in the price of these materials or that the Company will be able to pass on any such cost increases to its customers. See "Item 1-Business-Supplier Relationships." COMPETITION. Due to the breadth of the Company's product line, the Company competes with different companies in different markets. Several of these competitors have substantially greater financial resources than the Company. In addition, OEMs may expand their internal production of Wheels, shift sourcing to other suppliers or take other actions that could reduce the market for the Company's products and have a material adverse effect on the Company. There can be no assurance that the Company will not encounter increased competition in the future or that the Company's expansion in its markets and planned entry into additional markets will not expose the Company to an increasing number of well-capitalized competitors. See "Item 1-Business-Competition." POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES. The Company's operations are subject to various foreign, federal, state and local environmental laws, ordinances and regulations, including, without limitation, those governing discharges into the air and water, the storage, handling and disposal of solid and hazardous wastes, the remediation of soil and groundwater contaminated by petroleum products or hazardous substances or wastes, and the health and safety of employees. Under certain environmental laws, a current or previous owner or operator of property may be liable for the costs of removal or remediation of certain hazardous substances or petroleum products on, under or in such property, without regard to whether the owner or operator knew of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred. The presence of, or failure to remediate properly such substances, may adversely affect the ability to sell or rent such property or to borrow using such property as collateral. Additionally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. Compliance with environmental laws, stricter interpretations of or amendments to any such laws, or more vigorous enforcement policies by regulatory agencies with respect to any of them may require material expenditures by the Company. The nature of the Company's current and former operations and the history of industrial uses at its facilities expose the Company to the risk of liabilities or claims with respect to environmental and worker health and safety matters that could have a material adverse effect on the Company. See "Item 1-Business-Environmental Matters." DIFFICULTY IN ACHIEVING GROWTH STRATEGIES. The growth strategies that have been developed by the Company are based on the Company's review of its operations and its competitive position. The Company plans to make significant expenditures to (i) expand in Mexico and into other Latin American countries 25 through its AdM venture, (ii) expand its aluminum Wheel production facilities in the United States and (iii) expand its presence in the Light Wheel market. In addition, the Company's strategies include seeking to form or acquire a global presence through joint ventures, alliances and other business combinations. The Company may decide to alter or discontinue certain aspects of these growth strategies and may adopt alternative or additional strategies. The Company may not have the financial resources available to take advantage of opportunities to pursue these growth strategies. In addition, there can be no assurance that any such strategies, if implemented, will be successful or will improve operating results. Some of the Company's growth strategies entail the risks of foreign operations, including the impact of foreign tax and other regulations, currency fluctuations and political and economic instability. As the Company enters new geographic and industry markets or attempts to increase its shares of existing markets, it may encounter significant competition, some of whom have substantially greater resources than the Company. Other conditions may exist, such as unforeseen costs and expenses or an economic downturn, that may offset any improved operating results that are attributable to such growth strategies. See "Item 1-Business-Competition." DEPENDENCE ON KEY MANAGEMENT. The Company's success depends largely upon the abilities and experience of certain key management personnel. The loss of the services of one or more of such key personnel, and in particular William P. Greubel, the Company's President and Chief Executive Officer, could have a material adverse effect on the Company. The Company does not maintain key-man life insurance policies on any of its executives. See "Item 10-Directors and Executive Officers of the Company." CONTROL BY KKR AFFILIATES. As of December 31, 1998, approximately 87% of the Company's Common Stock was held by Hubcap Acquisition. Hubcap Acquisition is a Delaware limited liability company whose members are KKR 1996 Fund L.P. and KKR Partners II, L.P. KKR 1996 Fund L.P., which owns more than a 95% equity interest in Hubcap Acquisition, is a Delaware limited partnership whose sole general partner is KKR Associates 1996 L.P. KKR Associates 1996 L.P. is a Delaware limited partnership whose sole general partner is KKR 1996 GP L.L.C. KKR 1996 GP L.L.C. is a Delaware limited liability company whose members are also the members of the limited liability company that is the general partner of Kohlberg Kravis Roberts & Co. L.P. ("KKR"). Accordingly, affiliates of KKR control the Company and have the power to elect all of its directors, appoint new management and approve any action requiring the approval of the Company's shareholders, including adopting amendments to the Company's Certificate of Incorporation and approving mergers or sales of substantially all of the Company's assets. There can be no assurance that the interests of KKR and its affiliates will not conflict with the interests of other holders of the company's securities. See "Item 10-Directors and Executive Officers of the Company" "Item 12-Security Ownership of Certain Beneficial Owners and Management" and "Item 13-Certain Relationships and Related Transactions." RESTRICTIVE DEBT COVENANTS. The Company's credit documents contain numerous financial and operating covenants that limit the discretion of the Company's management with respect to certain business matters. These covenants place significant restrictions on, among other things, the ability of the Company to incur additional debt, to create liens, to make certain payments and investments and to sell or otherwise dispose of assets and merge or consolidate with other entities. The Company is also required to meet certain financial ratios and tests. A failure to comply with the obligations contained in the credit documents could result in an event of default, and possibly the acceleration of the related debt and the acceleration of debt under other instruments evidencing indebtedness that may contain cross- acceleration or cross-default provisions. YEAR 2000 COMPLIANCE. The Company utilizes a significant number of computer software programs and operating systems across its entire organization, including applications used in sales, shipping, financial business systems and various administrative functions. To the extent that the Company's software applications contain source code that is unable to appropriately interpret the upcoming calendar year "2000" and beyond, some level of modification or replacement of such applications will be necessary. The Company has identified its applications that are not "Year 2000" compliant and is working to modify or replace such applications, as necessary. The Company expects to perform final acceptance testing as well as correct Year 2000 impacted systems that are not critical to the Company's business through 1999. The Company also is in the process of identifying whether significant customers and suppliers may have Year 2000 compliance issues which will affect their interaction with the Company. Given information known at this time about the 26 Company's systems that are non-compliant, coupled with the Company's ongoing, normal course-of-business efforts to upgrade or replace critical systems, as necessary, management does not expect Year 2000 compliance costs to have any material adverse impact on the Company. No assurance can be given, however, that all of the Company's systems, and those of significant customers and suppliers, will be Year 2000 compliant or the failure to achieve substantial Year 2000 compliance will not have a material adverse effect on the Company. See "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations-Year 2000 Compliance." ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company, in the normal course of doing business, is exposed to the risks associated with foreign currency exchange rates and changes in interest rates. The Company uses foreign exchange contracts to hedge both balance sheet and off-balance sheet foreign currency commitments. Specifically, these foreign exchange contracts offset foreign currency denominated purchase commitments from suppliers, accounts receivable from and future committed sales to customers, and operating expenses in Canada. Management believes the use of foreign currency financial instruments reduces the risks that arise from doing business in international markets. Contracts are generally one year or less. At December 31, 1998, the Company had open foreign exchange forward contracts with a notional amount of $79.6 million. For additional information, see footnotes 1 and 8 to the notes to the Consolidated Financial Statements included herein. The Company's hedging activities provide only limited protection against currency exchange risks. Factors that could impact the effectiveness of the Company's hedging programs include accuracy of sales estimates, volatility of currency markets and the cost and availability of hedging instruments. The counterparties to the forward contracts are financial institutions with investment grade credit ratings. The Company monitors its foreign currency cash flow transactions and executes forward contracts to reduce its foreign exchange exposures. The use of forward contracts protects the Company's cash flows against unfavorable movements in exchange rates, to the extent of the amount under contract. A 10% adverse change in currency exchange rates for the Company's foreign currency derivatives held at December 31, 1998, would have an impact of approximately $7.9 million on the fair value of such instruments. This quantification of exposure to the market risk associated with foreign exchange financial instruments does not take into account the offsetting impact of changes in the fair value of the Company's foreign denominated assets, liabilities and firm commitments. Accuride uses long-term debt as a primary source of capital in its business. The following table presents the principal cash repayments and related weighted average interest rates by maturity date for Accuride long-term fixed-rate debt and its other types of long-term debt at December 31, 1998:
(Dollars in Fair thousands) 1999 2000 2001 2002 2003 Thereafter Total Value ---- ---- ---- ---- ---- ---------- ----- ----- Long-Term Debt: Fixed $200,000 $200,000 $200,000 Avg. Rate 9.25% 9.25% Variable $1,350 $1,350 $9,708 $12,494 $4,137 $161,250 $190,289 $190,289 Avg. Rate 6.83% 6.83% 8.65% 8.71% 8.25% 6.77% 7.03%
The Company has used an interest rate swap to alter interest rate exposures between fixed and floating rates on a portion of the Company's long-term debt. As of December 31, 1998, $100.0 million notional amount of interest rate swap was outstanding. On average during 1998, the Company paid 5.75% as a fixed rate and received 5.5685% on the swap. Under the terms of the interest rate swap, the Company agrees with the counterparty to exchange, at specified intervals, the difference between the fixed rate and floating rate interest amounts calculated by reference to the agreed notional principal amount. The swap matures in January, 2001. The Company also used an interest rate cap to set a ceiling on the maximum floating interest rate the Company would incur on a portion of the Company's long term debt. As of 27 December 31, 1998, $35.0 million notional amount of interest rate cap was outstanding. Under the terms of the interest rate cap, the Company is entitled to receive from the counterparty on a quarterly basis the amount, if any, by which the three-month Eurodollar interest rate exceeds 7.5%. The cap matures in January, 2001. For additional information, see footnotes 1 and 8 to the notes to the Consolidated Financial Statements included herein. The Company is exposed to credit related losses in the event of nonperformance by the counterparties to the swap and cap, although no such losses are expected as the counterparties are financial institutions having an investment grade credit rating. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Attached, beginning at page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable [THIS SPACE INTENTIONALLY LEFT BLANK] 28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company, and their ages as of December 31, 1998, are as follows:
NAME AGE POSITION - ---- --- -------- William P. Greubel........ 47 Director, President and Chief Executive Officer David K. Armstrong........ 42 Vice President-General Counsel Birum G. Campbell......... 51 Vice President-Light Wheel Unit Robert J. Fagerlin........ 52 Vice President and General Manager, AdM Elizabeth I. Hamme........ 48 Vice President-Human Resources and Continuous Improvement Terrence J. Keating....... 49 Vice President-Operations John R. Murphy............ 48 Vice President-Finance and Chief Financial Officer William D. Noll........... 51 Vice President-Product Development & Technology Bradford C. Schultz....... 56 Senior Vice President-Sales Henry L. Taylor........... 44 Vice President-Marketing and International Sales Henry R. Kravis........... 54 Director George R. Roberts......... 55 Director James H. Greene, Jr....... 48 Director Todd A. Fisher............ 33 Director
WILLIAM P. GREUBEL. Mr. Greubel has been a director and the Chief Executive Officer of the Company since January 21, 1998. Mr. Greubel has been president of the Company since 1994. He is also a director of AOT, AKW and AdM. Prior to joining the Company, from 1974 to 1994, Mr. Greubel held positions at AlliedSignal Corporation in sales, marketing and operations. His last two positions were Vice President and General Manager for the Environmental Catalysts and Engineering Plastics businesses. Mr. Greubel holds a B.A. in Economics and an M.B.A. from Rutgers University. DAVID K. ARMSTRONG. Mr. Armstrong joined the Company as Vice President and General Counsel in October 1998. Prior to joining the Company, Mr. Armstrong was a partner at the law firm of Snell & Wilmer L.L.P. Mr. Armstrong holds a B.S. and MAcc in Accounting and a Juris Doctorate, all from Brigham Young University. BIRUM G. CAMPBELL. Mr. Campbell joined the Company in his present position in August 1996. Prior to joining the Company, Mr. Campbell spent over 26 years with Hayes Wheels (formerly Kelsey-Hayes) in a variety of functions, including sales account management, materials management, general management aftermarket, strategic and product directors positions and, finally, as Director/Sales and Marketing for its aluminum Wheels business unit. Mr. Campbell holds a B.S. in Industrial Economics from Purdue University. ROBERT J. FAGERLIN. Mr. Fagerlin has been with Accuride/Firestone since 1976 and holds the newly created position of Vice President-General Manager of AdM. Prior to this, he served as Vice President of Business Development. Mr. Fagerlin serves as the Board Chairman of AOT and is designated a board member and President of AdM. Mr. Fagerlin holds a B.S. in Industrial Management from the University of Akron. ELIZABETH I. HAMME. Ms. Hamme joined the Company, in her present position in February 1995. Prior to joining the Company, Ms. Hamme served as an independent consultant to the manufacturing and financial services sectors since 1991. From 1989 to 1991, Ms. Hamme held the positions of Division Human Resources Manager and Group Manager of Human Resources Development and Compensation with FMC Corporation (Chemical Products Group). Ms. Hamme holds a B.A. in Political Science and an M.A. in Adult Education from the George Washington University. 29 TERRENCE J. KEATING. Mr. Keating joined the Company in December, 1996. From 1995 to November, 1996, Mr. Keating was the manager of Indianapolis Diesel Engine Plant of Navistar International Transportation Company. From 1990 to 1995, Mr. Keating was Vice President of Operations of Peerless Pump, Inc. Mr. Keating holds a B.S. in Mechanical Engineering Technology from Purdue University and an M.B.A. in Operations from Indiana University. He is certified by the American Production and Inventory Control Society (APICS) as an inventory management professional. JOHN R. MURPHY. Mr. Murphy joined the Company in March, 1998. Prior to joining the Company, Mr. Murphy was the President and Chief Executive Officer of Falconite, Inc., a privately held rental equipment company. From 1994 to 1997, Mr. Murphy was Executive Vice President-Administration, Chief Financial Officer and Corporate Secretary of North American Stainless, Inc. Mr. Murphy also held the position of Vice President of Finance and Strategic Planning for Armco Advanced Materials Company, a stainless and electrical specialty steel manufacturing company. Mr. Murphy holds a B.S. in Accounting from the Pennsylvania State University and an M.B.A. from the University of Colorado. WILLIAM D. NOLL. Mr. Noll joined the Company in 1971. He worked as a design engineer in product development and was subsequently promoted to Manager, Product Engineering, in 1979. In 1983, Mr. Noll became Manager/Product Quality. In 1991, Mr. Noll was promoted to his current position. He is currently a member and company representative for SAE on the Truck/Bus Council, a member and company representative for The Maintenance Council of the American Trucking Association, a member and past president of the Tire and Rim Association, the ISO Representative for the United States for Truck Wheels and a member of ASME. Mr. Noll holds a B.S. in Mechanical Engineering from the University of Detroit and an M.B.A. and a M.S. in Engineering Management, both from the University of Evansville. BRADFORD C. SCHULTZ. Mr. Schultz joined Firestone Tire and Rubber Company (the prior owner of the Company) in 1964 as a college class trainee and has worked with the company since that time. He assumed his current position in 1991. Mr. Schultz is also a director of AOT and serves as the Company's representative for the Truck Trailer Manufacturers Association. Mr. Schultz holds a B.A. from Muskingum College, New Concord, Ohio. HENRY L. TAYLOR. Mr. Taylor joined the Company, in his present position, in April 1996. From 1988 to 1996, he worked at Rockwell Automotive, in product management, marketing, international business and business development. From 1980 to 1988, Mr. Taylor was employed by AlliedSignal's Bendix Heavy Vehicle Systems Group, where he held positions in operations management, field sales, product management and business development. Mr. Taylor holds a B.S. in Marketing and Management from the University of Nevada, Reno ("UNR") and has completed graduate courses in business at UNR, St. Louis University and Case Western University. HENRY R. KRAVIS. Mr. Kravis is a director of the Company. He is a managing member of KKR & Co., L.L.C., the limited liability company which serves as the general partner of KKR. He is also a director of Act III Cinemas, Inc., Amphenol Corporation, Borden, Inc., The Boyds Collection, Ltd., BRW Acquisition, Inc., Evenflo Company, Inc. The Gillette Company, IDEX Corporation, KinderCare Learning Centers, Inc., KSL Land Corporation, KSL Recreation Corporation, MedCath Incorporated, Newsquest Capital plc, Neway Anchorlok International, Inc., Owens-Illinois, Inc., Owens-Illinois Group, Inc., PRIMEDIA, Inc., Randall's Food Markets, Inc., Regal Cinemas, Inc., RELTEC Corporation, Safeway Inc., Sotheby's Holdings Inc., Spalding Holdings Corporation, and U.S. National Resources, Inc. Mr. Kravis is a first cousin of Mr. Roberts. GEORGE R. ROBERTS. Mr. Roberts is a director of the Company. He is a managing member of KKR & Co., L.L.C., the limited liability company which serves as the general partner of KKR. He is also a director of Amphenol Corporation, Borden, Inc., The Boyds Collection, Ltd., BRW Acquisition, Inc., Evenflo Company, Inc., IDEX Corporation, KinderCare Learning Center, Inc., KSL Land Corporation, KSL Recreation Corporation, MedCath Incorporated, Neway Anchorlok International, Inc., Owens-Illinois Group, Inc., Ownens-Illinois, Inc., PRIMEDIA, INC., Randalls Food Markets, Inc., Regal Cinemas, Inc., RELTEC 30 Corporation, Safeway, Inc., Spalding Holdings Corporation, Trinity Acquisition, plc and U.S. National Resources, Inc. Mr. Roberts is a first cousin of Mr. Kravis. JAMES H. GREENE, JR. Mr. Greene is a director of the Company. He is a member of KKR & Co., L.L.C., the limited liability company which serves as the general partner to KKR. He is also a director of Bruno's, Inc., Owens-Illinois, Inc., Owens-Illinois Group, Inc., Randall's Food Markets, Inc., RELTEC Corporation and Safeway Inc. TODD A. FISHER. Mr. Fisher is a director of the Company. He has been an executive of KKR since 1993. From July 1992 to June 1993, Mr. Fisher was an associate at Goldman, Sachs & Co. Mr. Fisher serves as a director of Layne Christensen Company, BRW Acquisition, Inc. and Trinity Acquisition, plc. ITEM 11. EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS. Members of the Board of Directors employed by the Company do not receive any separate compensation for services performed as a director. Those members of the Board of Directors not otherwise employed by the Company receive a $30,000 annual retainer. There is no separate compensation for service on the compensation or audit committees. See also "Item 13-Certain Relationships and Related Transactions." SUMMARY COMPENSATION TABLE The following table sets forth information with respect to the compensation paid by the Company for services rendered during the year ended December 31, 1998 to the Chief Executive Officer and to each of the four other most highly compensated executive officers of the Company (the "Named Executive Officers").
LONG TERM COMPENSATION ---------------------- ANNUAL COMPENSATION AWARDS PAYOUTS -------------------------------------- ----------------------- -------- Restricted Securities Name and Principal Other Annual Stock Underlying LTIP All Other Position Year Salary Bonus Compensation (a) Award(s) Options/SARs Payouts Compensation (b) - ------------------ ---- ------ ----- ---------------- ---------- ----------- ------- ---------------- William P. Greubel 1998 $240,000 $117,700 $13,226 -- -- -- $772,468 (President and Chief 1997 $200,000 $78,900 $38,222 -- -- -- $24,474 Executive Officer) 1996 $185,520 $105,000 $22,896 $358,125 $12,000 -- $8,857 Bradford C. Schultz 1998 $152,200 $70,100 $11,603 -- -- -- $237,308 (Senior Vice 1997 $144,900 $41,900 $7,899 -- -- -- $16,194 President - Sales) 1996 $138,000 $53,793 $3,300 -- $4,000 -- $15,624 Terrence Keating 1998 $143,100 $61,800 $11,115 -- -- -- $226,599 (Vice President - 1997 $135,000 $12,701 $1,338 -- -- -- $22,793 Operations) (c) 1996 $11,250 -- $323 -- $3,500 -- -- William D. Noll 1998 $123,200 $55,100 $11,115 -- -- -- $136,170 (Vice President - 1997 $117,300 $35,300 $815 -- -- -- $13,907 Product Development 1996 $112,320 $46,100 $1,223 -- $3,500 -- $11,783 and Technology) Elizabeth I. Hamme 1998 $120,000 $40,700 $11,115 -- -- -- $150,538 (Vice President - 1997 $108,000 $33,300 $1,415 -- -- -- $1,293 Human Resources and 1996 $102,000 $33,100 $575 -- -- -- $1,752 Continuous Improvement)
31 (a) Compensation includes imputed income, medical reimbursements, financial planning service fees, and gross-ups on financial planning, vested liabilities, Phelps Dodge restricted dividends (for years prior to the acquisition by KKR), safety awards and spouse travel as follows:
PHELPS DODGE FINANCIAL FINANCIAL RESTRICTED IMPUTED MEDICAL PLANNING PLANNING VESTED STOCK SAFETY SPOUSE YEAR INCOME REIMBURSEMENT SERVICE FEES GROSS-UP LIABILITIES DIVIDENDS AWARDS TRAVEL ---- ------- ------------- ------------ --------- ----------- ---------- ------ ------- Mr. Greubel... 1998 -- -- $5,088 $4,138 $4,000 -- -- -- 1997 -- -- -- -- $12,608 $10,000 $401 -- 1996 -- -- -- -- -- -- -- -- Mr. Schultz... 1998 -- $156 $6,130 $5,317 $6,430 -- -- $1,058 1997 -- -- -- -- -- -- $411 -- 1996 -- -- -- -- -- -- -- -- Mr. Keating... 1998 -- -- $6,130 $4,985 -- -- -- -- 1997 $574 $349 -- -- -- -- -- -- 1996 -- -- -- -- -- -- -- -- Mr. Noll...... 1998 -- $312 $6,130 $4,985 -- -- -- -- 1997 $26 $242 -- -- $132 -- $415 -- 1996 -- -- -- -- -- -- -- -- Ms. Hamme..... 1998 -- -- $6,130 $4,985 -- -- -- -- 1997 -- -- -- -- -- $1,000 $415 -- 1996 -- -- -- -- -- -- $575 --
(b) Compensation includes retention bonuses, restricted stock payments, and distributions from the Phelps Dodge non-qualified savings plan paid in connection with the Recapitalization, vacation sold, contributions made by the Company to the employees' qualified or non-qualified savings plan (company match and/or profit sharing), the Executive Life Insurance Plan (which provides employees with a bonus to pay for a universal life insurance policy that is fully owned by the employee), and moving relocation expenses, as set forth below:
DISTRIBUTION RESTRICTED COMPANY FROM PHELPS STOCK RETENTION VACATION MATCH & ELIP YEAR DODGE NQ PLAN PAYMENT BONUS SOLD PROFIT SHARING PREMIUMS RELOCATION ---- ------------- ---------- --------- -------- -------------- -------- ---------- Mr. Greubel. 1998 $59,061 $312,368 $400,000 $0 $17,500 $3,539 -- 1997 -- -- -- $3,077 $18,996 $2,361 -- 1996 -- -- -- -- -- -- -- Mr. Schultz. 1998 -- -- $214,500 $5,855 $14,038 $2,915 -- 1997 -- -- -- -- $13,794 $2,400 -- 1996 -- -- -- -- -- -- -- Mr. Keating. 1998 -- -- $202,500 $11,284 $11,323 $1,492 -- 1997 -- -- -- -- -- $1,229 $21,564 1996 -- -- -- -- -- -- -- Mr. Noll.... 1998 -- -- $117,300 $6,161 $11,359 $1,350 -- 1997 -- -- -- $1,523 $11,266 $1,118 -- 1996 -- -- -- -- -- -- -- Ms. Hamme... 1998 -- $30,813 $108,000 $0 $10,600 $1,125 -- 1997 -- -- -- $415 -- $878 -- 1996 -- $975 -- -- -- $777 --
(c) Mr. Keating began employment on December 1, 1996. 32 The following table gives information concerning individual grants of stock options made during 1998 to each of the Named Executive Officers. OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term - -------------------------------------------------------------------------------- -------------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS/SARS UNDERLYING GRANTED TO EXERCISE OR OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION NAME GRANTED (1) FISCAL YEAR ($/SH) DATE 5 (%) (2) 10 (%) (2) ---- ----------- ----------- ----------- ----------- ----------- ---------- Mr. Greubel 450 30.9% $5,000 Jan 21, 2008 $1,415,013 $3,585,921 Mr. Schultz 80 5.5% $5,000 Jan 21, 2008 $251,558 $637,497 Mr. Keating 80 5.5% $5,000 Jan 21, 2008 $251,558 $637,497 Mr. Noll 80 5.5% $5,000 Jan 21, 2008 $251,558 $637,497 Ms. Hamme 80 5.5% $5,000 Jan 21, 2008 $251,558 $637,497
(1) One-half of the options granted become exercisable and vest over time at the rate of 20% per year. The other half of the options granted become exercisable and vest at the rate of 20% per year upon the achievement of certain financial targets. (2) The amounts shown under the columns are the result of calculations at 5% and 10% rates as required by the SEC and are not intended to forecast future appreciation of the stock price of the Common Stock. The following table gives information for options exercised by each of the Named Executive Officers in 1998 and the value (stock price less exercise price) of the remaining options held by those executive officers at year end, using management's estimate of the Common Stock value on December 31, 1998. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL YEAR-END YEAR-END (2) ---------------------------- ----------------------------- SHARES ACQUIRED ON NAME EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- -------------- ----------- ------------- ----------- ------------- William P. Greubel(1)...... 0 $0 90 360 -- -- Bradford C. Schultz(1)..... 0 $0 16 64 -- -- Terrence Keating........... 0 $0 16 64 -- -- William D. Noll(1)......... 0 $0 16 64 -- -- Elizabeth I. Hamme......... 0 $0 16 64 -- --
(1) In addition to the information contained in this table, the following named officers exercised stock options issued by Phelps Dodge, the previous owner of the Company: William P. Greubel 4,467 shares with a value realized of $37,969; Bradford C. Schultz 14,800 shares with a value realized of $224,883; and William D. Noll 9,034 shares with a value realized of $89,782. 33 (2) The value of the shares underlying the options as of December 31, 1998 is not in excess of the base price. There is no established trading market for the Company's Common Stock. PENSION PLAN TABLE
YEARS OF SERVICE ---------------- REMUNERATION 15 20 25 30 35 40 ------------ -- -- -- -- -- -- $125,000................... $31,415 $41,887 $52,359 $62,831 $73,303 $81,428 150,000................... 38,165 50,887 63,609 76,331 89,053 98,803 175,000................... 44,915 59,887 74,859 89,831 104,803 116,178 200,000................... 51,665 68,887 86,109 103,331 120,553 133,553 225,000................... 58,415 77,887 97,359 116,831 136,303 150,928 250,000................... 65,165 86,887 108,609 130,331 152,053 168,303 275,000................... 71,915 95,887 119,859 143,831 167,803 185,678 300,000................... 78,665 104,887 131,109 157,331 183,553 203,053 400,000................... 105,665 140,887 176,109 211,331 246,553 272,553 500,000................... 132,665 176,887 221,109 265,331 309,553 342,053 600,000................... 159,665 212,887 266,109 319,331 372,553 411,553
The above table details estimated annual benefits for Accuride salaried employees retiring December 31, 1998 at age 65. Benefits include benefits payable from predecessor plans. The Accuride Corporation Retirement Plan for salaried employees (the "Retirement Plan") provides a member upon retirement at age 65 with a pension for life with five years of payments guaranteed. Under the Retirement Plan, average compensation means the monthly average of a participant's compensation for the period on and after January 1, 1985. For plan years prior to November 1, 1987, compensation excluded bonus payments. Beginning November 1, 1987, the plan was amended to include bonus payments up to a maximum amount of 4.5% of base salary. For plan years beginning on or after November 1, 1988, total compensation includes the full bonus amount. Benefit service includes all periods of employment with Accuride. Benefits under the Retirement Plan are subject to certain limitations under the Internal Revenue Code of 1986, as amended, and to the extent the result of such limitations would be a benefit less than would otherwise be paid under such Plan, the difference is provided under the supplementary retirement provisions of the Accuride Corporation Supplemental Retirement Plan (the "Supplemental Plan"). The formula for determining benefits payable under the Retirement Plan is based on covered compensation for an employee reaching age 65 in 1998. The expected credited years of benefit service at normal retirement for the President and each of the four other most highly compensated executive officers as of December 31, 1998 are as follows: Mr. Greubel, 22 years; Mr. Schultz, 36 years; Mr. Keating, 18 years, Mr. Noll, 41 years, and Ms. Hamme, 20 years. The years of service are based on normal retirement for all executive officers under the Retirement Plan and the applicable provisions of the Supplemental Plan. 1998 STOCK PURCHASE AND OPTION PLAN In early 1998, the Company adopted the 1998 Stock Purchase and Option Plan for Key Employees of Accuride Corporation and Subsidiaries (the "1998 Plan"). The 1998 Plan provides for the issuance of shares of authorized but unissued or reacquired shares of Common Stock, subject to adjustment to reflect certain events such as stock dividends, stock splits, recapitalizations, mergers or reorganizations of or by the Company. The 1998 Plan is intended to assist the Company in attracting and retaining employees of outstanding ability and to promote the identification of their interests with those of the stockholders of the Company. The 1998 Plan permits the issuance of Common Stock (the "1998 Plan Purchase Stock") and the grant of Non-Qualified Stock Options (the "1998 Plan 34 Options") to purchase shares of Common Stock (the issuance of 1998 Plan Purchase Stock and the grant of 1998 Plan Options pursuant to the 1998 Plan being a "1998 Plan Grant"). Unless sooner terminated by the Company's Board of Directors, the 1998 Plan will expire ten years after adoption. Such termination will not affect the validity of any 1998 Plan Grant outstanding on the date of the termination. The Compensation Committee of the Board of Directors will administer the 1998 Plan, including, without limitation, the determination of the employees to whom 1998 Plan Grants will be made, the number of shares of Common Stock subject to each 1998 Plan Grant, and the various terms of 1998 Plan Grants. The Compensation Committee of the Board of Directors may from time to time amend the terms of any 1998 Plan Grant, but, except for adjustments made upon a change in the Common Stock by reason of a stock split, spin-off, stock dividend, stock combination or reclassification, recapitalization, reorganization, consolidation, change of control, or similar event, such action shall not adversely affect the rights of any participant under the 1998 Plan with respect to the 1998 Plan Purchase Stock and the 1998 Plan Options without such participant's consent. The Board of Directors retain the right to amend, suspend or terminate the 1998 Plan. SEVERANCE AGREEMENTS After the closing of the Recapitalization, the Company entered into severance agreements with senior management employees, including the Named Executive Officers, pursuant to which in the event of any such employee's termination "without cause" or "for good reason" (as defined therein) the Company will pay such employee one year's base salary less any other severance payments to which the employee is entitled from the Company and less any payments received by the employee from Phelps Dodge in the nature of severance or bonus payments. EMPLOYEE EQUITY ARRANGEMENTS After the closing of the Recapitalization and pursuant to the 1998 Plan, the Company sold 1998 Plan Purchase Stock and issued 1998 Plan Options to selected employees, including the Named Executive Officers, which will represent, in the aggregate, approximately 10% of the fully diluted Common Stock (of which the Named Executive Officers will hold approximately 37%). In connection with such arrangements, the Company and each such employee entered into an Employee Stockholders' Agreement and a Stock Option Agreement. In order to finance the stock purchases, certain employees also entered into secured Promissory Notes and Pledge Agreements. The Employee Stockholders' Agreement (i) places restrictions on each such employee's ability to transfer shares of 1998 Plan Purchase Stock and Common Stock acquired upon exercise of the 1998 Plan Options, including a right of first refusal in favor of the Company, (ii) provides each such employee the right to participate pro rata in certain sales of Common Stock by Hubcap Acquisition or its affiliates and (iii) provides Hubcap Acquisition and its affiliates the right to require each such employee to participate pro rata in certain sales of Common Stock by Hubcap Acquisition or its affiliates. The Stockholders' Agreement also grants (subsequent to an initial public offering of the Common Stock) piggyback registration rights to each such employee pursuant to a registration rights agreement between Hubcap Acquisition and the Company. In addition, the Employee Stockholders' Agreement gives the Company the right to purchase shares and options held by each such employee upon termination of employment for any reason and permits each such employee to sell stock and options in the event of death, disability or retirement after turning 65 years of age. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Messrs. Greene and Fisher, with Mr. Greene as Chairman, are all of the members of the Compensation Committee of the Board of Directors of the Company. See "Item 13-Certain Relationships and Related Transactions." 35 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the ownership of the Common Stock as of March 1, 1999 by each person known to be the owner of 5% or more of the Common Stock, by each person who is a director or Named Executive Officer of the Company and by all directors and executive officers of the Company as a group.
NAME AND ADDRESS COMMON STOCK BENEFICIALLY OWNED (a) - ---------------- ----------------------------------- SHARES PERCENT ------ ------- KKR 1996 GP L.L.C. (b) c/o Kohlberg Kravis Roberts & Co. L.P. 9 West 57th Street New York, New York 10019.................................... 21,600 87.21% Henry R. Kravis (b)...................................... -- -- George R. Roberts (b).................................... -- -- James H. Greene, Jr. (b)................................. -- -- Todd A. Fisher (b)...................................... -- -- RSTW Partners III, L.P. (c) 5847 San Felipe Houston, TX 77057........................................... 2,400 9.69% William P. Greubel.......................................... 240 * Elizabeth I. Hamme.......................................... 56 * Terrence J. Keating......................................... 56 * William D. Noll............................................. 56 * Bradford C. Schultz......................................... 56 * All executive officers and directors as a group....... 744 2.98%
- ------------------- * Less than one percent. (a) The amounts and percentage of Common Stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of such security, or "investment power," which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which he has no economic interest. The percentage of class outstanding is based on 24,768 shares of Common Stock outstanding as of March 1, 1999. (b) Shares of Common Stock shown as beneficially owned by KKR 1996 GP L.L.C. are held by Hubcap Acquisition. KKR 1996 GP L.L.C. is the sole general partner of KKR Associates 1996 L.P., which is the sole general partner of KKR 1996 Fund L.P. KKR 1996 Fund L.P. is one of two members of Hubcap Acquisition and owns more than a 95% equity interest in Hubcap Acquisition. KKR 1996 GP L.L.C. is a limited liability company, the managing members of which are Messrs. Henry R. Kravis and George R. Roberts, and the other members of which are Messrs. Paul E. Raether, Michael W. Michelson, James H. Greene, Jr., Michael T. Tokarz, Clifton S. Robbins, Edward A. Gilhuly, Perry Golkin, Scott M. Stuart and Robert I. MacDonnell. Messrs. Kravis, Roberts and Greene are directors of the Company. Each of such individuals may be deemed to share beneficial ownership of any shares beneficially owned by KKR 1996 GP L.L.C. Each of such individuals disclaims beneficial ownership. Mr. Todd A. Fisher is a director of the Company and is also an 36 executive of KKR and a limited partner of KKR Associates 1996 L.P. Mr. Fisher disclaims that he is the beneficial owner of any shares beneficially owned by KKR Associates 1996 L.P. (c) RSTW Management, L.P. is the sole general partner of RSTW Partners III, L.P.; Rice Mezzanine Corporation ("RMC") is the general partner of RSTW Management, L.P. RMC is a subchapter S-Corporation, the shareholders of which are Messrs. Don K. Rice, Jeffrey P. Sangalis, Jeffrey A. Toole, and James P. Wilson. Each of such individuals may be deemed to share beneficial ownership of any shares beneficially owned by RSTW Partners III, L.P. Each of such individuals disclaims beneficial ownership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As of March 1, 1999, KKR 1996 GP L.L.C. beneficially owned approximately 87% of the Company's outstanding shares of Common Stock. See "Item 12-Security Ownership of Certain Beneficial Owners and Management." The managing members of KKR 1996 GP L.L.C. are Messrs. Henry R. Kravis and George R. Roberts and the other members of which are Messrs. Paul E. Raether, Michael W. Michelson, James H. Greene, Jr., Michael T. Tokarz, Clifton S. Robbins, Edward A. Gilhuly, Perry Golkin, Scott M. Stuart and Robert I. MacDonnell. Messrs. Kravis, Roberts and Greene are also directors of the Company, as is Todd A. Fisher, who is an executive of KKR & Co., L.L.C. Each of the members of KKR 1996 GP L.L.C. is also a member of KKR & Co., L.L.C, which serves as the general partner of KKR. KKR, an affiliate of Hubcap Acquisition, received a fee of $6.0 million in cash for negotiating the Recapitalization and arranging the financing therefor, plus the reimbursement of its expenses in connection therewith, and from time to time in the future, KKR may receive customary investment banking fees for services rendered to the Company in connection with divestitures, acquisitions, and certain other transactions. In addition, KKR has agreed to render management, consulting and financial services to the Company for an annual fee of $0.6 million. See "Item 10-Directors and Executive Officers of the Company" and "Item 12-Security Ownership of Certain Beneficial Owners and Management." Hubcap Acquisition has the right, under certain circumstances and subject to certain conditions, to require the Company to register under the Securities Act shares of Common Stock held by it pursuant to the registration rights agreement between Hubcap Acquisition and the Company and the stockholders agreement among Hubcap Acquisitions, the Company, and Phelps Dodge. Such registration rights are generally available to Hubcap Acquisition until registration under the Securities Act is no longer required to enable it to resell the Common Stock owned by it. The registration rights agreement provides, among other things, that the Company will pay all expenses in connection with the first six demand registrations requested by Hubcap Acquisition and in connection with any registration commenced by the Company as a primary offering in which Hubcap Acquisition participates through piggyback registration rights granted under such agreement. Hubcap Acquisition's exercise of its registration rights under the registration rights agreement is subject to the tag along and the drag along rights of certain other stockholders provided for in the stockholders agreement. During the 1998 fiscal year, the Company issued approximately 768 shares of the Company's common stock to certain members of management for aggregate consideration in cash and secured promissory notes of approximately $3.8 million. 37 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following constitutes a list of Financial Statements, Financial Statement Schedules, and Exhibits required to be included in this report: 1. FINANCIAL STATEMENTS The following financial statements of the Registrant are filed herewith as part of this report: Independent Auditors' Report Consolidated Balance Sheets - December 31, 1998 and December 31, 1997. Consolidated Statements of Income- Years ended December 31, 1998, December 31, 1997, and December 31, 1996. Consolidated Statements of Stockholders' Equity (Deficiency) - Years ended December 31, 1998, December 31, 1997, and December 31, 1996. Consolidated Statements of Cash Flows - Years ended December 31, 1998, December 31, 1997, and December 31, 1996. Notes to Consolidated Financial Statements - Years ended December 31, 1998, December 31, 1997, and December 31, 1996. 2. FINANCIAL STATEMENT SCHEDULES Schedule II - Valuation and Qualifying Accounts Schedules other than those listed above are omitted because of the absence of conditions under which they are required or because the required information is presented in the Financial Statements or notes thereto. 3. EXHIBITS (b) Reports on Form 8-K. The Company did not file any Form 8-K during the last quarter of the 1998 fiscal year.
EXHIBIT NO. DESCRIPTION - -------- ------------ *2.1 Stock Subscription and Redemption Agreement, dated as of November 17, 1997, among the Company, Hubcap Acquisition L.L.C. and Phelps Dodge Corporation *3.1 Certificate of Incorporation, as amended, of Accuride Corporation. *3.2 By-Laws of Accuride Corporation. *4.1 Indenture, dated as of January 21, 1998, between Accuride Corporation and U.S. Trust Company of California, N.A., as trustee, relating to $200,000,000 aggregate principal amount of 9 1/4% Senior Subordinated Notes due 2008. *4.2 Registration Rights Agreement, dated as of January 21, 1998, between Accuride Corporation, and BT Alex. Brown Incorporation, Citicorp Securities, Inc., and J.P. Morgan Securities Inc. *4.3 Specimen Certificate of 9 1/4% Senior Subordinated Notes due 2008, Series A (the "Private Notes") . *4.4 Specimen Certificate of 9 1/4% Senior Subordinated Notes due 2008, Series B (the "Exchange Notes").
38 *10.1 Stockholders' Agreement by and among Accuride Corporation, Phelps Dodge Corporation and Hubcap Acquisition L.L.C. *10.2 Registration Rights Agreement by and between Accuride Corporation and Hubcap Acquisition L.L.C. *10.3 1998 Stock Purchase and Option Plan for Employees of Accuride Corporation and Subsidiaries. *10.4 Form of Non-qualified Stock Option Agreement by and between Accuride Corporation and certain employees. *10.5 Form of Repayment and Stock Pledge Agreement by and between Accuride and certain employees. *10.6 Form of Secured Promissory Note in favor of Accuride Corporation. *10.7 Form of Stockholders' Agreement by and among Accuride Corporation, certain employees and Hubcap Acquisition L.L.C. *10.8 Form of Severance Agreement by and between Accuride Corporation and certain executives. *10.9 Contribution Agreement, dated as of May 1, 1997, among Accuride Corporation, Kaiser Aluminum & Chemical Corporation ("Kaiser"), AKW General Partner L.L.C. and AKW L.P. *10.10 Limited Partnership Agreement of AKW L.P., dated as of May 1, 1997, among AKW General Partner L.L.C., Accuride Ventures, Inc., Accuride Corporation and Kaiser. *10.11 Limited Liability Company Agreement of AKW General Partner L.L.C., dated as of May 1, 1997, among Accuride Ventures, Inc., Accuride Corporation and Kaiser. *10.12 Lease Agreement, dated as of May 1, 1997, between Kaiser and AKW L.P. *10.13 Lease Agreement dated November 1, 1988, by and between Kaiser and The Bell Company regarding the property in Cuyahoga Falls, Ohio, as amended and extended. *10.14 Lease Agreement, dated as of February 1, 1974, by and between Henderson County and The Firestone Tire & Rubber Company ("Firestone"). *10.15 Lease Amendment, dated as of December 19, 1986, by and between Henderson County and Firestone. *10.16 Joint Venture Agreement, dated November 5, 1997, by and among the Company, Industria Automotriz, S.A. de C.V., Grupo Industrial Ramirez, S.A. and Accuride de Mexico, S.A. de C.V. ("AdM"). *10.17 By-laws of AdM. *10.18 Purchase and Sale Agreement, dated as of October 21, 1997, by and between Accuride Corporation and General Electric Company regarding property located in Columbia, Tennessee. *10.19 Purchase Supply and Assembly Agreement, dated as of January 15, 1998, between Accuride Corporation and Lacks Industries, Inc. *10.20 Credit Agreement, dated as of January 21, 1998, between Accuride Corporation and Citicorp USA, Inc., Citicorp Securities, Inc., Bankers Trust Company and Wells Fargo Bank. *10.21 Purchase Agreement, dated as of January 15, 1998, between Accuride Corporation and BT Alex. Brown Incorporation, Citicorp Securities, Inc., and J.P. Morgan Securities Inc. 10.22 Credit Agreement dated July 9, 1998, by and between Accuride de Mexico, S.A. de C.V. and Citibank Mexico, S.A. and Grupo Financiero Citibank 10.23 Completion Guaranty dated July 9, 1998, by and between Accuride Corporation, Accuride de Mexico, S.A. de C.V., Industria Automotriz, S.A. de C.V., and Citibank Mexico, S.A. and Grupo Financiero Citibank 10.24 Lease Agreement dated October 26, 1998, by and between Accuride Corporation and Woodward, LLC. regarding the Evansville, Indiana office space. *21.1 Subsidiaries of Accuride Corporation. 23.1 Consent of Deloitte & Touche LLP. 24.1 Power of Attorney of Accuride Corporation. 27.1 Financial Data Schedule.
- ----------------------- * Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference. 39 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Accuride Corporation: We have audited the accompanying consolidated balance sheets of Accuride Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity (deficiency) and of cash flows for each of the three years in the period ended December 31, 1998. Our audit also included the financial statement schedule listed in the Index at Item 14. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule 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 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, such consolidated financial statements present fairly, in all material respects, the financial position of Accuride Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic 1998 consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Indianapolis, Indiana February 12, 1999 F-1 ACCURIDE CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
December 31, ----------------------- ASSETS 1998 1997 CURRENT ASSETS: Cash and cash equivalents $ 3,471 $ 7,418 Customer receivables, net of allowance for doubtful accounts of $1,008 and $967 52,287 37,077 Other receivables 8,372 11,768 Inventories, net 36,980 29,107 Supplies 7,187 6,458 Deferred income taxes 611 Income taxes receivable 458 Prepaid expenses 139 143 --------- --------- Total current assets 109,505 91,971 PROPERTY, PLANT AND EQUIPMENT, NET 159,826 133,997 OTHER ASSETS: Goodwill, net of accumulated amortization of $30,942 and $28,089 83,317 86,171 Investment in affiliates 25,855 24,765 Deferred financing costs, net of accumulated amortization of $1,634 12,609 Deferred income taxes 3,287 Other 10,526 10,543 --------- --------- TOTAL $ 404,925 $ 347,447 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Accounts payable $ 27,008 $ 19,237 Current portion of long-term debt 1,350 Short term notes payable 3,911 16,040 Accrued payroll and compensation 8,149 8,015 Accrued interest payable 9,807 Deferred income taxes 1,481 Tooling deposit 5,261 Accrued and other liabilities 6,606 7,103 --------- --------- Total current liabilities 56,831 57,137 LONG-TERM DEBT, less current portion 387,939 DEFERRED INCOME TAXES 16,123 OTHER LIABILITIES 12,021 13,250 MINORITY INTEREST 6,230 4,882 COMMITMENTS AND CONTINGENCIES (Notes 10 and 11) STOCKHOLDERS' EQUITY (DEFICIENCY): Preferred stock, $.01 par value; 5,000 shares authorized and unissued Common stock and additional paid in capital, $.01 par value; 45,000 shares authorized, 24,768 and 24,000 shares issued and outstanding in 1998 and 1997 24,158 178,931 Stock subscriptions receivable (1,644) Retained earnings (deficit) (80,610) 77,124 --------- --------- Total stockholders' equity (deficiency) (58,096) 256,055 --------- --------- TOTAL $ 404,925 $ 347,447 --------- --------- --------- ---------
See notes to consolidated financial statements. F-2 ACCURIDE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS)
Years Ended December 31, ------------------------------------ 1998 1997 1996 NET SALES $ 383,583 $ 332,966 $ 307,830 COST OF GOODS SOLD 301,029 266,972 246,107 --------- --------- --------- GROSS PROFIT 82,554 65,994 61,723 OPERATING EXPENSES: Selling, general and administrative 26,607 21,316 17,971 Start-up costs 3,260 Management retention bonuses 1,927 Recapitalization professional fees 2,240 --------- --------- --------- INCOME FROM OPERATIONS 48,520 44,678 43,782 OTHER INCOME (EXPENSE): Interest income 773 530 433 Interest (expense) (33,084) (145) (33) Equity in earnings of affiliates 3,929 4,384 115 Other income (expense), net (2,904) 719 (381) --------- --------- --------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 17,234 50,166 43,916 INCOME TAX PROVISION 7,935 22,158 17,450 MINORITY INTEREST 1,348 171 --------- --------- --------- NET INCOME $ 7,951 $ 27,837 $ 26,466 --------- --------- --------- --------- --------- ---------
See notes to consolidated financial statements F-3 ACCURIDE CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (DOLLARS IN THOUSANDS)
Common Stock and Accumulated Total Additional Stock Other Retained Stockholders' Comprehensive Paid in Subscriptions Comprehensive Earnings Equity Income Capital Receivable Income (Loss) (Deficit) (Deficiency) BALANCE AT JANUARY 1, 1996 $ 164,631 $ (1,371) $ 75,821 $ 239,081 Net income $ 26,466 26,466 26,466 Net cash from parent 15,537 15,537 Other comprehensive income Minimum pension adjustment 367 367 367 -------- Comprehensive income $ 26,833 -------- -------- Dividends to parent (53,000) (53,000) --------- --------- --------- --------- BALANCE AT DECEMBER 31, 1996 180,168 (1,004) 49,287 228,451 Net income $ 27,837 27,837 27,837 Net cash to parent (1,237) (1,237) Other comprehensive income Minimum pension adjustment 1,004 1,004 1,004 Comprehensive income $ 28,841 -------- --------- --------- --------- --------- -------- BALANCE AT DECEMBER 31, 1997 178,931 -- 77,124 256,055 Net income 7,951 7,951 Issuance of shares 108,000 108,000 Redemption of shares (286,931) (165,685) (452,616) Issuance of shares 3,840 $ (1,644) 2,196 Increase in net deferred tax asset attributable to tax basis of assets 18,480 18,480 Bonuses paid by a previous principal stockholder 1,838 1,838 --------- -------- --------- --------- --------- BALANCE AT DECEMBER 31, 1998 $ 24,158 $ (1,644) $ -- $ (80,610) $ (58,096) --------- -------- --------- --------- --------- --------- -------- --------- --------- ---------
See notes to consolidated financial statements. F-4 ACCURIDE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
Years Ended December 31, ----------------------------------- 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 7,951 $ 27,837 $ 26,466 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 20,094 17,870 17,270 Amortization 4,832 2,856 2,856 Losses on disposal of assets 1,585 801 1,242 Bonuses payable by a previous principal stockholder 1,838 Deferred income taxes 1,232 3,212 (1,538) Equity in earnings of affiliated companies (3,929) (4,384) (115) Minority interest 1,348 171 Changes in certain assets and liabilities: Receivables (11,814) (17,448) 4,723 Inventories and supplies (8,602) (646) (5,749) Prepaid expenses and other assets (4,534) (1,670) (1,581) Accounts payable 7,771 680 2,592 Tooling deposit 5,261 Accrued and other liabilities 4,890 3,679 (2,488) --------- --------- --------- Net cash provided by operating activities 22,662 38,219 43,678 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (46,579) (24,032) (9,584) Capitalized interest (929) Investment in ADM (4,899) Investment in AKW L.P. (20,849) Net cash distribution from AKW L.P. 2,839 2,482 Other 233 214 --------- --------- --------- Net cash used in investing activities (44,669) (47,065) (9,370) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of short term notes payable 3,000 16,040 Principal payments on short term notes payable (15,129) (4,850) Net increase in revolving line of credit 33,000 Proceeds from issuance of long-term debt 356,185 Deferred financing fees (14,243) Proceeds from issuance of shares 110,196 Redemption of shares (454,949) Net cash (to) from Phelps Dodge Corporation (1,237) (37,463) --------- --------- --------- Net cash provided by (used in) financing activities 18,060 9,953 (37,463) --------- --------- --------- Increase (decrease) in cash and cash equivalents (3,947) 1,107 (3,155) Cash and cash equivalents, beginning of year 7,418 6,311 9,466 --------- --------- --------- Cash and cash equivalents, end of year $ 3,471 $ 7,418 $ 6,311 --------- --------- --------- --------- --------- ---------
See notes to consolidated financial statements. F-5 ACCURIDE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998 (DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Accuride Corporation (the "Company") and its majority owned subsidiaries, including Accuride Canada, Inc. ("Accuride Canada"), a wholly-owned subsidiary, and Accuride De Mexico, S.A. de C.V. ("ADM"), a 51% owned joint venture formed November 5, 1997 with Industria Automotriz, S.A. de C.V. ("IaSa"), a Mexican corporation. All significant intercompany transactions have been eliminated. Investments in affiliated companies in which the Company does not have a controlling interest are accounted for using the equity method. Prior to the Recapitalization of the Company on January 21, 1998 (see Note 2), the Company was a wholly-owned subsidiary of Phelps Dodge Corporation ("PDC"). As a wholly-owned subsidiary of PDC, certain administrative functions were performed by PDC on behalf of the Company. Such functions included, but were not limited to, accounting, legal, treasury, tax, risk management, and certain employee benefit related functions. Applicable common expenses, incurred by PDC, have been allocated to the Company based on a time allocation methodology and are reflected in the accompanying financial statements for the years ended December 31, 1997 and 1996. Management believes the allocation methodology was reasonable. BUSINESS OF THE COMPANY - The Company is engaged primarily in the design, manufacture and distribution of steel wheels and rims for trucks, trailers and certain military and construction vehicles. The Company sells its products primarily within North America and Latin America to original equipment manufacturers and to the aftermarket. Prior to the formation of AKW L.P. ("AKW") on May 1, 1997 (see Note 6), the Company also participated in the aluminum wheel market whereby the Company designed and distributed aluminum wheels through a buy and resell agreement with Kaiser Aluminum & Chemical Corporation ("Kaiser"). ADM participates in the steel wheel market throughout Mexico and Latin America. The cost associated with the Company's initial investment in ADM totaled $4,899. The Company's primary manufacturing facilities are located in Henderson, Kentucky; Columbia, Tennessee; London, Ontario and Monterrey, Mexico. AKW's aluminum wheel facilities are located in Erie, Pennsylvania and Cuyahoga Falls, Ohio. During 1997, the Company purchased land located in Columbia, Tennessee and constructed a facility for the production of light truck wheels. The facility was completed in August, 1998 at a cost of approximately $23,600. MANAGEMENT'S ESTIMATES AND ASSUMPTIONS - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION - The Company records sales upon shipment and provides an allowance for estimated discounts associated with customer rebates. Prior to the formation of AKW, the Company reported sales and the associated cost of sales of aluminum wheels at their respective gross amounts pursuant to the buy and resell agreement with Kaiser. Subsequent to the formation of AKW, the Company's proportional share of income associated with AKW is reported as "Equity in earnings of affiliates" under the equity method. INVENTORIES - Inventories are stated at the lower of cost or market. Cost for substantially all inventories is determined by the last-in, first-out method (LIFO). F-6 SUPPLIES - Supplies are stated at the lower of cost or market. Cost for substantially all supplies is determined by a moving-average method. The Company performs periodic evaluations of supplies and provides an allowance for obsolete items. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried at cost. Cost of significant assets includes capitalized interest incurred during the construction and development period. Expenditures for replacements and betterments are capitalized; maintenance and repair expenditures are charged to operations as incurred. Buildings, machinery and equipment are depreciated using the straight-line method over estimated lives of 5 to 40 years. Tooling is generally depreciated over a 3 year life. DEFERRED FINANCING COSTS - Direct costs incurred in connection with the Recapitalization (see Note 2) have been deferred and are being amortized over the life of the related debt using the interest method. GOODWILL - Goodwill consists of costs in excess of the net assets acquired in connection with the PDC acquisition of the Company in March, 1988. Goodwill is being amortized on the straight-line method over 40 years. LONG-LIVED ASSETS - Statement of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, among other things, requires entities to evaluate long-lived assets for impairment. The Company evaluates for impairment its long-lived assets to be held and used and its identifiable intangible assets when events or changes in economic circumstances indicate the carrying amount of such assets may not be recoverable. Long-lived assets to be disposed of are carried at the lower of cost or fair value less the costs of disposal. PENSION PLANS - The Company has trusteed, non-contributory pension plans covering substantially all U.S. and Canadian employees. For certain plans, the benefits are based on career average salary and years of service and, for other plans, a fixed amount for each year of service. The Company's funding policy provides that payments to the pension trusts shall be at least equal to the minimum legal funding requirements. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - The Company has postretirement health care and life insurance benefit plans covering substantially all U.S. non-bargained and Canadian employees. The Company accounts for these benefits on an accrual basis pursuant to SFAS No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. One of the principal requirements of this method is that the expected cost of providing such postretirement benefits be accrued during the years employees render the necessary service. The Company's funding policy provides that payments shall be at least equal to its cash basis obligation. POSTEMPLOYMENT BENEFITS - The Company has certain postemployment benefit plans covering certain U.S. and Canadian employees which provide severance, disability, supplemental health care, life insurance or other welfare benefits. The Company accounts for these benefits on an accrual basis. The Company's funding policy provides that payments shall be at least equal to its cash basis obligation. Liabilities associated with these benefits at the date of the Company's Recapitalization (see Note 2) were retained by PDC. ENVIRONMENTAL COSTS - Environmental costs are recorded when it is probable that obligations have been incurred and the costs can be reasonably estimated upon currently available facts, existing technology, and presently enacted laws and regulations. F-7 INCOME TAXES - Deferred tax assets and liabilities are computed based on differences between financial statement and income tax bases of assets and liabilities using enacted income tax rates. Deferred income tax expense or benefit is based on the change in deferred tax assets and liabilities from period to period, subject to an ongoing assessment of realization of deferred tax assets. STOCKHOLDERS' EQUITY (DEFICIENCY) - The Company accounted for amounts due to/from PDC as adjustments to additional paid in capital since the companies had a common treasury function prior to the Recapitalization of the Company. RESEARCH AND DEVELOPMENT COSTS- Expenditures relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. The amounts charged against income in 1998, 1997 and 1996 totaled $2,855, $3,732 and $3,689, respectively. FOREIGN CURRENCY - The assets and liabilities of Accuride Canada and ADM that are receivable or payable in cash are converted at current exchange rates, and inventories and other non-monetary assets and liabilities are converted at historical rates. Revenues and expenses are converted at average rates in effect for the period. Accuride Canada's functional currency has been determined to be the US dollar and the Mexican economy has been determined to be highly inflationary. Accordingly, gains and losses resulting from conversion of such amounts, as well as gains and losses on foreign currency transactions, are included in operating results as "Other income (expense), net". The Company had aggregate foreign currency gains and losses of $(966), $773, and $(381), for the years ended December 31, 1998, 1997 and 1996, respectively. START-UP COSTS - Costs associated with start-up activities are charged to expense as incurred. During the year ended December 31, 1998 the Company incurred $3,260 related to preparation of the new light truck wheels facility in Columbia, Tennessee which commenced operations in August 1998. CONCENTRATIONS OF CREDIT RISK - Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents and customer receivables. The Company places its cash with high quality financial institutions and limits the amount of credit exposure from any one institution. Generally, the Company does not require collateral or other security to support customer receivables. DERIVATIVE FINANCIAL INSTRUMENTS - The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined interest rate and foreign exchange risks. INTEREST RATE INSTRUMENTS - The Company entered into an interest rate swap agreement as a means of fixing the floating interest rate exposure on a portion of the Company's floating rate debt. The Company also entered into a interest rate cap agreement to set a ceiling on the maximum floating interest the Company would incur on a portion of the Company's floating-rate debt. The premiums paid to enter into the interest rate cap agreement are payable monthly and are recorded as interest expense as incurred. These interest rate agreements are accounted for under the settlement method. Under this method, the differential to be paid or received on these agreements is recognized over the lives of the agreements in interest expense. Changes in market value of the interest rate swap and the interest rate cap accounted for under the settlement method are not reflected in the accompanying financial statements. To qualify for such accounting, the interest rate swap and interest rate cap are designated to the long-term debt obligation which alter the designated instruments' interest rate characteristics. FOREIGN EXCHANGE INSTRUMENTS - The Company entered into foreign currency forward contracts to limit foreign exchange risk on anticipated but not yet committed transactions expected to be denominated in Canadian dollars. The forward contracts do not qualify as hedges for financial reporting purposes under SFAS No. 52 FOREIGN CURRENCY TRANSLATION and, accordingly, are carried in the financial statements at the current forward exchange rate, with changes in forward rates and gains or losses upon settlement F-8 reflected directly in income as "Other income (expense), net". The Company had aggregate realized losses and unrealized gains of $(2,598) and $150, respectively, for the year ended December 31, 1998. The total notional amount of outstanding forward contracts at December 31, 1998 was $79,561. AUTHORIZED SHARES AND STOCK SPLIT - Effective January 21, 1998, the Company increased its authorized shares of common stock to 45,000 shares and authorized 5,000 shares of preferred stock with a par value of one cent ($.01) per share and declared a 240-for-1 stock split. All per share information has been restated to give effect to the increase in authorized shares and the stock split. COMPREHENSIVE INCOME - Effective January 1, 1998 the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), REPORTING COMPREHENSIVE INCOME. This statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, losses) in a full set of general purpose financial statements. The adoption of this statement required the reclassification of prior periods. In accordance with SFAS No. 130, reclassification adjustments have been documented for all components of other comprehensive income reported in the statements of changes in stockholders' equity. Amounts presented within those statements for the years ended December 31 are as follows:
1997 1996 ------- ------- Other comprehensive income: Minimum pension adjustment $ 1,673 $ 612 Tax effect (669) (245) ------- ------- Other comprehensive income $ 1,004 $ 367 ------- ------- ------- -------
There were no components of other comprehensive income for the year ended December 31, 1998. NEW ACCOUNTING PRONOUNCEMENT - In June 1998, SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES was issued and is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a fair value hedge, a cash flow hedge, or a hedge of foreign currency exposure. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. Management has not yet fully evaluated the effect of the new standard on the financial statements. RECLASSIFICATIONS - Certain amounts from prior years' financial statements have been reclassified to conform to the current year presentation. 2. RECAPITALIZATION OF ACCURIDE CORPORATION The Company entered into a stock subscription and redemption agreement dated November 17, 1997 (the "Agreement" or "Redemption"), with PDC and Hubcap Acquisition L.L.C. ("Hubcap Acquisition"), which is a Delaware limited liability company formed at the direction of KKR 1996 Fund L.P., a Delaware limited partnership affiliated with Kohlberg Kravis Roberts & Co., L.P. ("KKR"). Pursuant to the Agreement, effective January 21, 1998, Hubcap Acquisition acquired 90% of the common stock of the Company for an aggregate redemption price of $468,000 subject to adjustment for changes in working capital and the difference between actual and projected capital expenditures (the "Recapitalization"). In connection with the Recapitalization, Hubcap Acquisition made an equity F-9 investment in the Company of $108,000, and the Company issued $200,000 of 9.25% senior subordinated notes at 99.48% of principal value due 2008 and obtained $164,800 in bank borrowings, including $135,000 of borrowings under senior secured term loans due 2005 and 2006 with variable interest rates and $29,800 of borrowings under a $140,000 senior secured revolving line of credit expiring 2004 with a variable interest rate. Costs of $21,742 incurred in connection with the Recapitalization have been reflected (i) $14,243 as deferred financing costs, (ii) $5,259 as a component of the cost of the Redemption and (iii) $2,240 as a current year expense. Pursuant to the Agreement, $2,333 of certain pension, postretirement benefit liabilities and other liabilities were assumed by PDC and offset against the cost of the Redemption. Concurrent with the Redemption, the Company recorded a $55,440 deferred tax asset less a $36,960 valuation allowance related to the increase in the tax basis of assets with a corresponding credit to "Additional paid in capital". Subsequent to the Recapitalization, effective September 30, 1998, PDC sold its remaining interest in the Company to RSTW Partners III, L.P. 3. CONSOLIDATED STATEMENTS OF CASH FLOWS For the purpose of preparing the Consolidated Statements of Cash Flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Interest paid (net of amount capitalized of $929) for the year ended December 31, 1998 was $23,277. No significant interest amounts were paid during 1996 and 1997. Income taxes paid for the year ended December 31, 1998 were $7,238. Non-cash transactions that resulted from the Redemption in 1998 included the issuance of common stock and the related stock subscriptions receivable of $1,644, the assumption of $2,333 in liabilities offset against stockholders' equity and the increase in stockholders' equity and the net deferred tax asset in the amount of $18,480 from the increase in the tax basis of assets. Net cash amounts due to/from PDC were accounted for as capital distributions or contributions and current income taxes were cleared through the PDC intercompany account for the years ended December 31, 1997 and 1996. The following supplemental cash flow information is provided for non-cash transactions that resulted in connection with the formation of ADM on November 5, 1997: Inventory acquired $ 1,300 Property acquired 14,856 Current liabilities assumed 1,700 Short-term notes payable assumed 4,850
F-10 4. INVENTORIES Inventories at December 31 were as follows:
1998 1997 Raw materials $ 8,920 $ 3,882 Work in process 7,757 5,438 Finished manufactured goods 20,060 18,992 LIFO adjustment 1,122 1,742 Other valuation reserves (879) (947) -------- -------- Inventories, net $ 36,980 $ 29,107 -------- -------- -------- --------
5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31 consist of the following:
1998 1997 Land and land improvements $ 6,768 $ 6,055 Buildings 37,225 30,998 Machinery and equipment 273,345 248,845 -------- -------- 317,338 285,898 Less accumulated depreciation 157,512 151,901 -------- -------- Property, plant and equipment, net $159,826 $133,997 -------- -------- -------- --------
6. INVESTMENTS IN AFFILIATES Included in the Company's "Equity in earning of affiliates" is a 50% equity interest in AOT, Inc. ("AOT"), and beginning May 1, 1997 a 50% equity interest in AKW. The following summarizes the Company's investments in affiliates. AOT - AOT is a joint venture between the Company and The Goodyear Tire & Rubber Company formed to provide sequenced wheel and tire assemblies for Navistar International Transportation Corporation. The Company's investment in AOT at December 31, 1998 and 1997 totaled $2,644 and $2,202, respectively. At December 31, 1998, the Company had a note receivable from AOT included in "Other assets" in the amount of $1,092, with an interest rate of 9.25%. At December 31, 1997, the Company had two outstanding notes receivable from AOT totaling $1,535 with interest rates ranging from 8.25% to 9.25%. Interest income earned on these notes receivable for 1998, 1997 and 1996 totaled $161, $180 and $207, respectively. The Company also performs certain administrative services for AOT pursuant to a service agreement. Services performed include accounting and cash management, engineering and technical, environmental consulting and compliance, health, safety and risk management, quality assurance and other general and administrative services. Service fees associated with this agreement totaled $360 for each of the three years in the period ended December 31, 1998, and are reported as a reduction in "Selling, general and administrative expenses". AKW L.P. - On May 1, 1997, the Company entered into a limited partnership joint venture with Kaiser for the formation of AKW pursuant to a contribution agreement and other associated agreements (collectively, the "AKW formation agreements"). AKW manufactures and distributes aluminum wheels. Under terms of the AKW formation agreements, the Company owns a 50% interest in AKW, F-11 and accordingly, accounts for the investment using the equity method. The Company's investment in AKW at December 31, 1998 and 1997 totaled $23,211 and $22,563, respectively. Pursuant to the AKW formation agreements, the Company performs all billing and collection functions, as well as calculation and notification of rebates, for AKW as a means of providing customer convenience. "Other receivables" at December 31, 1998 and 1997 include $2,378 and $3,350 which represent amounts due from AKW associated with such transactions. Fees associated with those agreements totaled $250 and $167 for the years ended December 31, 1998 and 1997, and are reported as a reduction in "Selling, general and administrative expenses". On April 17, 1998, AKW determined that it would replace approximately 47,800 wheels due to a potential safety hazard and submitted notice to the National Highway Safety Administration ("NHSA"). These wheels were produced during the period April 23, 1997 through February 28, 1998. Subsequent to submitting notice to the NHSA, AKW management estimated its total liability to replace all wheels was approximately $6,800. The Company has reflected its portion of the expense ($3,400) as a reduction in "Equity in earnings of affiliates" in the statement of income for the year ended December 31, 1998. Summarized financial information of AOT and AKW for the years ended December 31, is as follows:
1998 1997 1996 Condensed Statements of Income: Net sales $94,342 $59,261 $ 5,785 Net earnings 7,858 8,769 230 Condensed Balanced Sheets: Current assets $30,721 $21,678 $ 1,941 Non-current assets 44,074 42,217 6,786 ------- ------- ------- Total $74,795 $63,895 $ 8,727 ------- ------- ------- ------- ------- ------- Current liabilities $16,900 $ 7,734 $ 963 Non-current liabilities 6,185 6,631 3,737 Shareholders' equity 51,710 49,530 4,027 ------- ------- ------- Total $74,795 $63,895 $ 8,727 ------- ------- ------- ------- ------- -------
Excluding the $6,800 expense, net earnings for the year ended December 31, 1998 were $14,658. 7. SHORT-TERM NOTES PAYABLE ADM - At December 31, 1997, the Company, through ADM, maintained a $30,000 revolving credit facility with a Mexican financial institution of which $14,700 was outstanding. The facility terminated on January 21, 1998, at which time the outstanding borrowings were converted to a promissory note. In July 1998, ADM entered into a $32,500 credit agreement consisting of a $7,500 revolving credit facility and a $25,000 term facility (see Note 8) and repaid the promissory note. At December 31, 1998 the Company had $3,911 in borrowings under the revolving credit facility. Interest is computed monthly based on the Eurodollar rate (4.94% at December 31, 1998) plus 4.00%. ACCURIDE CANADA - The Company, through Accuride Canada, maintained a $25,000 revolving credit facility with a Canadian financial institution which terminated during 1998. At December 31, 1997, $1,340 was outstanding. F-12 8. LONG-TERM DEBT Long-term debt at December 31, 1998 consist of the following: Revolving credit facility $ 33,000 Term A Advance 60,000 Term B Advance 75,000 Senior subordinated notes, net of $1,000 unamortized discount 199,000 ADM term facility 22,289 -------- 389,289 Less current maturities (1,350) -------- Total $387,939 -------- --------
BANK BORROWINGS - The revolving credit facility and the term A and B Advances were issued pursuant to a credit agreement ("Agreement") dated January 21, 1998. The revolving credit facility and the term B Advance were borrowed by Accuride Corporation ("U.S. Borrower") and the term A Advance was borrowed by Accuride Canada ("Canadian Borrower"). The Agreement consists of: (i) a $60,000 term A Advance; (ii) a $75,000 term B Advance; and (iii) up to $140,000 under the revolving credit facility as revolving credit advances, and trade letters of credit and standby letters of credit up to an aggregate sub-limit of $20,000. No letters of credit were outstanding at December 31, 1998. Revolving credit advances are limited to the aggregate unused revolving credit commitment from time to time. Swing line advances may be made up to the lesser of: (1) $10,000; or (2) the aggregate unused revolving credit commitment from time to time. The borrowings under the term A Advance and term B Advance and under the revolving credit facility are collectively referred to as the "Bank Borrowings." The Company has the option to borrow under the Agreement at either the Base Rate or Eurodollar Rate plus an Applicable Margin, as defined in the Agreement. The Applicable Margin shall be adjusted upon the Company achieving certain leverage ratios and varies by type of borrowing. The Company's Bank Borrowings at December 31, 1998 were all borrowed under the Eurodollar Rate option. The Eurodollar Rate ranged from 4.9375% - 5.6875% and the Applicable Margin ranged from 1.625% - 2.00% at December 31, 1998. Bank Borrowings and any unpaid interest thereon under; (i) the term A Advance shall be repayable in six (6) consecutive annual installments of $600 each, commencing on January 21, 1999 and continuing annually up to and including January 21, 2004, and the seventh installment shall be repayable on January 21, 2005 in the amount equal to the then outstanding principal balance of the term A Advance; (ii) the term B Advance shall be repayable in seven (7) consecutive annual installments of $750 each, commencing on January 21, 1999 and continuing annually up to and including January 21, 2005, and the eighth installment shall be repayable on January 21, 2006 in the amount of the then outstanding principal balance of the term B Advance; and (iii) the revolving credit facility shall be reduced to a maximum of $100,000 on January 21, 2003 and be payable in full on January 21, 2004. The Bank Borrowings are guaranteed by all domestic subsidiaries of the U.S. Borrower. The term A Advance is guaranteed by the U.S. Borrower. The Bank Borrowings are collateralized by a valid and perfected first priority interest in 100% of the common stock of each first tier domestic subsidiary of the U.S. Borrower and of the Canadian Borrower, and 66% of all of the U.S. Borrower's current and future first tier foreign subsidiaries other than the Canadian Borrower. A negative pledge restricts the imposition of liens or other encumbrances on all of the assets of the Borrowers and their subsidiaries, subject to certain exceptions. SENIOR SUBORDINATED NOTES - Interest at 9.25% on the senior subordinated notes (the "Notes") is payable on February 1 and August 1 of each year, commencing on August 1, 1998. The Notes mature in full on F-13 February 1, 2008 and may be redeemed, at the option of the Company, in whole or in part, at any time on or after February 1, 2003 in cash at the redemption prices set forth in the indenture, plus interest. In addition, at any time prior to February 1, 2002 the Company may redeem up to 40% of the original aggregate principal amount of the Notes with the net proceeds of one or more Equity Offerings, as defined. The Notes are a general unsecured obligation of the Company ranking senior in right of payment to all existing and future subordinated indebtedness of the Company. The Notes will be effectively subordinated to all existing and future senior indebtedness of the Company including indebtedness incurred under the Agreement. ADM TERM FACILITY - At December 31, 1998, ADM had term notes outstanding of $22,289 under its $25,000 term facility (see Note 7). Principal is payable quarterly from June 2001 until March 25, 2003; interest is computed monthly based on the Eurodollar rate (4.94% at December 31, 1998) plus 4.00%. ADM's total assets have been assigned as collateral under the terms of the credit agreement. Under the terms of the Company's Agreement and ADM's credit agreement there are certain restrictive covenants that restrict the payment of cash dividends and establish minimum financial ratios. INTEREST RATE INSTRUMENTS - Effective January 1998, the Company entered into an interest rate cap agreement to reduce the potential impact of increases in interest rates on a portion of its floating-rate long-term debt. At December 31, 1998, the Company was a party to a 7.5% interest rate cap agreement expiring in January 2001. The agreement entitles the Company to receive from the counterparty on a quarterly basis the amount, if any, by which the Company's interest payments on its $35,000 floating-rate long-term debt exceed 7.5% plus applicable margin. As of December 31, 1998 the interest rate cap had a notional amount of $35,000. Effective January 1998, the Company also entered into an interest rate swap agreement to manage its interest rate exposure on a portion of its floating-rate debt obligation. Under the interest rate swap agreement, the Company makes fixed rate payments at 5.75% and receives variable rate payments at the 3 month LIBOR rate (5.25% at December 31, 1998) on a notional amount of $100,000 with annual amortization of $1,000. The maturity date of the interest rate swap agreement is January 2001. The Company is exposed to credit losses in the event of nonperformance by the counterparties to its interest rate cap and interest rate swap. The Company anticipates, however, that counterparties will be able to fully satisfy their obligations under the contracts. The Company does not obtain collateral or other security to support financial instruments subject to credit risk but monitors the credit standing of counterparties. Maturities of long-term debt based on minimum scheduled payments as of December 31, 1998, are as follows: 1999 $ 1,350 2000 1,350 2001 9,708 2002 12,494 2003 4,137 Thereafter 360,250 -------- $389,289 -------- --------
F-14 9. PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS The Company, either stand-alone or through PDC (prior to 1998), sponsors non-contributory employee defined benefit pension plans covering substantially all U.S. and Canadian employees (the "plans"). Employees covered under the U.S. salaried plan are eligible to participate upon the completion of one year of service and benefits are based upon career average salary from 1985 and years of service. Employees covered under the Canadian salaried plan are eligible to participate upon the completion of two years of service and benefits are based upon career average salary and years of service. Employees covered under the hourly plans are generally eligible to participate at the time of employment and benefits are generally based on a fixed amount for each year of service. U.S. hourly employees are vested in the plans after five years of service; Canadian hourly employees are vested after two years of service. The Company also sponsors postretirement benefit plans. Substantially all of the Company's U.S. non-bargained and Canadian employees who retire from active service on or after normal retirement age of 65 are eligible for life insurance benefits. The costs of such benefits are paid through an insurance contract. Health care insurance benefits also are provided for many employees retiring from active service. The coverage is provided on a non-contributory basis for certain groups of employees and on a contributory basis for other groups. The majority of these benefits are paid by the Company. The status of employee pension benefit plans and other postretirement benefit plans at December 31 are summarized below:
Pension Benefits Other Benefits 1998 1997 1998 1997 Change in benefit obligation: Benefit obligation at beginning of year $ 39,899 $ 33,454 $ 9,564 $ 9,083 Benefit obligation assumed by PDC (9,951) (883) Service cost 1,759 1,336 313 283 Interest cost 1,990 2,487 592 656 Actuarial loss (gain) 1,343 4,606 468 (152) Benefits paid (1,083) (1,984) (303) (306) -------- -------- -------- -------- Benefit obligation at end of year 33,957 39,899 9,751 9,564 -------- -------- -------- -------- Change in plan assets: Fair value of assets at beginning of year 37,564 31,619 Fair value of assets assumed by PDC (7,768) Actual return on plan assets 2,385 6,516 Employer contribution 1,287 1,413 Benefits paid (1,083) (1,984) -------- -------- -------- -------- Fair value of assets at end of year 32,385 37,564 -------- -------- -------- -------- Funded status (end of year) 1,572 2,335 9,751 9,564 Unrecognized actuarial loss (gain) (6,223) (6,074) (1,473) (589) Unrecognized prior service cost (1,501) (2,212) 1,953 2,153 Unrecognized net (asset) obligation (349) 251 -------- -------- -------- -------- Accrued benefit cost (asset) $ (6,501) $ (5,700) $ 10,231 $ 11,128 -------- -------- -------- -------- -------- -------- -------- --------
The pension plans were valued between December 1 and December 31 for both 1998 and 1997. The obligations were projected to and the assets were valued as of the end of 1998 and 1997. Effective November 30, 1996, the U.S. salaried and non-bargained hourly pension plans, which are sponsored by F-15 PDC were consolidated into one plan. The majority of plan assets are invested in a diversified portfolio of stocks, bonds and cash or cash equivalents. A small portion of the plan assets is invested in pooled real estate and other private corporate investment funds. Plan assets associated with the U.S. salaried pension plan prior to 1998 were included in the master trust of the PDC retirement plan and are allocated to the Company's plan based on a proportional allocation method. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $9,519, $9,390 and $8,513, respectively, as of December 31, 1998 and $9,959, $8,115 and $8,048, respectively, as of December 31, 1997. The components of net periodic pension cost and other postretirement benefit cost for the years ended December 31, were as follows:
Pension Benefits Other Benefits ----------------------------- ----------------------------- 1998 1997 1996 1998 1997 1996 Benefits earned during the year $ 1,759 $ 1,336 $ 1,222 $ 313 $ 283 $ 271 Interest accrued on projected benefit obligation 1,990 2,489 2,300 592 656 688 Return on plan assets (2,871) (3,054) (2,479) Net amortization 128 165 193 (203) (200) (190) Other 167 197 27 ------- ------- ------- ------- ------- ------- Net periodic pension cost $ 1,173 $ 936 $ 1,433 $ 729 $ 739 $ 769 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
For 1998 measurement purposes, annual rates of increase in the per capita cost of covered health care benefits were assumed to average 7.4% for 1999 decreasing gradually to 5.3% by 2008 and remaining at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. A one percentage point change in assumed health care cost trend rates would have the following effects:
1-Percentage- 1-Percentage- Point Increase Point Decrease -------------- -------------- Effect on total of service and interest cost components $ 74 $ (63) Effect on postretirement benefit obligation 802 (677)
Assumptions used to develop the net periodic pension cost and other postretirement benefit cost and to value pension obligations as of December 31 were as follows:
Pension Benefits Other Benefits ---------------- -------------- 1998 1997 1998 1997 Discount rate 7.00 % 7.25 % 7.00 % 7.25 % Rate of increase in future compensation levels 4.00 % 4.00 % 4.00 % 4.00 % Expected long-term rate of return on assets 9.50 % 9.50 % N/A N/A
F-16 The Company intends to fund at least the minimum amount required under the Employee Retirement Income Security Act of 1974, as amended, for U.S. plans, or in the case of Accuride Canada, the minimum legal requirements in Canada. The Company recognized an additional minimum liability in its consolidated financial statements for its underfunded plans during the year ended December 31, 1996. The Company also sponsors certain defined contribution plans for substantially all U.S. salaried employees. Expense associated with these plans for the years ended December 31, 1998, 1997 and 1996 totaled $1,045, $1,062 and $841, respectively. 10. INCOME TAXES For the years ended December 31, 1997 and 1996, the Company was included in the PDC consolidated income tax returns and PDC allocated income taxes as if the Company filed on a separate company basis. The Company cleared income taxes with PDC through the intercompany account. The income tax provision (benefit) for the years ended December 31 is as follows:
1998 1997 1996 Current: Federal $ 222 $ 7,760 $ 7,421 State 597 1,109 1,060 Foreign 6,067 10,077 10,508 -------- -------- -------- 6,886 18,946 18,989 -------- -------- -------- Deferred: Federal 2,420 3,319 (672) State (1,651) 474 (96) Foreign 280 (581) (771) -------- -------- -------- 1,049 3,212 (1,539) -------- -------- -------- Total $ 7,935 $ 22,158 $ 17,450 -------- -------- -------- -------- -------- --------
A reconciliation of the U.S. statutory tax rate to the Company's effective tax rate for the years ended December 31, is as follows:
1998 1997 1996 Statutory tax rate 35.0 % 35.0% 35.0% Withholding tax on dividend of foreign subsidiary 0.6 6.0 State and local income taxes (4.6) 1.4 1.5 Incremental international tax 4.7 0.2 1.2 Goodwill 5.2 1.8 2.0 Other items, net 5.1 (0.1) 0.1 ---- ---- ---- Effective tax rate 46.0 % 44.3 % 39.8 % ---- ---- ---- ---- ---- ----
F-17 Deferred income tax assets and liabilities comprised the following at December 31:
1998 1997 Deferred tax assets: Depreciation $ 38,002 Postretirement and postemployment benefits 3,850 $ 4,475 Accruals 320 Inventories 310 Other 3,012 2,302 Foreign tax credit 3,420 920 Valuation allowance-foreign tax credit (3,420) (920) Alternative minimum tax credit 158 State net operating loss carryforward 1,861 Valuation allowance - tax basis of assets (36,960) -------- -------- Total deferred tax assets 9,923 7,407 -------- -------- Deferred tax liabilities: Accruals 1,237 Depreciation 18,025 Withholding tax on dividend of foreign subsidiary 22 3,000 Pension costs 2,410 2,106 Inventories 318 Other 2,038 1,880 -------- -------- Total deferred tax liabilities 6,025 25,011 -------- -------- Net deferred tax assets (liabilities) 3,898 (17,604) Current deferred tax asset 611 Current deferred tax liability (1,481) -------- -------- Long-term deferred income tax asset (liability)-net $ 3,287 $(16,123) -------- -------- -------- --------
The Company's state net operating loss and tax credit carryforwards available in various tax jurisdictions at December 31, 1998 expire in periods ranging from five to twenty years, except that the alternative minimum tax credit does not have a future expiration date. Realization of deferred tax assets is dependent upon taxable income within the carryforward periods available under the tax laws. Although realization of deferred tax assets in excess of deferred tax liabilities is not certain, management has concluded that it is more likely than not the Company will realize the full benefit of deferred tax assets, except for a $36,960 valuation allowance recorded related to the $55,440 increase in the tax basis of assets which occurred pursuant to the redemption and the total amount of foreign tax credit carryforwards. During 1997 the Company determined that it would no longer reinvest the undistributed earnings of Accuride Canada and accordingly, has recorded a provision for the applicable income taxes for the years ended December 31, 1998 and 1997. At December 31, 1998 and 1997, consolidated retained earnings included undistributed earnings of ADM totaling approximately $1,581 and $178, respectively. These earnings are permanently invested and are not considered available for distribution to the Company. Accordingly, no provision has been made for U.S. income taxes that may be payable upon remittance of such earnings for the years ended December 31, 1998 and 1997, respectively. F-18 11. STOCK PURCHASE AND OPTION PLAN Effective January 21, 1998, the Company adopted the 1998 Stock Purchase and Option Plan for key employees of Accuride Corporation and subsidiaries (the "1998 Plan"). The 1998 Plan provides for the issuance of shares of authorized but unissued or reacquired shares of common stock subject to adjustment to reflect certain events such as stock dividends, stock splits, recapitalizations, mergers or reorganizations of or by the Company. The 1998 Plan is intended to assist the Company in attracting and retaining employees of outstanding ability and to promote the identification of their interests with those of the stockholders of the Company. The 1998 Plan permits the issuance of common stock (the "1998 Plan Purchase Stock") and the grant of non-qualified stock options (the "1998 Plan Options") to purchase shares of common stock (the issuance of 1998 Plan Purchase Stock and the grant of the 1998 Plan Options pursuant to the 1998 Plan being a "1998 Plan Grant"). Unless sooner terminated by the Company's Board of Directors, the 1998 Plan will expire ten years after adoption. Such termination will not affect the validity of any 1998 Plan Grant outstanding on the date of the termination. Pursuant to the 1998 Plan, 2,667 shares of common stock of the Company are reserved for issuance under such plan. At December 31, 1998, the Company had issued 768 shares of common stock under the 1998 Plan Purchase Stock totaling $3,840 under the terms of stock subscription agreements with various management personnel of the Company. The unpaid principal balance of $1,644 under the stock subscription agreements has been recorded as a reduction of stockholders' equity. In addition, 1,458 shares were granted during 1998 as non-qualified stock options pursuant to the 1998 Plan at an exercise price of $5,000 per share. At December 31, 1998, all 1998 Plan options were unexercised. Time options vest in equal installments over a five year period from the date of the grant. Performance options vest after approximately eight years or vest at an accelerated rate if the Company meets certain performance objectives. As of December 31, 1998, options outstanding have an exercise price of $5,000 per share and a weighted average remaining contractual life of 9.5 years. The Company applies APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations in accounting for the plans; accordingly, since the grant price of the stock options was at least 100% of the fair value at the date of the grant, no compensation expense has been recognized by the Company in connection with the option grants. Had compensation cost for the plans been determined based on the fair value at the grant dates for awards under the plan consistent with the fair value method of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net income would have decreased from $7,951 to the pro forma amount of $7,703 for the year ended December 31, 1998. The weighted average fair value of options granted was $3,423 in 1998. The fair value of the option grants is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield equaling 0%, risk-free interest rates ranging from 5.00% - 5.75%, expected volatilities assumed to be 0% and expected lives of approximately 7 years. The pro forma amounts are not representative of the effects on reported net income for future years. F-19 12. COMMITMENTS Rent expense for the years ended December 31, 1998, 1997 and 1996 was $1,556, $1,566 and $1,022, respectively. Future minimum lease payments for all noncancelable operating leases having a remaining term in excess of one year at December 31, 1998 are as follows: 1999 $ 873 2000 832 2001 749 2002 652 2003 493 ------ Total $3,599 ------ ------
13. CONTINGENCIES The Company is from time to time involved in various legal proceedings of a character normally incident to its past and present businesses. Management does not believe that the outcome of these proceedings will have a material adverse effect on the consolidated financial condition or results of operations of the Company. The Company's operations are subject to federal, state and local environmental laws, rules and regulations. Pursuant to the Recapitalization of the Company (see Note 2), the Company has been indemnified by PDC with respect to environmental liabilities at its Henderson and London facilities, subject to certain limitations. Pursuant to the AKW limited partnership joint venture agreements (see Note 6), the Company has been indemnified by Kaiser with respect to facilities owned by AKW that were contributed by Kaiser. Management does not believe that the outcome of any environmental proceedings will have a material adverse effect on the consolidated financial condition or results of operations of the Company. 14. SEGMENT REPORTING The Company operates in one business segment: the design, manufacture and distribution of steel wheels and rims for trucks, trailers, and other vehicles. GEOGRAPHIC SEGMENTS - The Company has foreign operations in the United States, Canada, and Mexico which are summarized below. Sales between geographic areas are made at negotiated selling prices.
United 1998 States Canada Mexico Eliminations Combined Net sales: Sales to unaffiliated customers - domestic $ 319,579 $ 27,982 $ 27,804 $ 375,365 Sales to unaffiliated customers - export 1,799 791 5,628 8,218 Sales among geographic segments 11,031 126,799 4,471 $(142,301) --------- --------- --------- --------- --------- Total $ 332,409 $ 155,572 $ 37,903 $(142,301) $ 383,583 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Income from operations $ 28,380 $ 14,032 $ 6,178 $ (70) $ 48,520 Assets: Identifiable assets $ 236,915 $ 115,206 $ 40,986 $ (14,037) $ 379,070 Investments in affiliates 25,855 -- -- -- 25,855 --------- --------- --------- --------- --------- Total $ 262,770 $ 115,206 $ 40,986 $ (14,037) $ 404,925 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
F-20
United 1997 States Canada Mexico Eliminations Combined Net sales: Sales to unaffiliated customers - domestic $ 175,805 $ 28,565 $ 4,242 $ 208,612 Sales to unaffiliated customers - export 918 122,567 869 124,354 Sales among geographic segments 6,157 31,309 $ (37,466) --------- --------- --------- --------- --------- Total $ 182,880 $ 182,441 $ 5,111 $ (37,466) $ 332,966 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Income from operations $ 22,357 $ 22,002 $ 292 $ 27 $ 44,678 Assets: Identifiable assets $ 168,807 $ 143,197 $ 29,406 $ (18,728) $ 322,682 Investments in affiliates 24,765 -- -- -- 24,765 --------- --------- --------- --------- --------- Total $ 193,572 $ 143,197 $ 29,406 $ (18,728) $ 347,447 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
United 1996 States Canada Mexico Eliminations Combined Net sales: Sales to unaffiliated customers - domestic $ 165,100 $ 24,164 $ 189,264 Sales to unaffiliated customers - export $ 4,469 $ 114,097 $ 118,566 Sales among geographic segments 4,444 30,693 $ (35,137) --------- --------- --------- --------- Total $ 174,013 $ 168,954 $ (35,137) $ 307,830 --------- --------- --------- --------- --------- --------- --------- --------- Income from operations $ 19,396 $ 24,406 $ (20) $ 43,782 Assets: Identifiable assets $ 149,514 $ 152,386 $ (15,210) $ 286,060 Investments in affiliates 2,013 2,013 --------- --------- --------- --------- Total $ 151,527 $ 152,386 $ (15,210) $ 288,073 --------- --------- --------- --------- --------- --------- --------- ---------
F-21 Sales to three customers exceed 10% of total net sales for the years ended December 31, as follows:
1998 1997 1996 % of % of % of Amount Sales Amount Sales Amount Sales Customer one $ 66,220 17.3 % $ 62,838 18.9 % $ 55,887 18.2 % Customer two 46,086 12.0 % 55,231 16.6 % 45,698 14.8 % Customer three 41,116 10.7 % 50,699 15.2 % 45,309 14.7 % -------- --- -------- ---- -------- ---- $153,422 40.0 % $168,768 50.7 % $146,894 47.7 % -------- --- -------- ---- -------- ---- -------- --- -------- ---- -------- ----
Each geographic segment made sales to all three major customers in 1998. Included in the sales reported for 1997 and 1996, respectively, are aluminum sales of $6 and $178 for customer one, $4,067 and $14,218 for customer two, and $8,523 and $18,360 for customer three. These sales were recorded pursuant to a buy and resell agreement with Kaiser that was in effect until the formation of AKW on May 1, 1997. 15. FINANCIAL INSTRUMENTS The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have an effect on the estimated fair value amounts. CASH AND CASH EQUIVALENTS, CUSTOMER RECEIVABLES, ACCOUNTS PAYABLE AND SHORT-TERM NOTES PAYABLE: The carrying amounts approximate fair value because of the relatively short maturity of these instruments. AOT NOTES RECEIVABLE: The carrying amount of the notes receivable from AOT approximates fair value because of the at or near market interest rate pricing provisions. LONG-TERM DEBT: The fair value of the Company's long-term debt has been determined on the basis of the specific securities issued and outstanding. All of the Company's long-term debt is at variable rates at December 31, 1998 except for the $200,000 senior subordinated notes which have a fixed interest rate of 9.25% (see Note 8). The carrying value of the variable rate debt approximates fair value. The fair value of the senior subordinated notes has been estimated to be $200,000 at December 31, 1998 as the notes are estimated to be at par based upon a quoted market price. OFF BALANCE SHEET HEDGING INSTRUMENTS: The fair value of the interest rate swap and interest rate cap agreements have been estimated to be $(1,536) and $11 at December 31, 1998, respectively. The fair value of these instruments are based on quoted market prices or dealer quotes. 16. LABOR RELATIONS The Company's prior contract with the UAW covering employees at the Henderson Facility expired in February 1998 and the Company was not able to negotiate a mutually acceptable agreement with the UAW. Therefore, a strike occurred at the Henderson Facility on February 20, 1998. The Company is continuing to operate with its salaried employees and contractors. On March 31, 1998, the Company began an indefinite lock-out. Currently, there is, and the Company believes that there will be, no supply disruption to the Company's customer base; however, there can be no assurance to that effect. F-22 17. RELATED PARTY TRANSACTIONS PDC, a previous principal stockholder of the Company, entered into retention agreements with certain executive management personnel to compensate individuals for service over a six month period from the date of the Redemption. Such costs which have been paid by PDC are being charged to expense by the Company over the terms of the retention agreements with a corresponding credit to "Additional Paid in Capital" for the year ended December 31, 1998. 18. SUBSEQUENT EVENT On January 22, 1999, the Company announced it had executed a letter of intent to acquire Kaiser's 50% interest in AKW. The transaction is subject to completion of due diligence, government approvals, and the preparation and execution of definitive documents. * * * * * * F-23 Accuride Corporation Schedule II Valuation and Qualifying Accounts and Reserves
Balance at Charges to Balance beginning costs and Write- at end of period expenses Recoveries offs of period ----------- ---------- ---------- -------- --------- Reserves deducted in balance sheet from the asset to which applicable: Accounts Receivable: December 31, 1996 1,153 652 124 (334) 1,595 December 31, 1997 1,595 (110) 92 (610) 967 December 31, 1998 967 (4) 150 (105) 1,008
F-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. Dated: March 30, 1999 ACCURIDE CORPORATION BY: /s/ William P. Greubel --------------------------- William P. Greubel CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ William P. Greubel President and Chief Executive - ------------------------ Officer (Principal Executive William P. Greubel Officer, Director) March 30, 1999 /s/ John R. Murphy Chief Financial Officer, - ------------------------ Secretary and Treasurer John R. Murphy (Principal Financial and Accounting Officer) March 30, 1999 /s/ Henry R. Kravis - ------------------------ Henry R. Kravis Director March 30, 1999 /s/ George R. Roberts - ------------------------ George R. Roberts Director March 30, 1999 /s/ James H. Greene, Jr. - ------------------------ James H. Greene, Jr. Director March 30, 1999 /s/ Todd A. Fisher - ------------------------ Todd A. Fisher Director March 30, 1999 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - -------- ------------ *2.1 Stock Subscription and Redemption Agreement, dated as of November 17, 1997, among the Company, Hubcap Acquisition L.L.C. and Phelps Dodge Corporation *3.1 Certificate of Incorporation, as amended, of Accuride Corporation. *3.2 By-Laws of Accuride Corporation. *4.1 Indenture, dated as of January 21, 1998, between Accuride Corporation and U.S. Trust Company of California, N.A., as trustee, relating to $200,000,000 aggregate principal amount of 9 1/4% Senior Subordinated Notes due 2008. *4.2 Registration Rights Agreement, dated as of January 21, 1998, between Accuride Corporation, and BT Alex. Brown Incorporation, Citicorp Securities, Inc., and J.P. Morgan Securities Inc. *4.3 Specimen Certificate of 9 1/4% Senior Subordinated Notes due 2008, Series A (the "Private Notes") . *4.4 Specimen Certificate of 9 1/4% Senior Subordinated Notes due 2008, Series B (the "Exchange Notes"). *10.1 Stockholders' Agreement by and among Accuride Corporation, Phelps Dodge Corporation and Hubcap Acquisition L.L.C. *10.2 Registration Rights Agreement by and between Accuride Corporation and Hubcap Acquisition L.L.C. *10.3 1998 Stock Purchase and Option Plan for Employees of Accuride Corporation and Subsidiaries. *10.4 Form of Non-qualified Stock Option Agreement by and between Accuride Corporation and certain employees. *10.5 Form of Repayment and Stock Pledge Agreement by and between Accuride and certain employees. *10.6 Form of Secured Promissory Note in favor of Accuride Corporation. *10.7 Form of Stockholders' Agreement by and among Accuride Corporation, certain employees and Hubcap Acquisition L.L.C. *10.8 Form of Severance Agreement by and between Accuride Corporation and certain executives. *10.9 Contribution Agreement, dated as of May 1, 1997, among Accuride Corporation, Kaiser Aluminum & Chemical Corporation ("Kaiser"), AKW General Partner L.L.C. and AKW L.P. *10.10 Limited Partnership Agreement of AKW L.P., dated as of May 1, 1997, among AKW General Partner L.L.C., Accuride Ventures, Inc., Accuride Corporation and Kaiser. *10.11 Limited Liability Company Agreement of AKW General Partner L.L.C., dated as of May 1, 1997, among Accuride Ventures, Inc., Accuride Corporation and Kaiser. *10.12 Lease Agreement, dated as of May 1, 1997, between Kaiser and AKW L.P. *10.13 Lease Agreement dated November 1, 1988, by and between Kaiser and The Bell Company regarding the property in Cuyahoga Falls, Ohio, as amended and extended. *10.14 Lease Agreement, dated as of February 1, 1974, by and between Henderson County and The Firestone Tire & Rubber Company ("Firestone"). *10.15 Lease Amendment, dated as of December 19, 1986, by and between Henderson County and Firestone. *10.16 Joint Venture Agreement, dated November 5, 1997, by and among the Company, Industria Automotriz, S.A. de C.V., Grupo Industrial Ramirez, S.A. and Accuride de Mexico, S.A. de C.V. ("AdM"). *10.17 By-laws of AdM. *10.18 Purchase and Sale Agreement, dated as of October 21, 1997, by and between Accuride Corporation and General Electric Company regarding property located in Columbia, Tennessee. *10.19 Purchase Supply and Assembly Agreement, dated as of January 15, 1998, between Accuride Corporation and Lacks Industries, Inc. *10.20 Credit Agreement, dated as of January 21, 1998, between Accuride Corporation and Citicorp USA, Inc., Citicorp Securities, Inc., Bankers Trust Company and Wells Fargo Bank. *10.21 Purchase Agreement, dated as of January 15, 1998, between Accuride Corporation and BT Alex. Brown Incorporation, Citicorp Securities, Inc., and J.P. Morgan Securities Inc. 10.22 Credit Agreement dated July 9, 1998, by and between Accuride de Mexico, S.A. de C.V. and Citibank Mexico, S.A. and Grupo Financiero Citibank 10.23 Completion Guaranty dated July 9, 1998, by and between Accuride Corporation, Accuride de Mexico, S.A. de C.V., Industria Automotriz, S.A. de C.V., and Citibank Mexico, S.A. and Grupo Financiero Citibank 10.24 Lease Agreement dated October 26, 1998, by and between Accuride Corporation and Woodward, LLC. regarding the Evansville, Indiana office space.
*21.1 Subsidiaries of Accuride Corporation. 23.1 Consent of Deloitte & Touche LLP. 24.1 Power of Attorney of Accuride Corporation. 27.1 Financial Data Schedule.
- ----------------------- * Previously filed as an exhibit to Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference. EX-10.22 2 EXHIBIT 10.22 CREDIT AGREEMENT CREDIT AGREEMENT dated as of July 9, 1998 between ACCURIDE DE MEXICO, S.A. DE C.V., a corporation organized and existing under the laws of the United Mexican States (the "BORROWER"), and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, a multiple banking institution organized and existing under the laws of the United Mexican States ("CITIBANK MEXICO"), as lender (the "LENDER"). PRELIMINARY STATEMENTS: (1) The Borrower has requested that the Lender make available to the Borrower the Facilities (as hereinafter defined) to finance the construction of the Plant (as hereinafter defined), to pay transaction fees and expenses, to refinance certain Existing Debt and to provide working capital for general corporate purposes for the Borrower. (2) The Lender is willing to provide the Facilities upon terms and conditions provided herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ACCURIDE" means Accuride Corporation, a Delaware corporation. "ADVANCE" means a Term Advance or a Working Capital Advance. "AFFILIATE" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling," "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise. "ANNUAL OPERATING BUDGET" means for any fiscal year of the Borrower, the operating budget for such fiscal year prepared by the Borrower. "APPLICABLE LAWS" means any applicable federal, state, local or municipal laws, rules, orders, judgments, regulations, ordinances, codes, injunctions, writs or decrees of any Governmental Authority (including any binding determination of an arbitrator or a court or other Governmental Authority) of Mexico. "APPLICABLE MARGIN" means (a) through December 31, 1998, (i) 4.00% per annum for each Term Advance and (ii) 2.75% per annum for each Working Capital Advance, and (b) thereafter, a percentage per annum for each Term Advance and each Working Capital Advance, respectively, determined with reference to the Leverage Ratio as set forth below:
WORKING LEVERAGE RATIO TERM ADVANCE CAPITAL ADVANCE -------------- ------------ --------------- greater than or equal to 5.0 to 1 4.25% 3.00% less that 5.0 to 1 and greater than 4.00% 2.75% or equal to 4.0 to 1 less than 4.0 to 1 and greater than 3.50% 2.50% or equal to 3.5 to 1 less than 3.5 to 1 and greater than 3.25% 2.25% or equal to 3.0 to 1 less than 3.0 to 1 and greater than 3.00% 2.00% or equal to 2.5 to 1 less than 2.5 to 1 and greater than 2.70% 1.75% or equal to 2.0 to 1 less than 2.0 to 1 2.50% 1.50%
The Applicable Margin for each Advance shall be determined under and for purposes of clause (b) above by reference to the Leverage Ratio in effect on the first day of each Interest Period for such Advance. Changes in the Applicable Margin resulting from changes in the Leverage Ratio shall become effective (for purposes of this definition only, the date of such effectiveness being the "EFFECTIVE DATE") as of the first day following the last day of the most recent Fiscal Quarter or Fiscal Year for which (A) financial statements are delivered to the Lender pursuant to Section 5.03(b) or (c) and (B) a certificate of the chief financial officer of the Borrower is delivered by the Borrower to the Lender setting forth, with respect to such financial statements, the then-applicable Leverage Ratio and the basis of the calculations therefor, and shall remain in effect until the next change to be effected pursuant to this definition; PROVIDED that (i) if the Borrower shall have made any payments in respect of interest during the period (for purposes of this definition only, the "INTERIM PERIOD") from and including the Effective Date to the day on which any change in the Leverage Ratio is determined as provided above, then the amount of the next such payment of interest due by the Borrower on or after such day shall be increased or decreased by an amount equal to any underpayment or overpayment so made by the Borrower during such Interim Period and (ii) each determination of the Leverage Ratio pursuant to this definition shall be made with respect to the Measurement Period ending at the end of the fiscal period covered by the relevant financial statements. "BANKRUPTCY" means, as to any Person: (a) entry by any Governmental Authority of any jurisdiction or a court having jurisdiction in the premises of (i) a decree or order for relief in respect of such Person in an involuntary case or proceeding under any applicable bankruptcy, insolvency, reorganization, SUSPENSION DE PAGOS or other similar law or (ii) an involuntary or contested decree or order adjudging such Person a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, SUSPENSION DE PAGOS, arrangement, adjustment or composition of or in respect of such Person under any Applicable Law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of such Person or of any substantial part of the property of such Person, or ordering the winding up or liquidation of the affairs of such Person; or (b) commencement by a Person of a voluntary case or proceeding under any applicable bankruptcy, insolvency, reorganization, SUSPENSION DE PAGOS or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by such Person to the entry of a decree or order for relief in respect of such Person in a involuntary case or proceeding under any applicable bankruptcy, insolvency, reorganization, SUSPENSION DE PAGOS or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against such Person, or the filing by such Person of a petition or answer or consent seeking reorganization or relief under any applicable law; or consent by such Person to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of such Person or of any substantial part of the property of such Person, or the making by such Person of an assignment for the benefit of creditors, or the admission by such Person in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by such Person in furtherance of any such action. "BASE CASE PROJECTIONS" means the financial projections for the Borrower delivered by the Borrower to the Lender on the date of the Initial Extension of Credit. "BLUEPRINTS" means the drawings and specifications for the development and construction of the manufacturing and assembly portions of the Plant, prepared by Docsa and approved by the Lender, the Independent Engineer and, when necessary, each appropriate Governmental Authority, all of which are more particularly described in Schedule 1.01(a) hereto, and all additions thereto and amendments and modifications therefor approved by the Lender as required by Section 5.02(h) or (l). "BORROWER" has the meaning specified in the recital of parties to this Agreement. "BORROWER'S ACCOUNT" means the account of the Borrower maintained by the Borrower with Citibank at its office at 399 Park Avenue, New York, New York 10043, Account No. 36178871. "BUSINESS DAY" means a day of the year on which banks are not required or authorized to close in New York, New York or Mexico, D.F., Mexico, or, with respect to any Eurodollar Rate Advance, a day of the year on which dealings in deposits denominated in Dollars are carried on in the London interbank market. "CAPITAL BUDGET" means, for any fiscal year of the Borrower, the budget prepared by the Borrower for Capital Expenditures identified as such for such fiscal year. "CAPITAL EXPENDITURES" means, for any Person for any period, the sum, without duplication, of all expenditures made, directly or indirectly (whether paid in cash or accrued as liabilities and including in all events all amounts expended or capitalized under Capitalized Leases, but excluding any amounts representing capitalized interest), by such Person or any of its Subsidiaries during such period for equipment, fixed assets, real property or improvements, or for replacements or substitutions therefor or additions thereto, that have been or should be, in accordance with GAAP, reflected as additions to property, plant or equipment on a Consolidated balance sheet of such Person, provided that Capital Expenditures shall not include (without duplication) (a) any expenditures made in connection with the replacement, substitution, repair or restoration of any assets to the extent financed (i) with insurance proceeds received by the Borrower or any of its Subsidiaries on account of the loss of, or any damage to, the assets being replaced, substituted for, repaired or restored, or (ii) with the proceeds of any compensation awarded to the Borrower or any of its Subsidiaries as a result of the taking, by eminent domain or condemnation, of the assets being replaced or substituted for, (b) any expenditures for the purchase price of any equipment that is purchased simultaneously with the trade-in of any existing equipment by the Borrower or any of its Subsidiaries to the extent that the gross amount of such purchase price is reduced by any credit granted by the seller of such equipment for the equipment being traded in, (c) any expenditures for the purchase price of any property, plant or equipment purchased within one year of the consummation of any sale, lease, transfer or other disposition of any asset of the Borrower or any of its Subsidiaries in accordance with the provisions of Section 5.02(d) to the extent purchased with the proceeds of such sale, lease, transfer or other disposition, (d) Investments made pursuant to Section 5.02(e) or (e) any acquisition by the Borrower or any of it Subsidiaries (by purchase or otherwise) of all or substantially all of the business, property or fixed assets of, or the stock or other evidence of beneficial ownership of, any Subsidiary or any division, business unit or line of business of any Subsidiary in accordance with Section 5.02(c). "CAPITALIZED LEASES" means all leases that have been or should be, in accordance with GAAP, recorded as capitalized or financial leases. "CITIBANK" means Citibank, N.A., a national banking association organized and existing under the laws of the United States of America. "CITIBANK MEXICO" has the meaning specified in the recital of parties to this Agreement. "COLLATERAL" means all "Collateral" referred to in the Collateral Documents and all other property that is or is intended to be subject to any Lien in favor of the Lender. "COLLATERAL DOCUMENTS" means the Industrial Mortgage, the Pledge Agreement and any other agreement that creates or purports to create a Lien in favor of the Lender to secure the Obligations of the Borrower hereunder and under the Notes. "COLLATERAL GRANTOR" means each of the Borrower, Accuride and IASA. "COMMITMENT" means a Term Commitment or a Working Capital Commitment. "COMPLETION" has the meaning specified in Section 1.01 of the Completion Guaranty. "COMPLETION DATE" has the meaning specified in Section 1.01 of the Completion Guaranty. "COMPLETION DEFAULT" has the meaning specified in Section 6.01 of the Completion Guaranty. "COMPLETION GUARANTY" has the meaning specified in Section 3.01(f)(vi). "CONFIDENTIAL INFORMATION" means information that the Borrower furnishes to the Lender in a writing designated as confidential, but does not include any such information that is or becomes generally available to the public or that is or becomes available to the Lender from a source other than the Borrower, except with regards to such information from a source actually known by the Lender to have an obligation not to disclose such information. "CONSOLIDATED" refers to the consolidation of accounts in accordance with GAAP. "CONSTRUCTION BUDGET" means the budget of Construction Costs delivered by the Borrower to the Lender on the date of the Initial Extension of Credit. "CONSTRUCTION COSTS" means the following costs and expenses incurred by or on behalf of the Borrower in connection with the construction, development, design, engineering, acquisition, financing, outfitting, testing, start-up and completion of the Plant, including the cost of Plant equipment and each of the following: (a) all amounts payable by the Borrower to its contractors, suppliers and subcontractors pursuant to the Construction Documents; (b) the costs and expenses of all engineering, legal, accounting and other professional advisers properly incurred by the Borrower in connection with and attributable to the Plant; (c) costs of Required Insurance; (d) Operating Costs incurred during the construction period; (e) working capital in an amount not to exceed $7,500,000; and (f) value-added tax, other taxes and customs charges payable in respect of any of the above. "CONSTRUCTION DOCUMENTS" means the Blueprints, the Timetable, building and environmental permits, contracts with Docsa and any other builders or contractors for the construction of the Plant, and copies of all payments made to Docsa. "COST CERTIFICATE" means, with respect to a Term Advance made, a certificate of the President or another Senior Officer of the Borrower, substantially in the form of Exhibit D hereto. "DEBT" of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred purchase price of property or services, (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Obligations of such Person as lessee under Capitalized Leases, (f) all Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any capital stock of or other ownership or profit interest in such Person or any other Person or any warrants, rights or options to acquire such capital stock, (h) all Debt of others referred to in clauses (a) through (g) above or clause (i) below guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (A) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (B) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (C) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (D) otherwise to assure a creditor against loss, and (i) all Debt referred to in clauses (a) through (g) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. "DEFAULT" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "DOCSA" means Constructora Docsa, S.A. de C.V. "DOLLARS" and "$" each means lawful money of the United States. "DOLLAR FUNDING RATE" means, for any Interest Period for any Dollar Funding Rate Advance, an interest rate per annum (rounded upward to the nearest 1/8 of 1% per annum, if such rate is not such a multiple) equal to the cost of funds rate for Dollar-denominated passive operations, commonly referred to as the CCP-Dollars rate, as published in the DIARIO OFFICIAL DE LA FEDERACION by the Banco de Mexico, in effect on the first date of such Interest Period, or, if such rate is not available, any replacement therefor promulgated by the Banco de Mexico (PROVIDED that such replacement accurately reflects the Lender's cost of making, funding or maintaining such Advance for such Interest Period for such Advance), in effect on the first day of such Interest Period. "DOLLAR FUNDING RATE ADVANCE" means any Advance that is either (i) converted from a Eurodollar Rate Advance into a Dollar Funding Rate Advance pursuant to Section 2.08(c) or (ii) made in Dollars at any time after the obligation of the Lender to make Eurodollar Rate Advances is suspended pursuant to Section 2.08(c). "EBITDA" means, for any period, the sum, determined on a Consolidated basis, of the amounts for such period of (a) Net Income plus (b) to the extent included in computing Net Income, the sum (without duplication) of (i) Interest Expense, (ii) taxes computed on the basis of income, (iii) depreciation expense, (iv) amortization expense (including amortization of deferred financing fees), (v) any expenses or charges incurred in connection with any issuance of debt or equity securities (including upfront fees payable in respect of bank facilities), (vi) any fees and expenses related to Investments permitted pursuant to Section 5.02(e) of this Agreement, (vii) losses on asset sales, (viii) any deduction for minority interest expense, (ix) fees or expenses incurred or paid by the Borrower or any of its Susbsidiaries in connection with the transactions contemplated hereby, (x) any other non-cash charges, (xi) any other non-recurring charges, (xii) currency losses and (xiii) additional expenses in connection with labor disruptions or the potential therefor, minus (c) to the extent included in computing Net Income the sum, without duplication, of the amounts for such period of (i) any non-recurring gains, (ii) all non-cash gains, (iii) gains on asset sales, and (iv) currency gains, in each case of the Borrower and its Subsidiaries, determined in accordance with GAAP for such period, provided that, for purposes of such calculation, in the case of any Subsidiary acquired by the Borrower or any of its Subsidiaries following the commencement of any such period, amounts attributable to such Subsidiary shall be calculated as though such Subsidiary had been acquired on the first day of such period. "ENVIRONMENTAL ACTION" means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or Hazardous Material or arising from alleged injury or threat to health, safety or the environment, including, without limitation, (a) by any Governmental Authority having jurisdiction over enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any such Governmental Authority or by any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "ENVIRONMENTAL LAW" means any Applicable Law relating to any Environmental Matter. "ENVIRONMENTAL MATTER" means any (a) release, emission, entry or introduction into the air, including the air within buildings and other natural or man-made structures above ground; (b) discharge, release or entry into water, including into any river, watercourse, lake or pond (whether natural or artificial or above ground or which joins or flows into any such water outlet above ground) or reservoir, or the surface of the riverbed or of other land supporting such waters, ground waters, sewer or the sea; (c) deposit, storage, treatment, importation, exportation, production, transportation, handling, processing, carrying, manufacture, collection, sorting or presence of any Hazardous Materials (including, in the case of waste, any material which constitutes a scrap material or an effluent or other unwanted surplus substance arising from the application of any process or activity (including making it re-usable or reclaiming substances from it) and any material or article which is required to be disposed of as being broken, worn out, contaminated or otherwise spoiled); (d) nuisance, noise, health and safety at work, industrial illness, industrial injury due to environmental factors, environmental health problems (including asbestosis or any other illness or injury caused by exposure to asbestos) or genetically modified organisms; (e) conservation, preservation or protection of the natural or man-made environment or any living organisms supported by the natural or man-made environment; or (f) other matter whatsoever directly affecting the environment or any part of it. "ENVIRONMENTAL PERMIT" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "EUROCURRENCY LIABILITIES" has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System of the United States of America, as in effect from time to time. "EURODOLLAR RATE" means, for any Interest Period for any Eurodollar Rate Advance, an interest rate per annum (rounded upward to the nearest whole multiple of 1/8 of 1% per annum, if such rate is not such a multiple) equal to the rate per annum at which deposits in Dollars are offered by the principal office of Citibank in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Eurodollar Rate Advance to be outstanding during such Interest Period and for a period equal to such Interest Period. "EURODOLLAR RATE ADVANCE" means any Advance other than a Dollar Funding Rate Advance. "EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System of the United States (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period. "EVENTS OF DEFAULT" has the meaning specified in Section 6.02. "EXISTING DEBT" has the meaning specified in Section 4.01(aa) hereof. "FACILITIES" means the Term Facility or the Working Capital Facility. "FISCAL QUARTER" means any fiscal quarter of the Borrower and its Subsidiaries that occurs within any Fiscal Year. "FISCAL YEAR" means a fiscal year of the Borrower and its Subsidiaries ending on December 31 in any calendar year. "GAAP" has the meaning specified in Section 1.03. "GOVERNMENTAL APPROVALS" means all approvals, authorizations, claims, consents, exceptions, exemptions, variances, licenses, permits, publications, filings, registrations, notices to and declarations of or with any Governmental Authority having jurisdiction over the matter, including all siting, environmental and operating permits and licenses that are required for (a) the ownership, development, construction, financing, use, operation and maintenance of the Plant and all such other matters as may be necessary in connection with the Plant and (b) (i) the making by the Borrower of the payments at the times and in the currencies contemplated by the Transaction Documents, (ii) the enforceability of any of the Transaction Documents and (iii) all such other matters as may be necessary in connection with the performance of any Loan Party's obligations under any Transaction Document. "GOVERNMENTAL AUTHORITY" means the government of Mexico or of any state or other political subdivision thereof and includes any entity within Mexico exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GUARANTORS" means Accuride and IASA, as regards their respective Obligations under the Completion Guaranty. "HAZARDOUS MATERIALS" means (a) petroleum or petroleum products, by-products or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law. "HEDGE AGREEMENTS" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts, commodities future or option contracts for materials used in the ordinary course of business and other similar agreements. "IASA" means Industria Automotriz, S.A. de C.V., a corporation organized and existing under the laws of Mexico. "INDEMNIFIED PARTY" has the meaning specified in Section 7.04(b). "INDEPENDENT ENGINEER" means the independent engineer selected from time to time by the Lender and approved by the Borrower, which independent engineer shall initially be Rockford Consulting. "INDUSTRIAL MORTGAGE" has the meaning specified in Section 3.01(f)(v). "INITIAL EXTENSION OF CREDIT" means the earlier to occur of the initial Term Advance or the initial Working Capital Advance. "INTEREST EXPENSE" means, for any Person for any period, cash interest expense (including that attributable to Capital Leases in accordance with GAAP), net of cash interest income, of such Person with respect to all outstanding Debt of such Person, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Hedge Agreements (other than currency swap agreements, currency future or option contracts and other similar agreements), but excluding, however, amortization of deferred financing costs and any other amounts of non-cash interest, all as calculated in accordance with GAAP. "INTEREST PERIOD" means: (a) for each Eurodollar Rate Advance, the period commencing on the date of such Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period therefor and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months, as the Borrower may, in the applicable Notice of Term Borrowing or Notice of Working Capital Borrowing, or as the case may be, select; and (b) for each Dollar Funding Rate Advance, the period commencing on the date of such Dollar Funding Rate Advance and ending on the day that occurs one calendar month after such date and, thereafter, each subsequent one-month period commencing on the last day of the immediately preceding Interest Period therefor and ending on the last day of such one-month period; PROVIDED, HOWEVER, in the case of clauses (a) and (b) above that: (i) with respect to any Interest Period for any Advance that begins before, and would otherwise end after, any principal repayment installment date or maturity date for such Advance, such Interest Period shall end on such principal repayment installment date or maturity date; (ii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, PROVIDED, HOWEVER, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (iii) subject to subclause (ii) above, if the last day of the initial Interest Period would otherwise occur on a date during any calendar month that is after the 25th day of such calendar month, the last day of such initial Interest Period shall occur on the 25th day of such calendar month. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "INVESTMENT" in any Person means any loan or advance to such Person, any purchase or other acquisition of any capital stock or other ownership or profit interest, warrants, rights, options, obligations or other securities of such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (h) or (i) of the definition of "Debt" in respect of such Person. "JOINT VENTURE AGREEMENT" means that certain Joint Venture Agreement dated as of November 5, 1997 by and among Accuride, IASA, Grupo Industrial Ramirez, S.A., a corporation organized and existing under the laws of Mexico, and the Borrower, as such Joint Venture Agreement may be amended, supplemented or otherwise modified from time to time in compliance with the provisions of this Agreement. "LENDER" has the meaning specified in the recital of parties to this Agreement. "LENDER PARTIES" means the Lender, the Participants, and any sub-participant approved by the Borrower pursuant to Section 11 of any Participation Agreement. "LENDER'S ACCOUNT" means the account of Citibank at its office at 399 Park Avenue, New York, New York 10043, ABA No. 021000089, Account No. 36852248, NAIB Agency Medium Term Finance, Ref: Accuride de Mexico, S.A. de C.V. Attention: Carlos Lopez, tel: (302) 894-6007, fax: (302) 894-6120. "LENDING OFFICE" means, with respect to the Lender, the office of the Lender specified as its "Lending Office" under its name on the signature pages hereto and, with respect to any Participant, the office of such Participant specified as its "Lending Office" in the Participation Agreement to which such Participant is a party. "LETTER OF COMFORT" has the meaning specified in Section 3.01(f)(vii). "LEVERAGE RATIO" means, as of any date of determination, the ratio of (a) the aggregate amount of Consolidated Debt of the Borrower and its Subsidiaries at the end of the most recently completed Measurement Period prior to such date, to (b) Consolidated EBITDA of the Borrower and its Subsidiaries for such Measurement Period. "LIEN" means with respect to any property or assets, any mortgage or deed of trust (including "FIDEICOMISOS"), pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement (other than any easement not materially impairing usefulness or marketability), encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including any conditional sale or other title retention agreement having substantially the same economic or legal effect as any of the foregoing). "LOAN DOCUMENTS" means (i) this Agreement, (ii) the Notes, (iii) the Completion Guaranty, (iv) the Letter of Comfort, and (v) the Collateral Documents, in each case as amended, supplemented or otherwise modified from time to time. "LOAN PARTIES" means the Borrower and the Guarantors. "MATERIAL ADVERSE CHANGE" means (a) any material adverse change in the business, financial condition, operations, assets or liabilities of the Borrower and its Subsidiaries, taken as a whole, or (b) any change in the business, financial condition, operations, assets or liabilities of any Guarantor and its Subsidiaries, taken as a whole, which change would have a material adverse effect on the ability of such Guarantor to perform its obligations under the Completion Guaranty. "MATERIAL ADVERSE EFFECT" means (a) a material adverse effect on (i) the business, financial condition, operations, assets or liabilities of the Borrower and its Subsidiaries, taken as a whole, or (ii) the rights and remedies of the Lender under any Loan Document or (b) an effect on the business, financial condition, operations, assets or liabilities of a Guarantor and its Subsidiaries, taken as a whole, which change would have a material adverse effect on the ability of such Guarantor to perform its obligations under the Completion Guaranty. "MEASUREMENT PERIOD" means, as of any date of determination, the most recently completed four consecutive Fiscal Quarters ending on or immediately prior to such date, EXCEPT that during the first year after the date hereof the "Measurement Period" means, as of any date of determination, the period from the date hereof to the end of the Fiscal Quarter ending on or immediately prior to such date. "MEXICAN GAAP" means generally accepted accounting principles in Mexico as in effect from time to time. "MEXICAN TAXING AUTHORITY" has the meaning specified in Section 2.10(a). "MEXICO" means the United Mexican States. "MULTIPLE EMPLOYER PLAN" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or any of its Subsidiaries and at least one Person other than the Borrower and its Subsidiaries or (b) was so maintained and in respect of which the Borrower or any of its Subsidiaries could have liability under Section 4064 or 4069 or ERISA in the event such plan has been or were to be terminated. "NET INCOME" means, with respect to any Person for any period, the net income (or loss) of such Person; PROVIDED that, for purposes of determining Net Income for any Person, there shall be excluded from such determination (i) any after-tax gains or losses, and any related fees and expenses, in each case to the extent attributable to the sale of assets, and (ii) any net extraordinary gains (or losses). "NON-EXCLUDED TAXES" has the meaning specified in Section 2.l0(a). "NOTE" means a Term Note or a Working Capital Note. "NOTICE OF BORROWING" means a Notice of Term Borrowing or a Notice of Working Capital Borrowing. "NOTICE OF TERM BORROWING" has the meaning specified in Section 2.02(a). "NOTICE OF WORKING CAPITAL BORROWING" has the meaning specified in Section 2.02(b). "OBLIGATION" means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 6.02(f). "OFFICERS' CERTIFICATE" means a certificate signed by (i) the Director General of the Borrower and (ii) another Senior Officer of the Borrower. "OPERATING COSTS" means, for any period, all cash expenditures incurred by the Borrower in administering, operating or maintaining the Plant during such period. "OTHER TAXES" has the meaning specified in Section 2.10(b). "PARTICIPANT" means a bank or other financial institution that the Borrower has approved in writing as a Participant and that becomes a party to a Participation Agreement. "PARTICIPATION AGREEMENT" means any Participation Agreement between the Lender and any Participant, under which such Participant shall agree to purchase participations in the Advances made and to be made under this Agreement in substantially the form attached as Exhibit L hereto, or in any other form agreed to by the Lender and the Borrower, as the same may be amended, supplemented or otherwise modified from time to time. "PERMITTED INVESTMENTS" means (a) securities issued or directly and fully guaranteed or insured by the United States government or the government of Mexico, or any agency or instrumentality of any such government having maturities of not more than 12 months from the date of acquisition; (b) certificates of deposit and eurodollar time deposits with maturities of 12 months or less from the date of acquisition, bankers' acceptances with maturities not exceeding 12 months and overnight bank deposits, in each case, with any U.S. or Mexican commercial bank of recognized stature having capital and surplus in excess of $500,000,000 and having a commercial paper rating (or the holding company thereof having a commercial paper rating) of A-1 (or the equivalent thereof) or better by Standard & Poor's Ratings Services or any Mexican Affiliate thereof ("S&P") or P-1 (or the equivalent thereof) or better by Moody's Investors Service, Inc. or any Mexican Affiliate thereof ("MOODY'S") or D-1 (or the equivalent thereof) or better by Duff and Phelps Credit Rating Co. or any Mexican Affiliate thereof ("DUFF"), and which is a member of the Federal Reserve System of the United States of America or a duly licensed Mexican banking institution; (c) commercial paper rated at least A-1, P-1 or D-1 or the equivalent thereof, by S&P, Moody's or Duff, respectively, and maturing within 270 days after the date of acquisition; (d) guaranteed investment contracts maturing within 12 months of the date of acquisition thereof and entered into with (or fully guaranteed by) financial institutions whose long-term unsecured non-credit enhanced indebtedness is rated A- or better by S&P or Duff or A3 or better by Moody's; and (e) investments in money market funds having a rating from each of S&P, Moody's and Fitch Investors Service, Inc. in the highest investment category granted thereby. "PERMITTED LIENS" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for taxes, assessments, governmental charges or levies not delinquent or being contested in good faith by appropriate proceedings and for which adequate cash reserves have been set aside in accordance with Mexican GAAP, including Liens for import taxes and value-added taxes; (b) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (c) Liens for deposits or pledges made in the ordinary course of business to secure obligations under workmen's compensation, social security or similar laws, or under unemployment insurance, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds, and other similar obligations incurred in the ordinary course of business; (d) statutory mechanics', workmen's, materialmen's, carrier's, supplier's, vendor's, warehousemen's or other like Liens arising in the ordinary course of business securing obligations which are not due or which are being contested in good faith; (e) easements, rights of way, reservations, restrictions, covenants, agreements for joint or common use, landlord's rights of distraint and other similar imperfections, charges or encumbrances of title on real estate that do not render title to the property encumbered thereby unmarketable or interfere in any material respect with the business of the Borrower and its Subsidiaries taken as a whole; (f) attachment, judgment and other similar Liens arising in circumstances not constituting an Event of Default or in connection with court proceedings that are being contested in good faith by appropriate proceedings and for which adequate cash reserves have been set aside; (g) Liens on the assets and/or Voting Stock of the Borrower in order to secure Replacement Debt, if any; PROVIDED that the obligations of the Borrower hereunder are secured, equally and ratably with such Liens, also by Lien on such assets and/or Voting Stock under the Collateral Documents; (h) ground leases in respect of real property on which facilities owned or leased by the Borrower or any of its Subsidiaries are located; (i) any interest or title of a lessor or secured by a lessor's interest under any lease permitted by this Agreement and any Liens arising from any financing statement filed in connection with such lease; (j) Liens on goods, the purchase price of which is financed by a documentary letter of credit issued for the account of the Borrower or any of its Subsidiaries, provided that such Lien secures only the obligations of the Borrower in respect of such letter of credit to the extent permitted under Section 5.02(b); and (k) leases or subleases granted to others and not interfering in any material respect with the business of the Borrower and its Subsidiaries taken as a whole. "PERSON" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "PLAN" means any multiemployer or single-employer plan, as defined in Section 4001 of ERISA and subject to Title IV of ERISA, that is or was within any of the preceding five plan years maintained or contributed to by (or to which there is or was an obligation to contribute or to make payments of) the Borrower or any of its Subsidiaries. "PLANT" means the new, approximately 260,000 sq. ft. manufacturing facility of the Borrower to be located in Cienega de Flores, Nuevo Leon, Mexico. "PLEDGE AGREEMENT" has the meaning specified in Section 6.02(k). "PRO FORMA EBITDA" has the meaning specified in Section 5.02(a)(vi)(V). "PRUDENT INDUSTRY PRACTICES" has the meaning specified in Section 5.01(j). "RELATED DOCUMENTS" means the Joint Venture Agreement and the ESCRITURA CONSTITUTIVA and Bylaws of the Borrower. "RELEASE" means disposing, discharging, injecting, spilling, leaking, leaching, dumping, pumping, pouring, emitting, escaping, emptying, seeping, placing and the like, into or upon any land or water or air, or otherwise entering into the environment. "REQUIRED GOVERNMENTAL APPROVAL" has the meaning specified in Section 4.01(d). "REPLACEMENT DEBT" means Debt for borrowed money incurred by the Borrower to replace and to refund the Working Capital Facility, subject to the conditions set forth in Section 5.02(b)(iii). "REQUIRED INSURANCE" has the meaning specified in Section 5.01(d). "SENIOR OFFICER" means, with respect to any Person, the chief executive officer, the president or any senior vice president of such Person or, with respect to financial matters, the chief financial officer or treasurer of such Person, or such other officers, comparable in seniority and responsibility, as such Person may have. "SOLVENT" and "SOLVENCY" mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "SUBORDINATED DEBT" means any Debt of the Borrower that is subordinated to the Obligations of the Borrower under the Loan Documents on, and that otherwise contains, terms and conditions satisfactory to the Lender (including, without limitation, the term and condition that such Debt may not be paid or prepaid until all the Obligations of the Borrower under this Agreement and the Notes shall be paid in full in cash). "SUBSIDIARY" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "SURVIVING DEBT" has the meaning specified in Section 3.01(b). "TAXES" means any taxes, levies, imposts, duties, deductions, withholdings, fees, liabilities and similar charges (and all interest, penalties and other liabilities imposed with respect thereto) imposed by or on behalf of any Governmental Authority or any political subdivision thereof or taxing jurisdiction therein. "TERM ADVANCE" has the meaning specified in Section 2.01(a). "TERM COMMITMENT" means, with respect to the Lender at any time, the obligation of the Lender, subject to the conditions set forth in this Agreement, to make Term Advances to the Borrower up to an aggregate principal amount equal to $25,000,000, as such amount may be reduced at or prior to such time pursuant to Section 2.04. "TERM FACILITY" means, at any time, the amount of the Lender's Term Commitment at such time. "TERM LOAN TERMINATION DATE" means the earlier of March 31, 2000 and the date of termination in whole of the Term Commitment pursuant to Section 2.04 or 6.01. "TERM NOTE" means a promissory note of the Borrower payable to the order of the Lender, in substantially the form of Exhibit A hereto, evidencing the indebtedness of the Borrower to the Lender resulting from a Term Advance made by the Lender. "TERMINATION DATE" means, as applicable, either the Term Loan Termination Date or the Working Capital Termination Date. "TIMETABLE" means the timetable attached as Schedule 1.01(b) hereto. "TRANSACTION DOCUMENTS" means, collectively, the Loan Documents, the Related Documents and the Construction Documents. "U.S. GAAP" means generally accepted accounting principles in the United States as in effect from time to time. "UNITED STATES" and "U.S." each means the United States of America. "UNUSED WORKING CAPITAL COMMITMENT" means, with respect to the Lender at any time, (a) the Lender's Working Capital Commitment at such time MINUS (b) the aggregate principal amount of the Lender's Working Capital Advances outstanding at such time. "VOTING STOCK" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "WORKING CAPITAL ADVANCE" has the meaning specified in Section 2.01(b). "WORKING CAPITAL COMMITMENT" means, with respect to the Lender at any time, the obligation of the Lender, subject to the conditions set forth in this Agreement, to make Working Capital Advances to the Borrower from time to time up to an aggregate principal amount equal to $7,500,000, as such amount may be reduced at or prior to such time pursuant to Section 2.04. "WORKING CAPITAL FACILITY" means, at any time, the amount of the Lender's Working Capital Commitment at such time. "WORKING CAPITAL NOTE" means a promissory note of the Borrower payable to the order of the Lender, in substantially the form of Exhibit B hereto, evidencing the indebtedness of the Borrower to the Lender resulting from a Working Capital Advance made by the Lender. "WORKING CAPITAL TERMINATION DATE" means the earlier of (x) the date that occurs one year from the date hereof, or such later date as provided for pursuant to Section 2.12, and (y) the date of termination in whole of the Working Capital Commitments pursuant to Section 2.04 or 6.01. SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." SECTION 1.03. ACCOUNTING TERMS. Except as otherwise provided in this Agreement, all computations and determinations as to financial matters, and all financial statements to be delivered under this Agreement, shall be made or prepared in accordance with Mexican GAAP reconciled to U.S. GAAP (including principles of consolidation where appropriate) ("GAAP") and applied on a consistent basis. SECTION 1.04. OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (b) Except as otherwise specified herein, each reference in this Agreement to a Transaction Document shall be deemed (i) to include all exhibits, annexes, schedules or other attachments thereto and (ii) to refer to such Transaction Document as the same may be amended, supplemented or otherwise modified from time to time in accordance with its terms and, to the extent applicable, Sections 5.02(k) and 5.02(l). (c) Except as otherwise specified herein, each reference in this Agreement to an Applicable Law or a Governmental Approval shall be deemed to refer to such Applicable Law or Governmental Approval as the same may be amended, supplemented or otherwise modified from time to time. (d) Each reference in this Agreement to a Person shall be deemed to include such Person's permitted successors and assigns. (e) The use of the word "including" in this Agreement means "including, without limitation." ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. THE ADVANCES. (a) THE TERM ADVANCES. The Lender agrees, on the terms and conditions hereinafter set forth, to make advances (each a "TERM ADVANCE" and, collectively, the "TERM ADVANCES") to the Borrower in Dollars from time to time on any Business Day during the period from the date hereof until the Term Loan Termination Date in an aggregate amount not to exceed the Lender's Term Commitment at such time. Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed. (b) THE WORKING CAPITAL ADVANCES. The Lender agrees, on the terms and conditions hereinafter set forth, to make advances (each a "WORKING CAPITAL ADVANCE") to the Borrower in Dollars from time to time on any Business Day during the period from the date hereof until the Working Capital Termination Date in an amount for each such Advance not to exceed the Lender's Unused Working Capital Commitment at such time. Within the limits of the Lender's Unused Working Capital Commitment in effect from time to time, the Borrower may borrow under this Section 2.01(b), prepay pursuant to Section 2.05(b) and reborrow under this Section 2.01(b). SECTION 2.02. MAKING THE ADVANCES. (a) Each Term Advance shall be made upon notice given by the Borrower to the Lender not fewer than three Business days prior to the date of the proposed Term Advance. Each such notice of a Term Advance (a "NOTICE OF TERM BORROWING") shall be by telephone, confirmed immediately in writing, or telex or telecopier, in substantially the form of Exhibit C hereto, specifying therein the requested (i) date of such Term Advance, (ii) aggregate amount of such Term Advance and (iii) initial Interest Period for such Term Advance. The Lender shall, before 11:00 A.M. (New York City time) on the date of such Term Advance, make such funds available to the Borrower, as such funds may be reduced in accordance with Section 2.02(f) below, upon fulfillment of the applicable conditions set forth in Article III by crediting the Borrower's Account. (b) Each Working Capital Advance shall be made upon notice given by the Borrower to the Lender not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Working Capital Advance. Each such notice of a Working Capital Advance (a "NOTICE OF WORKING CAPITAL BORROWING") shall be by telephone, confirmed immediately in writing, or telex or telecopier, in substantially the form of Exhibit E hereto, specifying therein the requested (i) date of such Working Capital Advance, (ii) aggregate amount of such Working Capital Advance, (iii) initial Interest Period for such Working Capital Advance and (iv) the maturity of such Working Capital Advance, which maturity shall occur on the last day of any Interest Period for such Working Capital Advance but no later than the then existing Working Capital Termination Date. The Lender shall, before 11:00 A.M. (New York City time) on the date of such Working Capital Advance, make such funds available to the Borrower, as such funds may be reduced in accordance with Section 2.02(f) below, upon fulfillment of the applicable conditions set forth in Article III by crediting the Borrower's Account. (c) No more than six separate Term Advances and no more than six separate Working Capital Advances may be outstanding on any one day. (d) Each Notice of Term Borrowing and Notice of Working Capital Borrowing shall be irrevocable and binding on the Borrower. The Borrower shall indemnify the Lender or any Participant against any loss, cost or expense incurred by the Lender or such Participant as a result of any failure to fulfill on or before the date specified in a Notice of Borrowing for an Advance, the applicable conditions set forth in Article III, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Lender or such Participant to fund such Advance to be made by the Lender when such Advance, as a result of such failure, is not made on such date. (e) Unless the Lender shall have received notice from any Participant prior to the date of any Advance that such Participant will not make available to the Lender such Participant's ratable portion of such Advance, the Lender may assume that such Participant has made such portion available to the Lender on the date of such Advance in accordance with subsection (a) or (b) of this Section 2.02 and the Lender may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Participant shall not have so made such ratable portion available to the Lender, the Borrower agrees upon notice from the Lender to repay to the Lender 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 Lender, at the interest rate applicable at the time to such Advance. If such Participant shall repay to the Lender such corresponding amount, such amount so repaid shall constitute such Participant's portion of such Advance for purposes of this Agreement. (f) The Lender shall not be responsible for the failure of any Participant to fund its ratable portion of any Advance to be funded by such Participant on the date of such Advance, and such Advance made to the Borrower shall be reduced by the amount of any such ratable portion that is not funded by any Participant. SECTION 2.03. REPAYMENT OF ADVANCES. (a) TERM ADVANCES. The Borrower shall repay to the Lender the principal amount of each Term Advance in eight substantially equal quarterly installments on the 25th day of each March, June, September and December, commencing June 25, 2001 and ending March 25, 2003; PROVIDED, HOWEVER, that the final principal installment shall in any event be in an amount equal to the principal amount of such Term Advance then outstanding. (b) WORKING CAPITAL ADVANCES. The Borrower shall repay to the Lender the principal amount of each Working Capital Advance on the maturity thereof stated in the Working Capital Note that evidences such Working Capital Advance in accordance with clause (iv) of the second sentence of Section 2.02(b). SECTION 2.04. OPTIONAL TERMINATION OR REDUCTION OF THE COMMITMENTS. The Borrower may, upon at least three Business Days' notice to the Lender, terminate in whole or reduce in part the unused portions of its Term Commitment and its Unused Working Capital Commitment; PROVIDED, HOWEVER, that each partial reduction of any Facility shall be in an aggregate amount of $500,000 or an integral multiple of $500,000 in excess thereof. SECTION 2.05. PREPAYMENTS. (a) TERM ADVANCES. The Borrower may, upon at least three Business Days' notice to the Lender stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding aggregate principal amount of any Term Advance in whole or in part, together with (i) accrued interest to the date of such prepayment on the aggregate principal amount prepaid and (ii) a premium, if such prepayment occurs on a date that is less than two years from the date hereof, of 0.85% of the aggregate principal amount so prepaid, and if such prepayment occurs on a date that is two years from the date hereof or later, but less than three years from the date hereof, of 0.55% of the aggregate principal amount so prepaid, and if such prepayment occurs three years from the date hereof or later, of 0.25% of the aggregate principal amount so prepaid; PROVIDED, HOWEVER, that (x) each partial prepayment shall be in an aggregate principal amount of $1,000,000 or an integral multiple of $1,000,000 in excess thereof and (y) in the event of any such prepayment of such Advance during any Interest Period thereof, the Borrower shall reimburse the Lender in respect thereof pursuant to Section 7.04(c). Each prepayment of Term Advances shall be applied to the installments thereof as indicated by the Borrower in its sole discretion. (b) WORKING CAPITAL ADVANCES. The Borrower may, upon at least three Business Days' notice to the Lender stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay without premium or penalty the aggregate principal amount of any Working Capital Advances in whole or in part, together with accrued interest to the date of such prepayment on the aggregate principal amount prepaid; PROVIDED, HOWEVER, that (x) each partial prepayment shall be in an aggregate principal amount of $100,000 or an integral multiple of $100,000 in excess thereof and (y) in the event of any such prepayment of any Advance during any Interest Period thereof, the Borrower shall reimburse the Lender in respect thereof pursuant to Section 7.04(c). SECTION 2.06. INTEREST. (a) SCHEDULED INTEREST. The Borrower shall pay interest on the unpaid principal amount of each Advance owing to the Lender from the date of such Advance until such principal amount shall be paid in full, at a rate per annum equal at all times (i) during each Interest Period for such Advance, if such Advance is a Eurodollar Rate Advance, to the sum of (A) the Eurodollar Rate for such Interest Period for such Advance PLUS (B) the Applicable Margin in effect from time to time for such Advance, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Advance shall be paid in full and (ii) during each Interest Period for such Advance, if such Advance is a Dollar Funding Rate Advance, to the sum of (A) the Dollar Funding Rate for such Interest Period for such Advance PLUS (B) the Applicable Margin in effect from time to time for such Advance, in each case payable in arrears on the last day of each Interest Period therefor. (b) DEFAULT INTEREST. Anything herein to the contrary notwithstanding, the Borrower shall pay interest on (i) that principal amount of each Advance which is not paid when due, payable in arrears on the dates referred to in subsection (a) above and on demand, at a rate per annum equal at all times to 4% per annum above the rate per annum required to be paid on such Advance pursuant to subsection (a) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable hereunder which is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 4% per annum above the rate per annum required to be paid, in the case of interest, on the Advance on which such interest has accrued pursuant to subsection (a) above, and, in all other cases, on the Advance which bears the highest rate per annum from time to time. (c) NOTICE OF INTEREST RATE. Promptly after receipt of a Notice of Borrowing pursuant to Section 2.02(a) or 2.02(b), the Lender shall give notice to the Borrower of the applicable interest rate determined by the Lender for purposes of clause (a). SECTION 2.07. FEES. (a) COMMITMENT FEE. The Borrower shall pay to the Lender a commitment fee, from the date hereof until the applicable Termination Date, payable in arrears on the date of the initial Term Advance or Working Capital Advance hereunder and thereafter quarterly on the last Business Day of each March, June, September and December commencing September 30, 1998, and on each Termination Date, at the rate of 0.50 of 1% per annum on the average daily unused portion of the Lender's Term Commitment and on the average daily Unused Working Capital Commitment of the Lender. (b) UPFRONT FEE. The Borrower shall pay to the Lender on the date hereof a one time upfront fee equal to 1.00% of the Lender's Commitments hereunder. (c) OTHER FEES. The Borrower shall pay to the Lender such other fees as may from time to time be agreed upon by and between the Borrower and the Lender. SECTION 2.08. INCREASED COSTS, ETC. (a) In the event that, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation or administration of any applicable law or regulation after the date hereof, (ii) the compliance with any applicable guideline or request from any central bank or other governmental authority (whether or not having the force of law) or (iii) any other circumstance affecting the interbank Eurodollar market or the position of any Lender Party in such market which leads such Lender Party to reasonably determine that the Eurodollar Rate for any Interest Period for any Eurodollar Rate Advance will not adequately reflect the cost to such Lender Party of making, funding or maintaining such Eurodollar Rate Advance or its participation therein or any portion thereof for such Interest Period, there shall be any increase in the cost to or reduction in the amount received or receivable by such Lender Party as a result of agreeing to make or of making, funding or maintaining Eurodollar Rate Advances or its participation therein or any portion thereof (excluding for purposes of this Section 2.08 any such increased costs resulting from Taxes or Other Taxes, as to which Section 2.10 shall govern, then the Borrower shall from time to time, upon demand by such Lender Party and, in the case of any Participant, with a copy of such demand to the Lender, pay to such Lender Party additional amounts sufficient to compensate such Lender Party for such increased cost; PROVIDED, HOWEVER, such Lender Party before claiming any additional amounts under this Section 2.08(a) will use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Lending Office for any Eurodollar Rate Advances affected by such event if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost that may thereafter accrue; PROVIDED that such designation is made on terms that such Lender Party and its Lending Office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of this subsection (a). A certificate as to the amount of such increased cost and showing in reasonable detail the basis for the calculation thereof, submitted to the Borrower by any Lender Party at the time of demand, shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either (i) the introduction of or any change in or in the interpretation or administration of any applicable law or regulation after the date hereof or (ii) the compliance with any applicable guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the amount of capital required or expected to be maintained by any Lender Party or any corporation controlling any Lender Party which has or would have the effect of reducing the rate of return on such Lender Party's capital or assets as a result of or based upon the existence of such Lender Party's commitments and obligations under this Agreement or a Participation Agreement to a level below that which such Lender Party could have achieved but for such change or compliance (taking into consideration such Lender Party's or such corporation's policies with respect to capital adequacy), then, upon demand by such Lender Party and, in the case of any Participant, with a copy of such demand to the Lender, the Borrower shall pay to such Lender Party, from time to time as specified by such Lender Party, additional amounts sufficient to compensate such Lender Party in light of such circumstances, it being understood and agreed that such Lender Party shall not be entitled to such compensation as a result of such Lender Party's compliance with, or pursuant to any request or directive to comply with, any such law, regulation, guideline or request in effect on the date hereof. Any amount payable pursuant to this Section 2.08(b) shall be payable only to the extent that such Lender Party reasonably determines such increase in capital to be allocable to the existence of such Lender Party's commitment to lend hereunder or under a Participation Agreement. A certificate as to such amounts and showing in reasonable detail the basis for the calculation thereof submitted to the Borrower by any Lender Party at the time of demand shall be conclusive and binding for all purposes, absent manifest error. (c) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or the central bank or other governmental authority shall assert that it is unlawful, for any Lender Party or its Lending Office to perform its obligations hereunder or under a Participation Agreement to make or participate in Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances or its participation in Eurodollar Rate Advances, then, on notice thereof by such Lender Party to the Borrower and, in the case of any Participant, with a copy of such demand to the Lender, the Borrower will either (i) on the last day of the then existing Interest Period therefor, convert each Eurodollar Rate Advance affected by such circumstances into a Dollar Funding Rate Advance, or (ii) if such Advance shall not have been made, cancel such Advance by giving the Lender telephonic notice (confirmed promptly in writing) thereof on the same date that the Borrower was notified by such Lender Party pursuant to this subsection (c). In the event of an illegality as described in this subsection (c) the obligation of the Lender to make Eurodollar Advances shall be suspended until the Lender shall notify the Borrower that the Lender has determined that the circumstances causing such suspension no longer exist; PROVIDED, HOWEVER, that, before the Lender shall make any such demand, the Lender agrees to use, or in the case of any Participant, shall have received from such Participant confirmation that it has used, reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Lending Office for any Advances affected by such event if the making of such a designation would allow such Lender Party or its Lending Office to continue to perform its obligations to make or participate in Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances or its participation in Eurodollar Rate Advances; PROVIDED that such designation is made on terms that such Lender Party and its Lending Office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of this subsection. (d) The Borrower shall pay to the Lender a fee on the unpaid principal amount of each Eurodollar Rate Advance from the date of such Eurodollar Rate Advance until such principal amount is paid in full, at a rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the then current Interest Period from time to time for such Eurodollar Rate Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period, payable on each date on which interest is payable on such Eurodollar Rate Advance. Such fee shall be determined by the Lender and notified to the Borrower by the Lender. SECTION 2.09. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall make each payment hereunder and under the Notes, irrespective of any right of counterclaim or set-off, not later than 11:00 A.M. (New York City time) on the day when due to the Lender at the Lender's Account in New York, New York for the account of the Lender in same day funds in Dollars. (b) The Borrower hereby authorizes the Lender, if and to the extent payment owed to the Lender is not made when due hereunder or under the Notes, to charge from time to time against any or all of the Borrower's accounts with the Lender any amount so due. (c) All computations of interest and fees shall be made by the Lender on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Lender of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fee, as the case may be; PROVIDED, HOWEVER, that, if such extension would cause payment of interest on or principal of Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. SECTION 2.10. TAXES. (a) Any and all payments made by the Borrower under this Agreement and any Note shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions, or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by Mexico (or by any political subdivision or taxing authority thereof or therein or any organization or federation of which Mexico is at any time a member) or of any other jurisdiction or subdivision (including, without limitation, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions, or withholdings arising with respect to any Participant) excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Lender or any of the Participants as a result of a present or former connection between the Lender or such Participant and Mexico or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Lender's or such Participant's having executed, delivered or performed its obligations or received a payment under, or enforced this Agreement or the Notes). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("NON-EXCLUDED TAXES") are required to be withheld or deducted from any amounts payable to the Lender hereunder or under any Note, the amounts so payable to the Lender shall be increased to the extent necessary to yield to the Lender (after payment of all taxes), interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement so that such net sum is equal to what the Lender would have received and so retained had no such deduction or withholding been required or made. Within 45 days after such Non-Excluded Taxes are due, the Borrower shall send to the Lender the original official receipt, or a certified copy thereof, received by the Borrower showing payment thereof. If the Borrower fails to pay any such Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Lender the required receipts or other required documentary evidence, the Borrower shall indemnify the Lender against any incremental taxes, interest or penalties that may become payable by the Lender as a result of any such failure. (b) In addition, the Borrower shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment made hereunder or under the Notes or any other Loan Document or from the execution, delivery, notarization or registration of, performing under, or otherwise with respect to, this Agreement, the Notes or any other Loan Document ("OTHER TAXES"). (c) In the event that any Lender Party shall for any reason become liable for any Non-Excluded Taxes or Other Taxes, then the Borrower shall indemnify such Lender Party on demand and on an after-tax basis for the amount of such liability. SECTION 2.11. USE OF PROCEEDS. (a) The proceeds of each Term Advance shall be available (and the Borrower agrees that it shall use such proceeds) solely (x) to pay the Construction Costs and (y) to repay, as of the date of the initial Term Advance, the Existing Debt, as more specifically set forth in the Cost Certificate delivered by the Borrower in respect of such Term Advance. (b) The proceeds of the Working Capital Advances shall be available (and the Borrower agrees that it shall use such proceeds) solely (x) to pay fees and expenses in connection with the Loan Documents and (y) to provide working capital and for general corporate purposes of the Borrower. SECTION 2.12. WORKING CAPITAL COMMITMENT EXTENSIONS. (a) If (i) with respect to the Working Capital Termination Date that is scheduled to occur one year from the date hereof, on the 91st day prior to such Working Capital Termination Date the Borrower is in compliance with all of its covenants contained in Section 5.04 and no Default shall have occurred and be continuing, or (ii) with respect to any other Working Capital Termination Date in effect at any other time, neither the Borrower nor the Lender shall provide the notice referred to in subsection (b) below and no Default shall have occurred and be continuing on the 91st day prior to such Working Capital Termination Date, then, in the case of either (i) or (ii) above the term of the Working Capital Facility shall, on the Working Capital Termination Date then in effect hereunder, automatically extend for an additional one-year period and the Working Capital Termination Date shall extend to a date that occurs one year after the Working Capital Termination Date then in effect hereunder. (b) If the Borrower provides a written notice to the Lender, or the Lender provides a written notice to the Borrower, in either case at least 90 days prior to the then effective Working Capital Termination Date to the effect that the Working Capital Facility shall not be extended, then no extension of the Working Capital Facility shall occur. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL EXTENSION OF CREDIT. The obligation of the Lender to make an Advance on the occasion of the Initial Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent before or concurrently with the Initial Extension of Credit: (a) The Lender shall be reasonably satisfied with any changes made after December 31, 1997 to the corporate and legal structure and capitalization of the Borrower, including the terms and conditions of the Borrower's ESCRITURA CONSTITUTIVA, its bylaws, each class of capital stock of the Borrower, the Joint Venture Agreement and each other agreement or instrument relating to such structure or capitalization, in each case to the extent that the Lender determines such changes are adverse to the Lender or the Borrower. (b) The Lender shall be satisfied that (i) all Existing Debt (including the Debt that the Borrower owes Citibank Mexico immediately before the Initial Extension of Credit), other than the Debt identified on Schedule 3.01(b) (the "SURVIVING DEBT"), has been, or will with the proceeds of the Initial Extension of Credit be, prepaid or otherwise satisfied and extinguished, and (ii) all such Surviving Debt shall be on terms and conditions satisfactory to the Lender. (c) Before giving effect to the transactions contemplated by the Transaction Documents, there shall have occurred no Material Adverse Change since December 31, 1997. (d) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (i) could reasonably be expected to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of the Transaction Documents or the consummation of the transactions contemplated thereby. (e) The Borrower shall have paid all documented accrued fees and expenses of the Lender (including the accrued fees and expenses of counsel to the Lender). (f) The Lender shall have received on or before the day of the Initial Extension of Credit the following loan documentation, each dated such day (unless otherwise specified), in form and substance satisfactory to the Lender and in the number of copies as requested by the Lender: (i) Copies of the resolutions (or other authorizing actions or instruments) of the Board of Directors or the Shareholders of the Borrower and each other Loan Party approving this Agreement, the Notes and each other Loan Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with respect to this Agreement, the Notes and each other Loan Document, in each case certified by an Officers' Certificate of such Loan Party or by a notary public. (ii) A copy of the charter and bylaws of the Borrower and each amendment thereto, certified (as of a date reasonably near the date of the Initial Extension of Credit) by the appropriate Governmental Authority or by a notary public of the jurisdiction of its incorporation as being a true and correct copy thereof. (iii) An Officers' Certificate of the Borrower and each other Loan Party, dated the date of the Initial Extension of Credit (the statements made in which certificate shall be true on and as of the date of the Initial Extension of Credit), certifying as to (A) the absence of any amendments to the charter of the Borrower or such other Loan Party since the date of the certificate referred to in Section 3.01(f)(ii), (B) a true and correct copy of the bylaws of the Borrower and such other Loan Party as in effect on the date of the Initial Extension of Credit, (C) the due incorporation of the Borrower and such other Loan Party as a corporation organized under the laws of the state of its incorporation, and the absence of any proceeding for the dissolution or liquidation of the Borrower or such other Loan Party, (D) the truth in all material respects of the representations and warranties contained in the Loan Documents as though made on and as of the date of the Initial Extension of Credit, and (E) the absence of any event occurring and continuing, or resulting from the Initial Extension of Credit, that constitutes a Default. (iv) An Officers' Certificate of the Borrower and each other Loan Party certifying the names and true signatures of the officers of the Borrower and such other Loan Party authorized to sign this Agreement, the Notes and each other Loan Document to which they are or are to be parties and the other documents to be delivered hereunder and thereunder. (v) An industrial mortgage (HIPOTECA INDUSTRIAL) covering all the properties and assets of the Borrower, including the properties listed on Schedule 4.01(ii) (together with each supplement delivered pursuant to Section 5.01(p), in each case as amended, supplemented or otherwise modified from time to time in accordance with their terms, the "INDUSTRIAL MORTGAGE"), duly executed by the Borrower, together with: (A) evidence that the first testimony of the public deed that contains the Industrial Mortgage has been submitted for filing or recording on or before the day of the Initial Extension of Credit in all filing or recording offices that the Lender may deem necessary or desirable in order to create a valid first and subsisting Lien on the property described therein in favor of the Lender and that all filing and recording taxes and duties have been paid, and (B) evidence that all other action that the Lender may deem necessary or desirable in order to create valid first and subsisting Liens on the property described in the Industrial Mortgage has been taken. (vi) A Completion Guaranty Agreement in substantially the form of Exhibit F (as amended, supplemented or otherwise modified from time to time in accordance with its terms, the "COMPLETION GUARANTY"), duly executed by each Guarantor, or such insurance, guaranty or other agreement in form and substance acceptable to the Lender, duly executed by a party or parties acceptable to the Lender. (vii) A Letter of Comfort in substantially the form of Exhibit G (as amended, supplemented or otherwise modified from time to time in accordance with its terms, the "LETTER OF COMFORT"), duly executed by each Guarantor. (viii) Participation Agreements duly executed by Participants and funding at least $17,500,000 of the Facilities. (ix) Certified copies of each of the Related Documents, duly executed by the parties thereto and in form and substance satisfactory to the Lender, together with all agreements, instruments and other documents delivered in connection therewith. (x) Such financial, business and other information regarding each Loan Party as the Lender shall have requested, including, without limitation, information as to possible contingent liabilities, tax matters, environmental matters, obligations under employee benefit plans, collective bargaining agreements and other arrangements with employees, audited annual financial statements dated December 31, 1997, interim financial statements dated the end of the most recent fiscal quarter for which financial statements are available (or, in the event the Lender's due diligence review reveals material changes since such financial statements, as of a later date within 45 days of the day of the Initial Extension of Credit), pro forma financial statements as to the Borrower, in form and substance satisfactory to the Lender, of balance sheets, income statements and cash flow statements on a monthly basis for the first year following the day of the Initial Extension of Credit and on an annual basis for each year thereafter until the Termination Date. (xi) Certificates, in form and substance satisfactory to the Lender, attesting to the Solvency of each Loan Party together with such Loan Party's Subsidiaries, taken as a whole, after giving effect to the transactions contemplated by the Transaction Documents, from its chief financial officer. (xii) Evidence that the Lender, on behalf of the Lender Parties, has been named as a loss payee under all insurance policies maintained with respect to the property described in the Industrial Mortgage, for purposes of Article 109 and 110 of the Mexican Insurance Contract Law (LEY SOBRE EL CONTRATO DE SEGURO). (g) The Lender shall have received on or before the day of the Initial Extension of Credit the following project documentation, each dated such day (unless otherwise specified), in form and substance satisfactory to the Lender and in the number of copies as requested by the Lender: (i) An original (or copy certified by the Borrower to be true and complete) of each of the Construction Documents together with an Officers' Certificate from the Borrower to the effect that (i) each Construction Document is in full force and effect, (ii) there are no agreements, side letters or other documents to which the Borrower (or to its knowledge any other Person) is a party that are not included in the definition of Construction Documents that have the effect of modifying or supplementing in any respect any of the respective rights or obligations of the Borrower or any other party under any of the Construction Documents and (iii) neither the Borrower nor, to its knowledge, any other party to any such Construction Document is in breach or default thereunder. (ii) An Officers' Certificate of the Borrower (A) attaching copies of all Governmental Approvals required to be obtained for constructing the Plant as of the date of the Initial Extension of Credit and (B) stating that each such Governmental Approval has been duly obtained, is in full force and effect, is final and is not subject to any unsatisfied condition required to be satisfied as of such date that may allow modification, cancellation or revocation thereof, and no event has occurred that would result in such modification, cancellation or revocation thereof, and that the Borrower has no reason to believe that all Governmental Approvals required to be obtained subsequent to the Initial Extension of Credit will not be obtained by the dates by which they are required. (iii) An Officers' Certificate of the Borrower dated as of the date of the Initial Extension of Credit, stating that the Borrower as of such date is in compliance with the requirements of Schedule 5.01(d). (iv) Certified copies of all policies evidencing the insurance required pursuant to Section 5.01(d) and pursuant to the Industrial Mortgage, in form and substance satisfactory to the Lender. (v) Evidence, in form and substance satisfactory to the Lender, that (i) the Borrower and the other Loan Parties have each irrevocably appointed as its agent for service of process CT Corporation System (or another Person satisfactory to the Lender), and that such agent has accepted the appointment and has agreed to forward forthwith to such Person all legal process in New York, New York, addressed to such Person, as applicable, received by such agent and (ii) the Borrower and IASA have granted an irrevocable power of attorney in favor of the agent for service of process in accordance with Mexican law. (vi) Evidence, in form and substance satisfactory to the Lender, that the Joint Venture Agreement has been amended to permit a grant by Accuride and IASA of the Collateral under the Pledge Agreement. (h) The Lender shall have received on or before the day of the Initial Extension of Credit the following opinions, each dated such date: (i) A favorable opinion of Santamarina y Steta, S.C., Mexican counsel for the Borrower, in substantially the form of Exhibit H-1 hereto, and a favorable opinion of Latham & Watkins, New York counsel for the Borrower, in substantially the form of Exhibit H-2 hereto, and, in each case, as to such other matters as the Lender may reasonably request. (ii) A favorable opinion of Latham & Watkins, counsel for Accuride, in substantially the form of Exhibit I hereto and as to such other matters as the Lender may reasonably request. (iii) A favorable opinion of Andres Gonzalez Sandoval, counsel for IASA, in substantially the form of Exhibit J hereto and as to such other matters as the Lender may reasonably request. (iv) A favorable opinion of Martinez, Algaba, Estrella, De Haro y Galvan-Duque, S.C., Mexican counsel for the Lender, in substantially the form of Exhibit K hereto and otherwise in form and substance satisfactory to the Lender. (v) A favorable opinion of Shearman & Sterling, New York counsel for the Lender, in form and substance satisfactory to the Lender. SECTION 3.02. CONDITIONS PRECEDENT TO EACH TERM ADVANCE. The obligation of the Lender to make a Term Advance (including the Initial Extension of Credit consisting of a Term Advance) shall be subject to the further conditions precedent that on the date of such Term Advance: (a) The Lender shall have received on or before the day of such Term Advance the following documentation: (i) at least three Business Days prior to such Term Advance, a Notice of Term Borrowing executed and delivered by a duly authorized officer of the Borrower in respect of the Term Advance to be extended in accordance with the terms of Section 2.02(a) hereof; (ii) at least three Business Days prior to such Term Advance, a Cost Certificate, a copy of which shall have been delivered to the Lender and the Independent Engineer by the Borrower, with respect to the requested Term Advance and a copy of any related application for payment delivered by the contractors under the Construction Documents, together with copies of all invoices (where available) and other statements of charges (including reasonable estimates of charges) with respect to the payment to be made to the contractors pursuant to the Construction Documents on the date of such Term Advance and with respect to all other items of Construction Costs to be paid on such date; and (iii) A Term Note duly executed by the Borrower, evidencing, and reflecting the payment terms of, the indebtedness resulting from such Term Advance. (b) The following statements shall be true (and each of the delivery to the Lender of the applicable Notice of Term Borrowing, and the acceptance by the Borrower of the proceeds of such Term Advance shall constitute a representation and warranty by the Borrower that both on the date of such delivery and on the date of such Term Advance such statements are true): (i) the representations and warranties contained in each Loan Document are correct in all material respects on and as of such date, before and after giving effect to such Term Advance and to the application of the proceeds therefrom, as though made on and as of such date other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Term Advance, in which case as of such specific date; and (ii) no event has occurred and is continuing, or would result from such Term Advance or from the application of the proceeds therefrom, that constitutes a Default. (c) The Lender shall have received from each Participant funds in Dollars in an amount equal to such Participant's ratable share of such Term Advance. (d) The Lender shall have received such other approvals, opinions or documents as the Lender may reasonably request. SECTION 3.03. CONDITIONS PRECEDENT TO EACH WORKING CAPITAL ADVANCE. The obligation of the Lender to make a Working Capital Advance (including the Initial Extension of Credit consisting of a Working Capital Advance) shall be subject to the further conditions precedent that on the date of such Working Capital Advance: (a) The Lender shall have received on or before the day of such Working Capital Advance the following documentation: (i) at least three Business Days prior to such Working Capital Advance, a Notice of Working Capital Borrowing executed and delivered by a duly authorized officer of the Borrower in respect of the Working Capital Advance to be extended in accordance with the terms of Section 2.02(b) hereof; and (ii) A Working Capital Note duly executed by the Borrower, evidencing, and reflecting the payment terms of, the indebtedness resulting from such Working Capital Advance. (b) The following statements shall be true (and each of the giving of the Notice of Working Capital Borrowing, and the acceptance by the Borrower of the proceeds of such Working Capital Advance shall constitute a representation and warranty by the Borrower that both on the date of such notice and on the date of such Advance such statements are true): (i) the representations and warranties contained in each Loan Document are correct in all material respects on and as of such date, before and after giving effect to such Working Capital Advance and to the application of the proceeds therefrom, as though made on and as of such date other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Working Capital Advance, in which case as of such specific date; and (ii) no event has occurred and is continuing, or would result from such Working Capital Advance or from the application of the proceeds therefrom, that constitutes a Default. (c) The Lender shall have received from each Participant funds in an amount equal to such Participant's ratable share of such Working Capital Advance. (d) The Lender shall have received such other approvals, opinions or documents as the Lender may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower represents and warrants as follows: (a) The Borrower (i) is a corporation duly organized and validly existing under the laws of Mexico, and (ii) has all requisite corporate power and authority (including, without limitation, all governmental licenses, permits and other approvals other than those the absence of which would not have a Material Adverse Effect upon the business of the Borrower) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted and to perform its obligations under the Transaction Documents. All of the outstanding capital stock of the Borrower has been validly issued, is fully paid and non-assessable and is owned by Accuride and IASA free and clear of all Liens, except those created under the Pledge Agreement, if any. (b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all Subsidiaries of the Borrower, showing as of the date hereof (as to each such Subsidiary) the jurisdiction of its incorporation, the number of shares of each class of capital stock authorized, and the number outstanding, on the date hereof and the percentage of the outstanding shares of each such class owned (directly or indirectly) by the Borrower and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase and similar rights at the date hereof. All of the outstanding capital stock of all of such Subsidiaries has been validly issued, is fully paid and non-assessable and is owned by the Borrower or one or more of its Subsidiaries free and clear of all Liens, except those created under the Collateral Documents. Each such Subsidiary (i) is a corporation duly organized, validly existing and, if applicable, in good standing under the laws of the jurisdiction of its incorporation, and (ii) has all requisite corporate power and authority (including, without limitation, all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (c) The execution, delivery and performance by the Borrower of this Agreement, the Notes, each other Loan Document, each Construction Document and each Related Document to which it is or is to be a party, and the consummation of the transactions contemplated thereby, are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene the Borrower's charter or by-laws, (ii) violate any Applicable Law or any rule, regulation, order, writ, judgment, injunction, decree, determination or award rendered or promulgated under or pursuant to such Applicable Law, (iii) result in the breach of, or constitute a default under, any loan agreement, indenture, mortgage, deed of trust, lease or other financial instrument, or any other material contract or agreement, binding on or affecting the Borrower, any of its Subsidiaries or any of their properties or (iv) except for the Liens created under the Collateral Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of the Borrower or any of its Subsidiaries. None of the Borrower and its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which could have a Material Adverse Effect. No Applicable Law or rule, regulation, order, writ, judgment, injunction, decree, determination or award rendered or promulgated under or pursuant to any Applicable Law exists that restrains, prevents or imposes conditions upon the fulfillment of any obligation or benefit of any party under this Agreement and the other Loan Documents in such a way as to have a Material Adverse Effect. (d) No authorization or approval (including exchange credit approval) or other action by, and no notice to or filing with, any Governmental Authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by the Borrower of this Agreement, the Notes, any other Loan Document, any Construction Document or any Related Document to which it is or is to be a party, or for the consummation of the transactions contemplated thereby, except, with respect to any Construction Document only, for those the absence of which will not have a Material Adverse Effect, (ii) the Blueprints, except for those the absence of which will not have a Material Adverse Effect, (iii) the grant by the Borrower of the Liens granted by it pursuant to the Collateral Documents, (iv) the perfection or maintenance of the Liens created by the Collateral Documents (including the first priority nature thereof) or (v) the exercise by the Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except for the authorizations, approvals, actions, notices and filings listed on Schedule 4.01(d)(i), all of which have been duly obtained, taken, given or made and are in full force and effect, EXCEPT for the Industrial Mortgage and (with regard to the pledge of shares of stock of the Borrower contemplated by Section 6.02(k)) the Borrower's by-laws, each of which has been filed for recordation at the proper Public Registries of Property and Commerce in Mexico. Each Governmental Approval that is necessary for the performance by the Borrower of its Obligations under the Construction Documents, the transactions contemplated thereby and the siting, construction and operation of the Plant (each, a "REQUIRED GOVERNMENTAL APPROVAL") is listed on Schedule 4.01(d)(ii). Each such Required Governmental Approval has been duly obtained, is in full force and effect, is final and is not subject to any unsatisfied condition required to be satisfied as of such date that may allow modification, cancellation or revocation thereof, and no event has occurred that would result in the modification, cancellation or revocation thereof, EXCEPT for such Required Governmental Approvals (for the construction and operation of the Plant) which will be filed in the ordinary course of business during the construction of the Plant or upon completion of the Plant and which the Borrower expects to duly obtain as and when required and in the ordinary course of business. The Borrower has no basis to believe that any such Required Governmental Approvals referred to in the EXCEPT clause of the immediately preceding sentence will not be so duly obtained. (e) This Agreement has been, and each of the Notes and each of the other Loan Documents, Related Documents and Construction Documents to which the Borrower is a party when delivered hereunder will have been, duly executed and delivered by the Borrower. This Agreement is, and each of the Notes and each of the other Loan Documents, Related Documents and Construction Documents to which the Borrower is a party when delivered hereunder will be, the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms. (f) The Consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 1997, and the related Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, certified by the chief financial officer of the Borrower, copies of which have been furnished to the Lender, fairly present the Consolidated financial condition of the Borrower and its Subsidiaries as at such date and the Consolidated pro forma results of operations of the Borrower and its Subsidiaries for the fiscal year ended on such date, in each case giving effect to the transactions contemplated hereby, all in accordance with GAAP. (g) The Consolidated forecasted balance sheets, income statements and cash flows statements of the Borrower and its Subsidiaries delivered to the Lender pursuant to Section 3.01(f)(x) or 5.03 (e) were prepared in good faith on the basis of the assumptions stated therein, which assumptions were believed by the Borrower to be fair in light of conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrower's best estimate of its future financial performance. (h) No information, exhibit, financial statement, schedule or report furnished by the Borrower to the Lender in connection with the negotiation of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading. (i) There is no action, suit, investigation, litigation or proceeding affecting the Borrower or any of its Subsidiaries, including any Environmental Action, pending or threatened before any court, governmental agency or arbitrator that (i) could have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Agreement, any Note, any other Loan Document, any Construction Document or any Related Document or the consummation of the transactions contemplated hereby. (j) (i) Neither the Borrower nor any of its Subsidiaries has or is subject to any Plan or Multiple Employer Plan; and (ii) With respect to each scheme or arrangement mandated by a government other than the United States (a "FOREIGN GOVERNMENT SCHEME OR ARRANGEMENT") and with respect to each employee benefit plan maintained or contributed to by the Borrower or any Subsidiary of the Borrower that is not subject to United States law (a "NON-U.S. PLAN"): (A) Any employer and employee contributions required by law or by the terms of any Foreign Government Scheme or Arrangement or any Non-U.S. Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices. (B) The fair market value of the assets of each funded Non-U.S. Plan, the liability of each insurer for any Non-U.S. Plan funded through insurance or the book reserve established for any Non-U.S. Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the date hereof, with respect to all current and former participants in such Non-U.S. Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles. (C) Each Non-U.S. Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities. (k) Neither the business nor the properties of the Borrower or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) or other event of FORCE MAJEURE that would excuse the Borrower from its duty to perform its obligations under the Transaction Documents or that could have a Material Adverse Effect. (l) The operations and properties of the Borrower and each of its Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits, all past non-compliance with such Environmental Laws and Environmental Permits has been resolved without ongoing obligations or costs, and no circumstances exist that could (i) form the basis of an Environmental Action against the Borrower or any of its Subsidiaries or any of their properties that could have a Material Adverse Effect or (ii) cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law. The Borrower has filed with the applicable Governmental Authority, and such Governmental Authority has not rejected, the Manifiesto de Impacto Ambiental related to the construction of the Plant dated June 15, 1998 by the Borrower. (m) Neither the Borrower nor any of its Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any governmental or regulatory authority or the requirements of any Environmental Law; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by the Borrower or any of its Subsidiaries have been disposed of in a manner not reasonably expected to result in material liability to the Borrower or any of its Subsidiaries. (n) Neither the Borrower nor, to the knowledge of the Borrower, any third party, has caused or permitted the Release of, or has used, generated, manufactured, produced, stored or disposed of in, on, under or about the Plant or transported thereto or therefrom, any Hazardous Material that could reasonably be expected to subject the Borrower to any material liability under any Environmental Law. (o) There are no Hazardous Materials used, stored or present at, on or, to the knowledge of the Borrower, near the Plant except as may be used, stored or present in connection with the construction, operation or ownership of the Plant in accordance with Prudent Industry Practices and all Applicable Laws. (p) To the knowledge of the Borrower, there is and has been no condition, circumstances, action, activity or event that could reasonably form the basis of any violation of, or any material liability to the Borrower under, any Environmental Law. (q) To the knowledge of the Borrower, there is no proceeding, investigation or inquiry by any Governmental Authority with respect to the presence or Release of Hazardous Materials in, on, from or to the Plant. (r) The Borrower has no knowledge of any past or existing violations of any Environmental Laws affecting the Plant. The Borrower has received no written complaint, order, directive, citation or notice from any Governmental Authority with respect to any Environmental Law. (s) Neither the Borrower nor any of its properties has any immunity under the laws of Mexico from jurisdiction or suit of any court or from any legal process or remedy (whether through service, notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise). (t) The Borrower has filed or caused to be filed all tax returns required to be filed by it, and has paid and discharged all taxes shown to be due and payable on such returns, or on any assessments made against it or any of its properties, and all other taxes, assessments and governmental charges or levies lawfully imposed on it or its property following a formal demand for payment from appropriate governmental officials except such as are contested in good faith and by appropriate proceedings and with respect to which adequate cash reserves have been set aside by the Borrower. As of the date hereof, there are no disputes pending or, to its knowledge, threatened, between the Borrower and any governmental taxing authority. (u) As of the date hereof, no income, stamp or other taxes or levies, imposts, deductions, charges, compulsory loans or withholdings whatsoever are or will be, under applicable law in Mexico, imposed, assessed, levied or collected by Mexico or any political subdivision or taxing authority thereof or therein or on or in respect of principal, interest, premiums, fees or other amounts payable hereunder to any Lender Party, except that a Mexican withholding tax is payable in respect of interest, fees and other amounts payable hereunder, other than principal, with respect to Advances owed to Lender Parties that are not residents of Mexico. (v) The obligations of the Borrower hereunder do and shall at all times rank PARI PASSU with the Borrower's other Debt other than any such Debt which is subordinated or which has any priority pursuant to Applicable Law. (w) The Borrower is in compliance with, and has no reason to believe that the Plant will not comply fully with, all Applicable Laws, all Required Governmental Approvals obtained on or prior to the date of determination and all Construction Documents. Each license, permit, authorization, consent and approval required by any Governmental Authority for the construction of the Plant, and for the operation of the Borrower in respect of the Plant, to the extent such construction has progressed and operation has commenced, (i) has been obtained by the Borrower, (ii) is without restriction or modification, (iii) does not require any modification of the Blueprints, (iv) allows the Plant to be used as contemplated by the Borrower and (v) remains in full force and effect. (x) All Required Insurance has been obtained and is in full force and effect, and such insurance complies with the requirements of Section 5.01(d). (y) Neither the Borrower nor any of its Subsidiaries is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. (z) The Borrower is, individually and together with its Subsidiaries, Solvent. (aa) Set forth on Schedule 4.01(aa) hereto is a complete and accurate list of all existing Debt (the "EXISTING DEBT") (other than Surviving Debt), showing as of the date hereof the principal amount outstanding thereunder. (bb) Set forth on Schedule 3.01(b) hereto is a complete and accurate list of all Surviving Debt, showing as of the date hereof the principal amount outstanding thereunder, the maturity date thereof and the amortization schedule therefor. (cc) The property interests and other rights obtained, or, as contemplated to be obtained, and the materials to be supplied, pursuant to the Construction Documents: (i) comprise all of the property interests necessary to secure any right or privilege which is material to the acquisition, development, construction, installation, completion, operation and maintenance of the Plant in accordance with the Construction Documents and all Applicable Laws; (ii) are sufficient to enable the Plant to be located, constructed and operated as contemplated by the Construction Documents; and (iii) provide adequate ingress and egress from the Plant as may be required in connection with the construction and operation of the Plant. (dd) There are no services, materials or rights required for the construction or operation of the Plant in accordance with the Construction Documents other than those that can reasonably be expected to be commercially available on terms consistent with the Construction Budget and the Base Case Projections. (ee) The Lender has received a true and complete copy of each Construction Document as in effect on the date of this representation (including all exhibits, schedules and disclosure letters referred to therein or delivered pursuant thereto) and of any amendments thereto. None of the Construction Documents have been amended, supplemented, modified or terminated and all of the Construction Documents are in full force and effect. (ff) All conditions precedent to the obligations of the respective parties under the Construction Documents have been satisfied, except for such conditions precedent which by their terms cannot be met until a later stage in the construction or operation of the Plant, and the Borrower has no reason to believe that any such condition precedent cannot be satisfied on or prior to the appropriate state in the construction or operation of the Plant. (gg) The Construction Budget accurately specifies in all material respects all costs and expenses incurred and the Borrower's best estimate of all costs and expenses anticipated by the Borrower to be incurred prior to the latest date on which the Completion Date is scheduled at such time, as confirmed by the Independent Engineer, to construct and finance the construction of the Plant in the manner contemplated by the Construction Documents. (hh) All projections and budgets (including the Construction Budget and the Base Case Projections) furnished or to be furnished to the Lender by or on behalf of the Borrower (A) have been and will be prepared with due care, (B) fairly represent, and will fairly represent, as of the date of delivery, in all material respects, the Borrower's expectations as to the matters covered thereby as of their date, (C) are based on, and will be based on, as of the date of delivery, reasonable assumptions as to all factual and legal matters material to the estimates therein (including interest rates and costs), (D) are and will be, as of the date of delivery, in all material respects consistent with the provisions of the Transaction Documents and (E) are, and will be, as of the date of delivery, prepared on a basis substantially consistent with the corresponding projections and budgets, if any, previously furnished to the Lender. (ii) Set forth on Schedule 4.01(ii) hereto is a complete and accurate list of all real property owned by the Borrower, showing as of the date hereof the street address, county or other relevant jurisdiction, state, record owner and book and fair value thereof. The Borrower has good, marketable and insurable legal title to such real property, free and clear of all Liens, other than Liens created or permitted by the Loan Documents. (jj) Set forth on Schedule 4.01(jj) hereto is a complete and accurate list of all leases of real property under which the Borrower is the lessee, showing as of the date hereof the street address, county or other relevant jurisdiction, state, lessor, lessee, expiration date and annual rental cost thereof. Each such lease is the legal, valid and binding obligation of the lessor thereof, enforceable in accordance with its terms. (kk) No Material Adverse Change has occurred since December 31, 1997. (ll) The Borrower will (i) initiate a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by suppliers, vendors and customers) that could be adversely affected by the risk that computer applications used by the Borrower or any of its Subsidiaries, suppliers, vendors or customers may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (such risk, the "YEAR 2000 PROBLEM") and (ii) develop a plan and timeline for addressing the Year 2000 Problem on a timely basis. Based on the foregoing, the Borrower believes that all computer applications (including those of its suppliers, vendors and customers) that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000, except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any Advance shall remain unpaid or the Lender shall have any Commitment hereunder, the Borrower will: (a) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all Applicable Laws and all Governmental Approvals. The Borrower shall notify the Lender, promptly following the occurrence thereof, of any disputes pending or to its knowledge threatened between the Borrower or any Governmental Authority. (b) PAYMENT OF TAXES, ETC. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, all Taxes imposed upon it or upon its property or upon other assets of the Plant; PROVIDED, HOWEVER, that neither the Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained. The Borrower shall notify the Lender, promptly following the occurrence thereof, of any disputes pending or to its knowledge threatened between the Borrower and any Governmental Authority relating to claims for Taxes due. (c) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause each of its Subsidiaries and all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew and cause each of its Subsidiaries to obtain and renew all Environmental Permits necessary for its operations and properties; construct and operate the Plant in such a manner as to comply with substantially the same environmental requirements with which Accuride's production facilities in the State of Kentucky in the United States comply; and conduct, and cause each of its Subsidiaries to conduct, any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance with the requirements of all Environmental Laws; PROVIDED, HOWEVER, that neither the Borrower nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other 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. (d) MAINTENANCE OF INSURANCE. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates; and maintain or cause to be maintained with respect to construction and operation of the Plant the insurance set forth on Schedule 5.01(d) required as of the date of determination (the "REQUIRED INSURANCE"). (e) PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its existence, legal structure and legal name. The Borrower shall have its principal place of business and chief executive office in Cienega de Flores, N.L., Mexico, and shall maintain in such place originals or copies of the principal books and records relating to its business. (f) VISITATION RIGHTS. At any reasonable time and from time to time, upon reasonable notice and during normal business hours, permit the Lender or any authorized agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants; provided that the Borrower may, if it so chooses, be present at or participate in any such discussion. (g) PREPARATION OF ENVIRONMENTAL REPORTS. At the request of the Lender, not more frequently than once per year, after receipt by the Borrower of any notice of non-compliance with Environmental Laws or knowledge by the Borrower of a Release, provide to the Lender within 60 days after such request, at the expense of the Borrower, an environmental site assessment report for any of its or its Subsidiaries' properties described in such request, prepared by an environmental consulting firm acceptable to the Lender, indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance, removal or remedial action in connection with any Hazardous Materials on such properties; without limiting the generality of the foregoing, if the Lender determines at any time that a material risk exists that any such report will not be provided within the time referred to above, the Lender may retain an environmental consulting firm to prepare such report at the expense of the Borrower, and the Borrower hereby grants and agrees to cause any Subsidiary that owns any property described in such request to grant at the time of such request, to the Lender, such firm and any agents or representatives thereof an irrevocable non-exclusive license, subject to the rights of tenants, to enter onto their respective properties to undertake such an assessment. (h) KEEPING OF BOOKS. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each such Subsidiary in accordance with generally accepted accounting principles in effect from time to time in Mexico. (i) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (j) CONSTRUCTION AND OPERATION OF PLANT. Construct the Plant and complete all tasks with respect thereto (x) in accordance with good, sound engineering practices, (y) in a good workmanlike manner and (z) in accordance with generally accepted industry practices (each of such standards referred to in (x), (y) and (z) are herein collectively referred to as "PRUDENT INDUSTRY PRACTICES"); maintain the Plant in good repair and from time to time make all repairs and replacements thereto in accordance with Prudent Industry Practices; maintain all equipment and spare parts necessary to maintain and repair the Plant as aforesaid; operate the Plant or cause the Plant to be operated in accordance with Prudent Industry Practices. (k) PERFORMANCE OF RELATED DOCUMENTS AND CONSTRUCTION DOCUMENTS. Perform and observe all of the terms and provisions of each Related Document and Construction Document to be performed or observed by it, maintain each such Related Document or Construction Document in full force and effect, enforce such Related Document or Construction Document in accordance with its terms, take all such action to such end as may be from time to time requested by the Lender and, upon the reasonable request of the Lender, make to each other party to each such Related Document or Construction Document such demands and requests for information and reports or for action as the Borrower is entitled to make under such Related Document or Construction Document. (l) SEEK AND MAINTAIN GOVERNMENTAL APPROVALS. Seek and maintain in validity all Governmental Approvals without any modifications thereto that could have a Material Adverse Effect. (m) TRANSACTIONS WITH AFFILIATES. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates on terms that are fair and reasonable and no less favorable to the Borrower or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. (n) NOTICE OF EXTRAORDINARY EVENTS. Notify the Lender promptly after the discovery by any Senior Officer of the Borrower of the occurrence of: (i) any casualty loss involving, or condemnation of property of the Borrower or any of its Subsidiaries having a net book value of at least $500,000 (or its equivalent in any other currency); and (ii) any material breach or material default by any party under any Construction Document; in each case describing the nature thereof and the action the Borrower proposes to take with respect thereto. (o) MAINTENANCE OF SECURITY INTERESTS. Preserve or cause to be preserved the security interests granted under the Collateral Documents and undertake all actions which are necessary or appropriate in the reasonable judgment of the Lender to (A) maintain the Lender's security interest in the Collateral under the Collateral Documents in full force and effect at all times (including the priority thereof), and (B) preserve and protect said Collateral and protect and enforce the Borrower's or its Subsidiaries' rights and title and the rights of the Lender to said Collateral, including the making or delivery of all filings and recordations, the payments of fees and other charges and the issuance of supplemental information. (p) SECURITY INTEREST IN NEWLY ACQUIRED PROPERTY. Upon the acquisition of any material interest in property (including, without limitation, shares of stock of any Subsidiary of the Borrower) not covered by any Collateral Document, execute, deliver and record either a supplement to an existing applicable Collateral Document, or a new applicable Collateral Document, in either case satisfactory in form and substance to the Lender, subjecting such interests to the Lien and security interests created by such Collateral Document and take all steps to ensure that the security interest in such interest will be a valid, effective and perfected security interest on terms comparable to the security interest of the Lender in the Collateral under the then existing Collateral Documents. (q) GUARANTIES BY NEW SUBSIDIARIES. Cause each Subsidiary hereafter acquired or formed by the Borrower, other than a Subsidiary of a Subsidiary of the Borrower, to execute and deliver to the Lender, upon such acquisition or formation, a guaranty of payment of all the Obligations of the Borrower hereunder and under the Notes, such guaranty to be governed by the law of the State of New York and to be in form and substance satisfactory to the Lender, together with a favorable legal opinion addressed to the Lender covering the authorization, execution and delivery by such Subsidiary of such guaranty and the legality, binding effect and enforceability against such Subsidiary of such guaranty. SECTION 5.02. NEGATIVE COVENANTS. So long as any Advance shall remain unpaid or the Lender shall have any Commitment hereunder, the Borrower will not, at any time: (a) LIENS, ETC. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character whether now owned or hereafter acquired, or sign or suffer to exist, or permit any of its Subsidiaries to sign or suffer to exist, any security agreement with respect to any of its properties of any character whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any accounts or other right to receive income, EXCLUDING, HOWEVER, from the operation of the foregoing restrictions the following: (i) Liens created under the Loan Documents, (ii) Permitted Liens, (iii) Liens existing on the date hereof and described on Schedule 5.02(a)(iii) hereto, (iv) (A) purchase money Liens upon or in real property or equipment acquired or held by the Borrower or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property or equipment to be subject to such Liens, or Liens existing on any such property or equipment at the time of acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount and (B) Liens to secure Debt incurred within 270 days of the acquisition, construction or improvement of fixed or capital assets to finance the acquisition, construction or improvement of such fixed or capital assets or otherwise incurred during such 270 day period in respect of Capital Expenditures permitted pursuant to section 5.02(o); PROVIDED, HOWEVER, that no such Lien shall extend to or cover any property other than the property or equipment being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; and PROVIDED FURTHER, HOWEVER, that the aggregate principal amount of the Debt secured by Liens permitted by this clause (iv) shall not exceed the aggregate amount permitted under Section 5.02(b)(iv) at any time outstanding and that any such Debt shall not otherwise be prohibited by the terms of this Agreement, (v) Liens arising in connection with Capitalized Leases permitted under Section 5.02(b)(iv); PROVIDED that no such Lien shall extend to or cover any Collateral or assets other than the assets subject to such Capitalized Leases, (vi) (A) Liens upon or in fixed or capital assets acquired by the Borrower to secure the purchase price of such assets or to secure Debt incurred solely for the purpose of financing the acquisition of such assets to be subject to such Liens, or Liens existing on any such assets at the time of such acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, and (B) Liens upon or in any property acquired or held by any Subsidiary of the Borrower to secure the purchase price of such property acquired by such Subsidiary or the purchase price of such Subsidiary acquired by the Borrower, or to secure Debt incurred solely for the purpose of financing such acquisition by such Subsidiary of any such property or such acquisition by the Borrower of such Subsidiary, or Liens existing on any such property at the time of such acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; PROVIDED, HOWEVER, that any such Liens under subclause (A) or (B) above in connection with any such acquisition will be permitted under this clause (vi) only if the following conditions are satisfied: (V) the ratio of (1) the Consolidated Debt of the Borrower and its Subsidiaries as of such date after giving effect to such acquisition and to the related Debt to be incurred pursuant to Section 5.02(b)(v), to (2) the Consolidated EBITDA of the Borrower and its Subsidiaries for the Measurement Period ending with the end of the most recent Fiscal Quarter after giving effect to such acquisition and including the EBITDA during such Measurement Period relating to the assets and property so being acquired as though such assets and property were owned by the Borrower and/or its Subsidiaries, as appropriate, during such Measurement Period, (the "PRO FORMA EBITDA"), is less than the ratio of (I) the Consolidated Debt of the Borrower and its Subsidiaries as of such date without giving effect to such acquisition, to (II) the Consolidated EBITDA of the Borrower and its Subsidiaries for such Measurement Period without giving effect to such acquisition; (W) the ratio of (1) the Pro Forma EBITDA to (2) the sum of (a) cash interest payable on, and amortization of debt discount in respect of, all Debt scheduled to be paid during the period of 12 months next succeeding such date for the Borrower and its Subsidiaries after giving effect to such acquisition and to the related Debt to be incurred pursuant to Section 5.02(b)(v), PLUS (b) principal amounts of all Debt (other than repayments of Working Capital borrowings as a result of a non-extension of the Working Capital Commitment) scheduled to be paid during the period of 12 months next succeeding such date for the Borrower and its Subsidiaries after giving effect to such acquisition and to the related Debt to be incurred pursuant to Section 5.02(b)(v), is greater than the ratio of (I) the Consolidated EBITDA of the Borrower and its Subsidiaries for such Measurement Period without giving effect to such acquisition, to (II) the sum of (a) cash interest payable on, and amortization of debt discount in respect of, all Debt scheduled to be paid during the period of 12 months next succeeding such date for the Borrower and its Subsidiaries without giving effect to such acquisition, PLUS (b) principal amounts of all Debt (other than repayments of Working Capital borrowings as a result of a non-extension of the Working Capital Commitment) scheduled to be paid during the period of 12 months next succeeding such date for the Borrower and its Subsidiaries without giving effect to such acquisition; (X) the total amount of Debt incurred in connection with such acquisition shall not exceed the greater of (1) 2.0 TIMES the EBITDA during such Measurement Period relating solely to the assets and property so being acquired as though such assets and property were owned by the Borrower and/or its Subsidiaries, as appropriate, during such Measurement Period and (2) an amount of Debt which when added to the Debt already outstanding would not in the aggregate exceed 2.75 TIMES the Pro Forma EBITDA; (Y) no payment of principal of the Debt incurred in connection with such acquisition shall, by the terms of such Debt, be due and payable until after the final maturity date of the Advances; and (Z) the terms of the Debt incurred in connection with such acquisition shall be in all other respects reasonably acceptable to the Lender, (vii) other Liens securing Obligations of the Borrower and its Subsidiaries in an aggregate principal amount not to exceed $1,000,000 at any time outstanding, and (viii) Liens on any accounts receivable incurred in connection with the disposition of such accounts receivable pursuant to Section 5.02(d)(v). (b) DEBT. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Debt other than, in the case of the Borrower and any of its Subsidiaries: (i) Debt under the Loan Documents, (ii) the Surviving Debt, (iii) the Replacement Debt, provided that: (A) such Debt is incurred only after the Working Capital Termination Date as defined in clause (x) of the definition thereof contained in Section 1.01; (B) such Debt is incurred only after all outstanding Working Capital Advances shall have been, or shall be concurrently with the incurrence of such Debt, paid or prepaid in full, together with all accrued and unpaid interest thereon and other fees and amounts related to the Working Capital Advances and Working Capital Commitments; and (C) such Debt is for a maximum amount no greater than $7,500,000 or the equivalent thereof at any time outstanding, (iv) Debt secured by Liens permitted by Section 5.02(a)(iv) and Capitalized Leases not to exceed an aggregate amount equal to $500,000 at any time outstanding, (v) Debt secured by Liens permitted by Section 5.02(a)(vi), (vi) Debt of any Person existing at the time such Person is merged into or consolidated with, or acquired by, the Borrower or any of its Subsidiaries or becomes a Subsidiary of the Borrower in accordance with the provisions of Section 5.02(e)(vi); PROVIDED that such Debt was not incurred in contemplation of such merger, consolidation or investment; and PROVIDED FURTHER that the aggregate amount of all Debt incurred hereunder shall in no event exceed $1,000,000 in the aggregate at any time outstanding, (vii) indorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (viii) Debt consisting of guaranty Obligations in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of the Borrower and its Subsidiaries, (ix) Debt in respect of any bankers' acceptance, letter of credit, warehouse receipt or similar facilities entered into in the ordinary course of business, (x) Debt in respect of Hedge Agreements incurred in the ordinary course of business and consistent with prudent business practice, and (xi) Subordinated Debt of the Borrower not to exceed in the aggregate $10,000,000 at any time outstanding, PROVIDED that such Subordinated Debt may be incurred on any date only if the ratio of Consolidated EBITDA of the Borrower and its Subsidiaries for the Measurement Period ending with the end of the most recent Fiscal Quarter to the sum of (1) cash interest payable on, and amortization of debt discount in respect of, all Debt of the Borrower and its Subsidiaries scheduled to be paid during the period of 12 months next succeeding such date, PLUS (2) principal amounts of all Debt payable (other than repayments of Working Capital borrowings as a result of a non-extension of the Working Capital Commitment) by the Borrower and its Subsidiaries scheduled to be paid during the period of 12 months next succeeding such date, PLUS (3) interest on such Subordinated Debt to be incurred on such date, scheduled to be paid during the period of 12 months next succeeding such date, is not less than 2.75 to 1; PROVIDED, FURTHER, that Subordinated Debt which does not require interest to be paid in cash until such ratio has been satisfied may be issued notwithstanding the failure to satisfy such ratio; and PROVIDED, FURTHER, that no payment of principal of or deferred interest on such Subordinated Debt shall by the terms of such Debt be due and payable until after the Advances have all been paid in full in cash; and such Subordinated Debt shall be in all other respects on terms reasonably acceptable to the Lender, (xii) Subordinated Debt of the Borrower resulting solely and directly from the lending of Funds To Complete (as defined in the Completion Guaranty) by the Shareholders pursuant to Section 2.01(b)(ii) of the Completion Guaranty, PROVIDED that on the date of such lending no event shall have occurred and shall be continuing, or would result from such lending, that constitutes a Default, and (xiii) Subordinated Debt of the Borrower the proceeds of which are used solely and directly to pay or prepay (pursuant to Section 2.05(a)) the Term Advances then outstanding. (c) MERGERS, ETC. Merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries to do so, or effect or permit any of its Subsidiaries to effect an ESCISION, except that (i) any Subsidiary of the Borrower may merge into or consolidate with the Borrower or with any other Subsidiary of the Borrower provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be a wholly owned Subsidiary of the Borrower (excluding qualifying shares) and (ii) any Subsidiary of the Borrower may merge into any other Person or permit any other Person to merge into it and (iii) any Subsidiary of the Borrower may split up, provided that the resulting companies shall be Subsidiaries of the Borrower; PROVIDED, HOWEVER, that in each case, immediately after giving effect thereto, no event shall occur and be continuing as a result of said merger or consolidation that constitutes a Default. (d) SALES, ETC., OF ASSETS. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets or grant any option or other right to purchase, lease or otherwise acquire any assets other than: (i) assets transferred or disposed of in the ordinary course of the Borrower's or its Subsidiaries' business, (ii) assets that are replaced by other assets used in the Borrower's or its Subsidiaries' business, (iii) assets transferred or disposed of as a result of an expropriation of assets that does not create an Event of Default, (iv) in any Fiscal Year, obsolete assets or assets not required in connection with the operation of the Plant; PROVIDED that any single disposition of such property in excess of $100,000 (or its equivalent in any other currency) shall only be permitted with the prior written consent of the Independent Engineer or the Lender, and (v) accounts receivable, PROVIDED that all proceeds from any such disposition of accounts receivable are applied forthwith to prepay Term Advances pursuant to Section 2.05(a). (e) INVESTMENTS IN OTHER PERSONS. Make or hold, or permit any of its Subsidiaries to make or hold, any Investment in any Person other than: (i) Permitted Investments; (ii) Investments existing on the date hereof and described on Schedule 5.02(e)(ii) hereto; (iii) Investments in Hedge Agreements permitted under Section 5.02(b)(ix); (iv) loans and advances to employees in the ordinary course of business as presently conducted in an aggregate amount not to exceed $250,000 at any time outstanding; (v) Investments received in connection with the bankruptcy or reorganization of suppliers or customers and in settlement of delinquent obligations of, and other disputes with, customers arising in the ordinary course of business; and (vi) other Investments in an aggregate amount invested not to exceed $5,000,000 (or its equivalent in any other currency) as of the date on which the Investment was made); PROVIDED that, with respect to Investments made under this clause (vi): (1) any newly acquired or created Subsidiary of the Borrower or any of its Subsidiaries shall be a wholly-owned Subsidiary thereof except as otherwise required under Mexican law; (2) immediately before and after giving effect thereto, no Default shall have occurred and be continuing as a result therefrom; and (3) any business acquired or invested in pursuant to this clause (vi) shall be in the same line of business as the business of the Borrower or any of its Subsidiaries. (f) DIVIDENDS, ETC. Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its capital stock or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding, return any capital to its stockholders as such, make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholders as such or issue or sell any capital stock or any warrants, rights or options to acquire such capital stock, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of the Borrower or any warrants, rights or options to acquire such capital stock or to issue or sell any capital stock or any warrants, rights or options to acquire such capital stock. (g) CHANGE IN NATURE OF BUSINESS. Make, or permit any of its Subsidiaries to make, any material change in the nature of its business as carried on at the date hereof. (h) AMENDMENTS TO CHARTER DOCUMENTS, DEBT, MATERIAL AGREEMENTS, ETC. Amend or otherwise modify, or permit any of its Subsidiaries to amend or modify, (i) its ESCRITURA CONSTITUTIVA or bylaws in any manner that would have a Material Adverse Effect, (ii) any Construction Document, (iii) any Related Document, or (iv) any other material agreement, in each case in any way that would have a Material Adverse Effect. (i) ACCOUNTING CHANGES. Make or permit, or permit any of its Subsidiaries to make or permit, any change in (i) accounting policies or reporting practices, except as required by generally accepted accounting principles or (ii) its Fiscal Year. (j) PREPAYMENTS, ETC., OF DEBT. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Debt, other than (i) the prepayment of the Advances in accordance with the terms of this Agreement and (ii) regularly scheduled or required repayments or redemptions of Surviving Debt, or amend, modify or change in any manner any term or condition of any Surviving Debt, or permit any of its Subsidiaries to do any of the foregoing other than to prepay any Debt payable to the Borrower. (k) AMENDMENT, ETC., OF RELATED DOCUMENTS. Cancel or terminate any Related Document or consent to or accept any cancellation or termination thereof, amend, modify or change in any manner any term or condition of any Related Document or give any consent, waiver or approval thereunder, waive any default under or any breach of any term or condition of any Related Document, agree in any manner to any other amendment, modification or change of any term or condition of any Related Document or take any other action in connection with any Related Document that would materially impair the value of the interest or rights of the Borrower thereunder or that would materially impair the rights or interests of the Lender, or permit any of its Subsidiaries to do any of the foregoing. (l) AMENDMENT, ETC., OF CONSTRUCTION DOCUMENTS. Cancel or terminate any Construction Document or consent to or accept any cancellation or termination thereof, amend or otherwise modify any Construction Document or give any waiver thereunder, waive any default under or breach of any Construction Document, agree in any manner to any other amendment, modification or change of any term or condition of any Construction Document or take any other action in connection with any Construction Document, which, as to any of the foregoing, would materially impair the value of the interest or rights of the Borrower thereunder or that would materially impair the interest or rights of the Lender, or permit any of its Subsidiaries to do any of the foregoing. (m) NEGATIVE PLEDGE. Enter into or suffer to exist, or permit any of its Subsidiaries to enter into or suffer to exist, any agreement prohibiting or conditioning the creation or assumption of any Lien upon any of its property or assets other than (i) in favor of the Lender, (ii) in connection with any Surviving Debt, (iii) in connection with any Replacement Debt or (iv) in connection with any Liens permitted to be incurred pursuant to Section 5.02(a) with respect to the property which is the subject of such Liens, provided that any agreement in connection with a Lien permitted by Section 5.02(a) will not prevent the creation, assumption or existence of any future Lien on other property of the Borrower or any of its Subsidiaries or restrict or have any effect on any existing Lien. (n) PARTNERSHIPS, ETC. Become a general partner in any general or limited partnership or joint venture, or permit any of its Subsidiaries to do so, other than any Subsidiary the sole assets of which consist of its interest in such partnership or joint venture. (o) CAPITAL EXPENDITURES. Make, or permit any of its Subsidiaries to make, any Capital Expenditures that would cause the aggregate amount of all Capital Expenditures made by the Borrower and its Subsidiaries in any Fiscal set forth below to exceed the amount set forth below for such Fiscal Year:
Fiscal Year Amount ----------- ------ 1998 $23,000,000 1999 10,000,000 2000 5,000,000 2001 5,000,000 2002 5,000,000
PROVIDED that (i) the unused portion of Capital Expenditures permitted in any Fiscal Year and not used in such Fiscal Year may be carried over and added to the amount otherwise permitted in the immediately succeeding Fiscal Year, it being understood that for purposes of the foregoing, the Borrower and its Subsidiaries shall be deemed to have used the amount originally available during the succeeding Fiscal Year prior to using any such carry-over amount, (ii) the aggregate amount carried over pursuant to the preceding clause (i) may not exceed 50% of the total amount of Capital Expenditures permitted during the Fiscal Year from which such Capital Expenditures are carried over, and (iii) each Capital Expenditure shall be made in accordance with the then applicable Capital Budget. (p) LEASE OBLIGATIONS. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any obligations as lessee (i) for the rental or hire of real or personal property in connection with any sale and leaseback transaction, or (ii) for the rental or hire of real or personal property of any kind under leases or agreements to lease including Capitalized Leases having an original term of one year or more that would cause the direct and contingent liabilities of the Borrower and its Subsidiaries, on a Consolidated basis, in respect of all such obligations to exceed $75,000 (or its equivalent in any other currency) payable in any period of 12 consecutive months. SECTION 5.03. REPORTING REQUIREMENTS. So long as any Advance shall remain unpaid or the Lender shall have any Commitment hereunder, the Borrower will furnish to the Lender: (a) DEFAULT NOTICE. As soon as possible and in any event within two days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of a Senior Officer of the Borrower setting forth details of such Default and the action that the Borrower has taken and proposes to take with respect thereto. (b) QUARTERLY FINANCIALS. As soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters, Consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter and Consolidated statements of income and Consolidated statements of cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous Fiscal Quarter and ending with the end of such Fiscal Quarter and Consolidated statements of income and Consolidated statements of cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to year-end audit adjustments) by a Senior Officer of the Borrower as having been prepared in accordance with GAAP, together with (i) a certificate of such Senior Officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower has taken and proposes to take with respect thereto and (ii) a schedule in form satisfactory to the Lender of the computations used by the Borrower in determining compliance with the covenants contained in subsections 5.04(a) through (e) and Section 5.02(o). (c) ANNUAL FINANCIALS. As soon as available and in any event within 120 days after the end of each Fiscal Year, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, including therein a Consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year and a Consolidated statement of income and a Consolidated statement of cash flows of the Borrower and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion that shall be unqualified as to the scope of the audit and as to the going concern status of the Borrower and its Subsidiaries taken as a whole, of Deloitte & Touche or its affiliated Mexican firm or of any other independent public accountants of recognized standing acceptable to the Lender, together with (i) a certificate of such accounting firm to the Lender stating that in the course of the regular audit of the business of the Borrower and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that a Default has occurred and is continuing, or if, in the opinion of such accounting firm, a Default has occurred and is continuing, a statement as to the nature thereof, (ii) a schedule in form satisfactory to the Lender of the computations used by a Senior Officer in determining, as of the end of such Fiscal Year, compliance with the covenants contained in subsections 5.04(a) through (e) and Section 5.02(o) and (iii) a certificate of a Senior Officer of the Borrower stating that no Default has occurred and is continuing or, if a default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower has taken and proposes to take with respect thereto. (d) ANNUAL FORECASTS. As soon as available and in any event no later than 15 days before the end of each Fiscal Year, forecasts prepared by management of the Borrower, in form satisfactory to the Lender, of balance sheets, income statements and cash flow statements on a monthly basis for the Fiscal Year following such Fiscal Year then ended and on an annual basis for the four subsequent Fiscal Years thereafter. (e) LITIGATION. Promptly after the commencement thereof, notice of all actions, suits, investigations, litigation and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Borrower or any of its Subsidiaries of the type described in Section 4.01(i), that reasonably could be expected to result in a Material Adverse Effect. (f) SECURITIES REPORTS. Promptly after the filing thereof, copies of all regular, periodic and special reports, and all registration statements, that the Borrower or any of its Subsidiaries files with the United States Securities and Exchange Commission or any similarly situated Governmental Authority, or with any national securities exchange. (g) CREDITOR REPORTS. Promptly after the furnishing thereof, copies of any statement or report furnished to any other holder of the securities of the Borrower or of any of its Subsidiaries pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lender pursuant to any other clause of this Section 5.03. (h) AGREEMENT NOTICES. Promptly upon receipt thereof, copies of all notices, requests and other documents received by the Borrower or any of its Subsidiaries under or pursuant to any Related Document or Construction Document regarding or related to any breach or default by any party thereto or any other event that could materially impair the value of the interests or the rights of the Borrower or otherwise have a Material Adverse Effect and, from time to time upon request by the Lender, such information and reports regarding the Related Documents and the Construction Documents as the Lender may reasonably request. (i) ENVIRONMENTAL CONDITIONS. Promptly after the assertion or occurrence thereof, notice of any Environmental Action against or of any noncompliance by the Borrower or any of its Subsidiaries with any Environmental Law or Environmental Permit that (i) could reasonably be expected to have a Material Adverse Effect or (ii) cause any property described in the Industrial Mortgage to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law. (j) REAL PROPERTY. As soon as available and in any event within 30 days after the end of each Fiscal Year, a report supplementing Schedules 4.01(ii) and 4.01(jj) hereto, including an identification of all real and leased property disposed of by the Borrower or any of its Subsidiaries during such Fiscal Year, a list and description (including the street address, county or other relevant jurisdiction, state, record owner, book value thereof, and in the case of leases of property, lessor, lessee, expiration date and annual rental cost thereof) of all real property acquired or leased during such Fiscal Year and a description of such other changes in the information included in such Schedules as may be necessary for such Schedules to be accurate and complete. (k) INSURANCE. As soon as available and in any event within 30 days after the end of each Fiscal Year, a report summarizing the insurance coverage, including any Required Insurance (specifying type, amount and carrier), in effect for the Borrower and its Subsidiaries and containing such additional information as the Lender may reasonably specify. (l) CONSTRUCTION REPORT. Not later than 30 days after the end of each month prior to the Completion Date, a construction report prepared by or at the request of the Borrower describing the construction of the Plant conducted during such month and including physical progress to date. (m) ANNUAL OPERATING BUDGET AND CAPITAL BUDGET. Not later than 15 days prior to the beginning of each Fiscal Year, the Annual Operating Budget and Capital Budget prepared by the Borrower for such Fiscal Year. The Borrower will furnish promptly to the Lender any material changes to such Annual Operating Budget or Capital Budget or any forecasts made in connection with any such budgets. (n) COMPARISONS TO BUDGETS. Concurrently with the delivery of the financial statements referred to in subsections 5.03(c) and (d), a profit and loss account and a statement of sources and application of funds showing actual expenditures to date against the applicable Capital Budget and Annual Operating Budget. (o) NOTICE OF AMENDMENTS TO DOCUMENTS. (i) At least five Business Days prior to the date of execution thereof, a copy of each amendment or other modification to the charter, bylaws, Joint Venture Agreement or other organizational documents of the Borrower or any of its Subsidiaries, and (ii) within at least five Business Days after the execution thereof, or copy of each amendment, waiver or other modification to any documents evidencing or relating to any Debt, any Construction Document, or any Related Document. (p) NOTICE OF INSUFFICIENT RESOURCES. If at any time the Borrower believes that the funds on deposit in the Borrower's Account together with the funds available to be drawn under the remaining unused Commitments plus the funds reasonably projected by the Borrower to be available from its operating cash flow through March 31, 2000 will not be sufficient for Completion of the Plant, prompt notice to such effect. (q) OTHER INFORMATION. Such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or any of its Subsidiaries as the Lender or the Independent Engineer may from time to time reasonably request. SECTION 5.04. FINANCIAL COVENANTS. So long as any Advance shall remain unpaid or the Lender shall have any Commitment hereunder, the Borrower will: (a) DEBT TO EBITDA. Maintain at the end of each Fiscal Quarter a ratio of Consolidated Debt of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter to Consolidated EBITDA of the Borrower and its Subsidiaries for each Measurement Period ending with the end of such Fiscal Quarter set forth below, of not more than the ratio set forth below opposite such Measurement Period:
Measurement Period Ending Ratio (to 1) ------------------------- ------------ 3rd Quarter 1998 6.75 4th Quarter 1998 6.25 1st Quarter 1999 5.875 2nd Quarter 1999 5.5 3rd Quarter 1999 5.25 4th Quarter 1999 4.75 1st Quarter 2000 4.5 2nd Quarter 2000 4.0 3rd Quarter 2000 3.75 4th Quarter 2000 3.5 1st Quarter 2001 3.25 2nd Quarter 2001 3.0 3rd Quarter 2001 3.0 4th Quarter 2001 2.75 1st Quarter 2002 2.0 2nd Quarter 2002 2.0 3rd Quarter 2002 2.0 4th Quarter 2002 2.0
(b) INTEREST COVERAGE RATIO. Maintain at all times a ratio of (i) Consolidated EBITDA of the Borrower and its Subsidiaries to (ii) the sum of cash interest payable on all Debt PLUS the portion of any payments made in connection with Capitalized Leases allocable to interest expense, in each case of the Borrower and its Subsidiaries for each Measurement Period ending with the end of such Fiscal Quarter set forth below, of not less than the ratio for such Measurement Period set forth below:
Measurement Period Ending Ratio (to 1) ------------------------- ------------ 3rd Quarter 1998 1.75 4th Quarter 1998 1.75 1st Quarter 1999 1.875 2nd Quarter 1999 1.875 3rd Quarter 1999 2.0 4th Quarter 1999 2.25 1st Quarter 2000 2.25 2nd Quarter 2000 2.25 3rd Quarter 2000 2.5 4th Quarter 2000 2.75 1st Quarter 2001 2.75 2nd Quarter 2001 2.75 3rd Quarter 2001 3.0 4th Quarter 2001 3.0 1st Quarter 2002 3.0 2nd Quarter 2002 3.0 3rd Quarter 2002 3.0 4th Quarter 2002 3.0
(c) FIXED CHARGE COVERAGE RATIO. Maintain at all times a ratio of Consolidated EBITDA of the Borrower and its Subsidiaries to the sum of (i) cash interest payable on, and amortization of debt discount in respect of, all Debt PLUS (ii) principal amounts of all Debt payable (other than repayments of Working Capital borrowings as a result of a non-extension of the Working Capital Commitment), in each case, by the Borrower and its Subsidiaries for each Measurement Period ending with the end of such Fiscal Quarter set forth below, of not less than the ratio for such Measurement Period set forth below:
Measurement Period Ending Ratio (to 1) ------------------------- ------------ 3rd Quarter 1998 1.75 4th Quarter 1998 1.75 1st Quarter 1999 1.875 2nd Quarter 1999 1.875 3rd Quarter 1999 2.0 4th Quarter 1999 2.25 1st Quarter 2000 2.25 2nd Quarter 2000 2.25 3rd Quarter 2000 2.5 4th Quarter 2000 2.75 1st Quarter 2001 2.75 2nd Quarter 2001 1.25 3rd Quarter 2001 1.25 4th Quarter 2001 1.25 1st Quarter 2002 1.15 2nd Quarter 2002 1.15 3rd Quarter 2002 1.15 4th Quarter 2002 1.15
ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. ACCELERATION AFTER DEFAULT. If any Event of Default occurs and is continuing (whether it is voluntary or involuntary, or results from operation of law or otherwise), then, and in any such event, the Lender (i) may, in its sole discretion, by notice to the Borrower, declare the obligation of the Lender to make either or both of the Term Advances and Working Capital Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) may, in its sole discretion, by notice to the Borrower, with respect to the Working Capital Advances, the Term Advances, or both, declare the relevant Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the relevant Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; PROVIDED, HOWEVER, that in the event of Bankruptcy with respect to any Loan Party, (x) the obligation of the Lender to make Advances shall automatically be terminated and (y) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. SECTION 6.02. EVENTS OF DEFAULT. If any of the following events ("EVENTS OF DEFAULT") shall occur and be continuing: (a) the Borrower shall (i) fail to pay any principal of any Advance when the same shall become due and payable or (ii) fail to pay any interest on any Advance, or any fees payable pursuant to Section 2.07, or any other amounts owing by it under any Loan Document, in each case within two Business Days after the same becomes due and payable; or (b) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or (c) the Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 2.11, 5.01(e), 5.02, 5.03 or 5.04; or (d) any Loan Party shall fail to perform any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 10 days after the earlier of the date on which (A) any Senior Officer of the Borrower becomes aware of such failure or (B) written notice thereof shall have been given to the Borrower by the Lender; or (e) the Borrower or any of its Subsidiaries shall fail to pay any principal of, premium or interest on or any other amount payable in respect of any Debt that is outstanding in a principal amount of at least $750,000 (or the equivalent in any other currency) either individually or in the aggregate (but excluding Debt outstanding hereunder) of such Loan Party or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt or otherwise to cause, or to permit the holder thereof to cause, such Debt to mature; or any such Debt shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) any Loan Party or any of its Subsidiaries shall make a general assignment for the benefit of creditors; or any Bankruptcy proceeding shall be instituted by or against any Loan Party or any of its Subsidiaries and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding shall occur; or any Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or (g) any judgment or order for the payment of money in excess of $750,000 (or the equivalent in any other currency) shall be rendered against the Borrower or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (h) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that could have a Material Adverse Effect, and there shall be any period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any provision of any Loan Document after delivery thereof pursuant to Section 3.01, 3.02, 3.03, 5.01(p) or 6.02(k) shall for any reason cease to be valid and binding on or enforceable against any Loan Party to it, or any such Loan Party shall so state in writing, EXCEPT, in the case of the Completion Guaranty only, to the extent that the Lender shall have been furnished such insurance, guaranty or other agreement in form and substance acceptable to the Lender, duly executed by a party or parties acceptable to the Lender, in substitution for the Completion Guaranty; or (j) any Collateral Document after delivery thereof pursuant to Section 3.01, 5.01(p) or 6.02(k) shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority Lien on and security interest in the Collateral purported to be covered thereby; or (k) either Accuride or IASA shall, within 5 Business Days after the cessation of contractual restrictions binding on IASA contained in the Acta de Emision de Obligaciones de Industria Automotriz, S.A. de C.V. con Garantia Fiduciaria y Solidaria (IASASA) 92 (Indenture for the Issuance of Bonds of IASA with Fiduciary and Joint Guaranty) evidenced in public deed 14956 granted on September 2, 1992 before Notary Public No. 33 of Monterrey, N.L., Mexico, as amended, which prohibit the pledge to the Lender of IASA's shares of stock of the Borrower, fail to deliver to the Lender (i) a pledge agreement, in substantially the form of Exhibit M hereto (as amended, supplemented or otherwise modified from time to time, the "PLEDGE AGREEMENT"), by Accuride and IASA in favor of the Lender, under which Accuride and IASA together shall pledge 100% of the outstanding shares of Voting Stock of the Borrower in order to secure the obligations of the Borrower under this Agreement, the Notes and the other Loan Documents to which the Borrower is a party, together with (ii) certificates representing such shares endorsed in pledge (ENDOSO EN GARANTIA) in favor of the Lender, (iii) a certificate, issued by the Secretary of the Borrower stating that such pledge has been duly recorded in the share registry book of the Borrower, (iv) evidence that all other action that the Lender may deem necessary or desirable in order to perfect the security interest created under the Pledge Agreement has been taken and (v) a favorable opinion of Santamarina y Steta, S.C., counsel for Accuride, and a favorable opinion of Andres Gonzalez Sandoval, counsel for IASA, in each case confirming the due authorization, execution and delivery of the Pledge Agreement by Accuride and IASA, respectively, the validity, perfection and first priority of the security interest created by the Pledge Agreement in the shares of stock of the Borrower, and otherwise in form and substance satisfactory to the Lender; or (l) the termination of or default under any Construction Document, the termination of or default under which has resulted in a Material Adverse Effect; or (m) failure of the Completion Date to occur by March 31, 2000; or (n) the Borrower shall have voluntarily abandoned the development, construction or operation of the Plant on a permanent basis; or (o) all or a substantial part of the Plant is destroyed or suffers an actual or constructive loss or damage or is condemned or expropriated, in each case, to the extent that the Borrower is not fully insured for such loss, damage, condemnation or expropriation or, if fully insured, is not fully reimbursed in connection with such insurance within 120 days of the occurrence of such loss, damage, condemnation or expropriation; or (p) Accuride shall cease to own, directly or indirectly, at least 51% of the Voting Stock of the Borrower; or (q) Kohlberg Kravis Roberts & Co., L.P., a Delaware limited partnership, ("KKR"), or any Affiliate of KKR shall cease to own, directly or indirectly, at least 35% of the Voting Stock of Accuride, other than as a result of one or more widely distributed public offerings of common stock of Accuride; or (r) a Completion Default shall have occurred and be continuing. SECTION 6.03. REMEDIES. Upon acceleration of the Notes pursuant to Section 6.01, the Lender may proceed to protect and enforce the rights, privileges and remedies granted under this Agreement and the other Loan Documents and under the Applicable Laws of any relevant jurisdiction by instituting such judicial or other proceedings and by taking all such other actions as the Lender may determine, at law, in equity, in bankruptcy or otherwise, whether for specific enforcement of any covenant or agreement contained in this Agreement or any other Loan Document, or in aid of the exercise of any right, power, privilege or remedy granted hereunder, thereunder or under the Applicable Laws of any relevant jurisdiction, or for any foreclosure upon the Collateral and sale thereof under any judgment or decree in any judicial proceeding, or to enforce any other legal or equitable right or remedy granted or otherwise available to the Lender under this Agreement or any other Loan Document or the Applicable Laws of any relevant jurisdiction. ARTICLE VII MISCELLANEOUS SECTION 7.01. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement or the Notes or any other Loan Document, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed (or, in the case of the Collateral Documents, consented to) by the Lender and, in the case of any amendment, by the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 7.02. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telecopy or telex communication) in the English language (or accompanied by an accurate English language translation upon which any recipient shall have the right to rely for all purposes) and mailed, telegraphed, telecopied, telexed or delivered, if to the Borrower, at its address at Avenida Universidad 1011 Nte, Planta Alta, San Nicolas de los Garza, N.L., Mexico 66400, Attention: Jaime Martinez; and if to the Lender, at its address at Citibank Mexico, S.A., Grupo Financiero Citibank, Reforma 390, Mexico, D.F. 06695, Attention: Victor Elizondo; or, as to the Borrower or the Lender, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Lender. All such notices and communications shall, when mailed, telegraphed, telecopied or telexed, be effective when deposited in the mails, delivered to the telegraph company, transmitted by telecopier or confirmed by telex answerback, respectively, except that notices and communications to the Lender pursuant to Article II or III shall not be effective until received by the Lender. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof. SECTION 7.03. NO WAIVER; REMEDIES. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 7.04. COSTS, EXPENSES. (a) The Borrower agrees to pay on demand (i) all costs and expenses of the Lender in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of counsel for the Lender with respect thereto, with respect to advising the Lender as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any Bankruptcy or other similar proceeding affecting creditors' rights generally and any proceeding ancillary thereto) and (ii) all costs and expenses of the Lender in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, any Bankruptcy or other similar proceeding affecting creditors' rights generally (including, without limitation, the reasonable fees and expenses of counsel for the Lender with respect thereto). (b) The Borrower agrees to indemnify and hold harmless each Lender Party, and each of its Affiliates and its officers, directors, employees, agents and advisors (each, an "INDEMNIFIED PARTY") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with (x) any investigation, litigation or proceeding or preparation of a defense in connection therewith or (y) any foreclosure on any Collateral) (i) the Facilities, the actual or proposed use of the proceeds of the Advances, the Loan Documents, the Related Documents, the Construction Documents or any of the transactions contemplated thereby, or (ii) the actual or alleged presence of Hazardous Materials on any property of any Loan Party or any of its Subsidiaries or any Environmental Action relating in any way to any Loan Party or any of its Subsidiaries, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 7.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower also agrees not to assert any claim against any Lender Party or any of its Affiliates, or any of their respective officers, directors, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the Facilities, the actual or proposed use of the proceeds of the Advances, the Loan Documents, the Related Documents, the Construction Documents or any of the transactions contemplated thereby. (c) If any payment of principal of any Advance is made by the Borrower to or for the account of the Lender other than on the last day of the Interest Period for such Advance, as a result of a payment pursuant to Sections 2.05 or 2.08(c), acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, the Borrower shall, upon demand by the Lender, pay to the Lender for the account of the Lender any amounts required to compensate the Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Lender to fund or maintain such Advance. (d) If the Borrower fails to pay when due any costs, expenses or other amounts payable by it under any Loan Document, including, without limitation, fees and expenses of counsel and indemnities, such amount may be paid on behalf of such Loan Party by the Lender in its sole discretion. (e) Without prejudice to the survival of any other agreement of any Loan Party hereunder or under any other Loan Document, the agreements and obligations of the Borrower contained in Sections 2.08 and 2.10 and this Section 7.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any of the other Loan Documents. SECTION 7.05. RIGHT OF SET-OFF. Upon the occurrence and during the continuance of any Event of Default, the Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and otherwise 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 the Lender or such Affiliate to or for the credit or the account of the Borrower against any and all of the Obligations of the Borrower now or hereafter existing under this Agreement and the Notes held by the Lender, irrespective of whether the Lender shall have made any demand under this Agreement or such Notes and although such Obligations may be unmatured. The Lender agrees promptly to notify the Borrower after any such set-off and application; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender and its Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that the Lender and its Affiliates may have. SECTION 7.06. BINDING EFFECT. This Agreement shall become effective when it shall have been executed by the Borrower and the Lender and thereafter shall be binding upon and inure to the benefit of the Borrower, the Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender. SECTION 7.07. PARTICIPATIONS. (a) The Lender may sell participations to Participants in and to the Advances and the Notes pursuant to Participation Agreements; PROVIDED that (i) subject to the terms and conditions of each Participation Agreement, the Participants will provide funding to the Lender in order for the Lender to make the Advances available to the Borrower and (ii) there is no debtor-creditor relationship arising hereunder with respect to the Advances between the Borrower and the Participants that will result from the Participants so funding such Advances. (b) The Lender may, in connection with any participation or proposed participation pursuant to this Section 7.07, disclose to any Participant or proposed Participant, any information relating to the Borrower furnished to the Lender by or on behalf of the Borrower; PROVIDED, HOWEVER, that, prior to any such disclosure, the Participant or proposed Participant shall agree to preserve the confidentiality of any Confidential Information received by it from the Lender. (c) Notwithstanding any other provision set forth in this Agreement, the Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Notes held by it) in favor of any United States Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the United States Federal Reserve System. SECTION 7.08. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 7.09. EXECUTION IN TWO LANGUAGES. This Agreement and each Note shall be executed in both the English and Spanish languages, both of which bind the parties hereto and constitute but one agreement and instrument, respectively; PROVIDED, HOWEVER, that in case of doubt as to the proper interpretation or construction of this Agreement or any Note, the English text shall be controlling in all cases except with respect to any action brought in the courts of Mexico, in which case the Spanish text shall be controlling. SECTION 7.10. CONFIDENTIALITY. The Lender shall not disclose any Confidential Information to any Person without the consent of the Borrower, other than (a) to the Lender's Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective Participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process and (c) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking. SECTION 7.11. JURISDICTION, ETC. (a) Each of the parties hereto irrevocably agrees that any legal action, suit or proceeding arising out of or relating to this Agreement, the Notes or any other agreements to which the Borrower is a party may be brought in the courts of the State of New York or of the United States located in the Southern District of New York or of the Federal District of Mexico, at the election of the plaintiff. Final judgment against the Borrower in any such action, suit or proceeding shall be conclusive and may be enforced in any other jurisdiction, including Mexico, by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the judgment, or in any other manner provided by law. (b) By the execution and delivery of this Agreement, each of the parties irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York and of the United States District Court for the Southern District of New York, and of the Federal District of Mexico, in any such action, suit or proceeding and designates, appoints and empowers CT Corporation System, at 1633 Broadway, New York, NY 10019 as its authorized agent to receive for and on its behalf service of any summons, complaint or other legal process in any such action, suit or proceeding in the State of New York for so long as any obligation of the Borrower shall remain outstanding hereunder. The Borrower shall grant an irrevocable power of attorney to CT Corporation System in respect of such appointment and shall maintain such power of attorney in full force and effect for so long as any obligation of the Borrower shall remain outstanding hereunder. (c) Nothing in this Agreement shall affect the right of the Lender to commence legal proceedings or otherwise sue the Borrower in Mexico or any other appropriate jurisdiction or to serve process, pleadings and other legal papers upon the Borrower in any manner authorized by the laws of any such jurisdiction. (d) As long as this Agreement remains in force, the Borrower shall maintain a duly appointed agent for the service of summons, complaint and other legal process in New York, New York, United States, for purposes of any legal action, suit or proceeding the Lender may bring in respect of this Agreement or any other Loan Document to which the Borrower is a party. The Borrower shall keep the Lender advised of the identity and location of such agent. (e) The Borrower also irrevocably consents, if for any reason the Borrower's authorized agent for service of process of summons, complaint and other legal process in any such action, suit or proceeding is not present in New York, New York, service of such papers may be made out of those courts by mailing copies of the papers by registered United States air mail, postage prepaid, to the Borrower at its address specified in Section 7.02. In such a case, the Lender shall also send by telex or facsimile, or have sent by telex or facsimile, a copy of the papers to the Borrower. (f) Service in the manner provided in subsection (e) above in any such action, suit or proceeding will be deemed personal service, will be accepted by the Borrower as such and will be valid and binding upon the Borrower for all purposes of any such action, suit or proceeding. (g) The Borrower irrevocably waives: (i) any objection which it may have now or in the future to the laying of the venue of any such action, suit or proceedings in any court referred to in this Section; and (ii) any claim that any such action, suit or proceedings has been brought in an inconvenient forum; and (iii) any jurisdiction rights which it may be entitled to now or in the future by reason of its present or any future domicile, or otherwise. SECTION 7.12. JUDGMENT. (a) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder or under any of the other Loan Documents in Dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Lender could purchase Dollars with such other currency at Citibank in New York, New York on the Business Day preceding that on which final judgment is given. (b) The obligation of the Borrower in respect of any sum due in Dollars from it to the Lender hereunder or under any of the other Loan Documents held by the Lender shall, notwithstanding any judgment in any other currency, be discharged only to the extent that on the Business Day of receipt by the Lender of any sum adjudged to be so due in such other currency the Lender may in accordance with normal banking procedures purchase Dollars with such other currency; if the amount of Dollars so purchased is less than the sum originally due by the Borrower to the Lender in Dollars, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Lender against such loss, and if the amount of Dollars so purchased exceeds the sum originally due by the Borrower to the Lender in Dollars, the Lender agrees to remit to the Borrower such excess SECTION 7.13. CONSTRUCTION DOCUMENTS. The Lender shall not be responsible in any way for the Construction Documents and no claim against any person with respect to the performances of the Construction Documents will affect the obligations of the Borrower under this Agreement or the Notes. SECTION 7.14. GOVERNING LAW. This Agreement and the Notes shall be governed by, and construed in accordance with, the law of the State of New York, United States; PROVIDED, HOWEVER, that in connection with any legal action or proceeding (other than an action to enforce a judgment obtained in another jurisdiction) brought by the Lender in respect of this Agreement or the Notes in the courts of Mexico or any political subdivision thereof, this Agreement and the Notes shall be deemed to be instruments made under the laws of Mexico and for such purposes shall be governed by, and construed in accordance with, the law of Mexico. SECTION 7.15. ENTIRE AGREEMENT. This Agreement and the Exhibits and Schedules hereto constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, negotiations, correspondence, undertakings and communications, both oral and written, between the parties with respect to the subject matter hereof, including, without limitation, the Accuride de Mexico, S.A. de C.V. Summary of Terms and Conditions (finally negotiated by the parties in May 1998). There are no restrictions, promises, representations, warranties, covenants or undertakings by or between the parties with respect to the subject matter hereof other than those expressly set forth or referred to herein. SECTION 7.16. WAIVER OF JURY TRIAL. Each of the Borrower and the Lender irrevocably waive all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to any of the Loan Documents, the Advances or the actions of the Lender in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. ACCURIDE DE MEXICO, S.A. DE C.V., as Borrower By /s/ Robert J. Fagerlin ------------------------------------- Name: Robert J. Fagerlin Title: Director General CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as Lender By /s/ Samuel Libuic ------------------------------------- Name: Samuel Libuic Title: Attorney-in-Fact EXECUTION COPY $32,500,000 CREDIT AGREEMENT Dated as of July 9, 1998 Between ACCURIDE DE MEXICO, S.A. DE C.V. AS BORROWER and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK AS LENDER T A B L E O F C O N T E N T S
SECTION PAGE ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.01. CERTAIN DEFINED TERMS 1 1.02. COMPUTATION OF TIME PERIODS 21 1.03. ACCOUNTING TERMS 22 1.04. OTHER DEFINITIONAL PROVISIONS 22 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES 2.01. THE ADVANCES 22 2.02. MAKING THE ADVANCES 23 2.03. REPAYMENT OF ADVANCES 24 2.04. OPTIONAL TERMINATION OR REDUCTION OF THE COMMITMENTS 24 2.05. PREPAYMENTS 25 2.06. INTEREST 25 2.07. FEES 26 2.08. INCREASED COSTS, ETC. 26 2.09. PAYMENTS AND COMPUTATIONS 29 2.10. TAXES 29 2.11. USE OF PROCEEDS 30 2.12. WORKING CAPITAL COMMITMENT EXTENSIONS 30 ARTICLE III CONDITIONS OF LENDING 3.01. CONDITIONS PRECEDENT TO INITIAL EXTENSION OF CREDIT 31 3.02. CONDITIONS PRECEDENT TO EACH TERM ADVANCE 36 3.03. CONDITIONS PRECEDENT TO EACH WORKING CAPITAL ADVANCE 37 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER 39 ARTICLE VCOVENANTS OF THE BORROWER 5.01. AFFIRMATIVE COVENANTS 47 5.02. NEGATIVE COVENANTS 51 5.03. REPORTING REQUIREMENTS 61
SECTION PAGE 5.04. FINANCIAL COVENANTS 64 ARTICLE VI EVENTS OF DEFAULT 6.01. ACCELERATION AFTER DEFAULT 67 6.02. EVENTS OF DEFAULT 68 6.03. REMEDIES 71 ARTICLE VII MISCELLANEOUS 7.01. AMENDMENTS, ETC. 71 7.02. NOTICES, ETC. 71 7.03. NO WAIVER; REMEDIES 72 7.04. COSTS, EXPENSES 72 7.05. RIGHT OF SET-OFF 73 7.06. BINDING EFFECT 74 7.07. PARTICIPATIONS 74 7.08. EXECUTION IN COUNTERPARTS 74 7.09. EXECUTION IN TWO LANGUAGES 75 7.10. CONFIDENTIALITY 75 7.11. JURISDICTION, ETC. 75 7.12. JUDGMENT 76 7.13. CONSTRUCTION DOCUMENTS 77 7.14. GOVERNING LAW 77 7.15. ENTIRE AGREEMENT 77 7.16. WAIVER OF JURY TRIAL 77
SCHEDULES Schedule 1.01(a) - Blueprints Schedule 1.01(b) - Timetable Schedule 3.01(b) - Surviving Debt Schedule 4.01(b) - Subsidiaries of the Borrower Schedule 4.01(d)(i) - Authorizations, Approvals, Etc. Schedule 4.01(d)(ii) - Required Governmental Approvals Schedule 4.01(aa) - Existing Debt Schedule 4.01(ii) - Real Property Schedule 4.01(jj) - Leases of Real Property Schedule 5.01(d) - Required Insurance Schedule 5.02(a)(iii) - Liens Schedule 5.02(e)(ii) - Investments
EXHIBITS Exhibit A - Term Loan Promissory Note Exhibit B - Working Capital Promissory Note Exhibit C - Notice of Term Borrowing Exhibit D - Form of Cost Certificate Exhibit E - Notice of Working Capital Borrowing Exhibit F - Completion Guaranty Exhibit G - Letter of Comfort Exhibit H - Form of Opinion of Counsel for the Borrower Exhibit I - Form of Opinion of Counsel for Accuride Exhibit J - Form of Opinion of Counsel for Iasa Exhibit K - Form of Opinion of Mexican Counsel for the Lender Exhibit L - Form of Participation Agreement Exhibit M - Form of Pledge Agreement
EX-10.23 3 EXHIBIT 10.23 EXECUTION COPY COMPLETION GUARANTY AGREEMENT BY AND AMONG ACCURIDE CORPORATION, INDUSTRIA AUTOMOTRIZ, S.A. DE C.V., ACCURIDE DE MEXICO, S.A. DE C.V. and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as Lender Dated as of July 9, 1998 TABLE OF CONTENTS SECTION PAGE PARTIES 1 RECITALS 1 ARTICLE I COMPLETION SECTION 1.01 COMPLETION 1 SECTION 1.02 COMPLETION CERTIFICATES 2 SECTION 1.03 COMPLETION UNDERTAKING 2 SECTION 1.04 WAIVER OF COMPLETION CONDITIONS 2 SECTION 1.05 COMPLETION OF NON-CONFORMING PLANT 2 ARTICLE II FUNDS TO COMPLETE SECTION 2.01 FUNDS TO COMPLETE 3 SECTION 2.02 NOTICE OF DEFAULT 4 SECTION 2.03 PRO RATA SHARES 4 SECTION 2.04 OBLIGATIONS ABSOLUTE 4 SECTION 2.05 WAIVERS AND ACKNOWLEDGMENTS 6 SECTION 2.06 SEPARATE UNDERTAKING 6 SECTION 2.07 RELEASE UPON PREPAYMENT OF ADVANCES 6 SECTION 2.08. COMPLETION GUARANTY NOT APPLICABLE TO OBLIGATIONS UNDER THE NOTES 7 ARTICLE III TERMINATION OF OBLIGATIONS SECTION 3.01 TERMINATION UPON COMPLETION 7 SECTION 3.02 TERMINATION PRIOR TO COMPLETION 7 SECTION 3.03 EFFECT OF TERMINATION 7 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER 7 ARTICLE V COVENANTS SECTION 5.01 COVENANTS OF EACH SHAREHOLDER 10 ARTICLE VI COMPLETION DEFAULTS SECTION 6.01 COMPLETION DEFAULTS 12 SECTION 6.02 COMPLETION DEFAULT REMEDIES 13 ARTICLE VII MISCELLANEOUS SECTION 7.01 AMENDMENTS 13 SECTION 7.02 NOTICES, ETC. 13 SECTION 7.03 NO WAIVER; REMEDIES 14 SECTION 7.04 BINDING EFFECT 14 SECTION 7.05 EXECUTION IN COUNTERPARTS 14 SECTION 7.06 EXECUTION IN TWO LANGUAGES 14 SECTION 7.07 JURISDICTION, ETC. 14 SECTION 7.08 JUDGMENT 16 SECTION 7.09 GOVERNING LAW 16 SECTION 7.10 THIRD PARTY BENEFICIARIES 16 SECTION 7.11 ENTIRE AGREEMENT 16 SECTION 7.12 WAIVER OF JURY TRIAL 17 SIGNATURES 16 COMPLETION GUARANTY AGREEMENT This Completion Guaranty Agreement (this "AGREEMENT"), dated as of July 9, 1998, is made by and among ACCURIDE CORPORATION, a Delaware corporation ("ACCURIDE"), INDUSTRIA AUTOMOTRIZ, S.A. DE C.V., a corporation organized and existing under the laws of the United Mexican States ("IASA", and together with Accuride, each a "SHAREHOLDER" and collectively the "SHAREHOLDERS"), ACCURIDE DE MEXICO, S.A. DE C.V., a corporation organized and existing under the laws of the United Mexican States (the "BORROWER"), and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as Lender (the "LENDER") party to the Credit Agreement (as defined below). PRELIMINARY STATEMENTS: (1) The Borrower and the Lender have entered into that certain Credit Agreement dated as of the date hereof (such Credit Agreement, as it hereafter may be amended, supplemented or otherwise modified from time to time, being referred to herein as the "CREDIT AGREEMENT"; capitalized terms defined in the Credit Agreement and not otherwise defined herein will be used herein as defined in the Credit Agreement. (2) It is a condition precedent to the making of Advances by the Lender under the Credit Agreement that the Shareholders shall have executed and delivered this Agreement. NOW, THEREFORE, in consideration of the premises, the Shareholders, the Borrower and the Lender hereby agree as follows: ARTICLE I COMPLETION SECTION 1.01 COMPLETION. Subject to Section 1.05 hereof, completion of the Plant (the "COMPLETION") shall occur on the first date (the "COMPLETION DATE") on which the Lender receives from the Borrower all of the certificates contemplated by Section 1.02 hereof. The Completion Certificates required by Section 1.02 may be delivered together or separately in any order and at any time and from time to time on or prior to the Completion Date, PROVIDED THAT the Legal Conditions Certificate referred to in clause (c) of Section 1.02 and the Insurance Certificate referred to in clause (d) of Section 1.02 shall be dated as of a date not earlier than the latest of the dates of the Physical Facilities Certificate referred to in clause (a) of Section 1.02 and the Operations Certificate referred to in clause (b) of Section 1.02. SECTION 1.02 COMPLETION CERTIFICATES. Completion shall occur on the first date on which the Lender receives from the Borrower all of the following certificates: (a) PHYSICAL FACILITIES CERTIFICATE. A certificate of the Borrower, executed by a Senior Officer and acknowledged by the Independent Engineer, substantially in the form set forth in Appendix A-1. (b) OPERATIONS CERTIFICATE. A certificate of the Borrower, executed by a Senior Officer and acknowledged by the Independent Engineer, substantially in the form set forth in Appendix A-2. (c) LEGAL CONDITIONS CERTIFICATE. A certificate of the Borrower, executed by a Senior Officer, substantially in the form set forth in Appendix A-3. (d) INSURANCE CERTIFICATE. A certificate of the Borrower, executed by a Senior Officer and acknowledged by the Insurance Consultant, substantially in the form set forth in Appendix A-4. SECTION 1.03 COMPLETION UNDERTAKING. Each Shareholder severally undertakes to use its best efforts to cause the Completion Date to occur by March 31, 2000. SECTION 1.04 WAIVER OF COMPLETION CONDITIONS. Completion shall be deemed to have occurred, even if the conditions set forth in Section 1.01 have not been satisfied, if the Lender delivers a notice to the Borrower and the Shareholders stating that Completion has occurred. SECTION 1.05 COMPLETION OF NON-CONFORMING PLANT. If the Lender shall receive from the Borrower all the certificates required in Section 1.02 hereof other than the certificate required by Section 1.02(b), Completion shall nonetheless be deemed to have occurred if the following conditions are met: (a) The Lender shall have received a certificate of the Borrower, executed by a Senior Officer and acknowledged by the Independent Engineer, substantially in the form set forth in Appendix A-2 except that the "90%" in paragraph (e) thereof shall be replaced by such other percentage as shall apply (such other percentage being the "ACTUAL CAPACITY"). (b) The Commitments under the Credit Agreement shall have been reduced ratably by an aggregate amount equal to the following formula: amount = C TIMES { 90-P(100) } OVER 100 TIMES 1.25 where AMOUNT is the aggregate amount by which the Commitments should be ratably reduced, C is the aggregate amount of the Commitments immediately prior to such reduction and P is the Actual Capacity expressed as a fraction (E.G., 80% would be "0.80"). (c) If, in giving effect to the reduction of the Commitments pursuant to subsection (b) above, the aggregate principal amount of the outstanding Term Advances exceeds the reduced Term Commitment or the aggregate principal amount of the outstanding Working Capital Advances exceed the Working Capital Commitment, then the Shareholders shall have made a prepayment of the Term Advances and/or the Working Capital Advances, as the case may be, in an amount of principal equal to such excess, together with accrued and unpaid interest thereon and all other amounts due and payable under the Credit Agreement with respect to such amount of principal. ARTICLE II FUNDS TO COMPLETE SECTION 2.01 FUNDS TO COMPLETE. (a) Prior to Completion, each Shareholder shall provide (or cause to be provided) Shareholder funding, in proportion to such Shareholder's Pro Rata Share (as defined in Section 2.03), at such times and in such amounts as may be necessary (taking into account all Advances made and those to be made to the Borrower under the Credit Agreement in accordance with the terms thereof) in order to pay when required or due all costs and expenses incurred by or on behalf of the Borrower in connection with the construction, development, design, engineering, acquisition, financing, outfitting, testing, start-up and completion of the Plant, including the cost of Plant equipment and each of the following (such funding being the "FUNDS TO COMPLETE"): (i) all amounts payable by the Borrower to its contractors, suppliers and subcontractors pursuant to the Construction Documents; (ii) the costs and expenses of all engineering, legal, accounting and other professional advisers properly incurred by the Borrower in connection with and attributable to the Plant; (iii) costs of Required Insurance; (iv) administration and maintenance costs incurred during the construction period; and (vi) value-added tax, other taxes and customs charges payable in respect of any of the above. (b) The Funds To Complete shall be paid by the Shareholders in the form of either (i) the subscription to additional shares of common stock of the Borrower or other additional contributions to the owners' equity of the Borrower or (ii) the lending of such funds to the Borrower, PROVIDED that (A) on the date of such lending no event shall have occurred and shall be continuing, or would result from such lending, that constitutes a Default and (B) the obligation of the Borrower to repay such funds (and interest thereon) is duly subordinated in right of payment, in writing and upon terms (including, without limitation, terms regarding maturity) satisfactory to the Lender, to the obligations of the Borrower under the Credit Agreement and the Notes. (c) Each Shareholder agrees punctually to pay its Pro Rata Share of all Funds To Complete. SECTION 2.02 NOTICE OF DEFAULT. The Borrower or any Shareholder, as the case may be, shall notify the Lender, promptly, but in any event within three Business Days, of the failure of any Shareholder to make a timely payment in respect of Funds To Complete which such Shareholder is obligated to pay, and of the subsequent payment thereof. SECTION 2.03 PRO RATA SHARES. The obligations of the Shareholders under this Agreement are several, and not joint and several, in the following pro rata shares (the "PRO RATA SHARES"): Accuride 51% IASA 49% Accordingly, notwithstanding any other provisions of this Agreement, neither the Completion Default (as defined in Section 6.01) of a Shareholder nor the failure of a Shareholder to meet any of its other obligations hereunder shall increase the Pro Rata Share of the other Shareholder. The Pro Rata Share of a Shareholder shall not be affected by any transfer of a Shareholder's interest in the Borrower or by subscription of additional shares of the Borrower, unless the Shareholder acquiring the additional interest expressly agrees to assume the corresponding obligation of the transferring Shareholder and the Lender shall have consented to such adjustment. SECTION 2.04 OBLIGATIONS ABSOLUTE. Each Shareholder will perform its obligations under this Agreement regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of the terms of the Loan Documents or Construction Documents or any other document related thereto or the rights of the Lender with respect thereto. The obligations of each Shareholder under this Agreement are independent of the Loan Documents and Construction Documents, and a separate action or actions may be brought and prosecuted against each Shareholder to enforce this Agreement, irrespective of whether any action is brought against the other Shareholder, the Borrower or whether the Borrower or the other Shareholder is joined in any such action or actions. The obligations of each Shareholder under this Agreement shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of any Loan Document, any Construction Document or any other agreement or instrument relating thereto or any collateral therefor; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of any Loan Party under the Loan Documents or Construction Documents, or any other amendment or waiver of or any consent to departure from the Loan Documents or Construction Documents, including, without limitation, any increase in the Notes or the obligations of the Borrower under the Credit Agreement resulting from the extension of additional credit to the Borrower or any of its subsidiaries or otherwise; (iii) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, whether for payment, collection or performance, for the Loan Documents or Construction Documents; (iv) any manner of application of collateral, or proceeds thereof, to all or any of the obligations evidenced by the Loan Documents or Construction Documents, or any manner of sale or other disposition of any collateral for all or any of the obligations evidenced by the Loan Documents or Construction Documents or any other assets of the Borrower or any of its subsidiaries; (v) any change, restructuring or termination of the corporate structure or existence of the Borrower or any of its subsidiaries; or (vi) any other circumstance (including, without limitation, any statute of limitations) which might otherwise constitute a defense available to, or a discharge of, the Borrower or a surety. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations of the Borrower under the Loan Documents or Construction Documents is rescinded or must otherwise be returned by the Lender or any other Person upon the insolvency, bankruptcy or reorganization of the Borrower or any other Loan Party or otherwise, all as though such payment had not been made. SECTION 2.05 WAIVERS AND ACKNOWLEDGMENTS. (a) Each Shareholder hereby waives promptness, diligence, notice of acceptance and any other notice with respect to the Loan Documents or Construction Documents and any requirement that the Lender protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right to take any action against the Borrower or any other Person or any collateral. (b) Each Shareholder hereby waives any right to revoke this Agreement, and acknowledges that this Agreement is continuing in nature and relates to all Obligations under the Loan Documents and Construction Documents, whether existing now or in the future. (c) Each Shareholder acknowledges that it will receive substantial direct and indirect benefits from the financing arrangements contemplated by the Loan Documents and that the waivers set forth in this Section 2.05 are knowingly made in contemplation of such benefits. SECTION 2.06 SEPARATE UNDERTAKING. Without limiting the generality of any of the foregoing provisions of this Agreement, each Shareholder irrevocably waives, to the full extent permitted by applicable law and for the benefit of, and as a separate undertaking with, the Lender, any defense to the performance of this Agreement which may be available to a Shareholder as a consequence of this Agreement being rejected or otherwise not assumed by the Borrower or any trustee or other similar official for the Borrower or for any substantial part of the property of the Borrower, or as a consequence of this Agreement being otherwise terminated or modified, in any proceeding seeking to adjudicate the Borrower a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of the Borrower or the debts of the Borrower under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, whether such rejection, non-assumption, termination or modification be by reason of this Agreement being held to be an executory contract or by reason of any other circumstance. If a Shareholder is prevented from performing its Obligations under this Agreement to or for the benefit of the Borrower because this Agreement shall be so rejected or otherwise not assumed, or so terminated or modified, each Shareholder agrees for the benefit of, and as a separate undertaking with, the Lender that it will be unconditionally liable to pay to the Lender an amount equal to each payment which would otherwise be payable by a Shareholder under or in connection with this Agreement if this Agreement were not so rejected or otherwise not assumed or were otherwise not so terminated or modified. SECTION 2.07 RELEASE UPON PREPAYMENT OF ADVANCES. Notwithstanding anything to the contrary herein, the Shareholders shall be released of their obligations under Section 2.01 hereof upon (a) payment or prepayment in full of all Advances then outstanding under the Credit Agreement, together with all accrued and unpaid interest thereon and all other amounts due and payable under the Credit Agreement and (b) termination of all the Lender's obligations under the Credit Agreement, including without limitation the Lender's obligation to make Advances thereunder. SECTION 2.08. COMPLETION GUARANTY NOT APPLICABLE TO OBLIGATIONS UNDER THE CREDIT AGREEMENT OR THE NOTES. Neither Shareholder (whether as guarantor or otherwise) shall be required pursuant to this Agreement to pay or otherwise discharge any Obligation of the Borrower arising under the Credit Agreement or any of the Notes, and no provision in this Agreement shall be interpreted as imposing any such requirement on either of the Shareholders. ARTICLE III TERMINATION OF OBLIGATIONS SECTION 3.01 TERMINATION UPON COMPLETION. This Agreement shall terminate upon Completion. Promptly, but in any case within three Business Days after such termination, the Lender shall notify the Shareholders and the Borrower of such termination; provided, however, that no failure on the part of the Lender to so notify the Shareholders and the Borrower will extend or otherwise delay the date of such termination. SECTION 3.02 TERMINATION PRIOR TO COMPLETION. The Borrower may arrange at any time for insurance, a guaranty or another comparable arrangement in form and substance, and from a Person or Persons, acceptable to the Lender as a replacement for the Obligations of each of the Shareholders under this Agreement. This Agreement shall terminate upon acceptance in writing by the Lender of any such replacement arrangement. SECTION 3.03 EFFECT OF TERMINATION Upon any termination of this Agreement, all Obligations of the Borrower and of each Shareholder under this Agreement shall terminate. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER. Each of the Shareholders hereby represents and warrants with respect to itself as follows: (a) Such Shareholder (i) is a corporation duly organized, validly existing and, as to Accuride, in good standing under the laws of the jurisdiction of its incorporation, and (ii) has all requisite corporate power and authority (including, without limitation, all material governmental licenses, permits and other approvals) to own its shares of stock of the Borrower and to enter into this Agreement. (b) The execution, delivery and performance of this Agreement and each Related Document to which such Shareholder is or is to be a party have been duly authorized by all necessary corporate action on the part of such Shareholder, and do not (i) contravene such Shareholder's charter or bylaws, (ii) violate any applicable provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award applicable to such Stockholder, (iii) result in the breach of, or constitute a default under, any loan agreement, indenture, mortgage, deed of trust or other financial instrument, or any other material contract or agreement, binding on or affecting such Shareholder or any of its properties or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of such Shareholder. (c) Other than those that have already been obtained and as set forth in Schedule 4.01(c) and are in full force and effect, no authorization or approval (including, in the case of the IASA, exchange control approval) or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery or performance by such Shareholder of this Agreement or any Related Document to which it is or is to be a party. (d) Each of this Agreement and the Related Documents to which such Shareholder is a party has been duly executed and delivered by such Shareholder and is the legal, valid and binding obligation of such Shareholder, enforceable against such Shareholder in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditor's rights generally or by general principles of equity. (e) In the case of Accuride, the Consolidated balance sheet of each of Accuride and its respective Subsidiaries as at December 31, 1997, and the related Consolidated statements of income and cash flow of Accuride and its Subsidiaries for the fiscal year then ended, accompanied by an opinion of Deloitte & Touche LLP, independent public accountants, copies of which have been furnished to the Lender, fairly present in all material respects the Consolidated financial condition of Accuride and its respective Subsidiaries as at such date and the Consolidated results of the operations of Accuride and its Subsidiaries for the fiscal year ended on such date, all in accordance with generally accepted accounting principles applied on a consistent basis (unless otherwise expressly noted therein), and since December 31, 1997, there has been no Material Adverse Change other than as a result of the Acquisition as defined in, and the transactions contemplated by, the Credit Agreement dated as of January 21, 1998 among Accuride, Accuride Canada, Inc., the financial institutions party thereto as Lenders, the Issuing Bank and the Swing Line Bank, Citicorp USA, Inc. as Administrative Agent, Citicorp Securities, Inc. as Arranger, Bankers Trust Company as Syndication Agent, and Wells Fargo Bank N.A. as Documentation Agent, and the issuance of $200,000,000 aggregate principal amount of Accuride's 9 1/4% Senior Subordinated Notes Due 2008, issued January 21, 1998. (f) In the case of IASA, the Consolidated balance sheet of each of IASA and its respective Subsidiaries as at December 31, 1997, and the related Consolidated statements of income and cash flow of IASA and its Subsidiaries for the fiscal year then ended, accompanied by an opinion of Saldivar y Asociados, independent public accountants, copies of which have been furnished to the Lender fairly present in all material respects the Consolidated financial condition of IASA and its respective Subsidiaries as at such date and the Consolidated results of the operations of IASA and its Subsidiaries for the fiscal year ended on such date, all in accordance with generally accepted accounting principles in Mexico, applied on a consistent basis (unless otherwise expressly noted therein), and since December 31, 1997, there has been no Material Adverse Change. (g) No information, exhibit or report furnished by such Shareholder to the Lender in writing in connection with the negotiation of this Agreement or the other Loan Documents or pursuant to the terms of this Agreement contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made herein and therein, taken as a whole, not misleading at such time in light of the circumstances in which the same were made, it being understood that for purposes of this Section 4.01(g), such factual information does not include projections and pro forma financial information. (h) There is no action, suit, investigation, litigation or proceeding affecting such Shareholder pending or, to the knowledge of such Shareholder, threatened before any court, governmental agency or arbitrator that (i) could reasonably be expected to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Agreement, any other Loan Document or any Related Document or the consummation of the transactions contemplated hereby. (i) There are no conditions precedent to the effectiveness of this Agreement that have not been satisfied or waived. (j) Each Shareholder has, independently and without reliance upon the Lender and based on documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. ARTICLE V COVENANTS SECTION 5.01 COVENANTS OF EACH SHAREHOLDER. So long as any Advance shall remain unpaid or the Lender shall have any Commitment, each Shareholder will: (a) PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and maintain its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; PROVIDED, HOWEVER, that such Shareholder shall not be required to preserve any right, permit, license, approval, privilege or franchise if the Board of Directors of such Shareholder shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Shareholder and that the loss thereof is not disadvantageous in any material respect to such Shareholder or the Lender. (b) CONDUCT OF BUSINESS. In the case of Accuride, engage primarily in the vehicle component business and any activity or business incidental, directly related or similar thereto, and any other lines of business carried on by such Shareholder on the date hereof or utilizing such Shareholder's manufacturing capabilities on the date hereof, and/or such other businesses or activities that constitute a reasonable extension, development or expansion thereof or that are ancillary or reasonably related thereto; in the case of IASA, engage primarily in the autoparts business. (c) VISITATION RIGHTS. At any reasonable time and from time to time, upon reasonable notice and during normal business hours, permit any authorized representatives designated by the Lender to examine and make abstracts from the records and books of account of, and visit the properties of, such Shareholder and to discuss the affairs, finances and accounts of such Shareholder with any of its officers or directors and with their independent certified public accountants, PROVIDED that such Shareholder may, if it so chooses, be present at or participate in any such discussion. (d) KEEPING OF BOOKS. Keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of such Shareholder in accordance with, in the case of Accuride, GAAP and, in the case of IASA, Mexican GAAP, as in effect from time to time. (e) REPORTING REQUIREMENTS. Furnish to the Lender: (i) DEFAULT OR LITIGATION NOTICE. Promptly upon any Senior Officer of such Shareholder obtaining knowledge thereof, notice of (i) the occurrence of any event that constitutes a Completion Default, which notice shall specify the nature thereof, the period of existence thereof and what action such Shareholder proposes to take with respect thereto, and (ii) any litigation or governmental proceeding pending against such Shareholder that could reasonably be expected to result in a Material Adverse Effect. (ii) QUARTERLY FINANCIALS. As soon as available and in any event within 60 days after the end of each of the first three fiscal quarters of each fiscal year of such Shareholder, (A) in the case of Accuride, a Consolidated balance sheet of Accuride and its Subsidiaries as of the end of such fiscal quarter and the related Consolidated statements of income and cash flow for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such fiscal quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year of such Shareholder, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer of Accuride as having been prepared in accordance with GAAP, and (B) in the case of IASA, a Consolidated balance sheet of IASA and its Subsidiaries as of the end of such fiscal quarter and the related Consolidated statements of income and cash flow for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such fiscal quarter, in the form required to be provided to the Mexican Bolsa de Valores, together with such other financial information as shall be provided by IASA with respect to such fiscal quarter to the Mexican Bolsa de Valores, and in the case of either (A) or (B), a certificate of an officer of such Shareholder stating that no Completion Default has occurred and is continuing or, if a Completion Default has occurred and is continuing, a statement as to the nature thereof and the action that such Shareholder has taken and proposes to take with respect thereto. (iii) ANNUAL FINANCIALS. As soon as available and in any event within 120 days after the end of each fiscal year of such Shareholder, a Consolidated balance sheet of such Shareholder and its Subsidiaries as of the end of such fiscal year and the related Consolidated statements of income and cash flow for such fiscal year setting forth in each case in comparative form the corresponding figures for the previous fiscal year of such Shareholder, accompanied by an opinion which shall be unqualified as to the scope of the audit and as to the going concern status of such Shareholder and its Subsidiaries taken as a whole, of independent public accountants of recognized standing, together with a certificate of such accounting firm to the Lender stating that in the course of the regular audit of the business of such Shareholder and its Subsidiaries, which audit was conducted by such accounting firm in accordance with applicable generally accepted auditing standards, such accounting firm has obtained no knowledge that a Completion Default has occurred and is continuing, or if, in the opinion of such accounting firm, a Completion Default has occurred and is continuing, a statement as to the nature thereof. (iv) Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that such Shareholder sends to its stockholders, and copies of all regular, periodic and special reports, and all registration statements, that such Shareholder files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor or any equivalent governmental authority in Mexico, or with any national securities exchange in the United States or Mexico (in each case to the extent not theretofore delivered to the Lender pursuant to this Agreement), and with reasonable promptness such other information (financial or otherwise) as the Lender may reasonably request in writing from time to time. (f) Within 30 days after the date hereof, provide to the Lender a Spanish translation of this Agreement, duly executed and delivered by such Shareholder and in form and substance satisfactory to the Lender. ARTICLE VI COMPLETION DEFAULTS SECTION 6.01 COMPLETION DEFAULTS. Each of the following events shall be a default of a Shareholder (each a "COMPLETION DEFAULT") insofar as it relates to such Shareholder: (a) PAYMENT DEFAULT. Such Shareholder fails to pay or cause to be paid, or to have paid on its behalf, on the date on which the same is due and payable, any amount due pursuant to this Agreement and such default is not remedied within 30 days. (b) BREACH OF REPRESENTATION OR WARRANTY UNDER THIS AGREEMENT. A representation or warranty made by such Shareholder in this Agreement proves to have been false in any material respect as and when made and the condition causing such falsity has a material adverse effect on the ability of such Shareholder to meet its obligations under this Agreement. (c) BREACH OF COVENANT, ETC. Such Shareholder fails to perform or observe in any material respect any other term, covenant or agreement contained herein to be performed or observed by it and such failure continues unremedied for 30 days after notice thereof is given by the Lender to such Shareholder. (d) BANKRUPTCY EVENT. The Bankruptcy of a Shareholder. (e) AGREEMENT UNENFORCEABLE. This Agreement is declared in a final, non-appealable judgment of a court of competent jurisdiction to be unenforceable against such Shareholder or such Shareholder shall have repudiated its obligations hereunder. For this purposes a statement or a dispute regarding the scope or nature of the parties' rights and obligations under this Agreement or a failure to perform any particular obligation as a result of such statement or dispute shall not by itself be deemed to be a repudiation thereof other than a failure that would otherwise constitute a Completion Default. SECTION 6.02 COMPLETION DEFAULT REMEDIES. Upon the occurrence and during the continuance of a Completion Default, the Lender shall be entitled to the remedies afforded to it as set forth in the Credit Agreement. ARTICLE VII MISCELLANEOUS SECTION 7.01 AMENDMENTS. This Agreement may be amended only by an agreement in writing signed by each party hereto. SECTION 7.02 NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telecopy or telex communication) in the English language (or accompanied by an accurate English language translation upon which any recipient shall have the right to rely for all purposes) and mailed, telegraphed, telecopied, telexed or delivered, if to a party hereto, at its address indicated on the signature pages hereto, or at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telegraphed, telecopied or telexed, be effective when deposited in the mails, delivered to the telegraph company, transmitted by telecopier or confirmed by telex answerback, respectively. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof. SECTION 7.03 NO WAIVER; REMEDIES. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 7.04 BINDING EFFECT. This Agreement shall become effective when the conditions set forth in Section 3.01 of the Credit Agreement shall have been either fulfilled or waived and shall thereafter be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. SECTION 7.05 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 7.06 EXECUTION IN TWO LANGUAGES. This Agreement shall be executed in both the English and Spanish languages, both of which bind the parties hereto and constitute but one agreement; PROVIDED, HOWEVER, that in case of doubt as to the proper interpretation or construction of this Agreement, the English text shall be controlling in all cases except with respect to any action brought in the courts of Mexico, in which case the Spanish text shall be controlling. SECTION 7.07 JURISDICTION, ETC. (a) Each of the parties hereto irrevocably agrees that any legal action, suit or proceeding arising out of or relating to this Agreement may be brought in the courts of the State of New York or of the United States of America located in the Southern District of New York or in the courts of the Federal District of Mexico, at the election of the plaintiff (except that the Lender shall not commence legal proceedings against Accuride in Mexico). Final judgment against the Borrower or any Shareholder in any such action, suit or proceeding shall be conclusive and may be enforced in any other jurisdiction, including Mexico, by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the judgment, or in any other manner provided by law. (b) By the execution and delivery of this Agreement, the each of the parties irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York and of the United States of America located in the Southern District of New York in any such action, suit or proceeding and designates, appoints and empowers CT Corporation Systems, at 1633 Broadway, New York, NY 10019 as its authorized agent to receive for and on its behalf service of any summons, complaint or other legal process in any such action, suit or proceeding in the State of New York for so long as any obligation of the Borrower or any Shareholder shall remain outstanding hereunder. The Borrower and each Shareholder shall grant an irrevocable power of attorney to CT Corporation Systems in respect of such appointment and shall maintain such power of attorney in full force and effect for so long as any obligation of the Borrower or any Shareholder shall remain outstanding hereunder. (c) Nothing in this Agreement shall affect the right of the Lender to commence legal proceedings or otherwise sue the Borrower or any Shareholder in Mexico or any other appropriate jurisdiction (except that the Lender shall not commence legal proceedings against Accuride in Mexico), or to serve process, pleadings and other legal papers upon the Borrower or any Shareholder in any manner authorized by the laws of any such jurisdiction. (d) As long as this Agreement remains in force, the Borrower and each Shareholder shall maintain a duly appointed agent for the service of summons, complaint and other legal process in New York, New York, United States, for purposes of any legal action, suit or proceeding the Lender may bring in respect of this Agreement. The Borrower shall keep the Lender advised of the identity and location of such agent. (e) The Borrower and each Shareholder also irrevocably consent, if for any reason its authorized agent for service of process of summons, complaint and other legal process in any such action, suit or proceeding is not present in New York, New York, service of such papers may be made out of those courts by mailing copies of the papers by registered United States air mail, postage prepaid, to the Borrower and each Shareholder at its address specified on the signature pages hereto. In such a case, the Lender shall also send by telex or facsimile, or have sent by telex or facsimile, a copy of the papers to the Borrower and each Shareholder. (f) Service in the manner provided in subsection (e) above in any such action, suit or proceeding will be deemed personal service, will be accepted by the Borrower and each Shareholder as such and will be valid and binding upon the Borrower and each Shareholder for all purposes of any such action, suit or proceeding. (g) The Borrower and each Shareholder hereby irrevocably waive: (i) any objection which it may have now or in the future to the laying of the venue of any such action, suit or proceedings in any court referred to in this Section; and (ii) any claim that any such action, suit or proceedings has been brought in an inconvenient forum. SECTION 7.08 JUDGMENT. (a) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder in Dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Lender could purchase Dollars with such other currency at Citibank in New York, New York on the Business Day preceding that on which final judgment is given. (b) The obligations of the Borrower and each Shareholder in respect of any sum due from it to the Lender hereunder held by the Lender shall, notwithstanding any judgment in a currency other than Dollars be discharged only to the extent that on the Business Day of receipt by the Lender of any sum adjudged to be so due in such other currency the Lender may in accordance with normal banking procedures purchase Dollars with such other currency; if the Dollars so purchased are less than the sum originally due by the Borrower or any Shareholder to the Lender in Dollars, the Borrower and each Shareholder agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Lender against such loss, and if the Dollars so purchased exceed the sum originally due by the Borrower or any Shareholder to the Lender in Dollars, the Lender agrees to remit to the relevant party such excess. SECTION 7.09 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, United States of America; PROVIDED, HOWEVER, that in connection with any legal action or proceeding (other than an action to enforce a judgment obtained in another jurisdiction) brought by the Lender in respect of this Agreement in the courts of Mexico or any political subdivision thereof, this Agreement shall be deemed to be an instrument made under the laws of Mexico and for such purposes shall be governed by, and construed in accordance with, the laws of Mexico. SECTION 7.10 THIRD PARTY BENEFICIARIES. This Agreement is for the benefit of the parties hereto and their successors and permitted assigns and nothing herein expressed or implied shall give or be construed to give any person or entity, other than the parties hereto and such successors and assigns, any legal or equitable rights hereunder, except that the parties hereto agree that each Participant is a third party beneficiary to this Agreement, entitled to all the rights accruing thereto. SECTION 7.11 ENTIRE AGREEMENT. This Agreement and the Exhibits and Schedules hereto constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, negotiations, correspondence, undertakings and communications, both oral and written, between the parties with respect to the subject matter hereof, including, without limitation, those provisions of the Accuride de Mexico, S.A. de C.V. Summary of Terms and Conditions (finally negotiated by the parties in May 1998) that deal with the subject of a "Completion Guaranty". There are no restrictions, promises, representations, warranties, covenants or undertakings by or between the parties with respect to the subject matter hereof other than those expressly set forth or referred to herein. SECTION 7.12 WAIVER OF JURY TRIAL. The Borrower, each Shareholder and the Lender irrevocably waive all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the actions of the Lender in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. ACCURIDE CORPORATION By: /s/ Robert J. Fagerlin ------------------------------------ Name: Robert J. Fagerlin Title: Vice President Address: 2315 Adams Lane P.O. Box 40 Henderson, KY 42420 United States of America Attn: William Geubel with a copy to: Kohlberg Kravis Roberts & Co., L.P. 2800 Sand Hill Road, Suite 200 Menlo Park, CA 94205 Attn: Todd Fisher INDUSTRIA AUTOMOTRIZ, S.A. DE C.V. By: /s/ Gregorio Ramirez Jauregui ----------------------------------------- Name: Ing. Gregorio Ramirez Jauregui Title: Chairman of the Board Address: Avenida Universidad 1011 Norte, Planta Baja San Nicolas de los Garza Nuevo Leon C.P. 66450 Mexico CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK By: /s/ Samuel Libuic ----------------------------------------- Name: Samuel Libuic Title: Attorney-in-Fact Address: Reforma 390 Mexico City, D.F. 06696 Mexico Accepted and agreed to as of the date first written above: ACCURIDE DE MEXICO, S.A. DE C.V. By: /s/ Robert J. Fagerlin -------------------------------- Name: Robert J. Fagerlin Title: Director General Address: Avenida Universidad 1011 Norte, Planta Baja San Nicolas de los Garza Nuevo Leon C.P. 66450 Mexico Appendix A-1 to Completion Guaranty FORM OF PHYSICAL FACILITIES CERTIFICATE CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as Lender Grupo Financiero Citibank Reforma 390, Mexico City, Mexico, D.F. 06695 Attention: Doug Schmidt Re: ACCURIDE DE MEXICO, S.A. DE C.V. Ladies and Gentlemen: This is the certificate referred to in clause (a) of Section 1.02 of the Completion Guaranty Agreement, dated as of July 9, 1998 among the Borrower, ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE C.V., a corporation organized and existing under the laws of the United Mexican States, and CITIBANK, S.A., GRUPO FINANCIERO CITIBANK, as the same may be amended, supplemented or otherwise modified from time to time (the "COMPLETION GUARANTY"). Capitalized terms herein and in the appendices hereto, except as otherwise defined herein, shall have the meanings assigned to them in the Completion Guaranty. I, [Name of Senior Officer], as [_______________________] of the Borrower, hereby certify after due inquiry that: (a) As of the date hereof, the physical facilities and utilities of the Plant as described in Appendix A-1-A (the "PHYSICAL FACILITIES") have been installed substantially in accordance with the design documents, as amended in accordance with the provisions of Appendix A-1-A, are substantially complete and have become operational. (b) As of the date hereof, each of the Physical Facilities has been substantially completed, and each has been accepted by the Borrower from the contractors or sub-contractors in accordance with the contracts or sub-contracts for the construction or installation of each such facility. (c) Attached to this Physical Facilities Certificate is a true and complete copy of the Acknowledgment of the Independent Engineer in connection with this Physical Facilities Certificate. The Borrower hereby certifies, after due inquiry, that the facts stated by the Borrower in this Certificate are true and complete. IN WITNESS WHEREOF, I, [name of Senior Officer], have caused this certificate to be duly executed. Dated: ACCURIDE DE MEXICO, S.A. DE C.V. By: Name: Title: [Senior Officer] ACKNOWLEDGMENT This Acknowledgment is being delivered by the undersigned, [Name of Independent Engineer], a [________________] duly organized and validly existing under the laws of the [State] of [_______________], in connection with the Completion Guaranty Agreement, dated as of July 9, 1998, among the Borrower, ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE C.V., a corporation organized and existing under the laws of the United Mexican States, and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as the same may be amended, supplemented or otherwise modified from time to time. [Name of Independent Engineer] hereby certifies that it has reviewed the Physical Facilities Certificate dated ______________ and has performed such inspections which we have, in our reasonable judgment, deemed necessary for purposes of this acknowledgment. Such inspections, including the names of our employees or agents who performed them, are described in Appendix A-1-B to this acknowledgment. Based on such inspections, we hereby certify that, to the best of our knowledge, each of the certifications of the Borrower set forth in the Physical Facilities Certificates is true and correct in all material respects as of the date hereof. IN WITNESS WHEREOF, [Name of Independent Engineer] has caused this acknowledgment to be duly executed. Dated: [Name of Independent Engineer] By: Name: Title: Appendix A-1-A to Completion Guaranty PLANT PHYSICAL FACILITIES The Plant's physical facilities shall comprise at a minimum those facilities described hereafter. Physical facilities shall include facilities installed by the Plant to connect to third parties. Design modifications and improvements, as may be approved by the Borrower from time to time, will be accommodated within this appendix provided that these amendments are documented, transmitted to the Independent Engineer, approved by the Independent Engineer, if required, and a final complete listing of these changes is provided to the Independent Engineer prior to Completion. Approval of the Independent Engineer is required for: (i) Modifications to the physical facilities including but not limited to changes in: - Manufacturing equipment - Environmental facilities - Product lines provided that only such modifications which individually or in the aggregate materially impair the Plant's performance shall require the Independent Engineer's approval. (ii) Those modifications which could materially impair the expected operating or maintenance costs or expected ongoing capital expenditures. (iii) Modifications which could impair environmental compliance or any permit or license (in place or required). (iv) Modifications or contractor change orders which are estimated to cost in aggregate more than $500,000 for changes to the facilities or which could affect schedule sequencing by more than 20 days. Required Physical Facilities 1. New Spinner #1 2. New Truing Machine 3. Line A-8 4. Washer 5. Waste Water Treatment Facility 6. E-Coat System 7. Line 427 8. Line 468 or equivalent 9. Raw Material Crane 10. Emergency Electrical Plant to Protect E-Coat System 11. 600 T Press or equivalent 12. Decoiler 13. New Spinner #2 14. New Spinner #3 15. SARA Line with Decoiler 16. Light Disc Press Line (L-4) 17. Line A-11 with New Truing Machine and Washer Appendix A-2 to Completion Guaranty FORM OF OPERATIONS CERTIFICATE CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as Lender Grupo Financiero Citibank Reforma 390, Mexico City, Mexico, D.F. 06695 Attention: Doug Schmidt Re: ACCURIDE DE MEXICO, S.A. DE C.V. Ladies and Gentlemen: This is the certificate referred to in clause (b) of Section 1.02 of the Completion Guaranty Agreement, dated as of July 9, 1998, among the Borrower, ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE C.V., a corporation organized and existing under the laws of the United Mexican States, and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as the same may be amended, supplemented or otherwise modified from time to time (the "COMPLETION GUARANTY"). Capitalized terms herein and in the appendices hereto, except as otherwise defined herein, shall have the meanings assigned to them in the Completion Guaranty. I, [Name of Senior Officer], as [________________] of the Borrower, hereby certify after due inquiry that: (a) Attached to this certificate as Appendix B-2-A are copies of operating records, test results, inspection reports and other documentation relating to production by the Plant during the periods referred to in clause (c) below. Such documentation accurately reflects, in all material respects, the production of the Plant during the period to which it relates. (b) All sampling procedures relevant to the matters covered by this certificate were conducted by Borrower in accordance with Prudent Industry Practices. (c) For purposes of this Operations Certificate, the first test period (the "FIRST TEST PERIOD") began on [date] and ended on [date] and was comprised of 5 consecutive Business Days [or such shorter period reasonably acceptable to the Independent Engineer, to the extent reasonably justified based upon the Borrower's current sales volume and other relevant factors], each of which days was a scheduled operating day, and the second test period (the"SECOND TEST PERIOD", and together with the First Test Period, the "TEST Periods") began on [date] and ended on [date] and was comprised of 5 consecutive Business Days [or such shorter period reasonably acceptable to the Independent Engineer, to the extent reasonably justified based upon the Borrower's current sales volume and other relevant factors], each of which days was a scheduled operating day. Approximately one month elapsed between the first day of the First Test Period and the last day of the Second Test Period. (d) All product units manufactured during the Test Periods completed required qualification testing, and processes were verified to insure that parts met dimensional requirements. (e) Hourly production rates during the Test Periods were determined by the total number of good parts that were completed on the specific lines for the hours scheduled for the production run during the Test Period. Total hours included set-up and required maintenance completed during the Test Period ("TOTAL HOURS"). The average hourly rates of production, expressed in units produced per hour, for the Total Hours, for each of the lines or operations listed below, were each within 90% of the hourly rate listed after such line or operation: Line/Operation Hour Rate (Units) -------------- ----------------- Line 427 150 Spinners 52 light discs (each Spinner) E-Coat 570 (Wheels and Rims) [Line A-8 138] SARA 225
All the foregoing tests, except as specifically otherwise provided herein, in this Section (e) have been performed during each of the Test Periods. (f) During the First Test Period the actual quantities were: Scheduled Actual Production Scheduled Quantities Actual Quantities Production Hours Hours - -------------------- ----------------- ---------------- ----- (g) During the Second Test Period the actual quantities were: Scheduled Actual Production Scheduled Quantities Actual Quantities Production Hours Hours - -------------------- ----------------- ---------------- ----- (h) Attached to this Operations Certificate is a true and complete copy of an Acknowledgment of the Independent Engineer in connection with this Operations Certificate. (i) The Plant is being operated by the Borrower in accordance with Prudent Industry Practices. The Borrower hereby certifies, after due inquiry, that the facts stated by the Borrower in this Certificate are true and complete. IN WITNESS WHEREOF, I, [name of Senior Officer], have caused this certificate to be duly executed. Dated: ACCURIDE DE MEXICO, S.A. DE C.V. By: ___________________________ Name: Title: [Senior Officer] ACKNOWLEDGMENT This Acknowledgment is being delivered by the undersigned, [Name of Independent Engineer], a [________________] duly organized and validly existing under the laws of the [State] of [_______________], in connection with the Completion Guaranty Agreement, dated as of July 9, 1998, among the Borrower, ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE C.V., a corporation organized and existing under the laws of the United Mexican States, and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as the same may be amended, supplemented or otherwise modified from time to time. [Name of Independent Engineer] hereby certifies that it has reviewed the Operations Certificate dated [___________] and has performed such inspections, observations, analyses and other procedures which we have, in our reasonable judgment, deemed necessary for purposes of this acknowledgment. Such procedures, including the names of our employees or agents who performed them, are described in Appending B-2-B to this acknowledgment. Based on such procedures described above, we hereby certify that, to the best of our knowledge, each of the certifications of the Borrower set forth in the Operations Certificate is true and correct in all material respects as of the date hereof. IN WITNESS WHEREOF, [name of Independent Engineer] has caused this acknowledgment to be duly executed. Dated: [Name of Independent Engineer] By: ___________________________ Name: Title: Appendix A-3 to Completion Guaranty FORM OF LEGAL CONDITIONS CERTIFICATE CITIBANK MEXICO, S.A. GRUPO FINANCIERO CITIBANK, as Lender Grupo Financiero Citibank Reforma 390, Mexico City, Mexico, D.F. 06695 Attention: Doug Schmidt Re: ACCURIDE DE MEXICO, S.A. DE C.V. Ladies and Gentlemen: This is the certificate referred to in clause (c) of Section 1.02 of the Completion Guaranty Agreement, dated as of July 9, 1998, among the Borrower, ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE C.V., a corporation organized and existing under the laws of the United Mexican States, and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as the same may be amended, supplemented or otherwise modified from time to time (the "COMPLETION GUARANTY"). Capitalized terms herein and in the appendices hereto, except as otherwise defined herein, shall have the meanings assigned to them in the Completion Guaranty. I, [Name], as _________________________ of the Borrower, hereby certify after due inquiry that, to the best of my knowledge, as of the date hereof: (a) Each of the Construction Documents remains in full force and effect. (b) The authorizations, approvals and consents from governmental authorities in the United Mexican States listed in Schedule 4.01(d)(ii) to the Credit Agreement that are still required as of the date hereof, any others that as of the date hereof have become required for, and in each case are material to, operation of the Plant substantially as it was operated during the Test Period referred to in the Operations Certificate, and those which are necessary for the current stage of development of the Plant are in full force and effect and not subject to appeal. (c) The security interests required to be created by or pursuant to the Collateral Documents are in full force and effect. (d) No Default has occurred and is continuing. (e) There are no contractors' liens (other than Permitted Liens as such term is defined in the Credit Agreement) under Mexican law or under any Construction Documents on any of the Physical Facilities of the Borrower. The Borrower hereby certifies, after due inquiry, that the facts stated by the Borrower in this Certificate are true and complete. IN WITNESS WHEREOF, I, [name] have caused this certificate to be duly executed. Dated: ACCURIDE DE MEXICO, S.A. DE C.V. By: ___________________________ Name: Title: Appendix A-4 to Completion Guaranty FORM OF INSURANCE CERTIFICATE CITIBANK MEXICO, S.A. GRUPO FINANCIERO CITIBANK, as Lender Grupo Financiero Citibank Reforma 390, Mexico City, Mexico, D.F. 06695 Attention: Doug Schmidt Re: ACCURIDE DE MEXICO, S.A. DE C.V. Ladies and Gentlemen: This is the certificate referred to in clause (d) of Section 1.02 of the Completion Guaranty Agreement, dated as of July 9, 1998, among the Borrower, ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE C.V., a corporation organized and existing under the laws of the United Mexican States, and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as the same may be amended, supplemented or otherwise modified from time to time (the "COMPLETION GUARANTY"). Capitalized terms herein and in the appendices hereto, except as otherwise defined herein, shall have the meanings assigned to them in the Completion Guaranty. I, [Name], as _________________________ of the Borrower, hereby certify after due inquiry that, as of the date hereof all minimum insurance coverage required to be now in effect pursuant to Section 5.01(d) of the Credit Agreement is in full force and effect. Attached to this Insurance Certificate is a true and complete copy of the Acknowledgment of the Insurance Consultant in connection with this Insurance Certificate. The Borrower hereby certifies, after due inquiry, that the facts stated by the Borrower in this Certificate are true and complete. IN WITNESS WHEREOF, I, [name] have caused this certificate to be duly executed. Dated: ACCURIDE DE MEXICO, S.A. DE C.V. By: ___________________________ Name: Title: ACKNOWLEDGMENT This Acknowledgment is being delivered by the undersigned, [Name of Insurance Consultant], a [________________] duly organized and validly existing under the laws of the [State] of [_______________], in connection with the Completion Guaranty Agreement, dated as of July 9, 1998 among the Borrower, ACCURIDE CORPORATION, a Delaware corporation, INDUSTRIA AUTOMOTRIZ, S.A. DE C.V., a corporation organized and existing under the laws of the United Mexican States, and CITIBANK MEXICO, S.A., GRUPO FINANCIERO CITIBANK, as the same may be amended, supplemented or otherwise modified from time to time. [Name of Insurance Consultant], hereby certifies that it has reviewed the Insurance Certificate dated [___________] and has performed such reviews and other procedures which we have, in our reasonable judgment, deemed necessary for purposes of this acknowledgment. Such procedures, including the names of our employees or agents who performed them, are described in Appendix A-4-A to this acknowledgment. Based on such procedures, we hereby certify that, to the best of our knowledge, each of the certifications of the Borrower set forth in the Insurance Certificate is true and correct in all material respects as of the date hereof. IN WITNESS WHEREOF, [name of Insurance Consultant] has caused this acknowledgment to be duly executed. Dated: [Name of Insurance Consultant] By: ___________________________ Name: Title: EX-10.24 4 EX-10.24 LEASE THIS LEASE, entered into between WOODWARD, LLC. hereinafter referred to as "LANDLORD" and ACCURIDE CORPORATION hereinafter referred to as "TENANT". WITNESSETH THAT LANDLORD and TENANT, in consideration of their mutual undertakings, agree as follows: LANDLORD hereby leases to TENANT and TENANT hereby leases from LANDLORD Lots 10, 11 and 12 situated on the real estate described in the attached Exhibit "A" which is made a part hereof, including the two-story building and other improvements described hereinbelow, commonly referred to as a 34,000 square foot Class A office building located on 4.6 acres of land on Office Circle of Burkhardt Crossing fronting I-164 and depicted in the attached Exhibit "B" drawing of building and site plan which are made a part hereof (collectively hereinafter the "Leased Premises") TENANT without demand or notice shall pay during the term of this Lease, a monthly rental as described in a Lease entered between the parties of even date herewith, all upon the following covenants, terms and conditions: 1.01: MONTHLY RENTAL AMOUNTS AND CONDITIONS PRECEDENT: Months 1 thru 60: The monthly rental amount shall be Thirty Seven Thousand Five Hundred Forty-One and 60/100ths Dollars ($37,541.60) per month, representing an annual rate of Thirteen and 25/100ths Dollars ($13.25) per square foot. Months 61 thru 120: The monthly rental amount shall be Forty-One Thousand Three Hundred Ten and 00/100ths Dollars ($41,310.00) per month, representing an annual rate of Fourteen and 58/100ths Dollars ($14.58) per square foot. 1.02: The parties agree that the actual square footage of the Leased Premises shall be determined by mutual written agreement of LANDLORD and TENANT as the plans for the initial construction, and any expansion option exercised hereunder, are finalized between LANDLORD and TENANT and their respective architectural and construction consultants, pursuant to the Work Letter Agreement attached hereto and made a part hereof. The rent set forth above shall be adjusted according to the square foot rental rates described above applied to said actual square footage of the Leased Premises as so determined, using center-of-wall to center-of-wall measurements, excluding mechanical shafts and stair wells. 1.03: The LANDLORD represents and warrants it has an option to purchase the land underlying the Leased Premises from Webb Development, LLC, and LANDLORD shall promptly exercise and close on said option following the exercise of this Lease on or before December 1, 1998. 1.04: The LANDLORD agrees that LANDLORD shall cause restrictive covenants running with the title of such adjoining tracts of land as set forth under paragraph 29.01 ET.SEQ., to the acceptance of TENANT'S legal counsel and TENANT'S title insurance underwriter on or before December 1, 1998. 2.01: TERM: The term of this Lease shall commence on the later of November 1, 1999, or the date that the Leased Premises are completely build-out by LANDLORD and ready for the TENANT's possession. The term of this Lease shall expire on the later of October 31, 2009 at 11:59 p.m., or the date ten (10) years from the commencement of this Lease, subject to renewal as provided hereinbelow. Page 1 of 16 3.01: USE, COMPLIANCE WITH LAWS, SIGNS: TENANT shall keep the Leased Premises in a clean and orderly condition and shall conduct business there therefrom in a careful and safe manner. TENANT shall not use the Leased Premises or maintain them in any manner constituting a violation of any ordinance, statute, regulation, or order of any governmental authority, including without limitation zoning ordinances, nor shall TENANT maintain, permit or suffer any nuisance to occur or exist on the Leased Premises. Notwithstanding anything herein to the contrary, LANDLORD covenants and warrants upon the commencement of the term of this Lease that the zoning of the Leased Premises is proper and in full compliance with city, county and state ordinances, statutes, regulations or other laws or orders of any governmental authority for use as an office building as set forth herein, including but not limited to compliance with all set-backs, parking and signage requirements or standards set forth under any such land use and zoning laws. 3.02: TENANT shall not affix to or upon the exterior of the Leased Premises, or any place on the Leased Premises any sign, insignia, or decoration without the prior written consent of LANDLORD, which consent shall not be unreasonably withheld. TENANT acknowledges receipt of a copy of the Conditions, Covenants, and Restrictions on record for the sub division in which this property is located. 4.01: SURRENDER AND HOLDOVER: Upon the expiration or sooner termination of this Lease, TENANT shall surrender to LANDLORD the Leased Premises, together with all other property affixed to the Leased Premises, (except trade fixtures) broom clean and in the same order and condition in which TENANT received them, the effects of ordinary wear and acts of God, excepted. 4.02: Unless an event of default as hereinafter defined has occurred and remains uncured, TENANT shall prior to the expiration of the term remove all of TENANT's furniture, belongings and personal property from the Leased Premises. Any damage to the Leased Premises caused by such removal shall be repaired by TENANT prior to the expiration of the term. 4.03: At LANDLORD's option, If TENANT fails to remove such furniture, belongings, trade fixtures, and personal property, then upon thirty (30) days advance written notice, the same shall be deemed the property of LANDLORD. 4.04: If TENANT shall remain in possession of all or any part of the Leased Premises after the expiration of the term of this Lease, with the consent of the LANDLORD, then the TENANT shall be a lessee from month to month at a Lease rate one and one half times the rate immediately prior to the Lease expiration, and subject to all of the other applicable covenants, terms and conditions hereof. 5.01: ASSIGNMENT AND SUBLETTING: TENANT shall not assign, mortgage, encumber, or transfer this Lease in whole or in part, or sublet the Leased Premises or any part thereof, nor grant a license or concession in connection therewith, without the prior written consent of LANDLORD, which consent shall not be unreasonably withheld. Should LANDLORD allow TENANT to sublet, TENANT shall continue to be held responsible for the terms and conditions of this Lease. This prohibition shall include any act which has the effect of an assignment or transfer and occurs by operation of law. 5.02: Notwithstanding anything herein to the contrary, provided the TENANT is not in default under this Lease, TENANT may assign or sublease part or all of the Leased Premises without LANDLORD's consent to any entity which at the time of such assignment or sublease has a net worth of equal or greater than the TENANT's net worth as of the date of December 31, 1997. "Net worth" as used herein Page 2 of 16 shall mean the value of such entity's total assets less its liabilities from its last quarterly financial statement as prepared by its accountants. In the event of such permitted assignment or sublease without LANDLORD's consent, LANDLORD agrees to provide a written estoppel certification in form and substance reasonably satisfactory to the assignee or subtenants that (i) this Lease is in full force and effect; (ii) the amount of rent such an assignee or subtenant shall be obligated to pay hereunder; and (iii) LANDLORD shall not disturb such assignee or subtenant's right to lease and occupy the Leased Premises, subsequent to such assignment or subletting. Whereupon such assignee or subtenant agrees to perform all such obligations under this Lease, the TENANT shall thereupon be automatically fully released from the terms of this Lease. 6.01: ALTERATION OF LEASED PREMISES: Except as provided in the Work Letter Agreement which is attached and made a part hereof, TENANT shall not cause or permit any alterations, additions or changes of or upon any part of the Leased Premises without first obtaining the written consent of LANDLORD, which shall not be unreasonably withheld. 6.02: All alterations, additions or changes to the Leased Premises shall be made in accordance with all applicable laws and shall immediately upon completion become the property of LANDLORD. 7.01: HAZARDOUS MATERIAL: TENANT shall not cause or permit any Hazardous Material to be brought upon, kept or used in or about the Leased Premises by TENANT, TENANT's agents, employees, contractors or invitees, except for such Hazardous Material as is necessary or useful to TENANT's business. Any Hazardous Material permitted on the Leased Premises as provided in this Section 7, and all containers thereof, shall be used, kept, stored and disposed of in a manner that complies with all federal, state and local laws or regulations applicable to this Hazardous Material. 7.02: TENANT shall not discharge, leak or emit or permit to be discharged, leaked or emitted, any material into the atmosphere, ground, sewer system or any body of water, if that material (as is reasonably determined by the LANDLORD, or any governmental authority does or may pollute or contaminate the same, or may adversely affect: (a) the health, welfare or safety of persons, whether located on the Real Estate or in the Building or elsewhere, or (b) the condition, use or enjoyment of the Real Estate, Building or any other real or personal property. As used in the Lease, "Hazardous Material" means: (i) any "hazardous waste" as defined by the Resource Conservation and Recovery Act of 1976, as amended from time to time, and regulations promulgated thereunder; (ii) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, and regulations promulgated thereunder; (iii) and oil, petroleum products, and their by-products; (iv) any substance that is toxic, ignitable, reactive, radioactive, contagious and life threatening, or corrosive and that is regulated by any local government, the State of Indiana, or the United States Government; and (v) all material or substance that is defined as "hazardous waste", "extremely hazardous waste", or a "hazardous substance" pursuant to state, federal or local governmental law, Page 3 of 16 including, but not limited to, asbestos, polychlorobiphenyls ("PCB's") and petroleum products. 7.03: TENANT hereby agrees that it shall be fully liable for all costs and expenses related to the use, storage and disposal of Hazardous Material kept or brought upon the Leased Premises, and the TENANT shall give immediate notice to the LANDLORD of any violation or potential violation of the provisions of this Section 7. 7.04: TENANT shall defend, indemnify and hold harmless LANDLORD, LANDLORD's officers, agents and employees from and against any all claims, demands, actions, causes of action, loss and liability resulting from or arising from (a) the presence, disposal, release or threatened release of any Hazardous Material, or dangerous medical waste product that is on, from or affecting the soil, water, vegetation, buildings, personal property, persons, animals or otherwise; (b) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to that Hazardous Material; (c) any lawsuit brought or threatened, settlement reached, or governmental order relating to that Hazardous Material; or (d) any violation of the laws applicable thereto caused by the TENANT. TENANT further warrants and represents that should TENANT or TENANT's guest, customers or any other person leak, discharge, spill or dispose of any hazardous substance on said property that it will assume total financial responsibility for clean-up of said substance and further it will reimburse LANDLORD for any damage LANDLORD might incur arising from said leak, discharge, spill or disposal. 7.05. LANDLORD shall defend, indemnify and hold harmless TENANT, TENANT's officers, agents and employees from and against any all claims, demands, actions, causes of action, loss and liability resulting from or arising from (a) the presence, disposal, release or threatened release of any Hazardous Material, or dangerous medical waste product that is on, from or affecting the soil, water, vegetation, buildings, personal property, persons, animals or otherwise; (b) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to that Hazardous Material; (c) any lawsuit brought or threatened, settlement reached, or governmental order relating to that Hazardous Material; or (d) any violation of the laws applicable thereto caused by the LANDLORD. LANDLORD further warrants and represents that should LANDLORD or LANDLORD's guests, customers or any other person leak, discharge, spill or dispose of any hazardous substance on said property that it will assume total financial responsibility for clean-up of said substance and further it will reimburse TENANT for any damage TENANT might incur arising from said leak, discharge, spill or disposal. 7.06: The provisions of this Section 7 shall be in addition to any other obligations and liabilities TENANT or LANDLORD may have to TENANT or LANDLORD at law or equity and shall survive the transactions contemplated herein and shall survive the termination of the Lease. 8.01: MAINTENANCE OF LEASED PREMISES: Except as provided herein otherwise, the interior of the rental area shall be maintained by the TENANT, including but not limited to wall and floor coverings, painting, and regular normal maintenance of heating, air conditioning, plumbing and doors. 8.02: Except as provided herein otherwise, the exterior of the structure shall be maintained as follows: Page 4 of 16 (a) LANDLORD shall be responsible for the walls, door and window frames and seals, roof, guttering and utility connections. (b) TENANT shall be responsible for the door glass, window glass, and all exterior lighting. 8.03: Except as provided herein otherwise, mechanical, electrical, plumbing, heating and air conditioning units including repair and replacement within the Leased area shall be the responsibility of the TENANT. 8.04: Except as provided herein otherwise, maintenance and repair of grounds shall be the responsibility of the TENANT, including but not limited to, drive ways, parking areas, landscaping, sidewalks, lawn care and snow removal. 8.05: Except as provided herein otherwise, TENANT shall be responsible for any maintenance or repair not mentioned in this Lease. This is a net Lease, the intent being the rent received by the LANDLORD shall be free of any expense in connection with the care, maintenance and operation of the Leased Premises. 8.06: Except as provided herein otherwise, TENANT shall be responsible for the deductible portion of expense not covered by the casualty insurance policy should a casualty occur. The deductible portion of said policy shall be no more than One Thousand Dollars ($1000.00). 8.07: Except as provided herein otherwise, LANDLORD shall not be liable to TENANT or any other person, including the guests, customers, invitees, and employees of TENANT for any damage to their person or property caused by the failure of the TENANT to properly maintain the Leased Premises, except if the result of the LANDLORD's negligence or intentional acts or omission. 9.01: DESTRUCTION: If the Leased Premises should be damaged or destroyed by fire or other cause to such an extent that the cost of repair and restoration would be more than fifty percent (50%) of the amount it would cost to replace the Leased Premises in their entirety at the time such damage or destructing took place, then LANDLORD shall have the right to cancel this Lease by giving TENANT notice of such election within thirty (30) days after the occurrence of such damage or destruction and this Lease shall terminate as of fifteen (15) days after the date such notice is given. 9.02: If LANDLORD fails to exercise this option to terminate then LANDLORD shall at LANDLORD's expense promptly repair and restore the Leased Premises to substantially the same condition they were in prior to the damage or destruction. The LANDLORD shall at LANDLORD's expense promptly repair and restore the Leased Premises to substantially the same condition it was in prior to the damage or destruction, commencing such within thirty (30) days after the occurrence of such damage or destruction, and diligently finishing the same in not greater than one hundred twenty (120) days after the deadline for said option expires. 9.03: If the Leased Premises should be damaged by fire or other causes to such an extent that the costs of repair and restoration would be less than fifty percent (50%) of the amount it would cost to replace the Leased Premises in their entirety at the time such damage or destruction took place, then this Lease shall not terminate and the LANDLORD shall at LANDLORD's expense promptly repair and restore the Leased Premises to substantially the same condition it was in prior to the damage or Page 5 of 16 destruction, commencing such within thirty (30) days after the occurrence of such damage or destruction, and diligently finishing the same in not greater than one hundred twenty (120) days. 9.04: In the event the Leased Premises are damaged or destroyed, the rents herein provided, or a fair and equitable portion thereof shall be abated until such time as the Leased Premises are repaired and restored. The term of this Lease shall be extended for a period equal to the period during which there has been a complete abatement of rent. 9.05: The opinion of an architect or registered engineer appointed by LANDLORD and TENANT as to the costs or repair, restoration or replacement shall be controlling upon the parties. LANDLORD's obligation to restore or repair does not include fixtures or improvements installed or owned by TENANT. The provisions of this Section are not intended to limit, modify or release TENANT from any liability it may have for damage or destruction. 10.01: CONDEMNATION: If the whole of the Leased Premises shall be condemned or taken either permanently or temporarily for any public or quasi-public use or purpose, under any statute or by right of eminent domain, or by right of private purchase in lieu thereof, then and in that event, the term of this Lease shall cease and terminate from the date of possession of the Leased Premises by such condemning authority. In the event a portion only of the Leased Premises or a portion of the Building shall be so taken (even though the Leased Premises may not have been affected by the taking of some other portion of the Building), either party may elect to terminate this Lease from the date of title vesting and such proceeding or purchase, or LANDLORD may elect to repair and restore, at LANDLORD's own expense, the portion not taken and thereafter the rent shall be reduced proportionately (ie. based on the ratio that the square feet of the Leased Premises immediately prior to such condemnation bears to the square feet of the Leased Premises remaining thereafter). If twenty five percent (25%) or more of the floor area of the Leased Premises shall be so taken, TENANT may cancel and terminate this Lease effective as of the date possession of such portion condemned shall be taken by such condemning authority, provided that such option to cancel is exercised within sixty (60) days of the receipt of notice by TENANT to the effect that such condemnation exceeds twenty five percent (25%) of the floor area of the Leased Premises. Both TENANT and LANDLORD shall cooperate with one another in such condemnation and shall execute all documents required to that end. 11.01: LIENS: TENANT agrees to pay promptly for any work contracted for by TENANT or done for TENANT's account (or material furnished therefor) in, on or about the Leased Premises. TENANT shall not permit or suffer any lien to attach to the Leased Premises and shall promptly cause any such lien or Statement of Intention to Hold a Mechanic's Lien or any other claim therefor, to be released. If a Statement of Intention to hold a Mechanic's Lien or other claim of a mechanic's lien is filed, LANDLORD, at LANDLORD's option, may compel the prosecution of an action for pursuit or foreclosure of such mechanic's lien filing by the lienor. 11.02: In the event TENANT contests any such claim, TENANT agrees to indemnify LANDLORD and, if requested by LANDLORD, to deposit or escrow with LANDLORD cash or surety bond in form and with a company satisfactory to LANDLORD in an amount equal the amount of such contested claim. Any escrow of cash pursuant to this provision shall be deposited in a separate interest-bearing escrow account with the LANDLORD's attorney and not commingled. Interest earned shall be at the highest rate reasonably achievable and any such interest earned shall be paid to the TENANT when the escrow funds are returned to TENANT upon TENANT's successful discharge of such lien. Otherwise, said interest shall be paid to the LANDLORD. If TENANT shall fail to cause such lien forthwith to be so discharged or bonded after being notified of the filing thereof, then this Lease shall be deemed in Page 6 of 16 default and in addition to any other right or remedy of LANDLORD, LANDLORD may discharge the same by paying the amount claimed to be due, and the amount so paid by LANDLORD together with LANDLORD's attorneys' fees and interest therein at eighteen percent (18%) per annum or the highest annual interest rate permitted under applicable law. 11.03: Nothing in this Lease shall be deemed or construed to constitute consent to or request to any party for the performance of any labor or services, or the furnishing of any materials for the improvement, alteration or repairing of the Leased Premises; nor as giving TENANT the right of authority to contract for, authorize or permit the performance of any labor or services or the furnishings of any material that would permit the attaching of a valid Mechanic's Lien or other lien right. 11.04: TENANT's obligation to observe and perform any of the provisions of this Article 10 shall survive the expiration of the term hereof or the earlier termination of this Lease. TENANT and LANDLORD shall immediately give the other party written notice of the recording of any lien or other claim of and against the Leased Premises in connection with any work done by or at the direction of either party. 12.01: EVENTS OF DEFAULT BY TENANT: Any of the following shall be deemed an Event of Default: (a) The failure to pay any installment of rent when the same becomes due and the failure continues for five (5) days after written notice thereof is given to TENANT. (b) TENANT's failure to perform or observe any other covenant, term or condition of this Lease to be performed or observed by TENANT, and if curable, the failure continues for fifteen (15) days after written notice thereof is given to TENANT. (c) Abandonment of the Leased Premises. (d) Any petition is filed by or against TENANT in bankruptcy and not dismissed within thirty days after said filing thereof, or TENANT takes advantage of any debtor relief after the filing thereof under any present or future law, whereby the Lease payment hereunder or any part thereof is or is imposed to be reduced or deferred, or TENANT becomes insolvent, or a receiver is appointed for a substantial part of TENANTS assets. 13.01: LANDLORD'S REMEDIES: Upon the occurrence of any Event of Default, LANDLORD may, at LANDLORD's option, in addition to any other remedy or right LANDLORD has hereunder or by law: (1) Re-enter the Leased Premises, without demand or notice, and resume possession by an action in law or equity or by force or otherwise, and without being liable in trespass for any damages and without terminating this Lease. LANDLORD may remove all persons and property from the Leased Premises and such property may be removed and stored at the cost of TENANT. (2) Terminate this Lease at any time upon the date specified in a notice to TENANT. TENANT's liability for damages shall survive such termination. Upon termination, such damages recoverable by LANDLORD from TENANT shall, at LANDLORD's option, be either an amount equal to "Liquidated Damages" or an amount equal to "Indemnity Payments". 13.02: "Liquidated Damages" means an amount equal to the excess of the rentals provided for in this Lease which would have been payable hereunder by TENANT, had this Lease not so terminated, for the period commencing with such termination and ending with the date set for the expiration of the original term granted, (hereinafter referred to as "Unexpired Term"). Said total Liquidated Damages are Page 7 of 16 due and pay immediately; provided however, the LANDLORD shall retain a duty to mitigate LANDLORD's damages and accordingly, to the extent the LANDLORD later recovers rentals from another within said original term of this Lease, such rental as recovered shall be refunded and promptly reimbursed to TENANT. 13.03: "Indemnity Payments" means an amount equal to the rent and other payments provided for in this Lease which would have become due and owing thereunder from time to time during the Unexpired Term plus the cost and expenses paid or incurred by LANDLORD from time to time in connection with: (a) Obtaining possession of the Leased Premises; (b) Removal and storage of TENANT's or other occupant's property; (c) Care, maintenance and repair of the Leased Premises while vacant; (d) Reletting the whole or any part of the Leased Premises; (e) Repairing, altering, renovating, partitioning, enlarging, remodeling or otherwise putting the Leased Premises, either separately or as part of larger Leased Premises, into condition acceptable to, and necessary to obtain new tenants; and (f) Making all repairs, alterations and improvements required to be made by TENANT hereunder and performing all covenants of the TENANT relating to the condition of the Leased Premises, less the rent and other payments, if any, actually collected and allocable to the Leased Premises or to the portions thereof relet by LANDLORD. TENANT shall on demand make Indemnity Payments monthly and LANDLORD can sue for all Indemnity Payments as they accrue; provided however, the LANDLORD shall retain a duty to mitigate LANDLORD's damages and accordingly, to the extent the LANDLORD later recovers rentals from another within said original term of this Lease, such rental as recovered shall be refunded and promptly reimbursed to TENANT. 14.01: EVENTS OF DEFAULT BY LANDLORD: Any of the following shall be deemed a LANDLORD Event of Default: (a) LANDLORD's failure to perform or preserve any covenant, term or condition of this Lease to be performed or observed by the TENANT, where such failure continues forth fifteen (15) days after written notice thereof is give to the LANDLORD. (b) Any petition that is filed by or against LANDLORD in bankruptcy and is not dismissed within thirty (30) days after said filing thereof, or LANDLORD takes advantage of any relief after the filing thereof under any present or future law, whereby the lease obligations, covenants, terms or condition imposed thereunder are reduced or deferred, or LANDLORD becomes insolvent or a receiver is appointed for a substantial part of LANDLORD's assets. 15.01: TENANT'S REMEDIES: Upon the occurrence of any LANDLORD Event of Default, TENANT may, at TENANT's option, in addition to any other remedy or right it has hereunder or by Page 8 of 16 law, without being obligated and without waiving such rights, cure such default and apply the cost of curing said default against the rent due under this Lease or the purchase price as set forth under the option to purchase granted herein. 16.01: ATTORNEY'S FEES: In the event of any arbitration or litigation between the parties hereto involving this Lease or the respective rights of the parties hereunder, the party who is unsuccessful in such arbitration or litigation shall pay to the successful party reasonable attorney fees, court costs and expenses of such arbitration or litigation incurred by such successful party. 17.01: ACCESS BY LANDLORD TO LEASED PREMISES: LANDLORD, LANDLORD's Agents, and LANDLORD's prospective tenants, purchasers or mortgages shall be permitted to inspect and examine the Leased Premised at all reasonable times, upon twenty-four (24) hours advance written notice, unless entry and inspection is made necessary for the LANDLORD by an emergency, whereupon no advance notice will be required of the LANDLORD. LANDLORD shall have the right to make any repairs to the Leased Premises which LANDLORD may deem necessary, but this provision shall not be construed to require LANDLORD to make repairs except as is otherwise required hereby. For a period commencing three (3) months prior to the expiration of the term of this Lease, LANDLORD may maintain "For Rent/Sale" signs on the front or on any part of the Leased Premises. 18.01: QUIET ENJOYMENT: If TENANT shall perform all of the covenants and agreements herein provided to be performed on TENANT's part, TENANT shall, at all times during the term, have the peaceable and quiet enjoyment of possession of the Leased Premises without any manner of hindrance from LANDLORD or any parties lawfully claiming under LANDLORD. 19.01: EXCULPATION: TENANT agrees that it shall look solely to the estate and property of the LANDLORD in the Leased Premises and any tracts of land owned by the LANDLORD in said Burkhardt Crossing Subdivision, for the collection of any judgement requiring the payment of money by LANDLORD with respect to any of the terms, covenants and conditions of this Lease to be observed and or preformed by LANDLORD and no other property or assets of LANDLORD shall become subject to levy, execution, attachment or other enforcement procedure for the satisfaction of the remedies. 20.01: GENERAL AGREEMENT OF PARTIES: This Lease shall extend to and be binding upon the heirs, personal representatives, successors and assigns of the parties. This provision, however, shall not be construed to permit the assignment of this Lease, except as may be permitted herein. 21.02: When applicable, use of the singular form of any work shall mean or apply to the plural and the neuter form shall mean or apply to the feminine or masculine. The captions and article numbers appearing in this Lease are inserted only as a matter of convenience and are not intended to define, limit, construe or describe the scope or intent of such provisions. No waiver by TENANT or LANDLORD of any Event of Default shall be effective unless in writing, nor operate as a waiver of any default or of the same default on a future occasion. 22.01: NOTICES: All notices to be given under this Lease shall be in writing, and shall be deemed to have been given and served when delivered in person, by UPS, Federal Express (or similar overnight carrier), via facsimile transmission, or by United States mail, postage pre-paid to the addressee at the following addresses: Page 9 of 16 TO LANDLORD: Attention: Robert Woodward, Jr. Woodward, LLC. 7321 Eagle Crest Boulevard Evansville, Indiana 47715 Facsimile Number: 812-473-0623 TO TENANT: Attention: Chief Financial Officer Accuride Corporation 2315 Adams Lane P. O. Box 40 Henderson, Kentucky 42419-0040 Facsimile Number: (502) 827-6814 COPY TO: Attention: G. Michael Schopmeyer, Esq. Kahn, Dees, Donovan & Kahn, LLP 305 Fifth and Main Building Page 10 of 16 P. O. Box 3646 Evansville, Indiana 47735-3646 Facsimile Number (812) 423-3841 Any party may change its mailing address by serving written notice of such change and of such new address upon the other party. 23.01: UTILITIES: The payment of the utilities shall be the responsibility of the party indicated below: Gas and oil to Leased area shall be paid by: TENANT Electricity to Leased area shall be paid by: TENANT Water to Leased area shall be paid by: TENANT 24.01: TAXES AND INSURANCE: The payment of real property taxes and fire, casualty and extended coverage property insurance, including earthquake and "all risk" liability coverage, which LANDLORD shall secure, in the coverage amount of Four Million Five Hundred Thousand and 00/100th Dollars ($4,500,000.00) on the property, shall be the responsibility of the TENANT. Said coverage shall be purchased through an underwriter agree upon by the parties and both TENANT and LANDLORD shall be listed as named or additional insured. This insurance shall not be subject to cancellation except after at least thirty (30) days advance written notice to both parties. LANDLORD shall pay the tax and insurance bills and shall immediately send proof of payment to TENANT. TENANT shall within ten days of receipt of said proof repay LANDLORD for said expense. Payment of tax bills shall be made in a timely fashion that gives the TENANT the benefit of any available discounts. TENANT shall be responsible for all tax and insurance bills received during the term of the Lease, beginning with the first bill received after TENANT's initial occupancy of the Leased Premises. TENANT shall be responsible for maintaining TENANT's own insurance on TENANT's property, furniture and fixtures, and TENANT improvements made to Leased Premises. Both the TENANT and LANDLORD shall have the right to appeal or challenge any property tax assessment with respect to the Leased Premises. The parties hereby covenant and agree to cooperate with the other party in the event any such appeal or challenge of the property tax assessment is raised in an effort to reduce the property tax assessed for the Leased Premises. 25.01: RENEWAL OF LEASE: Upon the expiration of the initial term of this Lease or the first renewal hereof, in the event that there is not a pending a breach of this Lease, TENANT shall have the right to renew this Lease for two (2) additional periods of five years each. For each renewal, thereafter the rent shall be adjusted to reflect a 15% increase in the monthly lease amount. TENANT shall give LANDLORD written notice 180 days in advance of any Lease expiration of TENANT's intent to renew said Lease. 25.02: TENANT's failure to provide LANDLORD written notice of intent to renew 180 days prior to Lease expiration shall relieve LANDLORD of any and all responsibility to renew TENANT's Lease. 26.01: INDEMNITY OF LANDLORD: TENANT shall indemnify and save harmless LANDLORD against and from (i) any and all claims against LANDLORD of whatever nature arising from any act, omission or negligence of TENANT, TENANT's contractors, licensees, agents, servants, employees, invitees and/or visitors, (ii) all claims against LANDLORD arising from any accident, injury or damage whatsoever caused to any person or to property of any person and occurring during this Lease in, around or about the Leased Premises, arising from any act, omission or negligence of TENANT, Page 11 of 16 TENANT's contractors, licensees, agents, servants, employees, invitees and/or visitors, (iii) all claims against LANDLORD arising from any accident, injury or damage occurring outside of the Leased Premised, but within or about the Leased Premises and Building where such accident, injury or damage results or is caused by an act of omission of TENANT, TENANT's contractors, licensees, agents, servants, employees, invitees and/or visitors, and (iv) any breach, violation or non-performance of any of the terms, covenants and conditions contained in this Lease on the part of TENANT to be fulfilled, kept, observed and performed. This indemnity and hold harmless covenant shall include indemnity from and against any and all liability, fines, suits, demands, costs and expenses (including attorneys' fees and disbursements) of any kind or nature incurred in connection with any such claim or proceeding brought thereon, and the defense thereof by the LANDLORD including attorneys fees. This indemnity and hold harmless covenant shall survive the termination of this Lease for acts or omissions alleged to have occurred during the Lease term and for any period of time prior to the commencement of the Lease term during which TENANT was given access to the Leased Premises. 27.01: INDEMNITY OF TENANT: LANDLORD shall indemnify and save harmless TENANT against and from (i) any and all claims against TENANT of whatever nature arising from any act, omission or negligence of LANDLORD, LANDLORD's contractors, licensees, agents, servants, employees, invitees and/or visitors, (ii) all claims against TENANT arising from any accident, injury or damage whatsoever caused to any person or to property of any person and occurring during this Lease in, around or about the Leased Premises, arising from any act, omission or negligence of LANDLORD, LANDLORD's contractors, licensees, agents, servants, employees, invitees and/or visitors, (iii) all claims against TENANT arising from any accident, injury or damage occurring outside of the Leased Premised, but within or about the Leased Premises and Building where such accident, injury or damage results or is caused by an act of omission of LANDLORD, LANDLORD's contractors, licensees, agents, servants, employees, invitees and/or visitors, and (iv) any breach, violation or non-performance of any of the terms, covenants and conditions contained in this Lease on the part of LANDLORD to be fulfilled, kept, observed and performed. This indemnity and hold harmless covenant shall include indemnity from and against any and all liability, fines, suits, demands, costs and expenses (including attorneys' fees and disbursements) of any kind or nature incurred in connection with any such claim or proceeding brought thereon, and the defense thereof by the TENANT including attorneys fees. This indemnity and hold harmless covenant shall survive the termination of this Lease for acts or omissions alleged to have occurred during the Lease term and for any period of time prior to the commencement of the Lease term during which LANDLORD was given access to the Leased Premises. 28.01: LIABILITY INSURANCE: The TENANT agrees to carry public liability insurance with a company or companies qualified to engage in the insurance business within the State of Indiana, wherein LANDLORD and TENANT shall be named as parties insured and shall provide that the insurer may not cancel or materially alter the coverage without ten (10) days prior written notice to LANDLORD. 28.02: Said public liability insurance shall cover any and all liability occurring on the Leased Premises or upon the public ways adjoining the Leased Premises, and the combined single limit (bodily injury and property damage) of said insurance shall not be less than One Million Dollars ($1,000,000.00) and such minimal amounts of insurance shall not be changed without the prior written consent of LANDLORD. The premiums for all of the aforesaid public liability insurance shall be paid by TENANT and TENANT shall furnish LANDLORD with certificates of such insurance and evidence that such policies are in full force and effect and that the premiums are fully paid throughout the term of this Lease. Page 12 of 16 29.01: BILLBOARD REMOVAL AND RESTRICTIVE COVENANTS: The LANDLORD agrees to cause, before the commencement of this Lease, the removal of the two (2) billboards located along I-164 south of Lot 4 in the Burkhardt Crossing Subdivision, and cause restrictive covenants running with the land to be recorded barring all current and future titleholders from the erection of any new billboards on Lots 4 through 14. "Billboards" as used in this provision shall have the same meaning as defined under the Vanderburgh Zoning Code. 29.02: The LANDLORD agrees to cause, to the acceptance of TENANT'S legal counsel, before December 1, 1998, restrictive covenants or obtain a first right of refusal running with the land to be recorded restricting the use of Lots 7, 8, 9, 13 and 14 of said Subdivision to uses limited to the following category of uses: - Office buildings; - Exercise or sports clubs; or - Mobil three-star or three diamond or greater rated hotels. In the event any such acceptable use of said Subdivision lots is deemed at the TENANT'S discretion to be unappealing to the Leased Premises, LANDLORD agrees it will cause to be planted and maintained a staggered double row of not less than three-inch caliber white pine trees along the boundary line bordering such offensive use. 30.01: CONSTRUCTION OF LEASED PREMISES: The LANDLORD shall, on or before November 1, 1999, construct the Leased Premises according to the Work Letter Agreement which is attached hereto as Exhibit "C" and made a part hereof. Notwithstanding anything herein to the contrary, all of the improvements constructed pursuant to said Work Agreement shall be fully warranted against any defects for a period of two (2) years from the completion of said construction. Notwithstanding any provision herein to the contrary, the LANDLORD warrants that the Leased Premises meet the requirements of the Americans With Disabilities Act for all portion of the Lease Premises, LANDLORD has constructed throughout the term of this Lease. The LANDLORD shall purchase and maintain throughout the term of any construction of the Leased Premises, Builder's Risk insurance coverage with an insurance carrier and liability limitations and deductibles acceptable to both parties. 31.01: EXPANSION OF PREMISES: The LANDLORD agrees that at the TENANT's option, at any time during the first seven (7) years of the term of this Lease, elect to have the Leased Premises expanded by not less than ten thousand (10,000) square feet and not more than fifteen thousand (15,000) square feet. Upon such election by the TENANT, the LANDLORD shall diligently complete such expansion within eight (8) months. Such expansion shall be performed by the LANDLORD consistent with the Work Letter Agreement and other terms and conditions contained herein, including but not limited to the Construction of Leased Premises clause set forth in this Lease. The other terms and conditions of this Lease, including the per square foot rental rate and per square foot option purchase price, shall remain the same for such expanded premises as for the Leased Premises described in this Lease; provided however, the term of this Lease and all renewal rights set forth hereunder shall be extended out for a period of five (5) years from the date of completion of such expansion. 32.01: APPLICABLE LAW: This Lease shall be interpreted and enforced according to laws of the State of Indiana. Page 13 of 16 33.01: OPTION TO PURCHASE: LANDLORD grants to TENANT the option to purchase the Lease Premises upon the terms and conditions set forth in the attached Exhibit "D" which is attached hereto and made a part hereof. The TENANT's election to exercise this option shall be evidenced by written notice delivered to the LANDLORD, not sooner than the ninth (9th) anniversary, but before the tenth (10th) anniversary, of the commencement of this Lease and prior to the expiration of this Lease Term. The TENANT's right to exercise the Option to Purchase herein granted is conditioned upon the TENANT having paid all rent due hereunder current through the date of exercising this Option. 34.01: ARBITRATION: Any and all disputes arising relating to the Agreement shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and any judgment or award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding said Rules, any arbitration hearing to take place hereunder shall be conducted in Evansville, Indiana, before one (1) arbitrator who shall be an attorney from Indianapolis, Indiana, and who has substantial experience in real estate law issues. However, neither party shall institute an arbitration, or any other proceeding to resolve such disputes between the parties before that party has sought to resolve disputes through direct negotiation with the other party. If disputes are not resolved within three (3) weeks after a demand for direct negotiation, the parties shall attempt to resolve disputes through mediation conducted in Evansville, Indiana. If the parties do not agree on mediator within ten (10) days, either party may request the American Arbitration Association to appoint a mediator who shall be an attorney from Indianapolis, Indiana, and who has substantial experience in real estate law issues. If the mediator is unable to facilitate a settlement of disputes within forty-five (45) days, the mediator shall issue a written statement to the parties to that effect and the aggrieved party may then seek relief through arbitration as provided above. The fees and expenses of the mediator shall be split and paid equally by each of the parties. In the event of any arbitration between the parties hereto involving this Agreement or the respective rights of the parties hereunder, the party who does not prevail in such arbitration shall pay to the prevailing party reasonable attorneys' fees, costs and expenses of such arbitration incurred by the prevailing party. Each party hereby consents to a single, consolidated arbitration proceeding of multiple claims, or claims involving more than two (2) parties. Either party may apply to any court of competent jurisdiction for injunctive relief or other interim measures in aid of the arbitration proceedings or to enforce the arbitration award, but not otherwise, and the non-prevailing party shall be responsible for all costs thereof, including but not limited to attorney fees. Any such application to a court shall not be deemed incompatible or a waiver of this section. The arbitrator shall be required to make written findings of fact and conclusions of law to support their award. Notwithstanding anything to the contrary in the Commercial Arbitration Rules and supplementary procedures, the arbitrator shall not be authorized or empowered to award punitive damages or damages in excess of the amounts set forth within this Agreement, and the parties expressly waive any claim to such damages. 35.01: RECORDING: The LANDLORD and TENANT hereby agree that prior to, at the commencement of, or during the term of this Lease, at the request of the other party, they will execute, acknowledge and deliver a Short Form Lease and the Option to Purchase contained herein for recording in the Office of the Recorder of Vanderburgh County, Indiana. Recording fees and any other costs associated therein shall be paid by the party requesting such Short Form Lease. 36.01: TITLE INSURANCE: The LANDLORD shall furnish to TENANT a Commitment for Title Insurance from Evansville Titles Corp., Lawyers Title Insurance Company, or Ticor Title Insurance Company, insuring the TENANT's leasehold interest to the satisfaction of TENANT's legal counsel. To the extent there are subrogation of mortgages or other non-disturbance agreements that must be Page 14 of 16 procured in order to affect clean title for purposes of this Lease and the Option to Purchase contained herein, the LANDLORD shall be responsible for such expenses and fees attributable to assure priority and marketability of the title thereto. The LANDLORD shall pay the portion of the title insurance cost of the service which is equivalent to the abstract extension with TENANT to pay the balance of the title insurance costs. Such Commitment for Title Insurance shall be secured promptly upon execution of this Lease. Should LANDLORD be unable to convey marketable title as required by this Lease, and the defect or defects are not waived by TENANT, LANDLORD's sole obligation shall be to return promptly return any sums expended by TENANT relating to this Lease, providing however, that TENANT shall have the right to pay and satisfy any existing liens not otherwise assumed by LANDLORD and deduct the same from the purchase price. If the LANDLORD refuses to perform as required, TENANT may pursue all available legal and equitable remedies to cure such title defects, if the TENANT chooses not to terminate this Lease. 37.01: FORCE MAJEURE: This Lease and terms and conditions hereunder shall in no way be affected, impaired or excused because either party is unable to fulfill any of its obligations under this Lease, or to supply, or is delayed in supplying, any service, expressly or impliedly to be supplied hereunder, if either party is prevented or delayed from doing so by reason of strikes or labor troubles or any outside cause or force majeure of any kind whatsoever, including, but not limited to, governmental preemption in connection with a national emergency, or by reason of any rule, order or regulation of any department or subdivision of any governmental agency, or by reason of supply and demand which have been affected or are affected war or other emergency; provided however, rent as provided for under this Lease shall appropriately abate during such period of delay. 37.01: MISCELLANEOUS: All time limits stated in this Lease are of the essence of this Contract and essential to the performance hereof. In the event that any of the provisions of this Lease shall be held by a court or other tribunal of competent jurisdiction to be unenforceable, such provision shall be enforced to the fullest extent permissible and the remaining portion of this Lease shall remain in full force and effect. This Lease may be executed simultaneously in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The recitals set forth in the above preamble are incorporated herein by this reference and made a part of this Agreement. All headings set forth herein are included for the convenience of reference only and shall not affect the interpretation hereof, nor shall any weight or value be given to the relative position of any part or provision hereof in relation to any other provision in determining such construction. This instrument is the final agreement, contains the entire, complete and exclusive agreement between the parties concerning the lease of the Real Estate, and supersedes all prior oral or written understandings, agreements or contracts, formal or informal, between the parties. THIS PROVISION, AND EACH AND EVERY OTHER PROVISION OF THIS LEASE MAY NOT UNDER ANY CIRCUMSTANCES BE MODIFIED, CHANGED, AMENDED OR PROVISIONS HEREUNDER WAIVED VERBALLY, BUT MAY ONLY BE MODIFIED, CHANGED, AMENDED OR WAIVED BY A LEASE IN WRITING EXECUTED BY ALL PARTIES HERETO. Page 15 of 16 IN WITNESS WHEREOF, LANDLORD and TENANT have executed this Lease on this 26th day of October, 1998, and if this Lease is executed in counterparts, each shall be deemed an original. ACCURIDE CORPORATION WOODWARD, LLC By: /s/ William P. Greubel By: /s/ Robert G. Woodward, Jr. -------------------------------- ------------------------------- William P. Greubel, President Robert G. Woodward, Jr. and Chief Executive Officer Page 16 of 16
TABLE OF CONTENTS 1.01: MONTHLY RENTAL AMOUNTS AND CONDITIONS PRECEDENT: . . . . . . . . . . . . .1 2.01: TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 3.01: USE, COMPLIANCE WITH LAWS, SIGNS . . . . . . . . . . . . . . . . . . . . .2 4.01: SURRENDER AND HOLDOVER . . . . . . . . . . . . . . . . . . . . . . . . . .2 5.01: ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . . . . . . . . . . .2 6.01: ALTERATION OF LEASED PREMISES. . . . . . . . . . . . . . . . . . . . . . .3 7.01: HAZARDOUS MATERIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 8.01: MAINTENANCE OF LEASED PREMISES . . . . . . . . . . . . . . . . . . . . . .5 9.01: DESTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 10.01: CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 11.01: LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 12.01: EVENTS OF DEFAULT BY TENANT. . . . . . . . . . . . . . . . . . . . . . . .7 13.01: LANDLORD'S REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . .8 14.01: EVENTS OF DEFAULT BY LANDLORD. . . . . . . . . . . . . . . . . . . . . . .9 15.01: TENANT'S REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 16.01: ATTORNEY'S FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 17.01: ACCESS BY LANDLORD TO LEASED PREMISES. . . . . . . . . . . . . . . . . . .9 18.01: QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 19.01: EXCULPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 20.01: GENERAL AGREEMENT OF PARTIES . . . . . . . . . . . . . . . . . . . . . . 10 22.01: NOTICES: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 23.01: UTILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 TABLE OF CONTENTS (CONTINUED) 24.01: TAXES AND INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 25.01: RENEWAL OF LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 26.01: INDEMNITY OF LANDLORD. . . . . . . . . . . . . . . . . . . . . . . . . . 11 27.01: INDEMNITY OF TENANT. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 28.01: LIABILITY INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 12 29.01: BILLBOARD REMOVAL AND RESTRICTIVE COVENANTS. . . . . . . . . . . . . . . 12 30.01: CONSTRUCTION OF LEASED PREMISES. . . . . . . . . . . . . . . . . . . . . 13 31.01: EXPANSION OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . 13 32.01: APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 33.01: OPTION TO PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 34.01: ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 35.01: RECORDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 36.01: TITLE INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 37.01: FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 37.01: MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBIT "A" LEGAL DESCRIPTION . . . . . . . . . . . . . . . . . . . . . . ATTACHED EXHIBIT "B" DRAWING OF BUILDING AND SITE PLAN . . . . . . . . . . . . . . ATTACHED EXHIBIT "C" WORK LETTER AGREEMENT . . . . . . . . . . . . . . . . . . . . ATTACHED EXHIBIT "D" PURCHASE OPTION TERMS . . . . . . . . . . . . . . . . . . . . ATTACHED
LEASE BETWEEN WOODWARD, LLC. AND ACCURIDE CORPORATION OFFICE CIRCLE OF BURKHARDT CROSSING EVANSVILLE, INDIANA EX-23.1 5 EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-68227 of Accuride Corporation on Form S-8 of our report dated February 12, 1999, appearing in this Annual Report on Form 10-K of Accuride Corporation for the year ended December 31, 1998. DELOITTE & TOUCHE LLP Indianapolis, Indiana March 26, 1999 EX-24.1 6 EXHIBIT 24.1 EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each officer and/or director of Accuride Corporation whose signature appears below constitutes and appoints William P. Greubel and John R. Murphy, or any of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign in the name of or on behalf of the undersigned, as a director and/or officer of said corporation, the Annual Report on Form 10K of Accuride Corporation for the year ended December 31, 1998, and any and all amendments to such Annual Report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorney's-in-fact and agents and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney's-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney this 30th day of March, 1999. SIGNATURE TITLE DATE /s/ William P. Greubel President and Chief Executive March 30, 1999 - ------------------------ William P. Greubel Officer (Principal Executive Officer) and Director /s/ John R. Murphy Vice President and Chief Financial March 30, 1999 - ------------------------ John R. Murphy Officer (Principal Financial and Accounting Officer) /s/ Henry R. Kravis Director March 30, 1999 - ------------------------ Henry R. Kravis /s/ George R. Roberts Director March 30, 1999 - ------------------------ George R. Roberts /s/ James H. Greene Director March 30, 1999 - ------------------------ James H. Greene /s/ Todd A. Fisher Director March 30, 1999 - ------------------------ Todd A. Fisher EX-27.1 7 EXHIBIT-27.1
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF ACCURIDE CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR YEAR DEC-31-1998 DEC-31-1997 DEC-31-1998 DEC-31-1997 3,471 7,418 0 0 53,295 38,044 1,088 967 36,980 29,107 109,505 91,971 317,338 285,898 157,512 151,901 404,925 347,447 56,831 57,137 387,939 0 0 0 0 0 24,158 178,931 (82,524) 77,124 404,925 347,447 383,583 332,966 383,583 332,966 301,029 266,972 34,034 21,316 2,904 0 0 0 33,084 145 15,886 49,995 7,935 22,150 7,951 27,837 0 0 0 0 0 0 7,951 27,837 321 1,160 321 1,160
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